Capital Strikes as a Corporate Political Strategy: The Structural Power of Business in the Obama Era

• Author: Michael Schwartz,Kevin A. Young,Tarun Banerjee
• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: 10.1177/0032329218755751
• Subject Matter: Articles

https://doi.org/10.1177/0032329218755751

Politics & Society

2018, Vol. 46(1) 3 –28

© 2018 SAGE Publications

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DOI: 10.1177/0032329218755751

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Article

Capital Strikes as a Corporate

Political Strategy:

The Structural

Power of Business

in the Obama Era

Kevin A. Young

University of Massachusetts Amherst

Tarun Banerjee

University of Pittsburgh

Michael Schwartz

Stony Brook University

Abstract

The importance of overt levers of business political influence, notably campaign

donations and lobbying, has been overemphasized. Using executive branch

policymaking during the Obama administration as a case study, this article shows

that those paths of influence are often not the most important. It places special

emphasis on the structural power that large banks and corporations wield by virtue

of their control over the flow of capital and the consequent effects on employment

levels, credit availability, prices, and tax collection. At times, business disinvestment,

combined with demands for government policy reforms, constitutes a conscious

“capital strike,” which has the potential to shape political appointments, legislation,

and policy implementation. At other times, the threat of disinvestment, the hint

of a drop in “business confidence,” or rhetoric about job creation is sufficient to

achieve those objectives. The present analysis has important implications for our

understanding of political power and social change in capitalist economies.

Keywords

structural power, capital strike, business confidence, financial reform, Wall Street

Corresponding Author:

Kevin A. Young, University of Massachusetts Amherst, 612 Herter Hall, 161 Presidents Drive, Amherst,

MA 01003-9312, USA.

Email: kayoung@umass.edu

755751PASXXX10.1177/0032329218755751Politics & SocietyYoung et al.

research-article2018

4 Politics & Society 46(1)

The Obama administration raises a vital question for scholars of policymaking: Why

did it fail to deliver on a host of popular reforms promised during the 2008 campaign?

In some realms (e.g., government transparency, an end to aggressive foreign policy)

the promises went entirely unfulfilled, while in others (e.g., climate change, health-

care, financial reform) the policy changes were inadequate given the magnitude of the

problems and less ambitious than Obama’s electoral base had expected. Particularly

puzzling was the fact that some reforms were within reach during the two years of

Democratic control of Congress or achievable by unilateral executive power.

Environmental reforms, for example, stopped well short of what was legally permis-

sible, popular with the public, and ecologically imperative.1

In the case of financial reform, the incoming Obama administration had a clear

mandate to pursue far-reaching regulation. Unprecedented anger at banks, coupled

with evidence of illegal behavior, would likely have made strong action popular.2 Yet

while the banks could not block reform altogether, many potential policy solutions—

including limits to bank size, mandates to maintain higher capital ratios, and higher

“risk retention”—were either excluded from the 2010 reform legislation or weakened

in the implementation phase. The viability of the resulting policies has been widely

questioned.3

Scholars and journalists have proposed several explanations. One highlights the

personal predilections of the president. According to this view, Obama’s unfamiliar-

ity with economic policy, and perhaps his own cautious demeanor, resulted in the

appointment of bank-friendly advisers with close ties to Robert Rubin, the former

CEO of Goldman Sachs, who as treasury secretary under Clinton led the deregula-

tory frenzy of the late 1990s.4 A second view blames the constraints imposed by

Congress, arguing that the confirmation process forced Obama to nominate this type

of individual.5 A third viewpoint stresses the influence of business: Obama’s heavy

reliance on financial contributions from Wall Street gave these backers influence

over his administration.6

This article argues that the third approach holds the most explanatory power.

Business influence was the most important constraint on federal financial policy. The

roots of business power have not been adequately explicated, however. We argue that

scholars have overemphasized overt mechanisms such as campaign finance and lob-

bying, and that business influence derives in large part from its structural control over

the economy.

The most dramatic deployment of this structural power occurs when businesses

refuse to invest in the economy—a “capital strike.” Even when the initial disinvest-

ment results mostly from market forces, as in the crash of 2008, it can become a bar-

gaining chip by which business can exert influence over the policy process, with

reinvestment promised in exchange for policy concessions. Moreover, once this pat-

tern of disinvestment, negotiation, and reinvestment is demonstrated, the threat of dis-

investment may be sufficient to generate negotiating leverage. Such threats take

various forms, including explicit statements that certain sectors or entire economies

are not attractive to investors, general warnings about low “business confidence,” and

business leaders’ references to themselves as “job creators.”