Watergate Babies and the loss of the anti-monopoly and anti-bank tradition in the Democratic Party

A wonderful article. Brilliant analysis.

Indeed, a revolution had occurred. But the contours of that revolution would not be clear for decades. In 1974, young liberals did not perceive financial power as a threat, having grown up in a world where banks and big business were largely kept under control. It was the government—through Vietnam, Nixon, and executive power—that organized the political spectrum. By 1975, liberalism meant, as Carr put it, “where you were on issues like civil rights and the war in Vietnam.” With the exception of a few new members, like Miller and Waxman, suspicion of finance as a part of liberalism had vanished.

Over the next 40 years, this Democratic generation fundamentally altered American politics. They restructured “campaign finance, party nominations, government transparency, and congressional organization.” They took on domestic violence, homophobia, discrimination against the disabled, and sexual harassment. They jettisoned many racially and culturally authoritarian traditions. They produced Bill Clinton’s presidency directly, and in many ways, they shaped President Barack Obama’s.

The result today is a paradox. At the same time that the nation has achieved perhaps the most tolerant culture in U.S. history, the destruction of the anti-monopoly and anti-bank tradition in the Democratic Party has also cleared the way for the greatest concentration of economic power in a century. This is not what the Watergate Babies intended when they dethroned Patman as chairman of the Banking Committee. But it helped lead them down that path. The story of Patman’s ousting is part of the larger story of how the Democratic Party helped to create today’s shockingly disillusioned and sullen public, a large chunk of whom is now marching for Donald Trump.

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In the 20th century, Woodrow Wilson authored the Federal Trade Commission Act, the Federal Reserve Act, and the anti-merger Clayton Act, and, just before World War I intervened, he put Brandeis on the Supreme Court. Franklin Delano Roosevelt completed what Wilson could not, restructuring the banking system and launching antitrust investigations into “housing, construction, tire, newsprint, steel, potash, sulphur, retail, fertilizer, tobacco, shoe, and various agricultural industries.” Modern liberals tend to confuse a broad social-welfare state and redistribution of resources in the form of tax-and-spend policies with the New Deal. In fact, the central tenet of New Deal competition policy was not big or small government; it was distrust of concentrations of power and conflicts of interest in the economy. The New Deal divided power, pitting faction against other faction, a classic Jefferson-Madison approach to controlling power (think Federalist Paper No. 10). Competition policy meant preserving democracy within the commercial sphere, by keeping markets open. Again, for New Deal populists like Brandeis and Patman, it was democracy or concentrated wealth—but not both. …

Underpinning the political transformation of the New Deal was an intellectual revolution, a new understanding of property rights. In a 1932 campaign speech known as the Commonwealth Club Address, FDR defined private property as the savings of a family, a Jeffersonian yeoman-farmer notion updated for the 20th century. By contrast, the corporation was not property. Concentrated private economic power was “a public trust,” with public obligations, and the continued “enjoyment of that power by any individual or group must depend upon the fulfillment of that trust.” The titans of the day were not businessmen but “princes of property,” and they had to accept responsibility for their power or be restrained by democratic forces. The corporation had to be fit into the constitutional order. …

New Deal fears of bigness and private concentrations of power were given further ideological ammunition later in the 1930s by fascists abroad. As Roosevelt put it to Congress when announcing a far-reaching assault on monopolies in 1938: “The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism.” In 1947, Patman even commissioned experts to publish a book titled Fascism in Action, noting that fascism as a political system was the combination of extreme nationalism and monopoly power, a “dictatorship of big business.”

This basic understanding of property formed the industrial structure of mid-20th-century America and then, through its trading arrangements, much of the rest of the world. Using this framework, the Democrats broke the power of bankers over America’s great industrial commons. To constrain big business and protect democracy, Democrats used a raft of anti-monopoly, or pro-competition, policy to great effect, leading to vast changes: The Securities and Exchange Commission was created, the stock exchanges were regulated, the big banks were broken up, the giant utility holding companies were broken up, farmers gained government support for stable agricultural prices free from speculation, and the chain stores were restrained by laws that blocked them from using predatory pricing to undermine local competition (including, for instance, competition from a local camera store in San Francisco run by a shopkeeper named Harvey Milk).

