3. Learning Objectives
2.1 Explain the mechanisms that promote
monopolistic capitalism and the consequences
of each on a capitalist society.
2.2 Describe how the U.S. government is
biased in favor of the wealthy.
2.3 Explain the links between wealth, power,
and the U.S. political system.
2.4 Demonstrate how corporations benefit from
government actions.
4. 2.1 - U.S. Economy: Concentration
of Corporate Wealth
• Monopolistic Capitalism
• Transnational Corporations
• Concentration of Wealth
5. LO 2.1 - Monopolistic Capitalism
• Shared monopolies
• Megamergers
– The ten largest mergers in U.S. history have
occurred in the last 15 years
• Interlocking Directorates
– The linkage between corporations through a
direct or indirect interlock
6. LO 2.1
In addition to amusement parks, Disney has media holdings including
ABC, ESPN, The Disney Channel, Hyperion Books, ABC radio, Walt
Disney Pictures, Miramax Films, Buena Vista Productions, and Pixar.
7. LO 2.1 - Transnational Corporations
• Move production to low-wage nonunion
countries
• Lower foreign production costs
• Less strict labor safety and environmental
protection laws
8. LO 2.1 - Concentration of Wealth
• Concentration of corporate wealth
• Concentration of private wealth
• Convergence of income tax policies
11. LO 2.1 - Explorer Activity: The Distribution of Wealth:
Characteristics of Wealth in Southern Connecticut
http://www.socialexplorer.com/pearson/plink.aspx?Please log into MySocLab with your
username and password before accessing
this link.
12. LO 2.1
Interlocking directorates concentrate power
and benefit companies through the
__________.
A. distribution of funds
B. sharing of information
C. management of employees
D. creation of teams
13. LO 2.1
Interlocking directorates concentrate power
and benefit companies through the
__________.
A. distribution of funds
B. sharing of information
C. management of employees
D. creation of teams
14. LO 2.1
The largest corporations control the world’s
economy.
A. True
B. False
15. LO 2.1
The largest corporations control the world’s
economy.
A. True
B. False
16. 2.2 - Political System: Links Between
Wealth and Power
• Government by Interest Groups
• Financing of Political Campaigns
• Candidate Selection Process
17. LO 2.2 - Government by Interest Groups
• Are we a democracy?
– Special interest groups hire lobbyists to persuade
legislators to vote their way.
– At the national level, lobbying in 2011 was a $3.32
billion business.
– Special interest groups violate the principle of
democracy.
18. LO 2.2 - Financing of Political Campaigns
• Campaign financing is undemocratic
• Campaigns are funded by candidates and special
interest groups
• Contributors gain unfair access to politicians
• Bipartisan Campaign Reform Act
– McCain-Feingold law
• Citizens United v. Federal Election Commission
19. LO 2.2
Used with permission of Clay Bennett and the Washington Post Writers Group in
conjunction with the Cartoonist Group. All rights reserved.
20. LO 2.2
Candidates from both political parties hobnob with the rich and
famous to finance their political campaigns.
21. LO 2.2
In 2008, PhRMA, the pharmaceutical industry trade group, spent
$200,000 on federal elections. After the Citizens United decision, it spent
$9.5 million.
22. LO 2.2 - Candidate Selection Process
• The selection of candidates is related to
campaign finance
• One must have money or be able to raise
money to win
• Political parties are constrained by campaign
finance to nominate candidates with views
aligned to those with money
23. LO 2.2 - Video: Politics in the United
States
http://media.pearsoncmg.com/ph/hss/SSA_SHARED_
24. LO 2.2
According to the textbook, the platforms of
main political parties are similar because
they both __________.
A. emerged from the same party
B. consist of educated individuals
C. need donations to run for office
D. are represented on television
25. LO 2.2
According to the text, the platforms of main
political parties are similar because they
both __________.
A. emerged from the same party
B. consist of educated individuals
C. need donations to run for office
D. are represented on television
26. LO 2.2
Individuals are limited in the campaign
donations that they can give to individual
candidates but not to PACs.
A. True
B. False
27. LO 2.2
Individuals are limited in the campaign
donations that they can give to individual
candidates but not to PACs.
A. True
B. False
28. 2.3 - Bias of the Political System
• Power elite
– Elite can use power to their advantage
• Systemic imperatives
– The institutions of society are patterned to produce
prearranged results
• Power
– Ability to get what one wants from someone else
29. LO 2.3
Systemic imperatives limit decision makers
because __________.
