Defying the Investors

Thomas Ferguson

Thomas Ferguson on how voter alienation from corporate candidates produced this year's dizzying election results.

Interview by
Paul Heideman

It’s no secret that money plays an outsized role in American elections. The Federal Elections Commission estimates that Mitt Romney and Barack Obama spent some $7 billion in the 2012 presidential campaign, and that’s likely an undercount. Polls continually find that the US electorate thinks well-heeled interests drive policy.

But how, exactly, does big money structure elections?

No scholar has contributed more to our understanding of money in politics than Thomas Ferguson. Since the 1980s, in books like Right Turn: The Decline of the Democrats and the Future of American Politics and Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems, Ferguson has offered a powerful interpretation of US politics that focuses on the way the allegiances of various sectors of American business shape the party system.

Ferguson’s work begins from a simple premise: in electoral systems where vast amounts of money are needed to run for office, candidates and parties’ first task is not to win the support of voters, but rather to win the support of people willing to “invest” in their campaigns.

In capitalist societies like the United States, this means business and the rich. The funding requirement can be thought of as a kind of first filter: candidates unable to raise the requisite amount of cash are screened out, and voters then select from the remaining, well-funded candidates.

Ferguson has used this model to explain American politics from the New Deal to the present. In one of his most well-known articles, he showed that Franklin Roosevelt’s Democratic Party was in no simple sense “the party of the people,” but rather a coalition between unions and other progressive forces and some of the most far-sighted sections of American capital.

Technologically advanced and internationally oriented, these firms were willing to live with unions and a modest welfare state if it brought an end to the turbulence of the Depression years. In subsequent work, Ferguson tracked this alliance from Roosevelt’s time to Carter’s, when it was shattered by the convulsions of the global economy.

More recently, Ferguson and several colleagues have looked at the role business plays in contemporary American politics.

Among their findings: Obama has received strong support from the industries most closely linked to the surveillance state, and the Tea Party wasn’t simply bankrolled by eccentric billionaires like the Koch brothers, but by a broad section of big business.

In the following interview, New York University sociology PhD student Paul Heideman asks Ferguson to reflect on this year’s presidential election.

Paul Heideman

Let’s start with a simple question: just how surprised are you by what’s happened in the 2016 presidential campaign?

Thomas Ferguson

If you had told me this time last year that a professed democratic socialist would win hundreds of thousands of votes running against Hillary Clinton, openly attack Wall Street’s headlock on the Democratic Party, and actually win primaries in Michigan, Wisconsin, New Hampshire, and other states, while sweeping a host of state party caucuses, I would have guessed you were in Colorado, because you must be smoking something.

Say what you want about how Sanders conducted his campaign. But recognize that his emergence as a serious challenger is an epochal development: he has shaken the Democratic Party like nothing in our lifetimes.

He didn’t rely on the usual coterie of Democratic insiders on huge corporate retainers for advice on policy and the economy. For the first time, you can see clear signs of polarization along income lines within the party: there is a genuine lower-income voting bloc emerging that is not an appendage of well-financed politicians championing Wall Street and Silicon Valley worldviews and solutions.

He argued for implementing single-payer health care, getting big money out of politics, and taking aggressive action to guarantee full employment and fund major public projects in front of millions of people who probably have never heard anyone press these issues before.

When he responded to Hillary Clinton that no one on Wall Street ever offers him six-figure fees for speeches you could almost hear the whole TV audience collectively suck in its breath.

Or when he reminded Clinton of her husband’s role in the financial deregulation that destroyed the world economy and that she, the experienced foreign-policy hand, had simply swum with the tide in the run-up to the invasion of Iraq.

Sanders clearly connected with the concerns of many of his listeners. And he has waged his campaign on a broadly inclusive basis, stigmatizing bankers, not racial, religious, or sexual minorities.

I think it is clear that many on Wall Street and in the 1 percent regard the Sanders phenomenon as potentially far more threatening than Trump.

Many detest Trump too, but right now they have Hillary Clinton as their firewall. Trump gets more attention because he poses the more immediate threat.

