In 1985, the Dow Jones average jumped 27.66 percent. Making money in stocks, as a journalist put it, “was easy.” With lower interest rates, low inflation, and “takeover fever,” investors could throw a dart at a list of stocks and profit.
The next year was also very good. The average gain of a Big Board stock in 1986 was 14 percent, with equity market indexes closing at a record high.
For the top performers, the amounts of money involved were staggering.
In 1987, Michael Milken awarded himself $550 million in compensation. In New York City, spending by bankers—a million dollars for curtains for a Fifth Avenue apartment, a thousand dollars for a vase of precious roses for a party—was obscene. A major financier announced in the Hamptons one night that “if you have less than 750 million, you have no hedge against inflation.” In Paris, a jeweler “dazzled his society guests when topless models displayed the merchandise between courses.” In west Los Angeles, the average price of a house in Bel Air rose to $4.6 million. There was so much money it was nicknamed “green smog.”
Ambitious men now wanted to change the world through finance. Bruce Wasserstein had been a “Nader’s Raider” consumer advocate; he now worked at First Boston as one of the most successful mergers and acquisitions bankers of the 1980s. Michael Lewis wrote his best-seller Liar’s Poker as a warning of what unfettered greed in finance meant, but instead of learning the lesson, students deluged him with letters asking if he “had any other secrets to share about Wall Street.” To them, the book was a “how-to manual.”
Finance was the center, but its power reached outward everywhere. The stock market was minting millionaires in a collection of formerly sleepy towns in California. Sunnyvale, Mountain View, Los Altos, Cupertino, Santa Clara, and San Jose in the 1960s had been covered with “apricot, cherry and plum orchards,” and young people there often took summer jobs at local canneries. Immediately after Reagan’s election, in December of 1980, Apple Computer went public, instantly creating 300 millionaires, and raising more money in the stock market than any company since Ford Motor had in its initial public offering of shares in 1956. A young Steve Jobs was instantly worth $217 million.
Meanwhile, the family farmer had lots of people who said they were friends at election time – even the glamorous music industry put on a giant “Farm Aid” concert in 1985 to raise money for bankrupt growers. But there was no populist leader like Congressman Wright Patman had been during the New Deal in the Democratic Party anymore. On the contrary, “new” Democrats like Dale Bumpers and Bill Clinton of Arkansas worked to rid their state of the usury caps meant to protect the “plain people” from the banker and financier. And the main contender for the Democratic nomination in 1988, the handsome Gary Hart, with his flowing—and carefully blow-dried—chestnut brown hair, spoke a lot about “sunrise” industries like semiconductors and high-tech, but had little in his vision incorporating the family farm.
It wasn’t just the family farmer who suffered. On the South Side of Chicago, U.S. Steel, having started mass layoffs in 1979, continued into the next decade, laying off more than 6,000 workers in that community alone. Youngstown, Johnson, Gary—all the old industrial cities were going, in the words of the writer Studs Terkel, from “Steel Town” to “Ghost Town.” And the headlines kept on coming. John Deere idled 1,500 workers, GE’s turbine division cut 1,500 jobs, AT&T laid off 2,900 in its Shreveport plant, Eastern Air Lines fired 1,010 flight attendants, and docked pay by 20 percent. “You keep saying it can’t get worse, but it does,” said a United Autoworker member.
And all the time, whether in farm country or steel country, the closed independent shop and the collapsed bank were as much monuments to the new political order as the sprouting number of Walmarts and the blizzard of junk-mail credit cards from Citibank. As Terkel put it, “In the thirties, an Administration recognized a need and lent a hand. Today, an Administration recognizes an image and lends a smile.”
Regional inequality widened, as airlines cut routes to rural, small, and even medium-sized cities. So did income inequality, the emptying farm towns, the hollowing of manufacturing as executives began searching for any way to be in any business but one that made things in America. It wasn’t just the smog and the poverty, the consumerism, the debt, and the shop-till-you-drop ethos. It was the profound hopelessness.
Within academic and political institutions, Americans were taught to believe their longing for freedom was immoral. Power was re-centralizing on Wall Street, in corporate monopolies, in shopping malls, in the way they paid for the new consumer goods made abroad, in where they worked and shopped. Yet policymakers, reading from the scripts prepared by Chicago School of Economics “experts,” spoke of these changes as natural, “scientific,” a result of consumer preferences, not the concentration of power.