A. no change to the status quo is
easier than change
B. PACs influence the choices
available
C. power is concentrated in the
hands of many
D. numbers are more powerful than
the wealthy
30. LO 2.3
Systemic imperatives limit decision makers
because __________.
A. no change to the status quo is
easier than change
B. PACs influence the choices
available
C. power is concentrated in the
hands of many
D. numbers are more powerful than
the wealthy
31. LO 2.3
Personal wealth is the same as power.
A. True
B. False
32. LO 2.3
Personal wealth is the same as power.
A. True
B. False
33. 2.4 - Consequences of Concentrated
Power
• Subsidies to Big Business
• Trickle-Down Solutions
• The Powerless Bear the Burden
• Foreign Policy for Corporate Benefit
• Reprise: The Best Democracy Money Can
Buy
34. LO 2.4 - Subsidies to Big Business
• Business can conduct its affairs either
undisturbed by or encouraged by government,
whichever is of greater benefit to the business
community.
35. LO 2.4 - Trickle-Down Solutions
• Subsidizing business to benefit “everyone”
– An effort to stimulate the economy
• Harms the disadvantaged:
– Increases the inequality gap
– Greater national debt, which then is used to justify
cutting welfare programs
– Weak job growth
36. LO 2.4 - The Powerless Bear the Burden
• Great Recession of 2007
– Where were cuts made?
• Military
– Who actually got drafted?
– Who serves?
37. LO 2.4 - Foreign Policy for Corporate
Benefit
• Military goods for sale overseas
• Support for foreign governments
38. LO 2.4 - Reprise: The Best Democracy
Money Can Buy
The sabotage of democracy by money:
1. It makes it harder for government to solve social
problems.
2. The have-nots of society are not represented among
the decision makers.
3. The money chase creates part-time elected officials
and full-time fundraisers.
4.Money diminishes the gap between the two major
political parties.
5.Money discourages voting and civic participation.
6. Special interests get special access to the decision
makers.
39. LO 2.4
The United States has supported tyrannical
foreign governments when they
__________.
A. change to democracy
B. enter into peace treaties
C. support U.S. corporate interests
D. are in economic trouble
40. LO 2.4
The United States has supported tyrannical
foreign governments when they
__________.
A. change to democracy
B. enter into peace treaties
C. support U.S. corporate
interests
D. are in economic trouble
41. LO 2.4
Trickle-down economic solutions benefit the
lower class the most.
A. True
B. False
42. LO 2.4
Trickle-down economic solutions benefit the
lower class the most.
A. True
B. False
43. LO 2.4
Question for Discussion
Discuss the multifaceted relationship
between politics and money.
Editor's Notes
The study of social problems requires the critical examination of the structure of society. Some readers will find this approach uncomfortable, even unpatriotic.
This chapter is divided into three sections.
The first describes the U.S. economy, with its concentration of corporate and private wealth.
The second examines the political system and its links to economic elites.
The final section shows how the politicoeconomic system is biased in favor of those who are already advantaged.
Capitalism
Adam Smith-style free market with competition among innumerable small competitors.
Capitalists respond to the demands of the market.
The U.S. economy has always been based on the principles of capitalism; however, the present economy is far removed from a free enterprise system.
It is now dominated by huge corporations that, contrary to classical economic theory, control demand rather than respond to the demands of the market.
Capitalism and its problems
Karl Marx predicted that capitalism was doomed by several inherent contradictions that would produce a class of people bent on destroying it.
The most significant of these contradictions for our purposes is the inevitability of monopolies.
Marx hypothesized that free enterprise would result in some firms becoming bigger and bigger as they eliminated their opposition or absorbed smaller competing firms.
For the most part, the evidence in U.S. society upholds Marx’s prediction.
Less than 1 percent of all corporations produce over 80 percent of the private-sector output.
Shared monopolies. Most sectors of the U.S. economy are dominated by a few corporations. Instead of one corporation controlling an industry, the typical situation is domination by a small number of large firms.
Megamergers occur when big firms combine with other big firms to create even bigger firms.
Negative consequences:
(1) It increases the centralization of capital, which reduces competition and raises prices for consumers.
(2) It increases the power of huge corporations over workers, unions, politicians, and governments.