The Donald’s emergence is complicated, but, just as with Sanders, you could see the space opening for something really new in the 2014 off-year elections. That election revealed that our political system had arrived at some kind of end times.

Paul Heideman

How did 2014 telegraph 2016?

Thomas Ferguson

Walter Dean Burnham and I analyzed the election’s results in detail. We both believe historical analysis of voting returns is crucial to understanding political systems, and we knew, like everyone else, that voter turnout typically drops in the off-year congressional elections following a presidential election.

But when we looked at 2014, we were astounded. The fall in voter turnout from 2012 to 2014 was the second-largest of all time: 24 percentage points.

In many states in the East and Midwest, voter turnouts collapsed to levels not seen since before the Jacksonian revolution, when property suffrage laws choked off voter turnout.

Some states in the West recorded their lowest turnouts since their admission into the union. And for the first time since Reconstruction, turnout in the South finally caught up with turnout in the North — thanks to the latter’s collapse.

Very few pundits or political scientists believed us, but we couldn’t have been plainer about what was happening. We wrote that the outcome

likely heralds a new stage in the disintegration of the American political order. Though Republicans jubilate now, the trend is probably as threatening to them as it is to the Democrats. The reason is stark: Increasing numbers of average Americans can no longer stomach voting for parties that only pretend to represent their interests.

Paul Heideman

So how does that get us to Trump and Sanders?

Thomas Ferguson

Here it pays to be really careful. 2014 demonstrated that a vacuum was forming within both major parties. But that implied nothing about what might fill those spaces.

My investment approach to party competition stresses that in most modern political systems, political parties are first of all bank accounts: only political appeals that can be financed can reach voters.

Otherwise, no matter how many voters want something, power passes by default to blocs of major investors, who can afford to compete to control the state.

In that situation, you can sit for years in policy positions very far from those preferred by voters; while you may have many flavors of political competition, they don’t bring you any closer to what voters want.

When the Wall Street Journal and other publications tell you that Jeb Bush’s collapse this year proves that money doesn’t matter in politics, just laugh.

Yes, Donald Trump was well-known from his television show. But what gave him the freedom to jump in the race and trash-talk the other candidates into oblivion was the fact that he was a billionaire.

He didn’t need the money of the Bush Golden Horde or the many 1 percent fans of Marco Rubio, Scott Walker, and the rest. Or the Kochs.

In a normal election year, anyone who talked like Trump in the GOP primaries might hope to shuttle around some early small states and make a brief splash, before being swamped by a wall of money in big multi-state primaries on some Super Tuesday later in the campaign.

Not Trump — he was never going to run out of money as long as he was willing to open his own wallet, and everyone knew it.

His money gave him both the means and the confidence to break the donors’ cartel that until then had eliminated all GOP candidates who didn’t begin by saluting the Bush family for starting the Iraq War, incessantly demanding cuts in Social Security and Medicare, and managing the economy into total collapse via financial deregulation. He could even mock the carried-interest tax loophole and sneer at Wall Street.

The effect, along with his attacks on immigrants, highly publicized quarrels with women political commentators, and demands for “America First” in foreign policy of course was electrifying.

The political establishment couldn’t comprehend what was happening. Trump just laughed at the other candidates’ shibboleths and stuttering incapacity to say anything to any real person.

Sanders, by contrast, looks to have floated his race the old-fashioned way.

I do nearly all my work on contemporary US election finance with two gifted analysts, Paul Jorgensen and Jie Chen. As we’ve explained in various essays, published data on campaign contributions requires a lot of processing to draw reliable conclusions.

You have to integrate IRS and Federal Election Commission databases, sort names, etc. So we are behind on analyzing 2016 and won’t catch up till the very end of the campaign. But I have looked through some of the Sanders campaign filings.

My tentative judgment is that unlike 2008 and 2012, when the Obama campaign clearly encouraged donors to break up their contributions into smaller amounts to create the appearance of a mass movement, the Sanders campaign pretty much is what it appears to be: a movement swept along by a vast array of small donors. No wonder Democratic elites were so nervously petulant at Sanders for staying in the race and continuing to propagate his views.