The Democrats then extended this globally, through the International Monetary Fund, World Bank, and NATO—even as the United Stated simultaneously used that decentralization to mobilize local communities around the world against the Soviet threat. For example, when General Douglas MacArthur led the Allied occupation of Japan at the end of World War II, key parts of his economic plan included importing the Glass-Steagall Act and antitrust laws into Japan. Back home, Democrats poured government financing into science, and they forced AT&T, RCA, and DuPont to license their treasure troves of patents so that small businesses could compete and so that the scientific discoveries of the corporate world couldn’t be locked away. Eventually, strong competition policy gained a bipartisan consensus, and the idea that anyone would allow concentrations of private power to dominate U.S. politics seemed utterly foolish. …

Foreclosures protected homes against bankers. Farm-to-market roads allowed communities to organize around markets. Social Security protected one’s livelihood in the form of unemployment insurance and old-age benefits. Price supports for family farms protected them from speculators. And rural electrification and telephones shielded communities from the predations of monopolistic utilities. Packaged together, these measures epitomized the idea that citizens must be able to govern themselves through their own community structures, or as Walt Whitman put it: “train communities through all their grades, beginning with individuals and ending there again, to rule themselves.” Patman’s ideals represented a deep understanding that sovereign citizens governing sovereign communities were the only protection against demagoguery.

The essence of populist politics is that political and economic freedom are deeply intertwined—that real democracy requires not just an opportunity to vote but an opportunity to compete in an open marketplace. This was the kind of politics that the Watergate Babies accidentally overthrew. …

With key intellectuals in the Democratic Party increasingly agreeing with Republican thought leaders on the virtues of corporate concentration, the political economic debate changed drastically. Henceforth, the economic leadership of the two parties would increasingly argue not over whether concentrations of wealth were threats to democracy or to the economy, but over whether concentrations of wealth would be centrally directed through the public sector or managed through the private sector—a big-government redistributionist party versus a small-government libertarian party. Democrats and Republicans disagreed on the purpose of concentrated power, but everyone agreed on its inevitability. By the late 1970s, the populist Brandeisian anti-monopoly tradition—protecting communities by breaking up concentrations of power—had been air-brushed out of the debate. And in doing so, America’s fundamental political vision transformed: from protecting citizen sovereignty to maximizing consumer welfare. …

Democrats and Republicans still fought. Neoliberals, while agreeing with Reagan Republicans on a basic view that the structure of corporate America should be as depoliticized and as shielded from voters as possible, still vehemently opposed Ronald Reagan on environmental policy, foreign policy, and taxes. But the very idea of competition policy, of inserting democracy into the economy, made no sense to them. Previously, voters had expected politicians to do something about everything from the price of milk to mortgage rates. Now, neoliberals expressed public power through financial markets. As libertarian and future Fed Chairman Alan Greenspan had written a decade before, “The ultimate regulator of competition in a free economy is the capital market.”

At the same time, Rothenberg noted, while they agreed with Republicans on the importance of a depoliticized economy, they also still believed in the public good. They sought an “industrial policy”—a never-quite-defined planning mechanism—to direct resources in the economy through a cooperative three-way dialogue among labor, business, and government. The government, they felt, should push the United States toward a high-tech future economy via private high-growth technology companies.

This mix of central planning and private monopoly may sound odd, but it is the intellectual underpinning of both the Affordable Care Act and the Dodd-Frank Wall Street Reform Act. Although the details of both policies are influenced by a certain amount of happenstance and political give-and-take, both policies deliver social benefits through heavily concentrated private actors, which could be seen as a private form of central planning. And both laws went through committees chaired by members first elected in 1974.

Regulatory experts organized key elements of social justice—like environmental rules, consumer protection, stability mandates, product design, and diversity directives—in this progressive framework. Faith in technocrats, the revolving door, and privatization all flowed from a belief in this basic structure to deliver social justice.

Clinton’s policy framework diverged with that of his Republican predecessors in many ways, not just on social policy but also on raising marginal tax rates on the wealthy. In terms of concentrations of power in the private sector, however, it was more a completion of what Reagan did than a repudiation of it.