(3) It reduces the number of jobs.
(4) It increases corporate debt.
(5) It is nonproductive. Elaborating on this last point, mergers and takeovers do not create new plants, products, or jobs. They create profits for chief executive officers, lawyers, accountants, brokers, bankers, and big investors.
Interlocking Diretorates.
These arrangements have great potential to benefit the interlocked companies by reducing competition through the sharing of information and the coordination of policies.
Direct interlock = individual serves on the board of directors of two companies
Indirect interlock = two companies have a director on the board of a third company
This process of economic concentration provides the largest companies with enormous economic and political power.
Disney is an example of a media monopoly.
The globalization of the largest U.S. corporations makes corporations’ power all the greater. This fact of international economic life has very important implications for social problems, both at home and abroad.
The consequences of this shift in production from the United States to other countries are significant.
Most important is the reduction or even drying up of many semiskilled and unskilled jobs in the United States.
This leads to increased welfare costs and increased discontent among people in the working class.
Another result of this concentration of power and internationalization of corporations is the enormous power held by transnational corporations.
The largest corporations control the world economy. Their decisions to build or not to build, to relocate a plant, or to start a new product or scrap an old one have tremendous impacts on the lives of ordinary citizens in the countries they operate from and invest in and on their disinvestment in U.S.-based operations.
Transnational corporations tend to meddle in the internal affairs of other nations to protect their investments and maximize profits.
These activities include attempts to overthrow governments considered unfriendly to corporate interests and payment of millions of dollars in bribes and political contributions to reactionary governments and conservative leaders in various countries.
The other discrepancy between free enterprise in its real and ideal states is the undue concentration of wealth among a few individuals and corporations.
Corporate Wealth. Wealth is centralized in a few corporations and the concentration is only increasing.
Less than 1 percent of all corporations account for over 80 percent of the total output of the private sector.
One percent of all food corporations control 80 percent of all the industry’s assets and about 90 percent of the profits.
Six transnational corporations ship 90 percent of the grain in the world market.
Private Wealth
Capitalism generates inequality. Wealth is concentrated not only in the largest corporations but also among individuals and families.
The combined net worth of the 400 richest Americans in 2011 was more than the total wealth of the bottom 185 million Americans.
The United States also had the largest number of ultra high net worth households (2,928), worth $100 million or more, and 363 billionaire households.
Convergence of Income. The statistics are more dramatic when looking at wealth, but the convergence of income is still highly concentrated.
In 2010, the share of the national income of the richest 20 percent of households was 50.2 percent, while the bottom 20 percent received only 3.3 percent of the nation’s income.
Another measure of this increasing gap is the difference in earnings between the heads of corporations and the workers in those corporations.
Tax policies have 4 major consequences:
They exacerbate the unequal distribution of wealth in the United States, which is already the most unequal in the Western world.
Huge tax cuts occurred at the very time that the United States was conducting two costly wars in Iraq and Afghanistan and spending huge amounts to get the country out of the greatest economic disaster since the Great Depression. The result: a dramatic increase in the national debt.
The ever-increasing debt is used to justify reductions in government spending for programs that help the less fortunate, and it weakens public institutions that benefit society.
The increasing political influence of the wealthy.
Especially noteworthy is the sharp gain in the Gini index, which measures the magnitude of income concentration, from 1970 to 2010.
Tax cuts harm the poorest in society by cutting into programs used by low-income people.
In many ways, the U.S. government represents the privileged few rather than the majority.
Although the government appears democratic, with elections, political parties, and the right to dissent, the influence of wealth prevails.
This influence is seen in the disproportionate rewards the few receive from the politicoeconomic system and in government decisions that consistently benefit them.
Some argue the United States is becoming an oligarchy (a government ruled by a few) as opposed to a democracy (a political system in which the majority rules).
Others ague that the United States is actually a plutocracy (a government by or in the interest of the rich).
Chapter 2, Activity 2
What is the Purpose of Government?
A fundamental question such as this is rarely discussed. Usually a government’s purpose is taken for granted. Try having small groups grapple with this question. Core beliefs, values, and attitudes usually make up the foundation of whether individuals believe a minimalist government (laissez-faire or libertarian) or a welfare state (socialistic government) is most beneficial for society.
What societal problems are the result of the structure and purpose of each type of government?