Paul Heideman

You have to be aware of all the claims now appearing in the major media that Sanders and Trump voters are really just confused or even, according to some press accounts, really content with an improving economy. What’s your response?

Thomas Ferguson

You are looking at historic developments in politics accompanying momentous changes in the economy that have been poorly explained in the media and only occasionally grasped even by social scientists. So it’s hardly surprising if voters display some confusion if pressed in detailed poll questions.

But the basic shape of what is happening is straightforward and easy to understand. Simply summing the supporters of Trump and Sanders suggests that a majority of the primary electorate understood what is happening quite well.

At its heart is the emergence of what my colleague Peter Temin calls the “dual economy.” His working paper on race and the American economy is a must-read for this election.

Temin adapts the old W. Arthur Lewis model of a developing economy, in which a relatively small industrial sector produces rising incomes and reasonably good jobs coexist with a much larger agricultural sector that lives off vast masses of workers earning little more than minimum wages.

Temin shows that an analogous type of split-level reality now obtains between the core sectors of finance, technology, and electronics and the rest of the economy, which is now comprised of mostly low-paid service sector jobs.

Managers and professionals in the core have one or more college degrees, earn high salaries, and some financial assets of their own. Everybody else, by contrast, scrambles in poorly paid labor markets with only intermittent access to relatively expensive credit.

Save for the late nineties, workers as a group haven’t had a raise in a generation. Many are leveraged to the hilt, often for homes that are still underwater from 2008 or in hock for college credits they couldn’t complete. They are on a treadmill to nowhere, and they know it.

Temin notes that if you are not looking for this phenomenon, you will not see it in polls or surveys. His point goes far toward explaining the establishment’s shock, surprise, and, often, blank denial of what has happened in the campaign.

Paul Heideman

So how, concretely, did all this show in the primaries?

Thomas Ferguson

The first glimmer of rationality dawned when some analysts noticed a study from Anne Case and Angus Deaton on mortality rates. The two economists found that death rates for poorly educated white, non-Hispanics have soared since 1999.

This kind of data, which brings to mind the demographic disasters that attended the collapse of the Soviet Union and its brief experiment with unfettered markets, stands out like a neon light in a fog of ideology. There is no way you can square it with stories about how great everything is.

Not surprisingly, analysts who looked had little trouble finding striking correlations with the Trump vote in counties where death rates were unusually high. No single variable model of mass voting is going to be definitive, but I think here reality was trying to send a message, however the controversies finally come out about the exact role gender plays in the phenomenon.

The other telltale fact is the generational gap in the Clinton/Sanders support. The splits on age within the Democratic vote were often mind-boggling, almost like falling off a cliff, as younger cohorts swarmed headlong for Sanders.

Various analysts have opined that this reflects some kind of confusion or just youthful exuberance. I think those claims are wildly misleading. The correlation of success in the core economy and age is substantial among voters (who tend to be more affluent).

As William Lazonick and others have emphasized, the globalization of production and the financialization of American large firms has dramatically changed labor markets.

They have hollowed out traditional career tracks even in the primary sectors. In addition, large firms now subcontract more and more work to contractors, who themselves rely on unskilled labor.

For young people, the implications are huge. None of them can reasonably expect to build a career within a single large firm and grow within it.

Job tenure in firms has shortened dramatically; traditional defined-benefit pensions are gone; pensions of any type are much scarcer; and people change jobs very frequently.

Vast numbers of people who would like full-time positions are working part time. Young people, even in the tech sector, see this very clearly and understand what it means for them.

In addition, as Temin explains, higher education is the ticket to jobs in the affluent core. Desperate young people know that. But with the state’s withdrawal of support for public higher education, many have no choice but to take on high levels of debt.

Sanders picked up on that dominating reality, and he and his staff displayed a great deal of interest and sympathy for the idea of debt relief and public financing for college education.

