CHAPTER 3

ELITES IN AMERICA

The Irony of Democracy15th ed.

Learning Objectives

Describe the evolution of elites in the U.S.

Explain the New Deal and progressive Eras as elite self-interest.

Identify important types of organization in which national elites are found.

Differentiate governmental and private sector elites.

Explain the expanding role of government and governmental elites.

The Evolution of U.S. Elites

The Evolution of U.S. Elites

Elite membership has evolved slowly.

Industrialization, technology, other new sources of wealth have produced new elites who have been absorbed into the system.

Political conflict has centered on a narrow range of issues.

The Civil War was the only time elites were deeply divided over the nature of U.S. society.

Early Elite Consensus: Hamilton’s Financial Vision

Hamilton’s Financial Vision

President George Washington’s Secretary of the Treasury favored a strong national government as a means of protecting property and stimulating economic and industrial growth.

Paid off the Revolutionary War debts (government bonds) at face value – providing a significant profit to investors, created a pool of capital available for investment in industrialization of the U.S.

Established a Bank of the United States.

Created conflict between merchants and bankers who benefited from Hamilton’s policies and plantation owners and slaveholders who did not.

Early Elite Consensus

The first transfer of power, where the “out” party peacefully replaced the “in” party illustrated the strength of the consensus among elites.

In the 1800 elections, the Federalists were defeated and Thomas Jefferson won the presidency.

Allowed the plantation owners and other landed interests to gain power.

Majority of Americans earned their living from the land, elites mobilized the masses.

The Democratic-Republicans made few changes to Hamilton’s policies, ultimately adopted them.

The Rise of the West

The Rise of the West

Western settlers were mainly middle and lower class immigrants.

Hard work resulted in rapid upward social mobility and creation of new elites.

Ideal of individualism, self-creation, wealth and power won by competitive skill demands a more open elite system, greater opportunity to acquire wealth and influence.

Andrew Jackson’s presidential victory in 1828 was one of new western elites.

Jacksonian’s became advocates of the principle that all (white) men should have the right to vote and hold public office.

The Rise of the West

CLEAVAGE, VIOLENCE, AND SECESSION

LINCOLN AND SLAVERY

Elite Cleavage: The Civil War

Elite Cleavage

Southern elites could not profitably produce cotton without slave labor.

Cotton accounted for more than half of the value of all U.S. goods shipped abroad before the Civil War.

Wanted to expand cotton industry in the West.

Northern elites had no direct interest in abolishing slavery in the South, yet opposed slavery in the West.

Wanted small farmers who produced food and raw goods for the commercial and industrial east.

Cleavage, Violence, and Secession

Dred Scott v. Sanford (1857) – Supreme Court decided that Congress had no authority to forbid slavery in any territory - the Constitution protected slave property.

In the 1860 presidential elections, Lincoln and the Republican Party won the Electoral College.

Many Southern leaders announced they would not accept the outcome if Lincoln won.

December 20, 1860, South Carolina seceded from the Union, followed by ten other states in the next six months.

Southern Confederate forces attacked the Fort Sumter U.S. military base in April 1861, beginning the Civil War.

Lincoln and Slavery

Exclusive concern was halting slavery in the West.

Wanted to tie western territories to the northern system.

Lincoln’s goal was to bring the South back to the Union, restore orderly government, and establish that the states cannot resist national authority with force.

The Emancipation Proclamation was a political and military tactic to preserve the union and make foreign intervention in the Civil War less likely.

Rise of the New Industrial Elite

Industrial Elite

Transformation from agricultural to industrial reached climax after the Civil War.

Homestead Act of 1862

Transcontinental Railroad Act of 1862

Rise of corporations and stock markets

Introduction of machinery in factories

Southern planters were removed from the national scene

Business became increasingly competitive, little companies disappeared, production rose and resulted in the emergence of monopolies.

PROGRESSIVE ERA

THE GREAT DEPRESSION AND THE NEW DEAL

NOBLESSE OBLIGE

Reform as Elite Self-Interest: The Progressive Era to the New Deal

Reform as Elite Self-Interest

First generation of U.S. capitalists had little sense of public responsibility.

