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Where Laws Come From: Schoolhouse Rock! Reconsidered

Some folks back home decided they wanted a law passed, so they called their local congressman and he said, “You’re right, there oughta be a law.” Then he sat down and wrote me out and introduced me to Congress.

“I’m Just a Bill,” from the 1970s children’s cartoon series Schoolhouse Rock!

How does a bill become a law? Well, you see, we have these things called lobbyists. They work for big corporations and people with a lot of money. When the lobbyist has sufficiently bribed the elected official, a bill is written to benefit the lobbyist’s sponsor. If enough votes are purchased, the bill becomes a law.

Internet parody of Schoolhouse Rock!, ca. 2011

According to most civics textbooks and media commentators, new laws reflect changing popular sentiments. Politicians follow public opinion, especially when it is organized and clearly communicated to them.

This picture has never been accurate, but it has drawn greater scorn as corporate power has become more visible and inequality has increased. A quick internet search turns up multiple parodies of the famous 1975 Schoolhouse Rock! episode, calling attention to how corporate money and lobbying corrode the democratic process portrayed in the cartoon. As we noted in the Introduction, the vast majority of the public believes our government is “run by a few big interests.” Bernie Sanders’s recent presidential campaigns have drawn their appeal largely from this observation. Donald Trump’s election also owed much to the candidate’s anti-elite rhetoric, disingenuous though it was.

Here we will examine the origins of bills introduced in Congress, and then trace their fate after being introduced. We distinguish between two types of legislation. The first type involves straightforward interventions by the government on behalf of business. Examples from the Obama administration include its promotion of tax cuts for corporations and wealthy individuals and its aggressive pursuit of pro-corporate trade agreements. In these cases, explanations like the one in the Schoolhouse Rock! parody do not adequately account for the administration’s actions. Familiar factors like corporate campaign money, lobbying, Republican obstructionism in Congress, and the president’s own conservatism were only part of the story. The capital strike that we described in the Introduction—massive corporate disinvestment from the economy and the threat of its continuation—was a central factor. The administration sought to rekindle “business confidence” so that banks and businesses would ameliorate the recession by making more loans and hiring more workers. Pro-business legislation was a quid pro quo: we’ll give you huge public handouts if you start investing in the economy again.

The second type of legislation that we examine includes reform bills with some progressive thrust, in the sense that they might impinge on elite profits or power. We will examine four examples from Barack Obama’s first term as president: the 2010 Affordable Care Act (ACA), or “Obamacare” (passed); the 2010 Wall Street Reform and Consumer Protection Act, or “Dodd-Frank” (passed); the climate policy bills in the House and Senate in 2009–10 (did not pass); and the 2010 bills to repeal the military’s “Don’t Ask, Don’t Tell” (DADT) policy (passed).¹

The roots of these progressive bills are more complicated than pro-business legislation like corporate tax cuts. They may originate from a variety of sources. For one, elections help to define the legislative agenda. The Democratic victories in the 2008 elections and the strong public opinion in favor of reform played some role in the initiation of these bills. While the Democrats showed relatively little regard for public opinion in determining the content of their new bills (as we will demonstrate), they needed to appear to be taking some action. They could not afford to completely ignore their core campaign promises.

Public support for reform and Democratic control of government were inadequate in themselves, however. Elite support was essential. As Al Gore noted in regard to the climate bills, “it’s virtually impossible” for politicians “to enact any significant change” unless they have “permission from the largest commercial interests who are most affected by the proposed change.”² For the healthcare and financial reforms, the greatest pressure came from corporations outside those sectors; most health and financial corporations came to the table later, in the hopes of shaping reform to their liking. The climate bills had the support of some large corporations, though fewer than supported the other bills (which was the main reason climate reform failed to pass). In the case of DADT, the military, rather than business, was the “most affected” institution, and the high command had to give its “permission” for repeal before Congress would agree to support it. Without the support of at least some elite sectors, it is unlikely that any of the bills would have been introduced, let alone passed.

Ascertaining elites’ preferences is difficult given that their publicly expressed positions often “reflect accommodations to circumstances that constrain what can be achieved.”³ That is, their views on legislative reforms are shaped, in part, by the external threats and prospects they see on the horizon. In the cases just described, they faced strong pressure for progressive reform from public opinion, from other elite sectors, and from certain leaders in Congress. In one case, the DADT fight, they also faced major pressure from a social movement: gay and lesbian military personnel and their supporters, who were undermining the stability of the military through lawsuits and through the discharges resulting from violations of DADT. In these contexts, many business and military leaders decided that “if you’re not at the table, you’re going to be on the menu.”⁴ That is, it is better to participate and shape reform in your interest than to oppose it outright, and therefore risk a much larger setback.

