Thursday, February 17, 2011

How Has Cleavage Become Less Cross Cutting

In my last post I advanced a thesis that the problem for our democracy wasn't money in politics, that's always been there, but instead that there is a greater community of interest among the wealthy today than in the past, the wealthy have advantages of organization that allow their interests to operate across multiple districts, and fewer groups exist today that can operate with similar reach and influence within districts.  So what has changed over the past 30 years to lead to this result?  This is by no means a complete (or even all that well thought out) list but just my general impression.  It could certainly use some research to look at how influential various groups have been and to examine the degree to which they were cross cutting.  However, that's beyond the scope of a blog post.  Please feel free to suggest additional groups I'm ignoring or pointing out connections I missed, I'm curious how well this would stand up to serious scrutiny.

So the first issue is what changed to provide a unity of purpose among the wealthy that was previously lacking.  The first issue is the rise of multinational corporations.  This has been going on for some time and in my opinion is probably on the whole a good thing.  This does however make it very difficult for local or state governments to check a corporation since they are so mobile and even restricts the Federal government to some degree.  It provides a unity of purpose by focusing all those involved in these corporations on issues such as repatriating foreign earnings as well as on US trade law.  Before, businesses would have had more competing interests by which state they operated in, with this development their competing interests are all abroad while they are a more unified front in regards to US policy as a whole.

The second issue is the financialization of the US economy.  This is linked to deregulation and increased possibility of profits and to probably a greater degree the lowering of the capital gains tax.  This vastly increased incentives for the wealthy to focus on income from capital gains rather than from income from dividends or other sources of profit from their businesses.  Since finance and investment impacts all businesses this led the wealthy to have a greater community of interest in making it easier to earn from sources that would provide from capital gains rather than focusing on what benefited the earnings from their particular line of business.  By making capital more fungible, individual investors had less incentive to be divided among the lines of their particular business and more incentive to identify with other investors relative to their individual industries.

The third issue is the emergence of a greater sense of identification among elites.  I don't want to make too big a deal of this, especially since I haven't read any of the books that discuss this at length, but the idea that there is a global elite that shares a number of values and interests and feels little attachment to individual countries has become common enough that I give it some credence, at the margins anyway.  To the extent this is true, it makes coordination easier and provides more forums for the individuals involved to meet each other and to begin to identify with a shared set of values rather than being divided among groups identifying more with their home state and region and thus having more common purpose with their region of origin rather than other elites.

I'm being far more long winded than I intended, or have time for.  The rest of this post will be more summary.

These trends have to be set against countervailing trends that previously existed and created cleavages among elites that have either become weaker or disappeared.  A number of these spring to mind.  Racial issues used to create fissures across all strata of society, rich and poor alike were on one side or the other of this divide which helped to prevent too much community of interest amongst one group.  The Vietnam War was another dividing line that crossed lines of income, rich and poor alike were strongly opposed and this created fissures preventing the formation of strong communities of interest along lines of wealth.    While the Iraq War inspired some similarities to the Vietnam era, without the issue of the draft this didn't have nearly the same level of resonance across all groups.

There has also been a decline in organized groups able to act on both the national and local stage as effectively as corporations and the wealthy in general can today.  The decline in unionization is certainly the biggest one of these.  Groups associated with racial issues and the Vietnam War also had more ability to act on this stage, by linking themselves to these issues they had a ready made audience that would be sympathetic to their agenda making them more effective national actors. 

This isn't to say there are no countervailing groups today.  The continued existence of these groups and ability to stake out and defend their interests against a more unified group of the wealthy is what makes me believe that the solution is more focus on the national stage rather than some kind of class war that seeks to tear the wealthy down.  In particular, AARP has been extremely effective in mobilizing both in the national stage and in local districts.  It's no secret that a number of the groups most patronized by the wealthy members of societies don't like the programs AARP defends and its member depend on, namely Social Security and Medicare.  AARP has been very effective at defending these programs, their ability to mobilize nationally and influence local elections insures that their interests will be strongly defended against all comers.  Contrast this with Medicaid which has faced increasingly steep cuts and reductions over the past few years, especially in the states.  It is much easier for the community of interests for the wealthy to mobilize nationally and locally and to influence state governments, and to a lesser degree the national, to cut these programs since those impacted by this, the poor and people with medical conditions, lack the ability to mobilize both nationally and locally to fight back against these pressure groups.

