Chapter 1

The Business Rebellion

The power shift that changed American history

“The danger had suddenly escalated. We had to prevent business from being rolled
up and put in the trash can by that Congress.”
—Bryce Harlow, business strategist

There has been a significant erosion of the power…of those in the working and
middle classes. At the same time, there has been a sharp increase in the power of
economic elites…
—Thomas Byrne Edsall, The New Politics of Inequality

It is one of those intriguing ironies of history that the immediate provocation for
Lewis Powell’s political manifesto to Corporate America—his powerful private
memorandum of 1971—came not from a liberal Democrat in the White House, but
from Republican Richard Nixon, the very president who was about to name Lewis
Powell to the Supreme Court.

Powell’s intention was to spark a full-scale political rebellion by America’s corporate

leaders—what one writer called “the Revolt of the Bosses”—to change the political
and policy mainstream in Washington and to put the nation on a new track, a track
more favorable to business. And he succeeded, probably far beyond his
expectations.

In his memo, Powell never mentioned Nixon or his administration by name. But
writing in 1971 on the heels of Nixon’s new regulatory initiatives and his new tax
law that was hard on business and the wealthy, Powell warned the corporate
community that anti- business sentiment in Washington had reached a dangerous
new high, and it was threatening to “fatally weaken or destroy” America’s free
enterprise system. Business was being victimized, he said, by government
regulations, consumer activism, and politically powerful trade unions. The political
influence of the business community had become so weak, Powell contended, that
the business executive had become “truly the ‘forgotten man.’ ”

In a tone of exasperation, he chided America’s corporate leaders for bowing to

mainstream middle-of-the-road policies and for adopting a strategy of
“appeasement, ineptitude and ignoring the problem.” The time has come, he
insisted, for Corporate America to adopt “a more aggressive attitude” and to
change Washington’s policies through “confrontation politics.”

Political mutiny had been brewing for some time. By the early 1970s, the free
market fundamentalism of economist Milton Friedman, a Nobel laureate from the
University of Chicago, was giving new legitimacy to pro-business laissez-faire
economics in academic circles. William Buckley’s National Review and Irving
Kristol’s Public Interest were challenging the long-accepted governmental activism
of the welfare state, as it was then called. The “movement conservatism” spawned
by the 1964 presidential candidacy of Senator Barry Goldwater, with its ardent anti-
union, anti-government ideology, had growing appeal in Sun Belt business circles.

But it was Powell’s rallying cry and corporate manifesto, infused into the political
bloodstream of the business community by the U.S. Chamber of Commerce, that
generated broad tremors of change in Corporate America and set off a seismic
transformation of our political system. Forty years later, we still feel the
aftershocks.

The Powell Blueprint

Powell was like a commanding general gearing up an army for battle. “Business
must learn the lesson  .  .  .  that political power is necessary,” he asserted; “that
such power must be assidously [sic] cultivated; and that when necessary, it must
be used aggressively and with determination—without embarrassment and without
the reluctance which has been so characteristic of American business.”

Powell provided a blueprint, a long-term game plan that would leverage the
enormous advantages of corporate money and organized business power to do
battle with their critics, with the U.S. Chamber of Commerce in the lead. “Strength
lies in organization,” he advised, “in careful long-range planning and
implementation, in consistency of action over an indefinite period of years, in the
scale of financing available only through joint effort, and in the political power
available only through united action and national organizations.”

And in the clinch, business should not hesitate to take the gloves off. “There should
not be the slightest hesitation to press vigorously in all political arenas  .  .  .  ,”
Powell urged. “Nor should there be reluctance to penalize politically those who
oppose it.”

The Problem: Nixon’s Action Agenda

The timing of Powell’s 1971 memo, in the midst of a Republican administration,

might have seemed strange. Richard Nixon, a self-styled conservative who had won
the White House in 1968 with business support, was a great admirer of the captains
of American industry. He considered himself “extremely pro-business.” In a private
session with top auto industry leaders in April 1971, Nixon excoriated consumer
advocates and environmentalists in language that Lewis Powell would have heartily
applauded. Nixon derided them as “a group of people that aren’t really one damn
bit interested in safety or clean air. What they’re interested in is destroying the
system [sic]. They’re enemies of the system.” By “the system,” Nixon meant free -
enterprise—the very system that Powell sought to defend.

