D.2 What influence does wealth have over politics?

The short answer is: a great deal of influence, directly and indirectly. We have already touched on this in section B.2.3 ("How does the ruling class maintain control of the state?") Here we will expand on those remarks.

State policy in a capitalist democracy is usually well-insulated from popular influence but very open to elite influence and money interests. Let's consider the possibility of direct influence first. It's obvious that elections cost money and that only the rich and corporations can realistically afford to take part in a major way. Even union donations to political parties cannot effectively compete with those from the business classes. For example, in the 1972 US presidential elections, of the $500 million spent, only about $13 million came from trade unions. The vast majority of the rest undoubtedly came from Big Business and wealthy individuals. For the 1956 elections, the last year for which direct union-business comparisons are possible, the contributions of 742 businessmen matched those of unions representing 17 million workers. And this was at a time when unions had large memberships and before the decline of organised labour.

Therefore, logically, politics will be dominated by the rich and powerful -- in fact if not in theory -- since only the rich can afford to run and only parties supported by the wealthy will gain enough funds and favourable press coverage to have a chance (see section D.3, "How does wealth influence the mass media?"). Even in countries with strong union movements which support labour-based parties, the political agenda is dominated by the media. As the media are owned by and dependent upon advertising from business, it is hardly surprising that independent labour-based political agendas are difficult to follow or be taken seriously. Moreover, the funds available for labour parties are always less than those of capitalist supported parties, meaning that the ability of the former to compete in "fair" elections is hindered. And this is ignoring the fact that the state structure is designed to ensure that real power lies not in the hands of elected representatives but rather in the hands of the state bureaucracy (see section J.2.2) which ensures that any pro-labour political agenda will be watered down and made harmless to the interests of the ruling class.

To this it must be added that wealth has a massive indirect influence over politics (and so over society and the law). We have noted above that wealth controls the media and their content. However, beyond this there is what can be called "Investor Confidence," which is another important source of influence. If a government starts to pass laws or act in ways that conflict with the desires of business, capital may become reluctant to invest (and may even disinvest and move elsewhere). The economic downturn that results will cause political instability, giving the government no choice but to regard the interests of business as privileged. "What is good for business" really is good for the country, because if business suffers, so will everyone else.

David Noble provides a good summary of the effects of such indirect pressures when he writes firms "have the ability to transfer production from one country to another, to close a plant in one and reopen it elsewhere, to direct and redirect investment wherever the 'climate' is most favourable [to business]. . . . [I]t has enabled the corporation to play one workforce off against another in the pursuit of the cheapest and most compliant labour (which gives the misleading appearance of greater efficiency). . . [I]t has compelled regions and nations to compete with one another to try and attract investment by offering tax incentives, labour discipline, relaxed environmental and other regulations and publicly subsidised infrastructure. . . Thus has emerged the great paradox of our age, according to which those nations that prosper most (attract corporate investment) by most readily lowering their standard of living (wages, benefits, quality of life, political freedom). The net result of this system of extortion is a universal lowering of conditions and expectations in the name of competitiveness and prosperity." [Progress Without People, pp. 91-92]

And, we must note, even when a country does lower its standard of living to attract investment or encourage its own business class to invest (as the USA and UK did by means of recession to discipline the workforce by high unemployment), it is no guarantee that capital will stay. US workers have seen their companies' profits rise while their wages have stagnated and (in reward) hundreds of thousands have been "down-sized" or seen their jobs moved to Mexico or South East Asia sweatshops. In the far east, Japanese, Hong Kong, and South Korean workers have also seen their manufacturing jobs move to low wage (and more repressive/authoritarian) countries such as China and Indonesia.

As well as the mobility of capital, there is also the threat posed by public debt. As Doug Henwood notes, "[p]ublic debt is a powerful way of assuring that the state remains safely in capital's hands. The higher a government's debt, the more it must please its bankers. Should bankers grow displeased, they will refuse to roll over old debts or to extend new financing on any but the most punishing terms (if at all). The explosion of [US] federal debt in the 1980s vastly increased the power of creditors to demand austere fiscal and monetary policies to dampen the US economy as it recovered . . . from the 1989-92 slowdown." [Wall Street, pp. 23-24] And, we must note, Wall street made a fortune on the debt, directly and indirectly.

Commenting on Clinton's plans for the devolution of welfare programmes from Federal to State government in America, Noam Chomsky makes the important point that "under conditions of relative equality, this could be a move towards democracy. Under existing circumstances, devolution is intended as a further blow to the eroding democratic processes. Major corporations, investment firms, and the like, can constrain or directly control the acts of national governments and can set one national workforce against another. But the game is much easier when the only competing player that might remotely be influenced by the 'great beast' is a state government, and even middle-sized enterprise can join in. The shadow cast by business [over society and politics] can thus be darker, and private power can move on to greater victories in the name of freedom." [Noam Chomsky, "Rollback III", Z Magazine, March, 1995]

Economic blackmail is a very useful weapon in deterring freedom.

D.2.1 Is capital flight really that powerful?

