How Big Money Keeps Populism At Bay

When the 1 percent funds national campaigns, the reality of populism is in question.

Did the ball that dropped in Times Square at midnight on January 1 really signal a new political era?

Headlines in the major media proclaim that a wave of “populism” is building. Inequality and the minimum wage are suddenly front-burner political issues. Cities like New York and Boston have just elected progressive mayors with strong ties to unions and are now being touted  as liberal laboratories for testing the limits of the grudging free-market conservatism and neo-liberalism that have been the sun and moon of our political system for decades.

Even the atmosphere within the DC Beltway is subtly altering. The steady decline of the deficit is turning the tables on the massively funded campaign to cut Social Security and Medicare. In December 2013, the corporate-oriented Democratic policy group Third Way launched a campaign in the Wall Street Journal to smear Massachusetts Sen. Elizabeth Warren and other Democratic politicians who favor raising Social Security benefits. It backfired ignominiously.

Progressive groups mounted a powerful counterattack. Within days politicians started tumbling off the centrist bandwagon, and the president of the Center for American Progress, perhaps the most important of all the corporate-funded, centrist Democratic think tanks (with perhaps the best ties to the White House) spoke out against efforts to short-circuit discussions of inequality and whether the rich were paying their fair share of taxes.

With evidence like this, you don’t need a weatherman to tell you that political winds are shifting. But we are old enough to remember Nixon attorney general John Mitchell’s famous admonition to “watch what we do, not what we say.” For sure, the new mayors of Boston and New York genuinely hope to usher in real, progressive change in their cities, yet the larger national context gives us pause.

Reality Check

Three facts are crucial in understanding what is happening. Firstly, the national Democratic Party is in deep trouble as it faces the 2014 Congressional elections. The strong media framing of “populist” tendencies reflects a prior White House determination signaled by the President himself to move left to reenergize voters turned off by the serial disasters of 2013, including the economy’s continuing doldrums, public revulsion against surveillance, and the healthcare rollout debacle. Not for nothing has John Podesta, Bill Clinton’s one-time chief of staff and the key figure in the Center for American Progress, returned to the White House, even as he was being touted as Hillary Clinton’s likely adviser on handling inequality as a political issue.

Secondly, after five years, the Obama administration has simply failed to deliver on the economy. Whoever you blame for this — the Republicans for stonewalling, the timidity and mistakes of the President and his advisers, or sheer Washington gridlock —the plain fact is that even with the modest uptick in the economy, ordinary Americans are really hurting. Unlike 2012 (despite all the reminders we will be getting about the Kochs and their allies within the GOP), the Democrats cannot count on running against a Republican nominee who looks, acts, and talks like someone Central Casting selected to caricature the GOP as the party of the superrich. Even now, Stanford’s John Taylor and other Republican economists are mounting increasingly aggressive attacks on the administration’s record. Regardless of how you assess their claims, they are certain to reverberate in 2014.

The most important background condition concerns the facts of political money. Until the campaign reports for the 2013-14 political cycle are filed, the precise facts will be elusive, but the leadership of both major parties appear to be concentrating on activities that are anything but populist. They are beseeching big donors for money at a breakneck pace, while the Supreme Court prepares to take up, and possibly strike down, another of the few restrictions on money in politics left, namely, the limits on total contributions to formal political parties and candidates.

Campaign $$ More Concentrated Than Ever

Despite all the commentary about super-PACs, the situation is even worse than you think. Our analysis of political money in the 2012 elections confirmed that it’s not simply that the apparent relation of money to votes in congressional elections appears to be shockingly direct – indeed, almost a straight line. The larger problem is that campaign donations turn out to be far more concentrated than even we imagined.

Presidential elections probably draw more money and interest from ordinary Americans than other, less visible campaigns at lower levels, where funds from corporate PACs commonly make up much larger shares of the totals. So if you want a guide to what political money in the 2014 congressional elections will look like, the answer is that it will probably look like an even more lopsided version of 2012.

