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 The Powell Memo: A Call-to-Arms for Corporations

The Powell Memo: A Call-to-Arms for Corporations

September 14, 20121 2 Next 

In this excerpt from Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class, authors Jacob S. Hacker and Paul Pierson explain the significance of the Powell Memorandum, a call-to-arms for American corporations written by Virginia lawyer (and future U.S. Supreme Court justice) Lewis Powell to a neighbor working with the U.S. Chamber of Commerce.

In the fall of 1972, the venerable National Association of Manufacturers (NAM) made a surprising announcement: It planned to move its main offices from New York to Washington, D.C. As its chief, Burt Raynes, observed:

We have been in New York since before the turn of the century, because we regarded this city as the center of business and industry. But the thing that affects business most today is government. The interrelationship of business with business is no longer so important as the interrelationship of business with government. In the last several years, that has become very apparent to us.[1]

To be more precise, what had become very apparent to the business community was that it was getting its clock cleaned. Used to having broad sway, employers faced a series of surprising defeats in the 1960s and early 1970s. As we have seen, these defeats continued unabated when Richard Nixon won the White House. Despite electoral setbacks, the liberalism of the Great Society had surprising political momentum. “From 1969 to 1972,” as the political scientist David Vogel summarizes in one of the best books on the political role of business, “virtually the entire American business community experienced a series of political setbacks without parallel in the postwar period.” In particular, Washington undertook a vast expansion of its regulatory power, introducing tough and extensive restrictions and requirements on business in areas from the environment to occupational safety to consumer protection.[2]

In corporate circles, this pronounced and sustained shift was met with disbelief and then alarm. By 1971, future Supreme Court justice Lewis Powell felt compelled to assert, in a memo that was to help galvanize business circles, that the “American economic system is under broad attack.” This attack, Powell maintained, required mobilization for political combat: “Business must learn the lesson . . . that political power is necessary; that such power must be assiduously 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.” Moreover, Powell stressed, the critical ingredient for success would be organization: “Strength lies in organization, 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.”[3]

U.S. President Richard Nixon holds a commission that he will present to Lewis F. Powell Jr., left, and another will be given to William Rehnquist, right, at a White House ceremony in Washington, D.C., Dec. 22, 1971. The two men were appointed to the Supreme Court by President Nixon. (AP Photo/Charles Tasnadi)

Powell was just one of many who pushed to reinvigorate the political clout of employers. Before the policy winds shifted in the ’60s, business had seen little need to mobilize anything more than a network of trade associations. It relied mostly on personal contacts, and the main role of lobbyists in Washington was to troll for government contracts and tax breaks. The explosion of policy activism, and rise of public interest groups like those affiliated with Ralph Nader, created a fundamental challenge. And as the 1970s progressed, the problems seemed to be getting worse. Powell wrote in 1971, but even after Nixon swept to a landslide reelection the following year, the legislative tide continued to come in. With Watergate leading to Nixon’s humiliating resignation and a spectacular Democratic victory in 1974, the situation grew even more dire. “The danger had suddenly escalated,” Bryce Harlow, senior Washington representative for Procter & Gamble and one of the engineers of the corporate political revival was to say later. “We had to prevent business from being rolled up and put in the trash can by that Congress.”[4]

Powell, Harlow, and others sought to replace the old boys’ club with a more modern, sophisticated, and diversified apparatus — one capable of advancing employers’ interests even under the most difficult political circumstances. They recognized that business had hardly begun to tap its potential for wielding political power. Not only were the financial resources at the disposal of business leaders unrivaled. The hierarchical structures of corporations made it possible for a handful of decision-makers to deploy those resources and combine them with the massive but underutilized capacities of their far-flung organizations. These were the preconditions for an organizational revolution that was to remake Washington in less than a decade — and, in the process, lay the critical groundwork for winner-take-all politics.

Businessmen of the World, Unite!

The organizational counterattack of business in the 1970s was swift and sweeping — a domestic version of Shock and Awe. The number of corporations with public affairs offices in Washington grew from 100 in 1968 to over 500 in 1978. In 1971, only 175 firms had registered lobbyists in Washington, but by 1982, nearly 2,500 did. The number of corporate PACs increased from under 300 in 1976 to over 1,200 by the middle of 1980.[5] On every dimension of corporate political activity, the numbers reveal a dramatic, rapid mobilization of business resources in the mid-1970s.