The targeted institutions did not just react defensively to external pressures, however. They also possessed formidable power to influence the initial shape of each bill (and, as we’ll see in the next chapter, its reshaping in Congress). The most telling display of their power was their ability to exclude certain reform options from consideration. Single-payer healthcare, socialized medicine, bank nationalization, a carbon tax, and many other potential changes were never seriously discussed, even though many of those options had major public support. Being at the table allowed business to keep certain options off the table. This form of business power is often ignored by political scientists, but it is vitally important for understanding how policy is made.⁵ During the Obama administration, the prior exclusion of unfavorable reform proposals was in large part the result of the capital strike/business confidence dynamic, wherein the potential for business disinvestment helps to prevent even the consideration of progressive policy changes. The business representatives involved in the early reform discussions helped communicate that threat to government policymakers, who limited their initial proposals to reforms that would not significantly disrupt business confidence.

The voice of corporations and other elite institutions held particular weight given that, in all of these cases except the DADT fight, there was little collective protest that threatened “business as usual.” Significant pockets of activism certainly existed around all these issues, but they were not very disruptive and could hardly qualify as mass phenomena. Progressive reform bills sometimes arise in the absence of mass disruption, but they tend to be more tepid and congenial to elite interests—and still more so after they emerge from the congressional revision process, as we will show in the next chapter.

We close this chapter by examining a contrasting case: the major reforms to US labor law in the 1930s. Legislation ensuring the right of workers to form independent unions was initiated in response to economic disruption, which was largely due to the explosive working-class strikes and protests of the 1930s that targeted employers. This and other New Deal reforms were more robust than any Obama-era reforms. The key variable was the level of disruptive mass mobilization in each epoch. Corporate elites in the 1930s and 2000s were both forced to accept some amount of reform, but the elites of the 1930s experienced far more pressure. This example suggests how disruptive mass movements can force the initiation of strong progressive reform legislation in Congress: not by pressuring politicians but by threatening the elite institutions that control the politicians.

Capital Strikes and Pro-Business Legislation

The Obama administration initiated a host of new legislation designed to advance the interests of business. Often those initiatives contradicted Obama’s campaign rhetoric, which had promised that he would tax the wealthy at higher rates, pursue trade deals that benefited workers rather than corporations, and regulate business more closely. The disjunction stemmed less from the new president “selling out” than from the imperative of boosting business investment in the economy. Cultivating businesses’ confidence in the administration was essential because the $787 billion government stimulus bill passed in February 2009 was too small, given the magnitude of the crisis, and because the administration was unwilling or unable to take measures that would force investment in Main Street.⁶

President Obama entered office in the throes of a historic disinvestment crisis. The problem was not a lack of money, but the fact that corporations were hoarding trillions of dollars in capital rather than investing it in the economy. Although the Great Recession officially ended in June 2009, the rate of unemployed or underemployed workers was still 17 percent in November 2010, and remained at almost 15 percent as Obama’s second term began in January 2013.⁷ Thus, Obama’s first term and much of his second were dedicated to convincing business leaders to start investing again.

During Obama’s first two years, many corporate leaders deemed his policies insufficiently pro-business. Their critique was overblown: from the start, the administration took great pains to accommodate corporate demands. But business was not satisfied. Treasury Secretary Timothy Geithner later wrote in frustration that although “the President helped rescue the economy and their bottom lines,” many corporate executives believed “that he was relentlessly hostile to their interests.”⁸ In the November 2010 midterm elections, business made its anger known. Whereas in 2008 the financial industry had favored Democratic congressional candidates by a margin of $124 million, in 2010 it favored Republicans by almost as large a margin.

When Democrats took huge losses in the midterms, White House officials interpreted it as a sign of the need to bolster business confidence in the administration. More consequential than corporate campaign donations was the fact that business was still withholding so much money from the economy, impeding the recovery and contributing to voter disaffection with the Democrats. Noting that unemployment was still “stubbornly high” and that there was “little likelihood” of renewed government stimulus, the Wall Street Journal argued in early 2011 that “the key to economic growth—and Mr. Obama’s re-election prospects—could lie in corporate treasuries. U.S. non-financial businesses are sitting on nearly $2 trillion in cash and liquid assets, the most since World War II, and Mr. Obama wants them to use it to create more U.S. jobs.”⁹ This approach was not the only logical one: many outside observers attributed the Democrats’ midterm losses to the shortage of progressive reform in Obama’s first two years. But the backgrounds of Geithner, Summers, and Obama’s other top advisers virtually ensured that the midterm defeat would be attributed to business discontent. Following election day, Obama buckled down in an effort to boost executives’ “confidence” in his administration. On the legislative front, Obama’s efforts to “repair relations with corporate America,” as the Journal wrote, took the form of bills that cut taxes for business and amplified investor privileges overseas via free-trade agreements.¹⁰ According to the Journal, Obama was proposing a deal with corporate leaders in which they would “stop hoarding cash and start hiring in return for tax breaks and other government support,” including free-trade deals and deregulation.¹¹

None of these reforms would directly address the economic roots of the crisis. They would do little to boost the low level of domestic demand, which was the main economic cause of continued recession. Doing so would have required putting more money into the hands of consumers and/or greatly increasing government spending. Rather, the reforms sought to address the political nature of the economic recession. By granting concessions to business in unrelated realms of policy, the administration hoped to cajole banks into making new loans and employers into hiring new workers. The reforms did not make economic sense, but they had a compelling political logic. They were concessions designed to get business to cease its capital strike.

