The State Organizes the Capitalist Class. The Working Class Will Have to Organize Itself.

To sustain capitalism, otherwise competitive businesses have to do something unnatural: cooperate with each other. The state plays a crucial role in fostering this class discipline. We, on the other hand, have to build our own power.

Charles E. Wilson, formerly president of General Electric, taking the oath of office as director of the Office of Defense Mobilization, as Chief Justice Fred Vinson administers the oath and President Harry Truman looks on, in the Oval Office. (US National Archives and Records Administration / Wikimedia Commons)

It seems everyone agrees: American democracy has been corrupted by corporate lobbying. Donald Trump’s promises, however disingenuous, to take on the role of money in politics by “draining the swamp” resonated with his frustrated followers. Meanwhile, progressive liberals like Elizabeth Warren have focused on addressing “corruption” by limiting the influence of business over our elected leaders. Though radically different, both apparently see corporate power as a bug, not a feature, of our political system.

Academics, searching for an explanation for the explosion of inequality in recent decades, have also identified business lobbying as the culprit. Thus, in their widely influential book Winner-Take-All Politics, Jacob Hacker and Paul Pierson contend that an explosion of lobbying since the 1970s has overpowered labor and other interest groups. This has resulted in the policy shifts that have facilitated the upward distribution of wealth, and the erosion of the middle class, during the neoliberal era.

The main effect of this framing is to narrow the focus of our political critique. If class power is primarily an outcome of business lobbying, then the main objective of progressives and the Left should be to restore “normal” pluralist democracy by limiting the influence of business on elected representatives. This will allow the policy “pendulum” to swing back toward labor and permit the enactment of pro-worker policies. The state, from this point of view, is essentially an impartial referee, balancing the interests of competing interest groups.

This liberal narrative is largely a myth. The power of capital does not depend on corporate lobbying but rather is built into the state’s DNA. In fact, the state plays an indispensable role in actively organizing capitalist class power. Individual businesses are motivated by the need to compete and to maximize their own profits, not by broad, classwide concerns. Consequently, a “relatively autonomous” state is necessary to act in the long-term interests of the system as a whole. Rather than simply doing the bidding of particular capitalists, the state organizes capitalists into a coherent class.

In this way, the state acts on behalf of capital, if not necessarily at its behest. However, it must also build support from business for the policies it develops. As I show in my book Corporate Capitalism and the Integral State: General Electric and a Century of American Power, one way it does so is by forming and mobilizing lobby groups. Such organizations do not just advocate for preexisting business interests but are also venues in which the state builds consensus around the classwide interests of capital. As such, they are part of an “integral state,” whereby state power extends beyond formal government institutions to incorporate civil society organizations.

The book traces General Electric (GE)’s role at the center of this integral state through the first century of American corporate capitalism. As it shows, the company collaborated with state officials to form the Business Council, the Business Roundtable, the Committee for Economic Development (CED), and other major lobby groups. Its executives worked in these forums to organize corporate support for the New Deal, wartime production planning, tariff reductions and free trade, and the wage and price controls implemented during the 1970s crisis — as well as the neoliberal reforms that would end it, plus the construction of a globalized imperial state.

Great Depression, World War, and Global Empire

By the time of the 1929 market crash, GE had already stepped out from the shadow of J.P. Morgan to become one of the first managerial-controlled behemoths. At the same time, its managers played the leading role within the Business Advisory Council, created by Franklin Roosevelt within the Commerce Department to build a base among business for the New Deal. Though support for these reforms among capital was thin — at times nonexistent — GE executives worked to convince capitalists that they were necessary to save the system and end the waves of class struggle from below.

GE’s place within the vanguard of the new managerial elite was further reflected in its pivotal role within the state-corporate system for planning World War II production. While GE president Charles Wilson became the most important figure on the War Production Board, he was also a key force in forming the Committee for Economic Development. The latter aimed to extend support among an often-reluctant capitalist class for the creation of the state-led economic planning regime as well as the consolidation of a permanent military-industrial complex after hostilities ended.

The claim that the military-industrial complex has “captured” the state, forcing it to engage in needless conflict to boost arms sales, is wrong. Since the capitalist state does not control economic production directly, it relies on corporations to produce the goods and technologies necessary to maintain a global empire. Indeed, particularly striking about US planning for its postwar empire was how autonomous from business it was. Meanwhile, the Council on Foreign Relations served as a forum for developing a shared understanding of the “national interest” between state planners and corporate executives, including GE’s Phillip Reed, within the new US-led world order.

In fact, capital was quite reluctant to support the unprecedented levels of peacetime taxation demanded by the new imperial state. It was also deeply skeptical about the monumental — and expensive — effort to rebuild America’s major industrial rivals through the Marshall Plan. Particularly concerning for business was the drastic, unilateral, across-the-board slashing of tariffs advocated especially by State Department officials. These fears were understandable, as American business had thrived since the nineteenth century behind what were among the highest tariffs in the world.

In this context, the State Department worked to build business support for the Marshall Plan, while the Treasury took the lead in organizing a consensus around the Bretton Woods trade regime. As a result of intense wrangling by state officials, supported by GE’s Phillip Reed, the CED emerged as the primary base of corporate support for these measures. Reed’s participation was especially noteworthy, since the state was then unleashing an antitrust onslaught that demolished the network of cartels GE had constructed over a half-century to control global electrical equipment markets.

To deflect protectionist pressures over the longer term, state officials and corporate allies worked to concentrate power over trade policy within executive agencies that were largely insulated from lobbying pressures. The frustrations this engendered were reflected in the backlash to a further round of tariff reductions in the John F. Kennedy years, as business claimed its concerns and objections went unheard — especially as such agreements increasingly closed off avenues for even temporary “trade adjustment assistance.”