But Nixon was a political pragmatist who reflected the politics of his time. He took a
different line in public and in legislation from what he conveyed in his private talks
with business leaders. On policy, he zigzagged. On the one hand, he enacted
measures to support business and he watered down bills pushed by liberal
Democrats. On the other hand, he launched his own array of regulatory initiatives
in response to grassroots pressures from the powerful consumer and environmental
movements. So that however much his private diatribes against the political Left
appealed to business leaders, Nixon’s action agenda—what he actually did—deeply
rankled them.

The Bipartisan Consensus: Hallmark of the 1950s to the Mid-1970s

In today’s bitterly partisan political climate, people often forget that one hallmark of
the 1950s through the mid-1970s was the bipartisan consensus. Republicans as
well as Democrats favored stronger regulation of business and industry to protect
consumers and workers from the excesses of American capitalism. Often the
impetus came from Congress, reacting to demands from the burgeoning consumer
movement.

The Nixon administration was swept along by the popular tide. Even more than
Democrat Lyndon Johnson, Nixon presided over major expansions of federal
regulatory powers, creating several new regulatory agencies and commissions. The
most high-profile was the Environmental Protection Agency (EPA), with its laws on
clean air, clean water, safe drinking water, and control of pesticides and other toxic
substances. Nixon created other agencies as well, such as the Occupational Safety
and Health Administration (OSHA), charged with ensuring safety in the workplace;
the Consumer Product Safety Commission; the National Highway Traffic Safety
Administration; and the Mining Enforcement and Safety Administration. In addition,
Nixon expanded the powers of the Federal Trade Commission and launched an
important initiative to protect worker pensions, the Employee Retirement Income
Security Act, ultimately enacted under Gerald Ford after Nixon had resigned in
1974.

William Ruckelshaus, a Justice Department lawyer with an impeccable Republican

pedigree who was tapped by Nixon as the first administrator of the EPA, confided
that Nixon’s motivation on environmental policy was purely political. He did not
want to be outflanked by pro-environment Democrats, especially Senator Edmund
Muskie of Maine, a strong contender for the Democratic presidential nomination in
1972. “He didn’t know much about the environment, and frankly he wasn’t very
curious about it,” Ruckelshaus told me. “He never asked me the whole time I was
at EPA: ‘Is the air really dirty? Is something wrong with the water? What are we
worried about here?’ He would warn me, ‘You’ve got to be worried about that’—
Ehpa, he called it. He was the one person in the country that called it Ehpa. The E--
P-A, he’d call it Ehpa, and he said, ‘Those people over there, now don’t get
captured by that bureaucracy.’ ”

Nixon was pushed along by popular pressure. Facing reelection in 1972 and
expecting that his opponent would be the pro-environment senator Ed Muskie,
Nixon felt he had to respond to the public’s demands. In his memoirs, Nixon
later claimed credit for enactment of the Clean Water Act, but in fact he vetoed that
legislation. Muskie had been eliminated in the Democratic primaries, and once
Nixon saw that he could easily beat the Democratic nominee, Senator George
McGovern, he no longer worried about the environmental vote. He felt free to veto
the Clean Water Act. After the election, Congress with its strong bipartisan majority
on green issues passed the bill over his veto and then armed Ruckelshaus with a
raft of new laws imposing strict pollution limits and specifying penalties for
violators.

As a firm believer in law enforcement, Ruckelshaus felt he had to go after some -

high-profile polluters—cities infamous for dumping waste into the air and local
rivers, or industrial giants indifferently fouling the skies and the waters. He felt he
had to show polluters as well as the public that the EPA took the new laws
seriously. Ruckelshaus took strong action. He banned DDT. He imposed a tight
deadline for reducing auto emissions. He sued cities like Atlanta, Cleveland, and
Detroit, and he took companies like Dow Chemical and U.S. Steel to court. His
tough approach made enemies, especially in Corporate America.

“Most of the people running big American manufacturing facilities in those days
believed this was all a fad,” he recalled. “They figured all they had to do was sort of
hunker down until public opinion subsided, public concern subsided, and it would go
away.” When Ruckelshaus made clear that he was going to enforce the new
environmental laws, corporate leaders got angry. “I was the epicenter of hell,”
Ruckelshaus recalled with a laugh. “I remember going up to see Ed Gott, who was
the CEO of U.S. Steel, and he told me, ‘You know, we don’t like your agency, and
we don’t like you.’ And I said, ‘Well, okay, get in line, a lot of people don’t like me.
But you’ve got to comply with these laws. We can discuss timelines of compliance,
but not whether or not you’re going to comply. And if that’s your attitude, then we
are probably going to get in a fight over it.’ In the end, we sued U.S. Steel and they
came into compliance.”

