and the revenues available to government.
The most potent weapon of banks and employers is the capital strike: the withdrawal of investment capital from one or more sectors of the economy, or “disinvestment,” in the form of layoffs, offshoring, transfers of financial capital abroad, the tightening of credit, and other disruptive measures. These actions can be carried out by individual firms or entire industries, or when large investors make a collective decision to disinvest.7 Banks wield this power of disruption through their lending decisions, while non-bank businesses do so by opening, expanding, closing, and relocating their factories, stores, or service areas.
The withholding of capital is not always a deliberate strike by capitalists for political purposes; capitalists may disinvest simply because of market conditions, such as low demand for their products—as when automakers cut production and lay off workers when demand for certain automobiles declines. The capital strike is distinguished from these “normal” instances of disinvestment by capitalists’ demands for government policy change and their promises that favorable changes will bring new or renewed investment. In other words, disinvestment constitutes a capital strike when the withholding of capital is accompanied by a promise to invest in exchange for favors from government. The capital strike is not an automatic response to market conditions, but a conscious capitalist strategy for getting what they want from government.8
Because business controls most of the resources upon which we all depend, government officials must constantly appease capitalists so they will continue to productively invest these resources. Only the boldest governments are willing to coerce capitalists into investing, since doing so typically invites deeper capital strikes and leads to a showdown in which the state must either expropriate private enterprise (defying accusations of totalitarianism) or capitulate.9 Governments everywhere thus invest great energy and public resources in staving off fits by malcontent executives and investors. Most public officials internalize the logic of “business confidence,” which means pursuing policies that will boost business leaders’ confidence in the government and avoiding policies that might invite retaliation. Certain policy options are never even contemplated or discussed given the certainty of fierce business opposition. In this context, businesses resort to overt capital strikes only on occasion. Once the disruptive power of the capital strike has been demonstrated, mere threats often do the trick. The possibility of future capital strikes influences the government in myriad ways, from the appointment of regulators to the laws that Congress makes and the way in which the government enforces, or declines to enforce, those laws.10
The pages of the business press feature regular examples of this coercion. A manufacturer refuses to invest in the United States until the government cuts taxes and loosens “environmental regulations and hiring rules.” A leader on Wall Street threatens that new government regulations on banks will bring a reduction in their rate of lending and thus a drop in economic growth. Apple’s CEO warns that the $181 billion stored by the company in an overseas tax haven won’t come “back until there’s a fair rate” of taxation on corporate income. Amazon uses its promise to construct a second headquarters to promote a bidding war among 238 cities, with each seeking to outdo the others by lavishing the company with billions in public handouts. Despite holding several trillion dollars in reserves, banks and corporations collectively refuse to make loans or hire new employees.11
In response, both Republican and Democratic politicians seek to encourage corporate investment by enacting pro-business reforms. Presidents of both parties beg business to add jobs while aggressively pushing pro-corporate trade deals and scrapping regulations that protect the public and the environment. To lure capital back from offshore tax shelters, they propose cutting corporate taxes and reject any measures that would punish or coerce business, culminating in a historic slashing of corporate taxes in 2017.12 These examples from the recent past demonstrate the power of the capital strike in action. They also demonstrate that while one party may be more extreme in its service to capitalists, both parties are constrained by corporations’ stranglehold over the economy.
Business uses a range of everyday tools alongside the capital strike. It has vast resources to spend on electoral campaigns, and its donations dwarf those of all other groups in society.13 Campaign donations rarely function as straightforward bribes in which a donation buys a specific policy; their more common function is to secure priority access to the policymaking process.14 They do so, first, by ensuring that business-friendly candidates get elected. Sometimes the candidates come directly from the business world, sometimes not. In either case, they must prove themselves acceptable to business donors. All candidates at the national level undergo a rigorous screening process by wealthy donors before being presented to the public, as part of what one historian calls “the hidden primary of the ruling class.” Presidential hopefuls typically approach business elites to gauge their support even prior to announcing their candidacies.15 Once a candidate is elected, the prior donations will be repaid through close consultation with business lobbyists and through the appointment of business-friendly staff, advisers, regulators, and judges. The relationship helps determine what legislation gets introduced, which policies are excluded from consideration, and how existing laws are implemented. Both sides continue to cultivate this relationship over the long term. The donors, however, hold the most power. They are essentially investors who “hold politicians more or less like stocks,” investing in those most likely to yield a return—the ones with a track record of pro-business actions—and dumping those who prove disappointing.16
If a politician disappoints, and if business fails to get everything it wants from government, the donors have plenty of other weapons of disruption in their arsenal. Threats of capital strikes, and occasionally real capital strikes, help keep politicians and regulators in line. Business also makes full use of the court system, spending immense sums of money on litigation to challenge laws it dislikes. If a law is passed over business opposition, or if zealous regulators pursue disagreeable regulations, business can still greatly weaken or even nullify those actions through an endless stream of lawsuits. For good measure, business often pressures its allies in Congress to cut funding for regulatory agencies, thus ensuring that the targets of business litigation will be underfunded and ill-equipped to defend their actions against deep-pocketed corporations. In this way, many policies become the focus of a never-ending war over implementation, which continues long after the president has signed a new law, and even long after the president has left office.
The battle over the Wall Street Reform and Consumer Protection (“Dodd-Frank”) Act of 2010 illustrates how these diverse corporate strategies reinforce each other. First, a combination of Wall Street campaign donations and dire warnings about disinvestment in the wake of the 2008 crash ensured that Obama appointed bank-friendly regulators and advisers, and also guaranteed that Wall Street lobbyists would have direct access to the negotiations over reform. Consequently, the administration’s initial drafts of legislation were far less radical than most people had expected based on Obama’s 2008 campaign rhetoric. Wall Street then used its access within the administration and in Congress to further weaken the bill. The final product signed in July 2010 was mostly congenial to Wall Street, but it did include some potential constraints on banks’ power. So the banks responded by aggressively lobbying around the implementation of the bill (spending even more on lobbying after the bill was passed than they had during the legislative process) and flooding the courts with lawsuits against the financial regulators responsible for implementation. Corporations’ withholding of trillions