Corporate leaders were often explicit about their political demands. In November 2010, Emerson Electric CEO David Farr told the Journal that “he would expand more in the U.S. only ‘if I felt the government was going to get out of the way’” by overhauling the tax code and streamlining “environmental and hiring rules.”¹² Taxes and regulation, not the lack of demand, were also key themes in a meeting between CEOs and Obama later that month. Barclays CEO Robert Diamond said that US corporations “don’t have the confidence to hire in the United States of America until we can believe that the government, the private sector and financial institutions are working together and connected again.” Bausch & Lomb CEO Brent Saunders warned that “we’re being a little more tentative on whether or not you want to move a plant, or invest,” due to disagreements with the administration over rules governing profit repatriation.¹³ A few months later, Joseph Czyzyk, the chairman of the Los Angeles Chamber of Commerce, said that “the thing that bothers us the most is regulatory reform.” To unlock the trillions of dollars that businesses were hoarding, Czyzyk said, the administration would have to get serious about dismantling regulations: “It can’t be lip service and blue ribbon commissions on that, it’s got to be sacred cows.”¹⁴

Obama listened. On tax policy, he agreed in December 2010 to renew the tax cuts for the wealthy originally passed under George W. Bush, which he had previously vowed to end. Although he did sign several measures, such as the ACA, that modestly increased taxes on the wealthy, he left the rate on capital-gains income (income from stock market holdings) lower than it had been two decades earlier. Many tax policy experts also argued that Obama could have ended the tax loophole on “carried interest,” which benefits hedge funds and private equity managers, but he did not.¹⁵ Most important for business confidence was the tax rate on corporations. In February 2012 the White House released the “President’s Framework for Business Tax Reform,” which proposed to reduce the top corporate rate from 35 percent to 28 percent, and 25 percent for manufacturing companies.¹⁶ Obama made the quid pro quos explicit. In exchange for his efforts “to give businesses a better deal” through new legislation, he was hoping to cajole new business investments. He also asked congressional Republicans to fund a small fiscal stimulus “to create jobs through education, training, and public works projects.”¹⁷

The most aggressive administration initiatives involved promoting exports and overseas investments by US corporations. Obama’s first secretary of state, Hillary Clinton, effectively became “the government’s highest-ranking business lobbyist,” as the business press noted, directly negotiating foreign deals for Boeing, Lockheed Martin, General Electric, and other companies. She pushed countries to embrace fracking for natural gas and Monsanto’s genetically modified seeds. Clinton also reoriented the State Department itself, converting it “into a machine for promoting U.S. business.” She created the new position of chief economist, hired a former Wall Street banker for the job, and promoted “the embassy economic officers who act as State’s liaisons to business.” She directed department employees to embrace what she called the “Ambassador-as-CEO” approach to diplomacy, ordering “embassies to make it a priority to help U.S. businesses win contracts.”¹⁸

As Clinton cleared the path for specific companies, the administration responded to the 2010 midterm defeat by trying to open up new markets for all US corporations. Obama had already appointed a delegation of government and corporate leaders to negotiate bilateral trade treaties that would “open up markets so that American businesses can prosper.” By the end of the year, passing new trade agreements with South Korea, Colombia, and Panama became a priority, with the goal that these actions would restore corporate confidence and unlock investment. In Obama’s words, these initiatives were intended to “make clear to the business community, as well as to the country, that the most important thing we can do is boost and encourage our business sector and make sure that they’re hiring.”¹⁹ Business loved it, though the public was less enthused. The Wall Street Journal reported in January 2011 that “the administration is relying on business groups to take a lead role in passing the trade deals, countering opposition from unions and a skeptical public.”²⁰

Following the successful passage of these laws in Congress later that year, Obama moved on to the behemoth Trans-Pacific Partnership (TPP). The deal was designed to extend the privileges granted to corporations under other free-trade agreements to twelve Pacific countries. The administration’s pursuit of the TPP was a multiyear campaign involving a “war room” of top officials in the West Wing and the targeting of dozens of individual congressional Democrats

who were on the fence. The administration also took the inclusion of corporate leaders to new levels. It gave nearly six hundred business representatives direct access to the draft text, which it refused to release to the public or Congress, and recruited CEOs to lobby Congress.²¹

For Congress as well, subsidizing the overseas investments and exports of US corporations was a bipartisan policy, as the approval of the bilateral trade deals suggests. Congress members’ behavior was heavily shaped by the business-confidence logic that drove the administration to support these proposals. A telling example came late in Obama’s second term, when Congress was divided over whether to renew the Export-Import Bank’s subsidies to US exporters. The threat of disinvestment created the leverage needed for a congressional majority. As Bloomberg Businessweek reported, key manufacturers threatened to migrate overseas if Congress resisted. Boeing’s CEO “quietly warned that Boeing might have to move work abroad if it didn’t have Ex-Im’s help.” These threats “alarmed moderate members of Congress,” and produced the votes needed to assure the bank’s renewal.²²