And in 2012, alas, political money was absurdly top heavy. Basically the campaign was a contest between different parts of the 1 percent.

For 2012, we looked at regular presidential campaign committees, plus 527s, super-PACs, and other forms of independent expenditures that supported those campaigns, and combed these sources for every “itemized” contribution by specific contributors. We also tracked down all the lump sum reports of un-itemized contributions — that is, those totaling less than $200 from individual contributors, wherever they could be found, including 527 committees that report to the IRS, not the Federal Election Commission. This allowed us to directly compare revenue streams to candidates and parties from big and small donors alike. (See our full-length study, published by the Roosevelt Institute.)

Here’s what we found: small donations were almost twice as important in percentage terms to President Obama’s campaign as they were to Romney’s. About 37 percent of the President’s political money consisted of unitemized contributions amounting to less than $200. Romney’s percentage was just over half of that — 18 percent. This is important, and on its face, appears to support traditional views of Republicans as the party of affluent Americans.

But there is more to the picture. When you sort through all the contributions that appear to be coming from different people and firms and add them all up, the true extent to which both major party campaigns depend on big donors emerges. For both, contributions of $10,000 or more bulk larger than un-itemized contributions.

Exactly who qualifies as a member of the famous 1 percent of top income earners is not easy to assess. TheEconomist suggested in 2012 (on the basis of figures for 2007) that the cutoff might be as low as $347,000. Other, perhaps less careful estimates put the threshold higher— at somewhat over a half a million dollars. In any case, we think it is reasonable to treat contributions over $500 as coming largely from the 1 percent.

If you apply that standard, then our study of 2012 implies that both major party campaigns float their campaigns on the basis of appeals to the 1 percent — fully 59 percent of President Obama’s campaign funding in 2012 came from contributions of $500 or more (56 percent if one applies the higher threshold of $1,000!) while 79 percent of the funds mobilized by Romney’s campaign originated there.

If you reckon, as we suspect many politicians actually do, not in terms of total funds raised, but total itemized contributions — $200 or more, or in other words the money that comes with somebody’s name on it — the dependence on the 1 percent becomes breathtaking: Almost two thirds of the itemized financing for the President’s campaign came from donors contributing more than $10,000, while over 70 percent of the Romney campaign’s financing comes from donors of that scale. By that metric, both major party presidential hopefuls rely for about 90 percent of their funding on donors giving a $1000 or more.

Direct financial contributions to presidential races by labor unions are relatively low – our figures indicate about $47 million in 2012. By contrast, labor contributions to congressional campaigns ran substantially higher – more than $200 million, though those are far outweighed by spending by business and affluent Americans. The best face one can put on all this is that if you assume that the un-itemized funds come mostly from unorganized average Americans, then you understand that while the 1 percent largely funds both presidential parties, average folks continue to have a more substantial toehold among the Democrats. (We will consider the case of the Tea Party another time; suffice for now to say that Mitt Romney’s serious challengers, Gingrich and Santorum, benefited from very large contributions indeed. Candidates like Bachmann and Cain, who really did run heavily on small donations, flamed out fast.)

What both major investors and candidates have long known is true: a relatively small number of giant sources provide most of the funding for successful major party candidates. The relatively thin stream of small contributions simply does not suffice to float (conventionally managed) national campaigns and all insiders know it.

Populism and Big Money Don’t Mix

We are now in the sixth year of prolonged austerity following a major financial collapse. If you step back and assess the see-saw pattern of American electoral behavior since 2008, it is plain that many voters are responding rather like voters in many countries did in the Great Depression: their first response is simply to vote the outs back into office. When that doesn’t work, they try again, voting back in the outs. When things still fail to improve, they drift to extremes, and begin exploring strange new alliances that signal deeper desperation. Both the Tea Party and the Occupy movements represent early forms of this pattern; the dismay driving them remains potent.

