Ruling classes rule the economy, are at the top of the social structure and establish the parameters and rules within which the politicians operate. More often than not, few actually engage directly in congressional politics, preferring to build economic empires while channeling money toward candidates prepared to do their bidding. Only when an apparent division occurs, especially within the Executive, between the interests of the ruling class and the policies of the regime will elite members of the ruling class intervene directly or take a senior executive position to ‘rectify’ policy.

By James Petras

Posted by Bulatlat

Introduction

In the broadest and deepest sense, understanding how the U.S. political system functions, the decisions of war and peace are taken, who gets what, how and why, requires that we address the question of ‘Who rules America?’ In tackling the question of ‘ruling’ one needs to clarify a great deal of misunderstandings, particularly the confusion between those who make governmental decisions and the socio-economic institutional parameters which define the interests to be served. ‘Ruling’ is exacting: it defines the ‘rules’ to be followed by the political and administrative decision-makers in formulating budgetary expenditures, taxes, labor and social legislation, trade policy, military and strategic questions of war and peace. The ‘rules’ are established, modified and adjusted according to the specific composition of the leading sectors of a ruling class (RC). Rules change with shifts in power within the ruling class. Shifts in power can reflect the internal dynamics of an economy or the changing position of economic sectors in the world economy, particularly the rise and decline of economic competitors.

The ‘rules’ imposed by one economic sector of the RC at a time of favorable conditions in the world economy, will be altered as new dominant economic sectors emerge and unfavorable external conditions weaken the former dominant economic sectors. As we shall describe below the relative and absolute decline of the U.S. manufacturing sector is directly related to the rise of a multidimensional ‘financial sector’ and to the greater competitiveness of other manufacturing countries. The result is an accelerating process of liberalization of the economy favored by the ascending financial sectors. Liberalization in pursuit of unregulated flows of investments, buyouts, acquisitions and trade increases the financial sector’s profits, commissions, incomes and bonuses. Liberalization facilitates the financial sector’s acquisition of assets. The declining competitiveness of the older ruling class manufacturing sector dependent on statist protectionism and subsidies leads to ‘rear-guard’ policies, attempting to fashion an unwieldy policy of liberalization abroad and protectionism at home.

The answer to the question of who rules depends on specifying the historical moment and place on the world economy. The answer is complicated by the fact that shifts among ‘sectors’ of the ruling class involves a prolonged ‘transitional period’. During this period declining and ascending sectors may intermingle and the class members of declining sectors ‘convert’ to the rising sector. Hence, while power between economic sectors may change, the leading class groupings may not lose out or decline. They merely shift their investments and adapt to the new and more lucrative opportunities created by the ascending sector.

For example, while U.S. manufacturing sector has declined relative to ‘finance capital’, many of the major investment institutions have shifted to the new financial ‘growth sectors.’ Concomitantly, the converted sectors of the ruling class will shift their policies toward greater liberalization and deregulation, thus severely weakening the rear-guard demands of the uncompetitive manufacturing sector. Equally important within the declining economic sectors of the RC, drastic structural changes may ensue, to regain profitable returns and retain influence and power. Foremost of these changes is relocation of production overseas to low wage, low tax, non-union locations, the introduction of IT technology designed to reduce labor costs and increase productivity, and diversification of economic activity to incorporate lucrative financial ‘services’.

For example, General Electric has moved from manufacturing toward financial services, relocated labor-intensive activity off-shore and computerized operations. Through these moves the distinction between ‘manufacturing’ and financial capital has been made obsolete in describing the ‘ruling class’.

To the degree that older manufacturing capitalists retain any economic and political weight in the RC, they have done so via sub-contracting overseas to Asia and Mexico (General Motors/Ford), invested in overseas plants to capture foreign markets, or have been converted in large part into commercial and importing operations (shoes, textiles, toys, electronics and computer chips).

Locally-based manufacturers which remain in the RC are largely found among military contractors living off the largesse of state spending and depending on the political support of congressional and trade union officials, eager to secure employment for a shrinking manufacturing labor force.

During this transitional period of rapid and all-encompassing changes in the ruling class, enormous financial opportunities have opened up throughout the world. As a result of political tensions within the ‘governing class’, key policymakers are drawn directly from the most representative institutions of Wall Street. Key economic policies, especially those which are most relevant to the RC, tend to be overwhelmingly in the hands of tried and experienced top leaders from Wall Street.

Despite (or because of) the ascendancy of various sectors of financial capital in the RC, and their agreements on a host of ‘liberalizing’ economic policies, they are not homogeneous in all of their political outlooks, party affiliations, or their foreign policy outlook. Most of these political differences are questions of small matter – except on one issue where there is a major and growing rift, namely in the Middle East. A sector of the RC strongly aligned with the state of Israel supports a bellicose policy toward the Jewish state’s adversaries (Iran, Syria, Hezbollah and Palestine) as opposed to another sector of the RC favoring a diplomatic approach, directed toward securing closer ties with Arab and Persian elites. Given the highly militarized turn in U.S. foreign policy (largely due to the ascendancy of neo-conservative ideologues, the strong influence of the Zionist Lobby, and the instability and failures of their policies in the Middle East and China) the RC has pressed for and secured direct control over foreign economic policy.