There are several noteworthy patterns in these efforts to bolster business confidence. First, representatives of large US corporations were directly involved in administration initiatives: through consultation in formulating tax policy, through the corporate presence on trade delegations and within the State Department, and through the White House’s enlistment of CEOs as consultants and lobbyists for the TPP. These business representatives helped design policy and also performed the crucial role of winning over Congress. Victories like the renewal of the Export-Import Bank and Congress’s approval of foreign trade deals did not result from negotiations between Republicans and Democrats, but from negotiations between corporate leaders and reluctant members of both parties. The deployment of business lobbyists against one’s congressional opponents is a common political strategy utilized by both Democrats and Republicans.

Second, many of the policies initiated after the 2008 economic crash entailed quid pro quos between government and business. The policies were not designed to address the economic roots of disinvestment, nor to directly resolve problems like unemployment and slow growth. Rather, they were part of a bargaining process that traded government actions for corporate investment. This disconnect is particularly visible in the pursuit of trade and investment treaties, which were publicly advertised as ways to “make sure” that corporations would expand domestic production and therefore add jobs. But trade agreements can only produce net job gains if they generate increased production, if the increased production takes place domestically, and if that production involves expanding the workforce. In practice, this has generally not occurred.²³ Likewise, as even the business press and most mainstream economists concede, reduced corporate tax rates tend to have “little bearing on economic growth” in industrialized nations. As business analysts would later testify during the 2017 tax cut debate, corporate tax cuts or a tax holiday (designed to allow corporations to repatriate money held in overseas tax shelters at a low tax rate) would not produce significant new investments or jobs.²⁴ Many CEOs frankly admitted in late 2017 that “tax cut proceeds will go to shareholders.” And, as predicted, most of the proceeds of the December 2017 tax cut were indeed used to increase profit levels, stock prices, and shareholder dividends.²⁵

Third, the process also highlights the necessity of trust in the negotiations around capital strikes, since capital investment and government policy can never be fully implemented at the same time. Obama’s actions were intended to “boost and encourage” business confidence in the government as an ally across a range of issues. But someone had to go first. Either corporations would first invest in new hiring and trust that the Obama administration would negotiate favorable policy reforms, or the administration would first secure pro-business reforms and then trust that the corporate beneficiaries would invest in new US jobs. Congressional actions obeyed the same logic, as the Export-Import Bank renewal suggests. This “who goes first” dilemma is common to most policy negotiations between business and government.

Fourth, negotiating relationships were asymmetrical. The Obama administration was constantly trying to persuade business to trust the government, not the other way around. Government overtures to business were a gamble, since pro-business policy changes would not necessarily result in business being confident enough to end disinvestment. As the Wall Street Journal noted in late 2010, “It isn’t clear how far any moves by Mr. Obama or the new Congress would go in encouraging U.S. businesses to unleash the $2 trillion in capital they are holding.”²⁶ The renewal of corporate investment remained agonizingly slow, and hoarded profits remained at gargantuan levels at the end of Obama’s time in office. The structural power of business meant that it was not obliged to negotiate in good faith. Executives could take their tax cuts and then decide to give the money to shareholders instead of investing it. Capital strikes tend to be open-ended, capable of generating a series of pro-business policy initiatives—unless government officials are willing and able to punish business for reneging, which the Obama administration was very reluctant to do.

In the end, Obama was only partly successful in restoring business confidence. While the unemployment rate had significantly declined by 2016, US companies were still hoarding some $2.5 trillion in profits in overseas tax havens. Prominent CEOs were still rehearsing the standard line: threats of continued disinvestment coupled with promises of new investments should government comply with their demands for lower taxes. The CEO of Apple, which held $181 billion overseas, said frankly that “we’re not going to bring it back until there’s a fair rate. There’s no debate about it.” General Electric’s CEO said in early 2017 that the economy “is in what I would call an investment recession. Companies aren’t reinvesting in capital expenditures in the U.S.” Only drastic corporate tax cuts would give business “the ability to repatriate capital from around the world.” The Democratic and Republican nominees to replace Obama agreed that slashing corporate tax rates was the way to “bring private sector dollars off the sidelines and put them to work here.”²⁷ Again, the strategy was to cajole, not coerce. Outlawing tax havens or taking punitive measures were off the table.

