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February 23, 2003
REVIEWS: American plutocracy
Kevin Phillips has been a thoughtful political and economic commentator for more than three decades. In 1969 he published his landmark book The Emerging Republican Majority. His bestseller The Politics of Rich and Poor was described as a “founding document” of the 1992 presidential election. In his latest book, Wealth and Democracy: A Political History of the American Rich he warns that America is fast becoming a plutocracy and the spirit of democracy is in decline.
Nor does he believe America’s international position to be secure. The US presents the “aging visage of the leading world economic power—purple-veined with years of high living, lips curled with the insolence of great wealth, eyes bloodshot with the late vigils of increasingly frequent financial crises,” Phillips writes. Most ominously, Phillips compares the US, post- September 11, to Holland in the early 1700s and Britain in the 20th century, when each nation, at the peak of its economic power, expended its energy and treasure in a burst of warfare leading to their decline as world powers.
Although this book is, at times, repetitive and the narrative is complex because it is more thematic than sequential, Wealth and Democracy is a book for our times. In ten fact-filled chapters, Phillips meticulously traces the phases of wealth concentration and the politics of the affluent from J.P. Morgan to Bill Gates and shows that the United States is in the grip of a rule of the rich controlled by Wall Street and big business.
According to the author, the rising inequality of incomes and wealth in America since the late 1970s has been striking, although few seem consciously aware of it. The wealthiest one per cent of households now own more than 40 per cent of all assets, including homes and financial investments (after deducting debt) — higher than in any year since 1929. On the other hand, the lowest 40 per cent of Americans own only one per cent of American assets.
An important driver of this trend towards huge inequality, he says, is America’s move from a manufacturing economy to an economy heavily dependent upon services, especially financial services. “So-called laissez faire is a pretence,” he writes, “Government power and preferment have been used by the rich, not shunned.”
In sweeping terms, Phillips describes the consequences of this inequality. First, “financial corruption”, the process by which wealthier Americans bent the rules of the economic system in pursuit of their own interest. The scandals at Enron, World Com, Merrill Lynch, Global Crossing, and elsewhere are examples of this mounting problem. Second, Phillips talks of the political corruption that has come from a growing infusion of money into politics, both through campaign contributions and lobbying. This has resulted in a political system that is increasingly beholden to wealthy interests and gives less attention to the concerns of ordinary Americans.
Finally, Phillips talks of the cultural corruption that comes with great concentrations of wealth — namely, the fraying of America’s social fabric and a culture that is highly materialistic and lacking in strong community values.
Shockingly, according to Kevin Phillips, there’s a parallel to the little known early 20th century domestic terrorism in America and to what happened on 9/11. In 1920, outside J.P. Morgan’s bank, a 100-pound TNT bomb exploded: 38 bystanders killed, 200 maimed, a car tossed 20 feet in the air, windows of the Stock Exchange shattered. Evidence of the attack remains on what’s still the Morgan Bank just blocks from 9/11’s ground zero. Writes Phillips: “Terrorism got started right after the first world war, and that’s when all of this took place,” he writes. “And I think we’ve seen something like that developing in the 1990s and now in the new century. It’s a fierce reaction based on a sense that things are out of control and the power structure has gotten too rich and too remote.”
The great compassionate conservative, The Duchess of Windsor, once remarked: “You can never be too rich or too thin.” And that is precisely the most important insight in Wealth and Democracy when it reveals the central flaw in conservative mythology: wealth is not value.
Critics of Phillips’ book — including an editorial in Business Week — while agreeing with his thesis that inequality in America has increased in the last two decades argue that the whole pie has also grown bigger. What they forget is at what cost? What about the $8 trillion household debt? What about the one billion dollars a day that US now needs to borrow from abroad to finance its current account deficit making it the largest debtor nation in the world? What happens when foreign creditors call in their loans?
I agree with Phillips that when the US stock market has lost nearly $7 trillion in the last three years, without 9/11, President Bush would by now be in serious political trouble for weak and pro-corporate management of the economy. And that is the cautionary tale in Wealth and Democracy. The US government, he says, “concerned with protecting wealth may do at the expense of democratic procedures and may try to blame terrorism rather than flawed economic policy for hard times.”
As America enters a fourth year with huge losses in the US financial markets and prepares for war with Iraq, Phillips believes that the United States is ripe for a historical correction. “As the 21st century gets under way, the imbalance of wealth and democracy in the US is unsustainable.”
In 1969, Phillips wrote about the failure of the liberal establishment because the Democrats broke their covenant with Middle America. Today it is the Republicans who starting with Reagan talked about the market and the promises of capitalism that have broken their covenant with Middle America. And that is the key factor, which is bound to see a major reaction.
Wealth and Democracy: A Political History of the American Rich
By Kevin Phillips
Broadway Books
ISBN 0-7679-0533-4
473pp. $29.95
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