The Medicaid issue brings me to the next point, which is that there are still some cross cutting cleavages among business groups, even if I believe these are often less salient for the reasons noted above.  Specific to Medicaid, this split off a lot of the medical industry against other business groups.  While they had an interest to oppose the combination of other business interests, they lacked any other powerful groups to ally with and often lost (though there was probably less community of interest between the medical industry and the patients who wanted to defend Medicaid in the first place, making an alliance more difficult).  Another major area where these cleavages still exist is in regards to China, where importers and exporters are often at odds.  There also seem to be some divisions between old economy companies and the sort of new economy (to use some rather tired terms for something that I currently lack a better term for dividing) companies that have a division of interest between trying to compete on cost and trying to compete on quality.  This leads to a division that some businesses desire a low service low cost environment while the other companies need a high service high cost environment to produce the workers they need.

My point being that the cross cutting cleavages our system relies on still exist, but the unintended consequences of some policy decisions, mostly regarding the financial industry, have inadvertently created a much more powerful and organized faction than existed previously.  The reduction in power of opposing interests have only exacerbated this problem.  But this problem is different from the problem of money in politics per se, money has always been in politics and our system has worked well enough without the need for deep seated reforms.  However, when institutions have changed to provide the money interests with greater community and less issues to create divisions within them, their ability to influence politics increases due to their unity and geographic reach.  The same would be true if poor people* magically became more united across the country and sought to influence politics directly.  Our system is built with the idea that all groups will be divided amongst themselves and that these divisions will prevent any kind of long term coordination amongst one group against the rest of society.  When these divisions become less sharp and the incentives for coordination amongst one group relative to others increases then our system begins to break down and have problems, something I believe has been happening for the past several decades.

* In Federalist 10 Madison posits a division between the poor and wealthy.  I don't believe this division holds today, it's an artifact of the classical bent of Madison and the other Founders.  Agrarian societies needed property to produce, labor markets were extremely thin and uncertain meaning that those without land had extremely strong incentives to unite against those that did, they may easily starve if they couldn't get it.  These incentives are different in a modern society.  I often here about government hand outs creating a culture of dependence as an updated version of this (and to some degree Marxist arguments are similar).  I have never seen any proof of this.  While I haven't researched the data in detail, glancing at workforce participation data and unemployment rates leads me to think there is little, if any, relation between government social supports influencing these rates (retirement age does have a big effect). 

This is of course linked to thinking that people are wealth maximizers, which is a common economic assumption.  I believe instead that people are status maximizers, with wealth accumulation being one way to acquire status.  This explains what we actually observe.  Having known people that are on welfare my experience has always been that people hate being on it, they just aren't very good workers or have a sense of entitlement to a better position than their experience qualifies them for and are angry and resentful at lower status jobs and don't last long (I hear things like I went to college and won't accept anything other than an office job, which you can't get if you have 0 work history).  Others I knew wouldn't even think about government assistance until they had fully exhausted the patience of friends, acquaintances, and strangers.  Government aid was a last option and they were always trying to get off (there are exceptions, such as the woman who really wants to be a mother and doesn't care how she gets the money to care for a kid, these people would be a problem and get assistance with or without government aid however).

Another issue is that working with the government, I know a big problem with assistance programs is getting people to sign up.  People resist government handouts, and resent the idea they need assistance.  They usually try to get off them as soon as possible.  Many of them can't, these are individuals who just aren't able to function effectively in markets.  An area where people do take assistance is with areas that are just outside of their ability to pay, like medical expenses where there just isn't another option, or areas where the assistance will increase status, like education assistance.  These are exceptions to the rule.