By the time of the 1992 election, there was a sullen mood among the voters, similar to that of 1974. “People are outraged at what is going on in Washington. Part of it had to do with pay raises, part of it has to do with banks and S&Ls and other things that are affecting my life as a voter,” said a pollster. That year, billionaire businessman Ross Perot ran the strongest third-party challenge in American history, capitalizing on anger among white working-class voters, the Democrats who had switched over to Reagan in the 1980s. He did so by pledging straightforward protectionism for U.S. industry, attacking the proposed North American Free Trade Agreement (NAFTA), and political corruption. Despite a bizarre campaign in which he withdrew and then reentered the race, Perot did so well he shattered the Republican coalition, helping throw the election to the Democrats. There would be one last opportunity for the Democrats to rebuild their New Deal coalition of working-class voters.
The winner of the election, Bill Clinton, looked like he might do so. He had run a populist campaign using the slogan “Putting People First.” He attacked the failed economic theory of Reagan, criticized tax cuts for the rich and factory closings, and pledged to protect Americans from foreign and domestic threats. “For too long, those who play by the rules and keep the faith have gotten the shaft,” Clinton said. “And those who cut corners and cut deals have been rewarded.” His campaign’s internal slogan was “It’s the economy, stupid,” and the 1992 Democratic platform used the word “revolution” 14 times.
As a candidate, Clinton’s Democratic platform called for a “Revolution of 1992,” capturing the anger of the moment. But the platform was written by centrist Democratic Leadership Council boss Al From, and for the first time since 1880 there was no mention of antitrust or corporate power, despite a decade with the worst financial manipulation America had seen since the 1920s. This revolution would be against government, in government, around government. In 1993, a book came out on lobbying in Washington. Wayne Thevenot, a Clinton donor, laid out the new theme of the modern Democratic Party: “I gave up the idea of changing the world. I set out to get rich.”
Like Reagan, Clinton went after restrictions on banking. Reagan sought to free restrictions on finance by allowing banks and non-banks to enter new lines of business. Clinton continued this policy, but over the course of his eight years attacked restrictions on banks themselves. In 1994, the Clinton administration and a Democratic Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act, which allowed banks to open up branches across state lines. Clinton appointed Robert Rubin as his treasury secretary, super-lawyer Eugene Ludwig to run the Office of the Comptroller of the Currency, and reappointed Alan Greenspan as the chairman of the Federal Reserve.
All three men worked hard through regulatory rulemaking to allow unfettered trading in derivatives, to break down the New Deal restrictions prohibiting commercial banks from entering the trading business, and to let banks take more risks with less of a cushion. Citigroup finally got an insurance arm, merging with financial conglomerate Travelers Group, approved by Greenspan, who granted the authority for the acquisition under the Bank Holding Company Act. In 1999, Clinton and a now-Republican Congress passed the Gramm-Leach-Bliley Act, which fully repealed the Glass-Steagall Act that had shattered the Houses of J.P. Morgan and Andrew Mellon. The very last bill Clinton signed was the Commodity Futures Modernization Act of 2000, which removed public rules limiting the use of exotic gambling instruments known as derivatives by now-enormous banks.
Clinton signed the Telecommunications Act of 1996, which he touted as “truly revolutionary legislation,” and this began the process of reconsolidating the old AT&T as the “Baby Bells” merged. At the signing ceremony, actress Lily Tomlin reprised her role as a Ma Bell operator. Huge pieces of the AT&T network came back together, as Baby Bells merged from seven to three. Clear Channel grew from 40 radio stations to 1,240. In 1996, the Communications Decency Act was signed, with Section 230 of the Act protecting certain internet businesses from being liable for wrongdoing that occurred on their platform. While not well understood at the time, Section 230 was one policy lever that would enable a powerful set of internet monopolies to emerge in the next decade.
Clinton also sped up the corporate takeover of rural America by allowing a merger wave in farm country. Food companies had always had some power in America, but before the Reagan era, big agribusinesses were confined to one or two stages of the food system. In the 1990s, the agricultural sector consolidated under a small number of sprawling conglomerates that organized the entire supply chain. Cargill, an agricultural conglomerate that was the largest privately owned company in America, embarked on a series of mergers and joint ventures, buying the grain-trading operations of its rival, Continental Grain Inc., as well as Azko Salt, thus becoming one of the largest salt production and marketing operations in the world.
Monsanto consolidated the specialty chemicals and seed markets, buying up DeKalb Genetics and cotton-seed maker Delta & Pine Land. ConAgra, marketing itself as selling at every link of the supply chain from “farm gate to dinner plate,” bought International Home Foods (the producer of Chef Boyardee pasta and Gulden’s mustard), Knott’s Berry Farm Foods, Gilroy Foods, Hester Industries, and Signature Foods. As William Heffernan, a rural sociologist at the University of Missouri, put it in 1999, a host of formal and informal alliances such as joint ventures, partnerships, contracts, agreements, and side agreements ended up concentrating power even further into “clusters of firms.” He identified three such clusters—Cargill/Monsanto, ConAgra, and Novartis/ADM—as controlling the global food supply.
