on state largesse, or of companies, like the U.S. steel industry under George W. Bush, that have lobbied for and won protectionist legislation. In 2008 and 2009 it was true of Wall Street, too, when the bankers pushed for and got a massive government bailout to save their companies—the biggest state intervention in a national economy, as a percentage of GDP, since Lenin’s nationalization. In fact, even the most ardent believer in small government and free enterprise can also think it is the duty of business to cut the best possible deal with the state. As Ken Griffin, the billionaire hedge fund manager who supports conservative super PACs, explained, “CEOs have duties to their shareholders. If the state’s willing to hand out gifts, there are many who feel compelled to go get them.” So this isn’t just a question of big versus small government.
The issue, instead, is whether the interests of business and of the community at large are always the same and, if they aren’t, whether the government has the will, the authority, and the brains to defend the latter, even against the protests of the former. That’s why Carney wanted to raise capital requirements. As he reminded his Sunday morning Washington audience, “Four years ago, manifest deficiencies in capital adequacy, liquidity buffers, and risk management led to the collapse of some of the most storied names in finance and triggered the worst financial crisis since the Great Depression. The complete loss of confidence in private finance—your membership— could only be arrested by the provision of comprehensive backstops by the richest economies in the world. With about $4 trillion in output and almost twenty-eight million jobs lost in the ensuing recession, the case for reform was clear then and remains so today.”
Carney then cited a Bank of Canada calculation that found that “even if Basel III were to reduce slightly the probability of such crises in the future,” the economic value of that decreased risk to the G20 countries would be about $13 trillion. In other words, this may hurt your business a little, but it will help the economy as a whole a lot.
Luigi Zingales, a professor at the University of Chicago’s Booth School of Business, frames this as the choice between being promarket and being probusiness. Super-elites are often the product of a strong market economy, but, ironically, as their influence grows they can become its opponents.
Here is how Zingales, an ardently patriotic immigrant to America and a passionate defender of the market economy, describes the dynamic: “True capitalism lacks a strong lobby. That assertion might appear strange in light of the billions of dollars firms spend lobbying Congress in America, but that is exactly the point. Most lobbying seeks to tilt the playing field in one direction or another, not to level it. Most lobbying is
WHOSE NEW CLASS?
In January 1977, America’s boardrooms and universities were jolted by an unexpected piece of news. Henry Ford II, chairman and chief executive of the Ford Motor Company and grandson of the original Henry, had resigned from the board of the Ford Foundation.
A former naval officer known for his aggressive and blunt management style—he rejected Lee Iacocca’s proposal to put a Honda engine in a Ford car on the grounds that “no car with my name on the hood is going to have a Jap engine inside”—Ford laid out the reasons for his departure in a blistering resignation letter that he released to the press:
The Foundation exists and thrives on the fruits of our economic system. The dividends of competitive enterprise make it all possible. A significant portion of the abundance created by United States business enables the Foundation and like institutions to carry on their work. In effect, the Foundation is a creature of capitalism—a statement that I am sure would be shocking to many professional staff people in the field of philanthropy. It is hard to discern recognition of this fact in anything the Foundation does. It is even more difficult to find an understanding of this in many of the institutions, particularly the universities, that are the beneficiaries of the Foundation’s grant programs…. I am just suggesting to the Trustees and the staff that the system that makes the Foundation possible very probably is worth preserving. Perhaps it’s time for the Trustees and staff to examine the question of our obligations to our economic system; and to consider how the Foundation, as one of the system’s most prominent offspring, might act most widely to strengthen and improve its progenitor.
The departure of the Deuce, as Ford was known, had no direct repercussions for the foundation that carried the family name. It had been created by his grandfather and his father, Edsel, in 1936, largely as a tax shelter and a vehicle to ensure continued family control over the car business. That structure worked, but it also meant that by 1977 the founding family had only moral authority over the philanthropy.
In the social and cultural tumult of the 1970s, that didn’t count for much. McGeorge Bundy, then president of the Ford Foundation, responded with lofty unconcern to the public rebuke from the family scion: “He has a right to expect people to read his letter carefully, but I don’t think one letter from anyone is going to change the foundation’s course.”
But Ford’s departure turned out to be a turning point. That was partly because of the prominence of the man, his company, and his family’s philanthropy. At that moment, Ford was the second-highest-paid CEO in America and the Ford Motor Company the country’s fourth-largest corporation by sales. In its universe, the Ford Foundation cast an even longer shadow. It was by far the nation’s biggest philanthropy; in 1954 it outspent runner-up Rockefeller fourfold and third-place Carnegie ten times over.
Most important, Ford’s letter crystallized a fear that had been growing in the minds of many American businesspeople—that they were losing the national battle of ideas. Ford’s Greatest Generation had won the Second World War, and when they came home they had helped create two decades of unprecedented, and widely shared, national prosperity. But they now feared that the institutions that created the country’s intellectual and ideological weather—its universities, its foundations, and its newsrooms—had turned hostile to business and to capitalism.
Irving Kristol captured what he described as this battle between “the academic and business communities” in a seminal essay he published three months after Ford’s
Judged by today’s standards, that is certainly the case. The marginal tax rate on top earners was 70 percent, capital gains were taxed at a maximum rate of 49 percent, and Wall Street, constrained by the separation between investment and retail banking of the Glass-Steagall Act, was still the rather sleepy handmaiden of industry. Like their philanthro-capitalist successors, the foundations of the 1960s and 1970s hoped to leverage their projects into influence on government policy.
But rather than bringing the techniques and skills of the private sector to the social sector, the foundations of that era hoped to transform private charity into state largesse. As Paul Ylvisaker, a Harvard social theorist who became an influential Ford staffer, later explained, the job of the foundation was to promote “programs and policies, such as social security, income maintenance, and educational entitlement, that convert isolated and discretionary acts of private charity into regularized public remedies that flow as a matter of legislated right.”
Kristol said business needed to fight back. Different corporations, he wrote, could well have different views of their social responsibility, but they would all surely agree that it included keeping the world safe for capitalism and capitalists: “Most corporations would presumably agree that any such conception ought to include as one of its goals the survival of the corporation itself as a relatively autonomous institution in the private sector. And this, inevitably, involves efforts to shape or reshape the climate of public opinion—a climate that is created by our scholars, our teachers, our intellectuals, our publicists: in short, by the New Class.”
Kristol concludes his essay with a modest proposal. To change public opinion, business needed to support those “dissident” elements of the New Class “which do believe in the preservation of a strong private sector.” Unless it recruited its own army on the intellectual battlefield, business would surely lose the political and ultimately