That was a longer digression than planned.  There was one more short piece I wanted to add to this, on effective vertical links between moneyed groups and the population at large and the lack of effective horizontal links between non-wealthy groups, I may get to that tonight.


  1. I think the problem of money in politics, political corruption due to money in politics, globalization, financial deregulation, the growth of debt and the existence of a very self-satisfied class of elites are all connected. It's part of the boom-bust cycle.

    Although it does not match exactly in an Austrian economics sort of way, if you look at the trends in the net worth of the Us presidents, the times of high net worth presidents have an inverse relationship to the nation being at peace and having increasing living standards for average workers. (The trends are much longer here- the last 30 years have been bad, but the 50 years before were good) Obama, for example, while born to modest means is a millionaire from the sale of his book. This makes him a toss-up in my analysis, since a plutocrat should be given elite positions by birth rite-like Bush or Ms. Clinton, but the fact that being elected president automatically makes one a millionaire is not good either.

  2. Actually, sorry.

    There is maybe a relationship between the net worth of individual presidents and the economic health of the country. For instance Andrew Jackson has the highest net worth of presidents in his time period and over saw the worst financial panic of the 18th century.

    I looked back over a list of presidents' net worth and the long-term trend shows that there were only two periods no/low wealth candidates were competitive for elections: during the Ante-Bellum and Reconstruction Periods and before and after the Depression. (High wealth presidents, Hoover and Roosevelt, occur during the Great Depression. Unusual high wealth president also occurs in the Panic of 1907.). My theory is that Americans and even elites elect and help find "quality" candidates once the situation gets bad enough. Remember there had also been a serious financial panic in 1901, so the elites must have known there were problems.

    Anyway, I think the elites just don't think todays problems are their problems yet, since they think they can escape with golden parachutes. It's not bad enough. Meddling in democratic politics is one symptom.

  3. Isn't this here blog a horizontal connection between non-moneyed people?

  4. Interesting theory about Presidential wealth, it's a subject I know absolutely nothing about. Do you have any idea what wealth in the legislature looks like? With more individuals and faster turnover that may likely provide a more detailed data set to explore long term trends. Also, since my thesis is linked to the idea that lack of national representation is a problem, being able to compare the President with the legislature would be a contrast I'd be interested in.

  5. Doug,

    Sure. And I'd say the Tea Party is an example of how these kinds of connections can be effective. I don't think there's a lack of horizontal connections among non-moneyed people, I just don't think there's the same unity of purpose. I can think of a lot of single issue groups but these often act at cross purposes to each other and are focused at distributing the existing pie, rather than trying to make it larger.

    Meanwhile, my thesis is that changes in our country have led to the wealthy having a clearer path towards increasing their pie relative to everyone elses and this has led to a greater unity of purpose amongst them (though not necessarily to formal collaboration, they just have similar concerns and express these concerns separately to their representatives).

    So while plenty of informal groups like this blog, or formal groups like a traumatic brain injury advocacy group, exist most of them are focused on trying to protect or increase the distribution of existing resources that goes to them rather than some other group of non-moneyed people. Few groups are focused on trying to increase the share of total wealth going to non-moneyed people generally (such as through a more favorable tax code to their form of income) while many groups are focused on trying to increase the share of total wealth going to wealthy people (such as through a more favorable tax code to their form of income).

    This is what I'm positing the difference as beign, circumstances provide the wealthy with shared concerns leading to effective collaboration amongst them in increasing their share, while circumstances have moved against non-wealthy people having a natural unity of purpose leading to ineffective (or more often, non-existant) collaboration meaning that their share of new growth declines because they are not organized to make effective claims, while the wealthy are. I'm going to mention tax code changes in my next post to address some of the issues that I think are driving this, in addition to horizontal and vertical linkages.

  6. Or, to more succinctly put what I just wrote, there remains plenty of horizontal connections, it's the effectiveness of them that I question.