The Trump transition in 2017 has not altered any of these basic patterns. There was a gradual recovery in business investment levels starting at the end of the Obama era and continuing in Trump’s first years, owing to a recovery in energy prices and a modest growth in consumer demand (partly fueled by rising consumer debt, it seems). Surveys in 2018 found a significant increase in business “optimism” and plans to hire, and the official unemployment rate dropped to under 4 percent.²⁸ However, corporations continued to keep trillions of dollars out of the real economy, including $2.5 trillion in domestic reserves alone.²⁹ Moreover, they continued to make strategic use of their cash hoards to win policy changes from government. The demands had not changed: more tax cuts, more deregulation, more public subsidies, and more privileges overseas. In return, they promised to invest in the United States.

A preview of the Trump administration’s approach to business came in November 2016, when Trump negotiated an agreement with the Carrier manufacturing company. Carrier and its parent company, United Technologies, had declared that they would transfer over two thousand jobs from Indiana to Mexico. Three weeks after the election, Trump gloated that he had saved over half of those jobs. Carrier’s executives offered a clearer account of the deal, however, explaining that Trump had offered them preferential input in policymaking: “the incoming Trump-Pence administration has emphasized to us its commitment to support the business community and create an improved, more competitive US business climate,” meaning tax cuts and deregulation. Economist Michael Hicks called the negotiation “damned fine deal-making” on Carrier’s part: “The chance for Carrier (and their lawyers) to help craft a huge regulatory relief bill is worth every penny they might save [in exchange for] delaying the closure of this plant for a few years.” The self-styled master of “the deal” had just surrendered to a classic capital strike. He had negotiated a partial postponement of Carrier’s disinvestment and gained a public-relations victory, but only by promising the company future leverage over regulatory policy. Tellingly, the company stressed that the deal had not altered its policy of moving investment overseas: “This agreement in no way diminishes our belief in the benefits of free trade and that the forces of globalization will continue to require solutions for the long-term competitiveness of the US and of American workers moving forward.”³⁰ Its control over its investment capital made it the more powerful partner in the deal.

Other companies quickly followed suit, promising investment in exchange for pro-business reforms from government. Corporate tax cuts remained a central demand. In January 2017 the CEO of AT&T vowed to “step up our investment levels” in exchange for a reduced corporate tax rate. AT&T was not holding back on US investments for lack of capital: it was posting over $1 billion a month in profits. It had also received $38.1 billion in special tax breaks from the government since 2008, more than any other company. But it still was not confident enough.³¹ Even after Congress slashed the top corporate tax rate from 35 percent to 21 percent in December 2017, the fate of the hoarded cash remained far from certain. Corporations did start to repatriate their overseas money, but spent most of it on stock buybacks and dividends rather than productive investments or wage increases for workers. Business investment levels in 2018 were still much weaker than during the second half of the twentieth century.³²

The Trump presidency has thus exhibited the same basic patterns as its predecessors. Corporate representatives have been directly involved in making policy, even more blatantly than in the past.³³ Quid-pro-quo deals have traded government handouts to corporations for new investment in the economy, asking government to trust that business leaders will follow through. And the negotiating relationship in those deals has remained asymmetrical, with capitalists free to renege on their pledges. Trump’s own billionaire status and unabashedly pro-business rhetoric mark a partial difference from Obama, but he has remained subject to the same basic parameters and constraints.

Capital and the Origins of Progressive Legislation

Major legislation that challenges corporate profits or power might seem to be a different story, initiated despite business wishes rather than because of them. Many observers regard the signature legislative achievements of the Obama presidency as a reflection of Obama’s electoral mandate and, by extension, the tide of public opinion. And, indeed, insofar as they sought to protect the public from business, the ACA, Dodd-Frank, and climate reform all coincided with majority opinion. However, while Obama’s 2008 election victory and strong public backing played some role, it’s unlikely that any of these bills would have been introduced without at least some support among business leaders.

Healthcare Reform: Setting the Table, Limiting the Menu

The healthcare reform process began in that way. In human terms, the existing system was a catastrophe: 47 million people lacked health insurance and 45,000 died each year as a result. Per-capita healthcare costs were about twice as high as in other industrialized countries yet health outcomes were much worse. A large majority of the public thought the government should ensure universal coverage.³⁴ However, the key impetus for national reform was not mortality rates or public opinion, but business costs. Top corporate leaders outside the healthcare sector had long sought a way to contain the cost of healthcare provision and insurance. They had tried various ways of offloading the rising costs onto their workers: capping benefits, hiring part-timers and subcontractors, or simply slashing coverage.³⁵ But these strategies were insufficient. In the 2000s, health costs galloped far ahead of the overall inflation rate, meaning higher and higher costs for employers. Between 2000 and 2007, employer spending on healthcare rose 87 percent, leading the majority of executives in the Business Roundtable to cite healthcare costs as “the biggest economic challenge they face.”³⁶