State and municipal unions are now being hammered like industrial unions were some decades ago, with well-funded campaigns mounted to persuade voters that things like pensions are luxuries that, really, no rich person should ever have to pay taxes for. The relentless attacks launched by the political right at the state level, as well as the increasing nationalization of political finance even there, pose enormous threats to these unions. Doesn’t sound like populism, does it?

In areas where unions retain strength, it makes perfect sense for them to band together behind candidates they trust, pool resources to make sizeable political investments, and make a progressive case directly to the electorate. These open and unapologetic appeals, which mainstream, business-oriented Democrats have long recoiled from, clearly come as a tonic to many fed up voters who sense that they are being fleeced by banks, telecom providers, and the medical-industrial complex.

In New York, where Mayor Bloomberg has left essentially all labor contracts for de Blasio somehow to negotiate, and in Boston, where similar issues are unresolved, both local and national unions mobilized. In Boston, quite unprecedented amounts of outside spending rolled into the election, much of it from labor sources.

Once upon a time, mobilization on this scale would have triggered a media blizzard of warnings about the dangers of a takeover of City Hall by “special interests” (as labor is routinely labeled; bankers, of course, usually are not). In both Boston and New York, there was some of this, and there will likely be more. But national Democratic elites, including the investor blocs that back them, are in a bind and they know it. They are cautiously experimenting to see if they can work out arrangements with the newly assertive state and municipal unions and work with and through them to better reach out to African Americans, women, Hispanics, and other groups that Republicans have thus far scorned. The problem, of course, is that they are walking a tightrope. What they promise voters cannot cut seriously against the interests of their major donors.

History Lesson

This is not the first time in world history that alert leaders of a declining empire dominated by a giant financial sector have been tempted to juryrig political coalitions with organized workers and hard-pressed groups that are coming under pressure to organize in their own defense. In Great Britain just before World War I, “Lib-Lab” (Liberals and Labor) coalitions emerged; after the war, Keynes and Lloyd George famously tried to revive that alliance to end furiously maintained austerity policies and an over-valued currency that were crushing living standards. In 1931, those efforts failed calamitously. Britain abandoned the gold standard, the British navy threatened to mutiny, and most liberals split from labor, as a conservative “National” government headed by a former labor Prime Minister took power. It was a big setback for “populism,” though in the longer run those tumultuous events were clearly stages in the birth of an independent Labor Party.

Whether we are seeing something akin to the earlier British case is anyone’s guess. The finances of American cities depend crucially on Washington, not mayors; the latter’s powers are very limited. And city finances depend above all on the still feeble American economy. A few mistakes, clumsy contract negotiations, or bad economic luck could shatter the nascent accords beyond repair. By contrast, even a modest economic recovery would lift city finances and with that, chances that populist mayors can actually deliver to long suffering constituents.

It is interesting that even some Republicans appear see the logic of striking deals with what’s left of the organized workforce, if only to divide and fool. As New Jersey Governor Chris Christie explained recently: “We have an opportunity as a party to drive a wedge in the union movement…And the laboratory where that is happening right now is in my state.’” As the Wall Street Journal reported, Christie “contrasted his long-running feuds with the state’s public-sector unions with his friendliness toward the private-sector unions, noting that he had won the endorsement of 24 building-trade unions.”

Our conclusion is that the fabric of American politics may in fact be breaking down, but the basic structure of national power is, if anything, hardening. The most important fact about political talk is the real context in which the conversation occurs. And in 2014, that context is clear: Competition between the national political parties mostly represents competing blocs of the 1 percent. These older national political forces are now testing whether they can absorb and profit from changing local power constellations thrown up by years of persisting austerity. Whether the old center or the new populists come out on top will be a critical issue going forward; the fate not only of the Democratic Party, but the whole political system may well hang in the balance.

The authors’ “Party Competition and Industrial Structure in the 2012 Elections” has just appeared in the International Journal of Political Economy, Vol. 42, No. 6 (2013), pp. 3-41.