Far from being imposed on a passive state by business lobbying, state agencies worked continuously to hold together a shaky free-trade consensus through the rest of the century.

Neoliberalism and the Business Roundtable

As the postwar boom slowed by the end of the 1960s, union wage militancy increasingly squeezed corporate profits, leading to declining investment and economic stagnation — the so-called “stagflation” crisis. Throughout the crisis decade of the 1970s, state officials struggled to formulate a strategy for restoring labor discipline. While the Richard Nixon, Gerald Ford, and Jimmy Carter administrations fumbled with mandatory, and then voluntary, wage- and price-control schemes, these efforts were fraught from the very beginning. It gradually became clear that a deeper restructuring was necessary.

However, neither business nor the state had any sense of how to proceed. In this context, Treasury secretary John Connally and Federal Reserve chair Arthur Burns met with GE’s Reginald Jones and John Harper of Alcoa and urged them to form a high-level organization to collaborate with state officials on finding a way out of crisis and in shoring up business support for wage and price controls while an alternative could be devised. This led to the formation of the Business Roundtable in 1971. Consisting solely of CEOs from the biggest corporations, it was a political powerhouse.

Rather than advocating for a pregiven agenda, the Roundtable worked with state officials to develop policy and mobilized its members in support of these measures. This collaborative approach distinguished it from other business associations. Thus even as business and the public gradually turned against wage and price controls, the Roundtable persisted in supporting them as the least of a variety of possible evils. While state officials and the Roundtable both sought to return to markets, the need to impose class discipline made this impossible — especially as runaway inflation was jeopardizing international confidence in the dollar.

In the end, the crisis would be resolved through a two-pronged strategy: raising interest rates to engineer an economic recession, and further globalization. Shortly after becoming Federal Reserve chairman in 1979, Paul Volcker hiked interest rates to unprecedented levels, leading to a recession and skyrocketing unemployment. Though business and the state had sought to avoid the pain and uncertainty of a recession throughout the decade, it had ultimately become clear that there was no other viable path to restore class discipline. And it worked.

The “Volcker Shock” dramatically concentrated power over economic policy in the highly autonomous Federal Reserve. It also paved the way for further globalization through the removal of barriers to the movement of capital, opening the vast low-wage workforce of the global periphery to exploitation. Although the legitimacy among business of state efforts to pursue free trade had hit a low point during the crisis decade of the 1970s, the state ultimately succeeded in overcoming lingering doubts from the Kennedy days, keeping protectionist forces at bay.

To do so, it created a trade-advisory system of unprecedented scope within the Commerce Department, encompassing firms from across the economy. However, the real levers of power were safely located an arm’s length away, within the new Office of the US Trade Representative. Later, to support the passage of the agreement, Carter formed the President’s Export Council, headed by GE’s Jones and comprised of business executives and members of Congress as well as token trade-union representation. Though ostensibly “advisory” bodies, the purpose of these organizations was understood to include consolidating the free-trade consensus among business.

By the end of the 1970s, these efforts had succeeded in creating sufficient support for the elimination of Bretton Woods capital and exchange controls and for the creation of a new world of seamless capital accumulation. The power of finance, already pronounced by the 1970s, became even more significant, along with its ability to discipline industry. Yet integral state organizations — especially the Roundtable — were able to hold together an unstable class consensus between these different “fractions” of capital, which would be consolidated over the neoliberal years.

Socialist Strategy and the State

Contrary to common understandings, the rise of neoliberalism resulted from neither corporate lobbying nor state officials attempting to impose the economic doctrines of Friedrich von Hayek or Milton Friedman. Rather, the basic package of neoliberal policies — deregulation, tax cuts, slashing welfare programs, monetarism, and globalization — was arrived at through a long search for a way to restore class discipline, amid considerable uncertainty. Neoliberalism emerged not from the brains of state officials or conservative economists but from the crucible of class struggle.

Bringing neoliberalism to an end therefore involves much more than convincing state officials to read more John Maynard Keynes. Rather, breaking with the environmentally and socially destructive policies of the past four decades requires shifting the balance of class forces. While electoral victories or reforms aimed at limiting corporate lobbying may help to create space for this, a far broader and deeper class-based mobilization is necessary to challenge neoliberalism — which first and foremost means breaking with globalization.

This is especially the case since the interconnection of finance and industry today makes it impossible to isolate finance by identifying it as the cause of “bad” capitalism (as opposed to “good” manufacturing). This is not only due to the success of state efforts at negotiating a compromise between these sectors but also because of the deep restructuring of the industrial corporation itself, such that finance has become more prominent within it. Today, industrial corporations are effectively run by investment groups and increasingly resemble financial institutions — which has strengthened competitiveness and increased pressures to maximize profits.

However far away it may seem given the weakness of the Left and labor, the project of democratizing the state that is so necessary today goes far beyond limiting certain pathways for businesses to influence specific officials. What is called for, rather, is a deeper transformation of state institutions, such that instead of managing capitalism, they serve as organs of a democratically planned socialist economy. Individual reforms can be useful, but they must be part of a broader project of challenging capital at a systemic level — ultimately aimed at replacing private control of the economy with democratic participation.

As we cross one ecological tipping point after another, challenging the class power of capital is no longer just a path to an uncertain utopia but necessary to ensure human survival. Yet this dire situation also offers us a unique opportunity to create a socialist future. A socialist strategy for dealing with this crisis should aim to take the productive capacities of private corporations under public control and to deploy them in the interest of social and ecological need.

Only by democratizing the state, such that decisions over what we produce and how become matters of democratic deliberation rather than corporate power and market discipline, can we hope to create a future worth fighting for.