As a result, long before the Obama election or even the Democratic victories in the 2006 midterms, the business press was already noting “an ever-louder complaint from U.S. businesses that they can’t compete in a global economy when companies from other countries don’t have to pay for health care,” leading to “the business community’s heightened interest in sweeping change” at the level of government policy.³⁷ Several prominent business-led coalitions centered on health reform were either formed or stepped up their work. The National Business Coalition on Health (NBCH) and the business-dominated National Coalition on Health Care (NCHC) became more visible.³⁸ The business press from the mid-2000s was full of corporate complaints about health costs. Figure 1 shows the number of articles mentioning “health care” in three of the top business magazines in the years 1995 through 2008. The annual average rose from 58 articles in 1995–1999, to 102 in 2000–2004, to 123 in 2005–2008. As with the 2009 stimulus, many business voices called for more aggressive action than what policymakers were proposing. “We don’t see anything in the national debate now that’s big enough or ambitious enough to address the problem,” said the NCHC president in 2004.³⁹

Figure 1 Articles mentioning healthcare, 1995–2008

Source: Based on Business Source Complete database searches for “health care,” excluding duplicates and corrections.

By the mid-2000s the mounting concern over healthcare costs had become a steady complaint among manufacturing and commercial corporations. With increasing frequency, companies threatened to drop workers’ coverage or move jobs to other labor markets. The number of US businesses offering health insurance to their workers was already declining, from 69 percent in 2000 to 60 percent in 2007. Initial government responses came primarily at the state level, with roughly a dozen state legislatures debating major reforms around this time. Business confidence was the major justification. Pennsylvania governor Ed Rendell, for instance, argued for reform by stressing the costs indirectly imposed on business by the large number of uninsured people in the state: “It is a tremendous deterrent for businesses that are considering locating in Pennsylvania to know that in addition to paying for their own employees’ health coverage, they will be subsidizing the costs of the uninsured,” whom emergency rooms could not legally turn away.⁴⁰

By George W. Bush’s second term, these threats had developed into formal demands for government action. Deere & Company CEO Robert Lane conveyed the demand when he warned Congress that rising costs could lead to the “limiting of covered services, loss of employer-provided health care … and even a loss of American jobs, both in the manufacturing and service sectors.” Bush’s January 2006 State of the Union address emphasized healthcare, which, as the Wall Street Journal noted, was “rare for a Republican.” The reason was not public opinion but business opinion. Providers were being pushed to find “more efficient ways of delivering services,” not by consumers but by other business sectors: the providers were “under pressure from health-insurance providers, who are themselves under pressure from large corporations.”⁴¹

The presidential campaigning of 2007–08 led to increased talk of reform in Washington, but not merely to appeal to voters. In early 2008, Senate Finance Committee chair Max Baucus, whose staff would play the central role in crafting what became the ACA, committed to advancing a healthcare reform in 2009 regardless of the election’s outcome. At that moment, he rehired former staffer Liz Fowler, fresh from a stint at the nation’s top health insurer, who would write much of the bill herself. In June he and other members of Congress hosted a healthcare summit featuring top business executives.⁴²

The industrial and commercial corporations with the largest and most expensive health plans were the foremost proponents of reform. But many health industry sectors also had grievances with the status quo. Health insurers in California, for instance, had “been falling short of their enrollment targets because the overall market [wasn’t] growing.” For this reason, they liked Republican governor Arnold Schwarzenegger’s proposal to make the purchase of insurance mandatory. They saw it as representing “real opportunities for our business,” given that it would “expand the industry’s market by four million to five million currently uninsured Californians—something health plans have been unable to do despite heavily marketing new products.”⁴³ In contrast to 1993–94, when health industry resistance had sunk the Clinton health reform initiative, by 2009 healthcare providers and insurers were open to major reforms, as long as they addressed their specific complaints. Policymakers, for their part, were keenly attuned to health industry wishes, just as they were attuned to those of other business sectors. John McDonough, the top adviser on health reform for the Senate’s Health, Education, Labor, and Pensions (HELP) Committee, recalls that prior to 2009, “business, insurers, manufacturers, [and] medical organizations were all calling for comprehensive reform.”⁴⁴

Support for reform by healthcare insurers and providers stemmed partly from the desire to preempt an independent overhaul of the healthcare system—which might lead to a single-payer insurance system, strict regulations on price-gouging providers, and other policies favored by the public and long present in other high-income nations. A staggering 82 percent of the public thought the US healthcare system either needed “fundamental changes” or should be “completely” rebuilt. Very few wanted the healthcare sector to be less regulated.⁴⁵ If business was “on the menu,” rather than “at the table,” the reforms might prove inimical to their interests. Industry thus took preemptive action to shape the debate over reform. In December 2008, America’s Health Insurance Plans (AHIP), the top insurers’ lobby, released a comprehensive reform proposal that specifically excluded a single-payer system and government control of healthcare prices.⁴⁶

This same preemptive logic guided much of the broader corporate world, even those companies without a direct stake in the healthcare sector. Many business leaders feared that an efficient publicly-run program would increase the appeal of government-run alternatives to private capital. The Wall Street Journal reported that corporate leaders were willing to incur some added costs as a result of reform as long as it preserved “a market-oriented health-care system.” But if the reform included an expanded Medicare system and/or government price controls, then the US might reach “a tipping point where the reforms needed to preserve an innovative, market-based health system may become politically impossible.”⁴⁷ Thus, the rising pressure of healthcare costs on employers, coupled with healthcare executives’ fear of something worse if they stayed on the sidelines, lay behind the diverse corporate support for reform. By 2008 business leaders across the corporate world had decided that reform was necessary, while health industry leaders had decided that reform was inevitable. Shaping that reform then became the name of the game.