But to really understand what is happening, you have to go beyond all the particulars and critically evaluate the whole. The system hasn’t worked for many Americans for at least a generation, and vast numbers of them now realize this.

Yet they aren’t hearing any acknowledgement from the political establishments of either major party. All they hear is partisan posturing and gobbledygook. And, as polls show conclusively, most Americans are very, very aware that political money sloshes everywhere in the system.

There is more. Establishment economists have discredited themselves first by failing to foresee the catastrophe of 2008 and then nattering on about the “new normal,” “green shoots,” the wonders of quantitative easing, and, recently, carrying on about the need to raise interest rates, instead of recognizing how the world has crumbled for so many of the 99 percent.

It’s good that some mainstream economists have finally recognized that their naïve faith that free markets would guarantee the reemployment of workers displaced by imports was horribly wrong — but it’s too late.

Mistrusting not only the political establishment, but “experts,” the mass media, and even official high culture, many in the electorate are convinced that the system is rigged.

As a consequence, they just shrug off inconsistencies of candidates they believe are trying to tell the truth to them. They increasingly think in classic “friend or foe” terms and just tune out those who they perceive as tools of the establishment.

In the 2016 primaries, we’ve had what my friend Walter Dean Burnham likes to call a “runaway” electorate. I entirely agree with him that the best parallel to what has happened is the sequence of elections in the 1850s in which the Whig Party collapsed.

When you see whole areas laid waste in just a few years — as globalization and the transportation revolution did in the middle of the nineteenth century — you should expect big chunks of the electorate to behave like a headless horseman.

I don’t think we can partial out precisely which aspects of globalization drove which primaries right now. But even mainstream economists admit that they way underestimated the impact of imports on the US economy, especially from China after 2001.

The Obama administration’s failure to push through a robust recovery program was a miscalculation of historic proportions and led to the 2010 congressional disaster that has defined the American political universe up till now.

The president’s insistence on trying to work with Republicans and his early interest in cutting, not defending, programs like Social Security did nothing to mitigate the effects of that earthquake.

The Federal Reserve’s “green shoots” nonsense and its programs of quantitative easing, I think, did little for ordinary Americans, while stimulating a stock market boom that just helped the 1 percent. It couldn’t make up for the failure to use fiscal policy.

Paul Heideman

Is there anything else the Obama administration has done that had big consequences for this year’s election?

Thomas Ferguson

It’s impossible to inventory them all; we’d never finish. I’d mention a couple here.

Firstly, there was the decision to run inequality up the flagpole as an issue. As I observed at the time, it was the White House that made the decision to receive Thomas Piketty royally after the release of his book Capital in the Twenty-First Century, arranging Beltway briefings and generally blowing trumpets.

Major media in the US took the White House’s cue, as they usually do, and the issue became OK for salons — a good thing, since the issue was also big in the streets. At the time, the calculation was surely that the issue would highlight the weaknesses of GOP policy proposals.

I would also point to something I think the administration really did rather well on: especially in the last few years, it made some serious efforts to protect the lowest-wage employees; it took real action against wage theft; its appointees promulgated a series of rulings that made unionization a bit easier and less onerous.

I don’t want to exaggerate all this, but I think these steps facilitated organizing that spilled over into Sanders’s campaign. This is true even though Clinton’s victories in several states owed a lot to various unions.

Paul Heideman

So what happens now that Clinton has won the nomination?

Thomas Ferguson

A lot depends on Trump. Here a context effect may be decisive. Against the half-dead wraiths in the Republican primary, he looked like Shakespeare’s Julius Caesar, who “doth bestride a narrow world like a colossus.” But referring to the GOP elite as “narrow” is a pathetic understatement.

Trump clearly has problems with self-control; he may look a lot different against a candidate whose answer to every problem is not nonsense about the Second Amendment, bathrooms, and “radical Islam.”

Right now, for the Democrats, it’s 1964. They have virtually all the media with them; they are gleefully recalling the legendary anti-Goldwater ad with the little girl counting flower petals who is suddenly incinerated by a nuke, and planning to run twenty-first century equivalents.