From telecommunications to media to oil to banking to trade, Clinton administration officials—believing that technology and market forces alone would disrupt monopolies—ended up massively concentrating power in the corporate sector. They did this through active policy, repealing Glass-Steagall, expanding trade through NAFTA, and welcoming China’s entrance into the global-trading order via the World Trade Organization. But corporate concentration also occurred in less-examined ways, like through the Supreme Court and defense procurement. Clinton Library papers, for example, reveal that the lone Senate objection to the Supreme Court nominations of both Stephen Breyer and Ruth Bader Ginsburg was from a lurking populist Ohio Democrat, Howard Metzenbaum, who opposed the future justices’ general agreement with Bork on competition policy. And in response to the end of the Cold War, the administration restructured the defense industry, shrinking the number of prime defense contractors from 107 to five. The new defense-industrial base, now concentrated in the hands of a few executives, stopped subsidizing key industries. The electronics industry was soon offshored. …

Starting in 1998 and continuing to this day, the mortality rate among white Americans, specifically those without a high school-degree, has been on the rise—leaving them scared and alienated.

Old problems also reemerged. Financial crises unseen since the 1920s began breaking out across the world, from Mexico to East Asia, prompted by “hot-money” flows. Deflation, rather than inflation, and a capital glut, rather than a capital shortage, started to concern policymakers. And it turns out, according to a McKinsey study, that a disproportionately large amount of the productivity gains from the remarkable computerization of the economy were the result of just one company: Walmart, the new A&P. The mega store’s economic influence “reached levels not seen by a single company since the 19th-century.” The gains of the 1990s, it turns out, were not structural, but illusory. Early in Bush’s term, the stock-market bubble burst and wages collapsed. A few years later, a global banking crisis, induced by a financial sector that had steadily gained power for 40 years, erupted. Concentration of power in the private sector, it turned out, had its downsides.

By 2008, the ideas that took hold in the 1970s had been Democratic orthodoxy for two generations. “Left-wing” meant opposing war, supporting social tolerance, advocating environmentalism, and accepting corporatism and big finance while also seeking redistribution via taxes. The Obama administration has been ideologically consistent with the Watergate Babies’ rejection of populism. Modern liberal political culture epitomizes Dutton’s ideas. And its accomplishments are impressive. As late as 1995, a majority of Americans did not approve of interracial marriage. Today, gay marriage is the law of the land, and intermarriage rates are high and growing. Culturally, the United States is a far more tolerant and open society. …

“This,” wrote Robert Kagan in The Washington Post, “is how fascism comes to America.” The nation is awash in commentary and fear over the current cultural moment. “America is a breeding ground for tyranny,” wrote Andrew Sullivan in New York magazine. Yet, Trump’s emergence would not be a surprise to someone like Patman, or to most New Dealers. They would note that the real-estate mogul’s authoritarianism is not new in American culture; it is ubiquitous. It is consistent with how the commercial sphere has developed since the 1970s. Americans feel a lack of control: They are at the mercy of distant forces, their livelihoods dependent on the arbitrary whims of power. Patman once attacked chain stores as un-American, saying, “We, the American people, want no part of monopolistic dictatorship in … American business.” Having yielded to monopolies in business, the nation must now face the un-American threat to democracy Patman warned they would sow.

Ending the threat of authoritarianism is not a left-wing or right-wing problem, and the solution does not reside in building a bigger or a smaller government. Restoring political stability means structuring society’s public and corporate institutions so they can be governed by human beings and communities. It means protecting the property rights of citizens and not confusing property with arbitrary tollbooths erected by tech billionaires. And it means understanding that protecting competitive markets and preventing concentrations of power are essential components of democracy. …

Restoring America’s anti-monopoly traditions does not mean rejecting what the Watergate Babies accomplished. It means merging their understanding of a multicultural democratic society with Brandeis’s vision of an “industrial democracy.” The United States must place democracy at the heart of its commercial sphere once again. That means competition policy, in force, all the time, at every level. The prevailing culture must be re-geared, so that the republic may be born anew.