And shape it they did. Since they were the “commercial interests who [would be] most affected by the proposed change,” and since their “permission” was thus necessary, Democratic leaders in Congress invited them to help design the reform. John McDonough of the Senate HELP Committee reported that Senator Ted Kennedy “directed us to bring together key system ‘stakeholders’ to see whether they could find consensus on a path to reform.” Those stakeholders included “consumers, disease advocacy, business, insurance, physician, hospital, labor, pharmaceutical, and other organizations.” Although patients constituted the vast majority of the real stakeholders, they were a clear minority among the stakeholders invited to the table; in contrast, each industry sector was invited to send its own representatives. Three decades earlier, the Carter administration had taken the same approach, which, as one critic noted, may seem like “sound democratic practice, but it is also a formula for building fortifications around the status quo.”⁴⁸

The resulting “consensus” was clear before Obama entered the White House. By inauguration time, business and its representatives on the key congressional committees (Table 1) had already determined the basic framework of whatever legislation would emerge. Certain options were entirely off the table. Single-payer insurance, or “Medicare for All,” was immediately ruled out by Democratic leaders. Of the presidential candidates in the 2008 Democratic primary, all except Dennis Kucinich had committed by early 2007 to keeping private insurance intact. In 2008, the two key Senate committees involved in early drafts, Max Baucus’s Finance committee and Kennedy’s HELP committee, unequivocally rejected single payer. The Baucus-Fowler team’s white paper of November 2008 was vague on details, but its “one clear position” was its opposition to single payer. Advocates of single payer, let alone socialized medicine, were entirely excluded from even testifying before Baucus’s people.⁴⁹

Table 1: The Senate Finance Committee’s ties to the healthcare sector (partial list)

Name	Position	Ties to Health Industry	Notes
Max Baucus (D-MT)	Chair of Senate Finance Committee (SFC)	Received $253k in industry donations in 2007–10, plus $201k in donations from industry lobbyists in 2007–09 VP for Public Policy and External Affairs, WellPoint insurance co., 2006–08	3 of 5 top donors in 2007–12 were healthcare or health insurance firms Helped write healthcare reform bill passed by Senate in March 2010; later hired by Johnson & Johnson
Elizabeth Fowler	Top aide to Baucus, Senior Counsel to SFC, 2008–10; previously Chief Health and Entitlements Counsel for SFC, 2001–05
Michelle Easton	Chief Health and Entitlements Counsel for SFC, 2005–08	Former VP at PhRMA; since 2008, lobbyist representing over a dozen health firms
Jeff Forbes	Chief of Staff for Baucus, 1999–2002; Staff Director for SFC, 2002–03	Lobbyist for HCR Manor Care PAC and for lobbying firms hired by PhRMA, Merck, HCR Manor Care, and other health industry firms, 2004–present Director of Int’l Public Policy for Aetna insurance, 1998–2006; lobbyist for Pfizer, PhRMA, eHealth Inc., and other health firms
Scott Parven	Chief International Trade Counsel for Baucus, 2003–06

SOURCES: Center for Responsive Politics (opensecrets.org); Glenn Greenwald, “The Revolving Door Spins Faster on Healthcare Reform,” salon.com, July 15, 2010; Max Fraser, “The Affordable Care Attack,” NLF 23, no. 1 (2014): 98.

Baucus and company also ruled out a robust “public option,” that is, a public insurance plan open to everyone that would compete with private insurers.⁵⁰ Insurers saw a strong public option as “disturbing, as it [would create] new government-run insurance to compete with their products” and could become a wedge for a single-payer system. In addition, “hospitals, physicians, a host of other provider groups, and most business organizations adamantly opposed” it. As so often happens, those who touted the superior efficiency of private enterprise and the market opposed a public institution that could put their argument to the test. Thanks to the concerted effort by the healthcare industry and its congressional allies, popular ideas like single-payer and a strong public option were “never envisioned in congressional reform plans,” as McDonough notes.⁵¹

Corporations were mostly unified in rejecting these progressive proposals, but they did not necessarily agree on what reforms they wanted. Their interests varied by industry. For example, most industrial and commercial employers stood to gain from cost containment, but the health industry opposed limits on its ability to set prices. Conversely, the health industry wanted a mandate requiring employers to cover their employees, but the employers were wary. Within the health industry itself, insurers did not like being forced to insure sick patients, but healthcare providers liked the idea since it would bring them more paying customers. Given the complex web of interests at stake, pro-reform voices in government and business strove to negotiate a “corporate compromise” that would reconcile, to the greatest extent possible, all these differences.⁵² If an industry was hurt by a particular element in the reform package, it would have to be compensated in some way.