The increase in power of these trading corporations meant that profit would increasingly flow to middlemen, not farmers themselves. Montana senator Conrad Burns complained his state’s farmers were “getting less for our products on the farm now than we did during the Great Depression.” The Montana state legislature passed a resolution demanding vigorous antitrust investigations into the meatpacking, grain-handling, and food retail industries, and the state farmer’s union asked for a special unit at the Department of Justice to review proposed agricultural mergers. There was so little interest in the Clinton antitrust division that when Burns held a Senate Commerce Committee hearing on concentration in the agricultural sector, the assistant attorney general for antitrust, Joel Klein, didn’t bother to show up. “Their failure to be here to explain their policies to rural America,” said Burns, “speaks volumes about what their real agenda is.”
In the Reagan era, Walmart had already become the most important chain store in America, surpassing the importance of A&P at the height of its power. But it was during the Clinton administration that the company became a trading giant. First, the corporation jumped in size, replacing the auto giant GM as the top private employer in America, growing to 825,000 employees in 1998 while planting a store in every state. The end of antitrust enforcement in the retail space meant that Walmart could wield its buying power to restructure swaths of industries and companies, from pickle producers to Procter & Gamble. Clinton allowed Walmart to reorder world trade itself. Even in the mid-1990s, only a small percentage of its products were made abroad. But the passage of NAFTA—which eliminated tariffs on Mexican imports—as well as Clinton’s embrace of Chinese imports, allowed Walmart to force its suppliers to produce where labor and environmental costs were lowest. From 1992 to 2000, America’s trade deficit with China jumped from $18 billion to $84 billion, while it went from a small trade surplus to a $25 billion trade deficit with Mexico. And Walmart led the way. By 2003, consulting firm Retail Forward estimated more than half of Walmart merchandise was made abroad.
Clinton administration officials were proud of Walmart, and this new generation of American trading monopolies, dubbing them part of a wondrous “New Economy” underpinned by information technology. “And if you think about what this new economy means,” said Clinton deputy treasury secretary Larry Summers in 1998 at a conference for investment bankers focusing on high-tech, “whether it is AIG in insurance, McDonald’s in fast-food, Walmart in retailing, Microsoft in software, Harvard University in education, CNN in television news—the leading enterprises are American.”
It was also under Clinton that the last bastion of the New Deal coalition—a congressional majority held by the Democrats since the late 1940s—fell apart as the last few holdout southern Democrats were finally driven from office or switched to the Republican Party. And it was under Clinton that the language of politics shifted from that of equity, justice, and potholes to the finance-speak of redistribution, growth and investment, and infrastructure decay.
The Democratic Party embraced not just the tactics, but the ideology of the Chicago School. As one memo from Clinton’s Council of Economic Advisors put it, “Large size is not the same as monopoly power. For example, an ice cream vendor at the beach on a hot day probably has more market power than many multi-billion-dollar companies in competitive industries.”
During the 12 years of the Reagan and Bush administrations, there were 85,064 mergers valued at $3.5 trillion.
Under just seven years of Clinton, there were 166,310 deals valued at $9.8 trillion.
This merger wave was larger than that of the Reagan era, and larger even than any since the turn of the twentieth century, when the original trusts were created. Hotels, hospitals, banks, investment banks, defense contractors, technology, oil—everything was merging.
The Clinton administration organized this new concentrated American economy through regulatory appointments and through non-enforcement of antitrust laws. Sometimes it even seemed they had put antitrust enforcement itself up for sale. In 1996, Thomson Corporation bought West Publishing, creating a monopoly in digital access to court opinions and legal publishing; the owner of West had given a half a million dollars to the Democratic Party and personally lobbied Clinton to allow the deal. The DOJ even approved the $81 billion Exxon and Mobil merger, restoring a chunk of the Rockefeller empire.
Clinton advisor James Carville very early on in Clinton’s first term noted what was happening.
“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter,” he said.
“But now I want to come back as the bond market. You can intimidate everybody.”
Toward the end of Clinton’s second term, with a transcendent stock market, bars in the United States began switching their television sets from sports scores to CNBC, to watch the trading in real time.
In the 1990s, it wouldn’t be Herbert Hoover overseeing a bubble, it would be a Democrat.
* * *
Finally, Matt pointed out on Twitter that: “This chapter is about Clinton. But there are two chapters before about how Reagan facilitated the merger boom of the 1980s. Our problems came through both parties. Both. That is crystal clear.“