Perhaps most surprising for Nixon, given his philosophical sympathies for business
interests, was his proposal for a tax bill that hit high-end taxpayers and helped low-
wage workers. Moving to bring budgets more into balance, Nixon called in 1969 for
repeal of the business investment tax credit granted by Democrat John F. Kennedy,
thus raising corporate taxes by nearly $3 billion. His package also included an
increase in the capital gains tax rate; restrictions on the use of tax shelters by the
wealthy; and a new “low-income allowance” that removed two million of the
working poor from the tax rolls. As Ed Dale wrote in The New Republic, the Nixon
tax package was “far and away the most ‘anti-rich’ tax reform proposal ever [sic]
proposed by a Republican President in the 56 years of the existence of the income
tax.”

Business Mobilizes

In this political climate, Lewis Powell’s corporate manifesto hit a responsive chord.
Business sprang to life politically. After having kept government at arm’s length,
the business community massively expanded its physical presence in the nation’s
capital. In a few short years, more than 2,000 companies set up Washington
offices. The number leapt from 175 in 1971 to 2,445 a decade later. Previously,
business politicking had been fragmented, each company operating on its own.
Now, business made a concerted effort to organize a broad coalition. Corporations
founded new think tanks like the Heritage Foundation and the Cato Institute and
vastly stepped up funding for the previously modest American Enterprise Institute,
to generate policy analysis from a business perspective.

The chief executives of some of America’s blue ribbon corporations—Irving Shapiro

of DuPont, Reginald Jones of General Electric, Thomas Murphy of General Motors,
and Walter Wriston of Citibank—banded together to form the Business Roundtable
to leverage the personal clout of the nation’s most powerful CEOs in face-to-face
meetings with congressional leaders.

As the core of a new management movement in politics, the Roundtable recruited

180 CEOs from the corporate elite—CEOs with the stature to call anyone in
Washington and get their call answered. “If you don’t know your senators on a first-
name basis, you are not doing an adequate job for your stockholders,” GM’s Tom
Murphy told them bluntly.

The Roundtable quickly became, and remains today, the main political arm of big
business in Washington, with a large, professional, full-time staff. Initially, what
united these powerful CEOs was a resolve to curb the power of labor unions, but
they quickly expanded their agenda to cover the full spectrum of economic policy
issues, not only labor law, but taxes, antitrust regulation, banking, and
employment.

Small business, too, became a major political player. From 1970 to 1979, the
National Federation of Independent Business, the major trade group for small
business, leapt from 300 members to 600,000. To connect with this sprawling
network, the organization had 600 full-time employees at its California
headquarters and a Washington office of 20.

The National Association of Manufacturers moved its national headquarters to

Washington and mobilized its business network nationwide. The U.S. Chamber of
Commerce, which had been slumbering politically, woke up. Its membership
doubled to 80,000 companies in 1974, its budget tripled, and by 1980 it employed
45 full-time lobbyists. Trade associations mushroomed, representing nearly every
sector of the U.S. economy. By 1978, nearly 2,000 different trade associations were
operating in Washington, with a combined staff of 50,000 employees. Amply funded
by their business members, the national organizations and trade groups hired an
army of professionals—9,000 lobbyists and 8,000 public relations specialists—to
work the corridors of power.

In fact, by the late 1970s, business interests had mustered such a huge force that
they outnumbered Congress 130 to 1: They had 130 lobbyists and advocates for
each of the 535 members of Congress.

With all that corporate muscle, business shifted the political balance of power in
Washington, and that caused a huge swing of the policy pendulum in favor of the
corporate elite—at the expense of the middle class.
A parallel transformation was coming in economics with the onset in the 1980s of
the New Economy and a business mind-set focused on corporate downsizing, off-
shoring production, and rewriting the social contract that had been an important
foundation of middle-class prosperity in the long postwar period.

But the first bend in the path of American history came in the late 1970s—while the
Democrats were firmly in control of Congress and the White House.

Excerpted from Who Stole the American Dream? by Hedrick Smith Copyright ©
2012 by Hedrick Smith. Excerpted by permission of Random House, a division of
Random House, Inc. All rights reserved. No part of this excerpt may be reproduced
or reprinted without permission in writing from the publisher.