What are the unique sources of capitalist power today – and how might the US be in the best position to take capital on? Developing some arguments from a recent article published at Jacobin Magazine, I tried to answer these questions in a talk that streamed on Jacobin’s Stay at Home Youtube series.  I have uploaded both the talk and the transcript below.


In capitalist democracies, there are incredible barriers that stand in the way of governing against capitalism. Though the idea of one person one vote creates the illusion of equal say, in fact the state is a not neutral set of institutions that we win by simply voting the right way. 

What I hope to show, alternatively, is that capitalists exercise disproportionate political power through both the state and the market, and their power derives primarily from the productive assets they hold. However, over the last 40 years, the assets of the rich have been financialized. This has increased their ability to exit political territories through capital markets. While this increases the power of capitalists to avoid expropriation demands, I will end on a hopeful note. Unique characteristics about the American state might make it best positioned to take finance on. 

To make this argument, I am going to answer four questions about the power of capital. 

  1. What is the source of capitalist political power in general? 
  2. How does this source of power vary across time and place?
  3. What is unique about the source of their power today?
  4. What is unique about the source of their power in the US, in particular?

 What is the source of capitalist political power in general

Politicians are much more responsive to the interests of the wealthy than they are to ordinary people.  

We find this demonstrated most strikingly in the research of Martin Gilens and Benjamin Page. In short, when they and their small army of researchers analyzed public opinion survey data going back to the 1980s, they found that there is no relationship between the degree of popular support for an issue and it being passed. Regardless of whether zero percent or 100 percent of ordinary citizens supported a policy, like M4A, the likelihood of its passing was the same. A devastating finding for the idea of democracy. On the other hand, as a greater portion of the elite support a policy, the likelihood for it being passed increases. 

Though the findings of their study are hotly debated, I think they show that on balance the rich have greater say in politics than ordinary people. But, it says nothing about how.

Corporations and the wealthy shape politics in two very distinct arenas. The first, the state itself, should be obvious to anyone paying attention to how capitalist democracies work. While the second, the market, may be less intuitive. Because of greater corporate power at both of these levels, in general, capitalist democracies tend to govern in ways that reproduce capitalism and promote capitalist interests. 

First, the institutions of the state tend to be controlled by elites with strong links to the capitalist class. 

On the one hand, the elected leaders and the bureaucrats in the upper echelon of its civil service, tend to be drawn from the wealthy. The reason for this is quite simple: there are high entry costs and one typically needs to already be in elite political networks. 

Because of the large amount of resources needed to successfully run for elected office, capitalists and the wealthy find it easier to win and occupy key positions in the state. Nearly half of all the lawmakers in the House and the Senate have at least a million dollars in assets, money largely earned in private business endeavors. 

And when the rich are not elected, the rich are appointed. Top leaders in industry and finance are disproportionately drawn directly into key advisory positions and committees because of their “expertise.” We see revolving doors in politics, the rich move from business to politics to lobbying and back again. 

On the other hand, capitalists mobilize their resources into lobbying and campaign financing in order to carry greater influence over lawmakers. There were approximately 12,000 registered lobbyists in DC in 2018. And trust me these lobbyists don’t represent all sectors of society equally. For every dollar spent on lobbying by labor unions and public-interest groups, large corporations and their associations spend $34. During the 2016 election year, the US Chamber of Commerce spent over 103 million dollars trying to convince politicians of their interests. 

On top of direct spending in politics, the corporate sector pours resources into foundations, think tanks and policy organizations all in order to imprint their interests on public discourse and the policymaking process itself. 

But some capitalist democracies have drastically cut back corporate spending in politics and weakened the direct ties between policymakers and the corporate sector. In Norway, the public finances nearly 75% of elections. And we have many examples of the left effectively taking state power in capitalist democracies: Allende in Chile, Mitterrand in France, Gonzales in Spain, Papandreou and then Syriza in Greece. But all these attempts at democratic socialism ended in hard reversals. 

Even if we got money out of politics and our people in, the design of the state still leaves it with built-in biases to govern for the wealthy. 

Here, what capitalists do on the market comes into play. The capitalist state is dependent on profits. Without profits, firms disinvest, and when firms disinvest, people lose their jobs and economies go into recession.

Economic downturns are a deadly cocktail for politicians for two very distinct reasons. First, with less taxable income because people are losing their jobs, state revenue declines. This undermines the state’s ability to get things done. And second, voters, many now out of work and struggling, end up inclined to vote the policymakers that caused the recession out of office. So regardless who is governing, capitalist democracies are dependent on capitalists’ ability to remain profitable, at least on average.

This is the key conclusion. Private decisions by individual firms, far away from actual political institutions, are profoundly political in their effects. And the private decision to disinvest need not be motivated by the intention to influence politicians. By simply following market signals, firms lay down constraints on policymakers whether they intend to or not. This is why, even when socialists win the uphill battle to get elected with strong popular support, they face a second battle once in office. 

Within state institutions and on the market, the source of corporate political power, what gives them the capacity to engage in effective political action in the first place, is their ownership of society’s productive assets. Everything flows from this fundamental point. Greater corporate wealth converts into greater income, which elites use to influence politicians and get themselves elected. And their private control over their wealth, because of property rights inscribed in law, allows them to move that wealth as a private investment decision. 

