Understanding the break between elite and everyday interests

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During his confirmation hearings to be President Eisenhowerā€™s Secretary of Defense, General Motors President Charles Wilson famously told Congress, in response to questions about conflicts of interest between GM and America: ā€œFor years I thought what was good for our country was good for General Motors, and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country.ā€

At the time, what he said was basically true. The interests of the American elite, such as corporate CEOs, were essentially aligned with that of America as a whole. If GM wanted to sell cars, it needed citizens who could afford to buy them, making American prosperity paramount. At the same time, GMā€™s workforce was almost entirely North American. And GM made most of the components that went into its cars itself, here in the United States and Canada. Hence, if GM succeeded in sales and profitability, that would result in many more good-paying jobs for workers (and great pay for executives). To be sure, there were conflicts between GMā€™s shareholders and its workers over how the profits should be divided, often leading to acrimonious strikes. But it was very possible for there to be a win-win-win outcome in which shareholders and management, production workers, and America as a whole all succeeded together.

In an era of financialization, outsourcing, and globalization, this is no longer true. Companies and their shareholders can reap enormous gains without broad-based American prosperity. They can grow while reducing the number of well-paid workers in the U.S. and instead shipping manufacturing to China, IT to India, and customer service to the Philippines. With the threat of this type of offshoring hanging over their heads, workers have much more limited leverage to obtain a better distribution of profits for themselves.

This lack of alignment is repeated in a sort of fractal pattern at different levels of society. My policy work has focused mostly on cities. Many of the same forces that broke alignment between elite and overall civic success at the national level also did the same at the urban level.

A combination of business practices and early 20th century laws made it so that the elite of most American cities was dominated by people whose economic fortunes were deeply tied to the prosperity of the city itself.

Foremost among these were bankers. Most states heavily restricted the ability of banks to open branches, such as limiting them only to the same county as the headquarters. Some didnā€™t even allow branches at all. As late as 1980, interstate bank mergers were all but banned. This meant most cities had locally based banks that were typically geographically restricted to their home city or county. With competitive markets making it difficult to steal customers from other banks, the main way to grow the bank, to get more deposits and make more loans, was for the city itself to grow and prosper. In this environment, the president of the biggest local bank was likely the biggest power broker in town.

But in the 1980s and 1990s, a wave of deregulation paved the way for national-scale banks. We see the results all around us, with the ubiquity of a handful of large banks like Chase and Bank of America. There are still many local banks, but the major players are national or regional. Their success is not tied to the fortunes of any particular market, or even dependent on traditional banking at all thanks to the repeal of laws like the Glass-Steagall Act. The ā€œpresidentā€ of the local market for one of these banks is in reality a regional branch manager without much power in the corporation. And his career progress often requires bouncing to a bigger opportunity in another market.

It’s a similar story for utilities, where the Public Utility Holding Company Act, since repealed, prevented national scale utilities. Most large cities had their own utilities. If they wanted to make more money, they had to sell more electricity, and the only way to do that was for the city to grow and for demand to increase. Thereā€™s been major consolidation in this industry too.

This consolidation was repeated in many sectors such as newspapers and media, and department stores. Some industries were left out the mix. Law firms, for example, remained mostly local. But these are now merging as well.

Those corporations that remain locally based are often still independent because they themselves grew into large national or global concerns. The CEOs of these companies are often very civically committed, but due to their global responsibilities, have only a limited amount of time to dedicate to purely local matters.

The net result is that today the majority of American cities no longer have civic elites who both have real corporate or institutional power, and economic interests aligned with the prosperity of their city. One result is that they advocate essentially the same viewpoints and policy set as national and global elites, regardless of what would be best for their own community. This is largely not a cynical or even conscious choice. They are caught up in the groupthink of their class. In some cases they work for those national elites and so have no choice.

Just as one example: the national elites now support unlimited globalization and immigration because it helps them personally even if there have been major downsides to America as a whole. So do urban sub-elites, who now often report to national elites in a city far away, even though these policies might not be good for their own city. Or when national elites go all in on DEI, so do urban sub-elites. National elites set the national agenda in their own interest, and local elites follow along behind. They are no longer truly independent elites. Thatā€™s one reason we donā€™t have sectional political rivalries in the way we used to in the United States, the kind that could drive politics responsive to the interests of everyday Americans. Regardless of local needs and interests, all elites and sub-elites nationally basically think the same.

This lack of a strong tie between the personal economic success of elites and broader civic success is one of the underlying sources of American dysfunction such as national income inequality and highly unequal levels of success between cities, with some booming and others failing. We canā€™t and shouldnā€™t want to go back to the old model exactly as it once existed. But we need to find a way to ensure that American elites at the national level and throughout our society have more real skin in the game so that their own success is not divorced from that of the nation or city they lead.

Aaron M. Renn
Aaron M. Renn is a senior fellow at American Reformer. His writing can be found at www.aaronrenn.com.
@aaron_renn
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