Their success arose from natural selection, survival of the fittest – social Darwinist ideas.

Mass discontent resulted in radical movements such as anarchism and socialism.

1901 assassination of President William McKinley was a catalyst for elites to adjust the system.

Progressive Era

Industrialization and urbanization rose to a peak in late 1800’s.

Brought about social disruption and vast numbers of masses were left out of the economic boom.

Elites in the U.S. witnessed similar events abroad, took action to pre-empt agitation and anger aimed at elites.

Implemented a variety of laws and regulations (Fig 3-1)

Progressive Era

President’s Theodore Roosevelt and Woodrow Wilson criticized elites for lack of public responsibility. Urged elites to value welfare of the masses as an aspect of its own

welfare.

Programs aimed to preserve competition, individualism, enterprise, and opportunity.

Wilson’s Federal Trade Commission

Federal Reserve Act

Roosevelt broke up a number of monopolies

Government regulation required to see that elites function in the public interest.

Progressive Era

The Great Depression and the New Deal

Following the stock market crash of October 1929, the U.S. economy virtually came to a halt.

By 1932, one out of four persons in the U.S. was unemployed, one out of five was on welfare.

President Herbert Hoover intervened with the Emergency Relief and Construction Act’s public works programs, created the Reconstruction Finance Corporation to back loans.

Smoot-Hawley Tariff Act worsened the economy and made Hoover appear ineffective.

The New Deal

President Franklin D. Roosevelt elected in 1932

Nation’s elites agreed that reform and regard for the public welfare were essential to maintaining the political system.

New Deal reformed the existing capitalist system.

A series of improvisations aimed at making government act humanely and compassionately toward those suffering hardship.

Transferred significant amounts of power from private sector to government.

Minimize the ups and downs of the business cycle, protect the masses.

Noblesse Oblige

Philosophy of elite responsibility for the welfare of the masses.

FDR came from two of the oldest elite families in the U.S.

Personal philosophy became the prevailing one of the new liberal establishment.

Generated a belief among the masses that the elites had their best interests at heart.

GLOBALIZATION

The Growth of Government: The New Deal to the Cold War

The Growth of Government

Following WWII, federal spending settled at 18-20% of the economy, lasted through 2008.

As money flowed to the federal government, power also moved from the private sector to the public.

An elite class of government, military, business, and political leaders were running the nation to their mutual benefit.

No clear line of division between government and business enterprise.

Goals of government and corporate management have largely blurred together.

The Growth of Government

The Growth of Government

1960’s expansion of the role of government through social welfare programs and increased regulation of the economy.

President Bill Clinton reduced the size and cost of government.

President George W. Bush provided higher levels of spending and programming.

Size of government hit record high in President Barack Obama’s first year – purchased 2 automobile companies and taking over failing banks, though the process began under the Bush administration.

Globalization

The United States is now a large player in a global economy.

Globalization’s affect on the power of elites is discussed in Chapter 14.

Finding the Elites in the United States

Finding the Elites in the United States

Elites hold positions of power; two overlapping categories – political and economic.

Most elites can be found in government

Congress, presidency, bureaucracy, state and local government

Others are non-governmental

Media, political parties, interest groups

INDUSTRIAL CONCENTRATION

FINANCIAL CONCENTRATION

CORPORATE ELITES

MANAGEMENT POWER

INTERLOCKING DIRECTORATES

Economic Elites in the United States

Economic Elites

The people who hold positions of power in the small number of large corporations and banks.

Generally held to high levels of accountability.

Pluralism views business interest as just another interest group, competing with all other interest groups.

Elitism views economic elites as distinctly powerful in shaping government policy and making decisions that directly influence our lives.

Industrial Concentration

Economic enterprise has consolidated into a small number of giant corporations.

The 500 largest U.S. corporations collectively take in about $10.6 trillion in revenues every year.

Industrial Concentration

Financial Concentration

The nation’s 10 largest commercial banks control nearly half of all banking assets.

The financial crisis which began in 2007 resulted in partial government ownership of Citigroup and Ally Bank.

Recent banking mergers have resulted in greater concentration.

Insurance companies and investment firms have immense power in the U.S. economy as well.