Their major problem is the weak economy and the fact that, as the debate about economist Gerald Friedman’s projections of Sanders’s economic program revealed, Democratic economists basically believe that the best the US can do is 2 percent growth. Anything else they rush to declare irresponsible.

Trump and some people around him have made intermittent noises reminiscent of the old Reagan “supply-side” programs, even proclaiming that making a fetish out of the federal deficit (which has shrunk anyway) is a major mistake.

If Trump gets that sort of appeal across, he can do very well against Clinton. Whether he’s up to it, I’m not sure at all.

Clinton, for her part, is very clearly focused on healing the split between the Democrats and Wall Street that opened up when Obama embraced the Volcker Rule in the wake of the disastrous loss of Ted Kennedy’s Senate seat in 2010. Jie Chen and I wrote a short paper about it as the time, because it was obviously a watershed.

You may remember the context: the special election to fill Kennedy’s seat came right as reports filled the news of giant bonuses to Wall Street firms just rescued by the government.

Scott Brown, the long-shot Republican candidate, rode to victory on a wave of money from financiers on Wall Street and elsewhere, including, obviously, Boston, the happy hunting ground of the mutual fund industry.

Reeling from the surprise loss, the Obama administration rushed to burnish its reform credentials, which were by then in shreds. Within days, the White House trotted out Paul Volcker, with his eponymous rule limiting some proprietary trades by Wall Street firms.

The Volcker Rule was really a detail, not the essence of anything. But the ensuing fight to keep it and enforce other reforms in the Dodd-Frank bill alienated big portions (though not every segment) of Wall Street.

With virtually all Republicans against reform, you could see the issue’s effects in the financing of the 2012 election. The old alliance between the Democrats and major parts of Wall Street, which extended as far back as the New Deal, suddenly cracked — money from Wall Street to the Democrats fell off steeply in 2012.

Obama had to make it up with funding from what we can epitomize as Silicon Valley, in the face of massive opposition from industries like coal, oil, chemicals, and other heavy polluters.

Clinton is plainly aiming to heal that breach. The refusal even to say what she told Goldman Sachs in those famous speeches is part and parcel of her campaign to reaffirm the old ties her husband furthered so much.

Paul Heideman

In closing, what do you think of all this talk about “fascism” in relation to Trump?

Thomas Ferguson

I think it distracts from the real problems.

Private armies were key resources for both Hitler and Mussolini; Trump has built nothing like this, even though some of the early rallies played vaguely on distant resemblances, and he hasn’t tried to build anything like them, though he has certainly pursued endorsements by police groups.

More broadly, key parts of business and big agriculture supported the takeovers in Italy and Germany.

In the American economy today, there are sectors of big business and finance, notably parts of oil and some people alarmed by Chinese interventions not in their currency but the rules for high-tech, that are looking over Trump, along with segments of finance.

But most of business, I think, is not going to embrace him. His America First talk appears to strike fundamentally at the alliances that are the very stuff of life to American multinationals, even though a close reading of Trump suggests he really is focused on increasing “user charges.” If there is an Italian parallel to Trump, it is Silvio Berlusconi, not the Duce.

I would caution on this, though: within the business community, disliking Trump doesn’t mean you go for Clinton.

It is clear if you look at commencement speeches and other indicators that major parts of the business community think Clinton is too far left, as odd as that may sound to Sanders supporters. That spells trouble down the road.

You will, for sure, see a lot of reluctant endorsements on a professed one-time-only basis. The result, I suspect, will be an influx of money from normally Republican circles into the Clinton campaign.

That’s likely to distort the political forces at the top of the Democratic Party; you may see some very strange things happening.

Clinton’s strategy for winning votes is now very simple: you go to women and say the magic word: “Trump.” You go to African Americans with the same mantra: “Trump.” And you go to Latinos, just pointing and repeating “Trump,” while the media plays “Ride of the Valkyries” 24/7.

With Trump carrying on as he has, it may be all Clinton needs. After the election, though, we will all wake up to discover that little in the campaign will have addressed the problems that the primaries so memorably revealed.