Yes. By capital flight, business can ensure that any government which becomes too independent and starts to consider the interests of those who elected it will be put back into its place. Therefore we cannot expect a different group of politicians to react in different ways to the same institutional influences and interests. It's no coincidence that the Australian Labour Party and the Spanish Socialist Party introduced "Thatcherite" policies at the same time as the "Iron Lady" implemented them in Britain. The New Zealand Labour government is a case in point, where "within a few months of re-election [in 1984], finance minister Roger Douglas set out a programme of economic 'reforms' that made Thatcher and Reagan look like wimps. . . .[A]lmost everything was privatised and the consequences explained away in marketspeak. Division of wealth that had been unknown in New Zealand suddenly appeared, along with unemployment, poverty and crime." [John Pilger, "Breaking the one party state," New Statesman, 16/12/94]

An extreme example of capital flight being used to "discipline" a naughty administration can be seen in the 1974 to '79 Labour government in Britain. In January, 1974, the FT Index for the London Stock Exchange stood at 500 points. In February, the Miner's went on strike, forcing Heath (the Tory Prime Minister) to hold (and lose) a general election. The new Labour government (which included many left-wingers in its cabinet) talked about nationalising the banks and much heavy industry. In August, 1974, Tony Benn announced plans to nationalise the ship building industry. By December, the FT index had fallen to 150 points. By 1976 the Treasury was spending $100 million a day buying back its own money to support the pound [The Times, 10/6/76].

The Times noted that "the further decline in the value of the pound has occurred despite the high level of interest rates. . . . [D]ealers said that selling pressure against the pound was not heavy or persistent, but there was an almost total lack of interest amongst buyers. The drop in the pound is extremely surprising in view of the unanimous opinion of bankers, politicians and officials that the currency is undervalued." [27/5/76]

The Labour government, faced with the power of international capital, ended up having to receive a temporary "bailing out" by the IMF, which imposed a package of cuts and controls, to which Labour's response was, in effect, "We'll do anything you say," as one economist described. The social costs of these policies were disastrous, with unemployment rising to the then unheard-of-height of one million. And let's not forget that they "cut expenditure by twice the amount the IMF were promised" in an attempt to appear business-friendly. it [Peter Donaldson, A Question of Economics, p. 89]

Capital will not invest in a country that does not meet its approval. In 1977, the Bank of England failed to get the Labour government to abolish its exchange controls. Between 1979 and 1982 the Tories abolished them and ended restrictions on lending for banks and building societies:

"The result of the abolition of exchange controls was visible almost immediately: capital hitherto invested in the U.K. began going abroad. In the Guardian of 21 September, 1981, Victor Keegan noted that 'Figures published last week by the Bank of England show that pension funds are now investing 25% of their money abroad (compared with almost nothing a few years ago) and there has been no investment at all (net) by unit trusts in the UK since exchange controls were abolished'" [Robin Ramsay, Lobster no. 27, p. 3].

Why? What was so bad about the UK? Simply stated, the working class was too militant, the trade unions were not "shackled by law and subdued," as The Economist recently put it [February 27, 1993], and the welfare state could be lived on. The partial gains from previous struggles still existed, and people had enough dignity not to accept any job offered or put up with an employer's authoritarian practices. These factors created "inflexibility" in the labour market, so that the working class had to be taught a lesson in "good" economics.

By capital flight a rebellious population and a slightly radical government were brought to heel.

D.2.2 How extensive is business propaganda?

Business spends a lot of money to ensure that people accept the status quo. Referring again to the US as an example (where such techniques are common), various means are used to get people to identify "free enterprise" (meaning state-subsidised private power with no infringement of managerial prerogatives) as "the American way." The success of these campaigns is clear, since many working people now object to unions as having too much power or irrationally rejecting all radical ideas as "Communism" regardless of their content.

By 1978, American business was spending $1 billion a year on grassroots propaganda (known as "Astroturf" by PR insiders, to reflect the appearance of popular support, without the substance, and "grasstops" whereby influential citizens are hired to serve as spokespersons for business interests). In 1983, there existed 26 general purpose foundations for this purpose with endowments of $100 million or more, as well as dozens of corporate foundations. These, along with media power, ensure that force -- always an inefficient means of control -- is replaced by the "manufacture of consent": the process whereby the limits of acceptable expression are defined by the wealthy.

This process has been going on for some time. For example "[i]n April 1947, the Advertising Council announced a $100 million campaign to use all media to 'sell' the American economic system -- as they conceived it -- to the American people; the program was officially described as a 'major project of educating the American people about the economic facts of life.' Corporations 'started extensive programs to indoctrinate employees,' the leading business journal Fortune reported, subjected their captive audiences to 'Courses in Economic Education' and testing them for commitment to the 'free enterprise system -- that is, Americanism.' A survey conducted by the American Management Association (AMA) found that many corporate leaders regarded 'propaganda' and 'economic education' as synonymous, holding that 'we want our people to think right'. . . [and that] 'some employers view. . . [it] as a sort of 'battle of loyalties' with the unions' -- a rather unequal battle, given the resources available." [Noam Chomsky, World Orders, Old and New, pp. 89-90]

Various institutions are used to get Big Business's message across, for example, the Joint Council on Economic Education, ostensibly a charitable organisation, funds economic education for teachers and provides books, pamphlets and films as teaching aids. In 1974, 20,000 teachers participated in its workshops. The aim is to induce teachers to present corporations in an uncritical light to their students. Funding for this propaganda machine comes from the American Bankers Association, AT&T, the Sears Roebuck Foundation and the Ford Foundation.

As G. William Domhoff points out, "[a]lthough it [and other bodies like it] has not been able to bring about active acceptance of all power elite policies and perspectives, on economic or other domestic issues, it has been able to ensure that opposing opinions have remained isolated, suspect and only partially developed." [Who Rules America Now?, pp. 103-4] In other words, "unacceptable" ideas are marginalised, the limits of expression defined, and all within a society apparently based on "the free marketplace of ideas."

The effects of this business propaganda are felt in all other aspects of life, ensuring that while the US business class is extremely class conscious, the rest of the American population considers "class" a swear word!