What the numbers alone cannot show is something of potentially even greater significance: Employers learned how to work together to achieve shared political goals. As members of coalitions, firms could mobilize more proactively and on a much broader front. Corporate leaders became advocates not just for the narrow interests of their firms but also for the shared interests of business as a whole.

Ironically, this new capacity was in part an unexpected gift of Great Society liberalism. One of the distinctive features of the big expansion of government authority in the ’60s and early ’70s was that it created new forms of regulation that simultaneously affected many industries. Previously, the airlines might have lobbied the Civil Aeronautics Board, the steel companies might have focused on restricting foreign competitors, the energy producers might have gained special tax breaks from a favorite congressman. Now companies across a wide range of sectors faced a common threat: increasingly powerful regulatory agencies overseeing their treatment of the environment, workers, and consumers. Individual firms had little chance of fending off such broad initiatives on their own; to craft an appropriately broad political defense, they needed organization.

Business was galvanized by more than perceived government overreach. It was also responding to the growing economic challenges it faced. Organization-building began even before the economy soured in the early 1970s, but the tumultuous economy of that decade — battered by two major oil shocks, which pushed up inflation and dragged down growth — created panic in corporate sectors as well as growing dissatisfaction among voters. The 1970s was not the economic wasteland that retrospective accounts often suggest. The economy actually grew more quickly overall (after adjusting for inflation) during the 1970s than during the 1980s.[6] But against the backdrop of the roaring 1960s, the economic turbulence was a rude jolt that strengthened the case of business leaders that a new governing approach was needed.

When he penned his influential memo, Lewis Powell was chair of the Education Committee of the Chamber of Commerce. The Chamber was one of a number of business groups that responded to the emerging threat by becoming much more organized. The Chamber doubled in membership between 1974 and 1980. Its budget tripled. The National Federation of Independent Business (NFIB) doubled its membership between 1970 and 1979.[7]

Recognizing that lawmaking in Washington had become more open and dynamic, business groups remade themselves to fit the times.

The expansion of the Chamber and the NFIB signaled not only a rise in the collective capacity of business; it brought a harder-edged form of mobilization. Composed disproportionately of smaller firms, these organizations were especially livid about the rise of government regulation. Big companies had an easier time absorbing the administrative costs of complying with new rules, and more opportunities to pass the costs on to consumers. Moreover, business associations based on a multitude of small firms proved especially capable of mobilizing mass outrage, which would turn out to be a very effective political weapon.

Of course, big business fought back as well. In 1972, three business organizations merged to form the Business Roundtable, the first business association whose membership was restricted to top corporate CEOs. In part at the urging of Bryce Harlow, lobbyist for Procter & Gamble, this new organization combined two groups focused on relatively narrow business issues with an informal organization called the March Group. The March Group had grown out of a meeting with top Nixon administration officials and prominent executives and was designed to bring together many of the nation’s most powerful CEOs. Within five years the new mega-organization had enlisted 113 of the top Fortune 200 companies, accounting for nearly half of the economy.[8]

The Business Roundtable quickly developed into a formidable group, designed to mobilize high-level CEOs as a collective force to lobby for the advancement of shared interests. President Ford’s deputy treasury secretary Charls Walker, a leading corporate organizer about whom we’ll say more in a moment, later put it this way: “The Roundtable has made a lot of difference. They know how to get the CEOs into Washington and lobby; they maintain good relationships with the congressional staffs; they’ve just learned a lot about Washington they didn’t know before.”[9]

Keeping Up With the Naders

The role of the business community not only grew but expanded, shifting into new modes of organization that had previously been confined to its critics. Recognizing that lawmaking in Washington had become more open and dynamic, business groups remade themselves to fit the times. The expanding network of business groups would soon be capable of hoisting the public interest groups on their own petards. Using rapidly emerging tools of marketing and communications, they learned how to generate mass campaigns. Building networks of employees, shareholders, local companies, and firms with shared interests (for example, retailers and suppliers), they could soon flood Washington with letters and phone calls. Within a few years, these classically top-down organizations were to thrive at generating “bottom up”–style campaigns that not only matched the efforts of their rivals but surpassed them.