How does a government become an oligarchy if it starts with democratic principles?
What beliefs, values, and norms can we identify that relate to what the purpose of government should be?
Who is defining the role of the government as a problem?
What social structures contribute to the making of an oligarchy versus a democracy?
Democracy may be defined as a political system that is of, by, and for the people.
It is a system under which the will of the majority prevails, there is equality before the law, and decisions are made to maximize the common good.
The principles that define a democracy are violated by the rules of the Senate and by special-interest groups.
Special interest groups use deals, propaganda, and the financial support of political candidates in an attempt to deflect the political process for their own benefit.
The argument supporting lobbying is that, on various issues, there are lobbyists on both sides.
However, of the top twenty organizations in spending to influence legislation, there is only one quasi-liberal group, the AARP. All of the rest speak for the top 1 percent of the income distribution.
The existence of lobbyists does not ensure that the national interest will be served, only that the interests of the powerful typically get their way.
Chapter 2, Activity 1
Lobbying
Show a film clip from the movie Bulworth that centers on the insurance lobbyist who is sure that Senator Bulworth will support legislation of the industry’s behalf. This makes for a good discussion of how those who are given favorable access promote and expect a reciprocal response from the legislative body that works in their favor.
Possible Questions for the Class to Consider:
How do you feel when someone gives you something just to listen to them talk about their product?
How sympathetic are you to the notion that “the business of America is business”?
Are jobs more important than what a company produces? Where do you draw the line between principle and profit?
How much of lobbying is covered under the category of “free speech,” which is protected by the First Amendment?
What beliefs, values, and norms relate to lobbying?
Who is defining lobbying as a problem?
What social structures contribute to lobbying and the influence lobbyists have over politicians?
Campaigns are becoming increasingly expensive, with money needed to pay for staff, direct-mail operations, phone banks, computers, consultants, and media advertising.
The cost of the presidential and congressional elections in 2008 was $5.3 billion (up from $2.2 billion in 1996), including monies from the federal government, individuals, political parties, and organizations outside political parties.
Winning a seat is expensive.
Candidates must either be wealthy or accept money from various sources to finance expensive campaigns.
These costly campaigns favor incumbents, who have an easier time raising money than their opponents.
The most favored recipients of political money are the chairs of powerful congressional committees.
Even with controls the most powerful candidates have found ways around campaign contribution laws.
The McCain-Feingold law limited the use of “soft money” in federal elections.
Before this act was passed, individuals, corporations, unions, and other organizations were allowed to give unlimited amounts of money to political parties at the national, state, and local levels or to other private organizations technically independent of candidates.
There was a loophole in 527s.
Advocacy groups, tax exempt under Section 527 of the Internal Revenue Code, finance political advertisements while not directly calling for the election or defeat of specific candidates
McCain-Feingold limited maximum contributions to $2,300 per election cycle.
The Citizens decision in 2010 invalidated McCain-Feingold and other laws at the state level.
The Supreme Court felt the limitations of McCain-Feingold were violations of free speech.
Individuals are limited to $2500 for the primary and $2500 for the general election, but can give unlimited amounts to PACs (political action committees)
The PACs can spend unlimited amounts of money advertising for their cause.
The super-rich can prevail through the PACs
Perhaps one of the most undemocratic features (at least in its consequences) of the U.S. political system is how political campaigns are financed.
The power elite is not organized and conspiratorial, but the interests of the wealthy are served, nevertheless, by the way in which society is organized.
Super donors played a major role in the 2012 Republican presidential primaries, as two-thirds of the money for the candidates’ super PACs came from mega-donors who contributed at least
$500,000.
Citizens United v. Federal Election Commission), in 2010, invalidated part of the McCain-Feingold campaign finance reform law, which sought to limit corporate influence, by ruling that the constitutional guarantee of free speech means that corporations, labor unions, and other organizations can spend unlimited sums to help elect or defeat political candidates.
Being wealthy or having access to wealth is essential for victory because of the enormous cost of the race. A few wealthy individuals can fund their own candidacies.
A serious candidate for high office must raise a considerable amount and most of this will represent a limited constituency—wealthy individuals and special interest groups.
Affluent individuals and the largest corporations influence candidate selection by giving financial aid to those candidates sympathetic to their views and by withholding support from those whose views differ.
Power elite refers to the concentration of power in the hands of a small group.