The solution was the “three-legged stool”: three inseparable elements that would form the framework for reform. In exchange for accepting customers with preexisting conditions—the first leg—insurers would get the second leg, the individual mandate that required everyone to buy insurance. The mandate was their main demand, since it guaranteed an immense expansion of their declining customer base. Obama had vocally opposed the mandate during his campaign, but reversed his position in office to accommodate healthcare interests. The third leg of the stool involved government subsidies to the poor, which would ensure that insurers and providers could collect from their new low-income patients. The mandate, combined with government subsidies, would deliver a huge infusion of profits into the insurance industry, especially since consumers were not given the option of a strong public insurance program. This framework had long circulated in right-wing and business circles, where its regressive nature won many adherents. It resembled a Heritage Foundation proposal from 1989 and an earlier Nixon administration plan. In 2006, Governor Mitt Romney of Massachusetts had signed something very similar, with much business support. It was also the essence of the health insurers’ own December 2008 proposal.⁵³

The embrace of the three-legged stool and the simultaneous rejection of serious cost containment measures meant that rising healthcare costs would continue to be borne mostly by workers and patients, in the form of rising premiums, copays, and deductibles. Although the final ACA legislation included some small tax increases on the wealthy, many of its funding provisions were regressive, in that they targeted the working class. The healthy would subsidize the sick via the individual mandate, rather than the rich or corporations subsidizing the sick. Employer-based insurance would also be taxed, a measure that targeted unionized workforces with decent health plans.⁵⁴ The offloading of costs in this way helped to minimize the tensions over healthcare within the corporate elite. Disruptive mass movements might have reduced elites’ power to offload costs onto those below, but mass protest was minimal.

At no time did the administration or Congress challenge the underlying premise of corporate control over healthcare. The ironclad commitment to this pro-corporate framework derived not only from health industry donations and lobbying, but also from the structural position of health firms within the economy. The sector accounted for 18 percent of GDP and was the nation’s leading employer.

This concentration of capital and technology within the sector further enhanced the structural power of the leading firms. That power could be exercised in several ways, including through disinvestment from key markets and through price hikes, which would become visible weapons of the insurers following the ACA’s implementation. In early 2010, the Democratic Speaker of the House, Nancy Pelosi, implicitly acknowledged this power. She stressed the need to compensate insurers for accepting people with preexisting conditions by offering them the individual mandate and government subsidies to the poor. “‘Otherwise, you have no leverage with the insurance companies’ and they would likely increase rates,” she told the press.⁵⁵ Few in Washington questioned this premise. Ensuring the high profits of the private health industries was imperative, given that policymakers had ruled out public alternatives. The system would thus be reformed, but its central premises of private control and private profit would remain intact.

All of these crucial decisions were made prior to the introduction of the legislation in Congress, during the pre-legislative stage of backroom discussions among “stakeholders.” By the time formal debate on the healthcare bills began, the Obama administration and Congress had already adopted a framework that excluded progressive options from consideration and accommodated most of the divergent interests among businesses. As a result, costs would continue rising, and tens of thousands would still die each year for lack of coverage.

Financial Reform: Keeping Profits Strong

What of the next major legislative triumph of the Obama era, financial reform? The 2008 Wall Street crash left no doubt about the need for greater regulation. Public opinion was both united and intense in its condemnation of Wall Street’s reckless and often illegal behavior. Obama’s electoral victory just after the crash was due in part to his call for stricter regulation. At first glance, then, the reform process that began in early 2009 might seem to have been driven by an overwhelming surge of public sentiment.

However, the story is again not so simple. The 2008 crisis, and the destruction of capital that it involved, set off alarm bells within the corporate world that had not been heard in decades. Beginning soon after the 2008 crash, the business press, and especially the financial press, began calling for government action to protect the system from future crises. These voices advocated significant new regulations on the financial sector. Columns in the business press condemned “Wall Street’s economic crimes against humanity” and the “mass financial destruction” wrought by the derivatives industry.⁵⁶ Editors called variously for specific reforms and for a total “overhaul” of Wall Street.⁵⁷ Leading investors and hedge-fund managers called for more regulation. Even the billionaire and deregulatory crusader Carl Icahn (later hired by the Trump administration) advocated reforms that would “make corporate boards and managers more accountable to shareholders.”⁵⁸ While some of these statements were surely motivated by PR concerns and a desire to “fend off” undesirable reforms,⁵⁹ they were also self-serving in a more straightforward sense: they highlighted the widespread business interest in checking the most parasitic behaviors of high finance—parasitism that victimized other businesses and wealthy investors as well as the public. The main thrust of these calls for reform focused on increased oversight of large financial institutions and stricter rules on how much capital banks needed to retain as a cushion against crisis (the “capital ratio”). Both aspects would be central to the White House’s June 2009 white paper and the bills that became the Dodd-Frank Act signed in July 2010.