These emerging “outside” strategies were married to “inside” ones. Business organizations developed lists of prominent executives capable of making personal contacts with key legislative figures. In private meetings organized by the Conference Board, CEOs compared notes and discussed how to learn from and outmaneuver organized labor. In the words of one executive, “If you don’t know your senators on a first-name basis, you are not doing an adequate job for your stockholders.”[10]

Business also massively increased its political giving — at precisely the time when the cost of campaigns began to skyrocket (in part because of the ascendance of television). The insatiable need for cash gave politicians good reason to be attentive to those with deep pockets. Business had by far the deepest pockets, and was happy to make contributions to members of both parties. Clifton Garvin, chairman of both Exxon and the Business Roundtable in the early 1980s, summarized the attitude toward partisanship this way: “The Roundtable tries to work with whichever political party is in power. We may each individually have our own political alliances, but as a group the Roundtable works with every administration to the degree they let us.”[11]

The newly mobilized business groups understood that Democrats and Republicans could play distinct but complementary roles. As the party with a seemingly permanent lock on Congress, Democrats needed to be pried away from their traditional alliance with organized labor. Money was key here: From the late 1970s to the late 1980s, corporate PACs increased their expenditures in congressional races nearly fivefold. Labor PAC spending only rose about half as fast. In the early 1970s, business PACs contributed less to congressional races overall than labor PACs did. By the mid-1970s, the two were at rough parity, and by the end of the decade, business PACs were way ahead. By 1980, unions accounted for less than a quarter of all PAC contributions — down from half six years earlier. The shift was largest among Democrats, who were of course the most reliant on labor money: Nearly half of Senate incumbents’ campaign funds came from labor PACs in the mid-1970s. A decade later, the share was below one-fifth.[12]

By this time, however, business PACs were shifting away from their traditional focus on buttering up (mostly Democratic) incumbents toward a strategy that mixed donations to those in power with support for conservative political challengers. Such a pattern was evident in the critical election year of 1978. Through September of the election season, nearly half of corporate campaign contributions flowed into Democrats’ coffers. In the crucial weeks before the 1978 election, however, only 29 percent did. By the end of the 1978 campaign, more than 60 percent of corporate contributions had gone to Republicans, both GOP challengers and Republican incumbents fighting off liberal Democrats.[13] A new era of campaign finance was born: Not only were corporate contributions growing ever bigger, Democrats had to work harder for them. More and more, to receive business largesse, they had to do more than hold power; they had to wield it in ways that business liked.

Read the Powell Memo. (Download the PDF.)

Footnotes

• 1. National Journal, 1974, 14.
• 2. David Vogel, Fluctuating Fortunes: The Political Power of Business in America (New York: Basic Books, 1989), 59; R. Shep Melnick, “From Tax-and-Spend to Mandate-and-Sue: Liberalism After the Great Society,” in The Great Society and the High Tide of Liberalism, Sidney Milkis and Jerome Mileur, eds. (Amherst, MA: University of Massachusetts Press, 2005).
• 3. Lewis Powell, “Confidential Memorandum: Attack on the Free Enterprise System,” August 23, 1971, quoted in Kim Phelps-Fein, Invisible Hands: The Making of the Conservative Movement from the New Deal to Reagan (New York: Norton, 2009), 158, 160.
• 4. Thomas Byrne Edsall, The New Politics of Inequality (New York: Norton, 1984), 114.
• 5. Vogel, Fluctuating Fortunes, ch. 8.
• 6. Calculated from http://www.bea.gov/national/xls/gdplev.xls.
• 7. Ibid., 198.
• 8. Vogel, Fluctuating Fortunes, 198; John Judis, The Paradox of American Democracy: Elites, Special Interests, and the Betrayal of Public Trust (Pantheon: New York, 2000), 121.
• 9. Quoted in Sidney Blumenthal, The Rise of the Counter-Establishment: From Conservative Ideology to Political Power (New York: Times Books, 1986), 80.
• 10. Quoted in Leonard Silk and David Vogel, Ethics and Profits: The Crisis of Confidence in American Business (New York: Simon & Schuster, 1976), 65.
• 11. Blumenthal, Rise of the Counter-Establishment, 78.
• 12. Taylor E. Dark, The Unions and the Democrats: An Enduring Alliance (Ithaca, NY: Cornell University Press, 1999), 149.
• 13. Vogel, Fluctuating Fortunes, ch. 8

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Excerpt from Winner -Take-All Politics by Jacob S. Hacker and Paul Pierson
Copyright © 2010 by Jacob S. Hacker and Paul Pierson. Reprinted by permission of Simon & Schuster, Inc, NY. For more information please visit www.SimonandSchuster.com.