Power in the United States is concentrated among people who control the government and the largest corporations.
This assertion is based on the assumption that power is not an attribute of individuals but rather of social organizations.
Power positions are high government positions and positions on boards of corporations.
It would be a mistake, however, to equate personal wealth with power.
Great power is manifested only through decision making in the very large corporations or in government.
The interests of the powerful are served through the way in which society is structured. The bias occurs in three ways:
by the elite’s influence over elected and appointed government officials at all levels
by the structure of the system
by ideological control of the masses
Systemic imperatives limit the decisions made by decision makers. So, the power elite can get its way without actually being mobilized at all.
How does this work?
A bias pressures the government to do certain things and not to do other things.
Inevitably, this bias favors the status quo, allowing people with power to continue to exercise it.
No change is easier than change.
The current political and economic systems have worked and generally are not subject to questions, let alone change.
The laws, customs, and institutions of society resist change.
Thus, the propertied and the wealthy benefit, while the those without property and the poor remain disadvantaged.
Power is the ability to get what one wants from someone else by force, authority, manipulation, or persuasion.
U.S. schools, churches, and families possess this power. The schools, for instance, consciously teach youth that capitalism is the only correct economic system.
This indoctrination to conservative values achieves a consensus among the citizenry concerning the status quo.
Each of us comes to accept the present arrangements in society because they seem to be the only options that make sense.
Thus, there is general agreement on what is right and wrong.
Who benefits from how power is concentrated in U.S. society? At times, almost everyone does; but often the decisions made tend to benefit the wealthy. Whenever the interests of the wealthy clash with those of other groups or even of the public at large, the interests of the former are served.
When the market crashed in 2008, who was bailed out?
When a corporation is found guilty of major crimes how do the punishments compare to those of street criminals?
The bias today is nothing new. Since the founding of the country the government has favored the interests of the wealthy.
General principle of the relationship between the government and big business.
The government benefits the business community with hundreds of billions in subsidies annually.
Corporations receive a wide range of favors: tax breaks, direct government subsidies to pay for advertising, research and training costs, and incentives to pursue overseas production and sales.
The textbook gives many examples, but here are a couple:
Eleven days after the terrorist attacks of September 11, 2001, Congress rushed through a $15 billion bailout of the airlines. But nothing was appropriated for 140,000 fired airline workers or to the 2 million people employed by the hotel industry whose jobs were at risk.
In 2008, the more than $700 billion in government bailouts to banks and financial firms actually rewarded them for the reckless behaviors that led to the Great Recession.
The government could help the disadvantaged, but trickle-down solutions fall under the idea that helping businesses helps everyone else.
Trickle-down solutions actually cause harm to the disadvantaged:
Tax breaks to the wealthy help the wealthy become wealthier increasing the gap.
Trickle-down solutions create greater national debt. When the debt is higher, government cuts are made to programs that help the disadvantaged.
Trickle-down solutions have actually shown very weak job growth.
Recession cuts
Typically, social programs for the disadvantaged were targeted, not subsidies for businesses or tax breaks for homeowners.
Drafts
A careful analysis of the draft reveals that it is really a tax on the poor. During the height of the Vietnam War, for instance, only 10 percent of college men were drafted, although 40 percent of draft-age men were in college.
Enlistment
Wars are fought by those from disadvantaged backgrounds. The economic advantages are appealing.
In most areas, the poor, because they have no power, bear the burden of society.
The United States sometimes sells arms overseas (which benefits U.S. corporations) to both sides in a conflict.
Why? If we didn’t sell them someone else would, so why not make a profit?
The United States has favored foreign governments that support our corporate interests. Even if the government is tyrannical.
The United States has intervened in domestic affairs of foreign governments to protect U.S. corporate interests.
How can social change occur when money interests block change in policy or deplete resources?
Those in office are from a different social class than the “have-nots.” Without representation in the decision-making process, the voices of the have-nots will not be heard.
Elected officials are looking toward the next election and spend part of the time in office raising money. How can they do their jobs if they are on the fundraising trail?
Candidates from both major political parties seek funds from the same corporations and interest groups (those with money). The views of political parties on social policy and more are closer than we realize to appeal to the people giving money.
If people feel their vote doesn’t count because they are not among the wealthy, why participate? This is reflected in the voter turnout numbers.
If you have special access to decision makers, you also get special treatment.