Financial Concentration

Corporate Elites

Through the 1930’s, the nation’s largest corporations were controlled by the tycoons who’d created them.

By the 1930’s, control of most had passed to professional managers.

Theory of “managerialism” – general management skills are more important than detailed production-specific knowledge – became the conventional wisdom about corporate governance.

Corporate Elites

Management Power

Corporate power rests in the hands of the top managers of the nation’s large industrial corporations and financial institutions.

Theoretically, stockholders have ultimate power over management, but really have little control over the actions of the corporations.

Most sign over “proxies” so top management can cast votes for them at annual meetings of stockholders.

Formal division of power in a corporation is between the board of directors and the company executives.

Management Power

Management Power

Interlocking Directorates

A director of one corporation also sits on the boards of one or more other corporations.

Further concentrates power

Government and Corporate Elites: Revolving Doors

Revolving Doors

Politicians may know how to run for office, but may not know how to run the government – some turn to experienced executive elites to staff key positions in their administrations.

Elitist model expects a “revolving” door, elites move from power positions in banking, industry, law, etc. to power positions in government and back again.

An exception are the members of President Obama’s cabinet, nearly all of whom are career politicians (former governors, senators, etc.)

Executives from Goldman Sacs have held numerous key government positions.

Revolving Doors

PUBLIC POLICY AS ELITE PREFERENCE

THE FOUNDATIONS AND UNIVERSITIES

THE THINK TANKS

THE MEDIA

THE WASHINGTON INSIDERS

Elite Policymaking Institutions

Elite Policymaking Institutions

U.S. elite are also found in foundations, policy-planning organizations or think-tanks, mass media, and universities.

These are a kind of “third force” in U.S. society.

Most influential institutions include the Ford Foundation, Rockefeller Foundation and Carnegie Corporation, Brookings Institute, the RAND corporation, American Enterprise Institute, Cato Institute, etc. – called the Establishment.

Elites communicate with the masses and each other through Washington Post, New York Times, Wall Street Journal, etc.

President Obama’s chief economic advisor had previously been with the U.S. Treasury Department, D.E. Shaw Group, and Harvard University (as president).

Public Policy as Elite Preference

Pluralist model of the policy process views policy as the product of competition, bargaining, and compromise among many diverse groups.

Interest groups viewed as principle actors.

Elitist model views public policy as determined by a relatively small group of like-minded individuals, reflecting their own values and preferences.

Initial resources for research, study, planning, etc. comes from corporate and personal wealth which is channeled into foundations, universities, policy-planning groups.

Corporate presidents and directors, top wealth holders also sit on the governing boards of foundations, universities, and policy-planning groups to oversee the spending of their funds.

The Foundations and Universities

Foundations provide a link between wealth and the intellectual community.

Universities must respond to the policy interests of foundations.

University intellectuals working independently occasionally have impact on policymaking, though intellectuals on the whole respond to policy direction set by foundations, corporations, government agencies

The Foundations and Universities

The Think Tanks

Policy-planning groups are central coordinating points in policymaking process.

Review relevant university and foundation-supported research with the goal of developing policy recommendations.

At the same time, endeavor to build consensus among corporate, media, financial, civic, intellectual, and government leaders.

Of the most cited think tanks, 47% are centrist, 37% are conservative, and 16% are progressive (left of center)

The Media

Play a vital role in preparing public opinion for policy change.

Media define the “problem” as a problem, setting the agenda for policy making.

Encourage politicians to assume new policy stances by allocating valuable network airtime to those who speak out about new policy directions.

The Washington Insiders

White House staff, congressional committee staffs, top executive administrators maintain close contact with policy-planning groups.

These groups often help prepare legislation.

Power in the United States: An Elitist Interpretation

Power in the United States

Power is organized into large organizations, private and public:

Banks and financial institutions

Corporations

Universities

Law firms

Religious institutions

Military and government bureaucracies

U.S. Political Economic History: An Elitist Interpretation

U.S. Political Economic History

Movement of nonelites into elite positions must be slow and continuous in order to maintain stability.

Potential elite members must demonstrate commitment to basic elite consensus.

Changes in public policy must be incremental rather than revolutionary.