The tensions and conflicts within the RC – especially between the Zioncons and the ‘free marketeers’ – have been papered over by the enormous economic benefits accruing to all sectors. All RC financial sectors have been enriched by White House and Congressional policies. All have benefited from the ascendancy of ‘liberalizing regimes’ throughout the world. They have reaped the gains of the expansionary phase of the international economy. While the entire ruling financial, real estate and trading sectors have been the main beneficiaries, it has been the financial groups, particularly the investment banks that have led the way and provide the political leadership.

Ascendancy of Financial Capital

‘Finance capital’ has many faces and cannot be understood without reference to specific sectors. Investment banks, pension funds, hedge funds, savings and loan banks, investment funds are only a few of the operative managers of a multi-trillion dollar economy. Moreover each of these sectors have specialized departments engaged in particular types of speculative-financial activity including commodity and currency, trading, consulting and managing acquisition and mergers. Despite a few exposés, court cases, fines and an occasional jailing, the financial sector writes its rules, controls its regulators and has secured license to speculate on everything, everywhere and all the time. They have created the framework or universe in which all other economic activities (manufacturing, retail sales and real estate) take place.

‘Finance capital’ is not an isolated sector and cannot be counterposed to the ‘productive economy’ except in the most marginal ‘local activity’. In large part, finance capital interacts with and is the essential driving force in real estate speculation, agro-business, commodity production and manufacturing activity. To a large degree, ‘market prices’ are as influenced by speculative intervention as they are by ‘supply and demand’. Equally important, the entire architecture of the ‘paper empire’ (the entire complex of inter-related financial investments) is ultimately dependent on the production of goods and services. The structure of power and wealth takes the form of an inverted triangle in which a vast army of workers, peasants and salary employees produce value which becomes the basis for near and remote, simple and exotic, lucrative and speculative financial instruments. The transfer of value from the productive activities of labor up through the ladder and branches of financial instruments is carried out through various vehicles: direct financial ownership of enterprises, credit, debt leveraging, buyouts and mergers. The tendency of ‘productive capitalists’ is to start-up an enterprise, innovate, exploit labor, capture markets and then ‘sell-out’ or go ‘public’ (stock offerings). The financial sector acts as combined intermediary, manager, proxy-purchaser and consultant, capturing substantial fees and expanding their economic empires and… preparing the way to higher levels of acquisitions and mergers… ‘Finance capital’ is the midwife of the concentration and centralization of wealth and capital as well as the direct owner of the means of production and distribution. From exacting a larger and larger ‘tribute’ or ‘rent’ (commission or fee) on each large-scale capital transaction, ‘finance capital’ has moved toward penetrating and controlling an enormous array of economic activities, transferring capital across national and sectoral boundaries, extracting profits and dumping shares according to the business, product and profit cycle.

Within the ruling class, the financial elite is the most parasitical component and exceeds the corporate bosses (CEOs) and most entrepreneurs in wealth and annual payments. It falls short of the annual income and assets of the super-rich entrepreneurs like William Gates and Michael Dell.

The financial ruling class is internally stratified into three sub-groups: at the top are big private equity bankers and hedge-fund managers, followed by the Wall Street chief executives, who in turn are above the next rung of senior associate or vice-presidents of a big private equity funds who is followed by their counterparts at Wall Street’s public equity funds. Top hedge fund managers and executives have made $1 billion dollars or more a year – several times what the CEOs make at publicly-traded investment houses. For example, in 2006 Lloyd Blankfein, CEO of Goldman Sachs, was paid $53.4 million, while Dan Ochs, executive of the hedge fund Och-Ziff Capital paid himself $220 million dollars. That same year the Morgan Stanley CEO received $40 million dollars, while the chief executive of the hedge fund Citadel was paid over $300 million dollars.

While the ‘hedge fund’ speculators receive the highest annual salaries, the private equity executives can equal their hundreds of millions payments through deal fees and special dividend payments from portfolio companies. This was especially true in 2006 when buyouts reached a record $710 billion dollars. The big bucks for the private equity bosses come from the accumulating stake executives have in portfolio companies. They typically skim 20% of profits, which are realized when a group sells or lists a portfolio company. At that time, the payday runs into the hundreds of millions of dollars.

The subset of the financial ruling class is the ‘junior bankers’ of private equity firms who take about $500,000 a year. At the bottom rung are the ‘junior bankers’ of publicly traded investment houses (‘Wall Street’) who average $350,000 a year. The financial ruling class is made up of these multi-billionaire elites from the hedge funds, private and public equity bankers and their associates in big prestigious corporate legal and accounting firms. They in turn are linked to the judicial and regulatory authorities, through political appointments and contributions, and by their central position in the national economy.

Within the financial ruling class, political leadership does not usually come from the richest hedge fund speculators, even less among the ‘junior bankers’. Political leaders come from the public and private equity banks, namely Wall Street – especially Goldman Sachs, Blackstone, the Carlyle Group and others. They organize and fund both major parties and their electoral campaigns. They pressure, negotiate and draw up the most comprehensive and favorable legislation on global strategies (liberalization and deregulation) and sectoral policies (reductions in taxes, government pressure on countries like China to ‘open’ their financial services to foreign penetration and so on). They pressure the government to ‘bailout’ bankrupt and failed speculative firms and to balance the budget by lowering social expenditures instead of raising taxes on speculative ‘windfall’ profits.

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