The class structure of capitalism, that a few privately own the productive assets and the rest work for them, builds biases into the institutions of democracy that otherwise appear neutral. This inclines them to systematically promote corporate interests. But there is good news, this bias is not forever fixed. 

The state is not a singular monolith. It is a network of institutions beset with internal contradictions. These are the direct result of class struggle outside and within them. That capitalist democracies don’t mechanically reflect corporate interests can be used to the working classes advantage within its institutions and on the market itself. 

Just as corporate interests shape politics both in and outside of the state, so do working people.

In government, workers can expand democracy by deepening public involvement in decision-making, making democratic processes more transparent, and forcing elected leaders to be more accountable. Mobilizing greater popular participation and accountability, and eliminating rigging such as gerrymandering, limits – though does not eliminate, corporate control over state institutions. 

Outside of the state, if capitalists withhold investment to discipline the state and workers, the labor movement, the ultimate source of profit, can withhold work (strike) to its own ends. And further, people can withhold their compliance outside of the context of the workplace (i.e. protests, riots) to also force the hand of the state. Here in the United States in the 20th century, New Deal labor legislation was a result of a militant labor movement, Social Security legislation was a result of a militant movement of the old, Civil Rights legislation was a result of a militant movement of people of color. All show that capitalist states under certain conditions can govern in ways that empower working class people – even if they don’t do so ordinarily. 

We know the principle way the power of capitalists is challenged and weakened is by strengthening the ability of ordinary people to act collectively to exercise both their disruptive power and voice in politics.

How does the source of capitalist power vary?

But what happens when the character of the assets held by the elite changes? Because it is the key source of their political power, it is reasonable to assume that a change in the character of their assets also bears on the character of their power. 

Here is my basic argument. When the capitalist class holds assets that are primarily fixed in a political territory, and hence more easily capturable by a state, they are more likely to fight the expansion of democracy with everything they have. When their assets are more geographically mobile, they fight less directly against these efforts because they will be able to avoid expropriation by moving their wealth into new political territories.

This is the paradox that lies at the very source of capitalist power: ruling classes are less violently reactionary against democracy when their assets are mobile, but they are nonetheless more powerful within democracies precisely because of that mobility and the dependence state’s have on their investments.We find this asset-patterned response to threats from democratic socialists in office. Let’s look at two examples, Chile and France. 

When socialist Salvador Allende democratically assumed power in Chile in 1970, his Popular Unity coalition began implementing a redistributive program. It included the nationalization of copper mining, which was dominated by US investors, the nationalization of banking, and land reform. The short-term results were positive, but the government was soon beset by several economic crises. A slide in the price of copper in 1971, its main export, dealt a blow to the government’s reform program.

Then, in 1972 and 1973, with the economy already ailing, nearly 250,000 truck and taxi drivers, and small shop owners repeatedly shut down their operations to make the “Chilean Path to Socialism” even harder to traverse. The economic decisions of these forces were profoundly political, undermining the coalition’s legitimacy and opening the door to a bloody military coup in 1973. 

But Chile’s petty-bourgeois capital strikes and US imperial entanglements were of a very different sort than the problems experienced by Mitterrand’s socialist government in France. In 1981, similarly, the newly elected government began to implement a radical program in the context of a preexisting economic downturn. They nationalized parts of France’s uncompetitive industrial sector (where many of the firms were already in the red), changed banking practices, made massive state investments, expanded union rights, and increased wages. They took over thirty-eight banks in total, some of which were major financial institutions with large holdings in industry. 

But capitalists responded differently in France than they did in Chile despite the fact that the two governments had very similar programs. The reaction in France was ultimately less bloody, but it was crippling nonetheless. When Allende was elected, Chile had been building up its economy on a model of import substitution industrialization for decades. Because of years of high tariffs and exchange controls, compared to France, the country had far less foreign direct investment and a more domestically situated capitalist class. France’s economy was far more internationalized and its population heavily dependent on imports. 

And so, even before the socialists began their program, instead of being met with the violence of a coup, they were subject not only to an investment slowdown, as occurred in Chile, but — even more important — unrelenting capital flight out of the country. Ten days before Mitterrand himself was inaugurated on May 21, the Paris stock exchange had to be closed because there were only sellers and no buyers. Billions of dollars of financial assets were moved out of France by their holders, and intense speculation against the franc by international financial markets drove down its value. 

The French government installed capital controls and spent more, as countermeasures, but ultimately did both to no avail. The election of a socialist government caused a downturn in the stock market, with investors rapidly exiting the country. Ultimately, a series of severe currency devaluations forced the government to turn from socialism to austerity. The result was massive public spending cuts and tax increases – which dealt a major ideological blow to the project of democratic socialism. 

The dilemma for democratic socialism in France was simple — stay the course and risk an even deeper recession, or submit to the discipline of international capital markets. 

Had the Mitterrand administration stuck to its socialist program, France would have had to face down international markets by leaving the European Monetary System and embracing a protectionist model of growth. Such a strategy could only have been successful with a majority fully behind the program, willing to suffer through a transition of severe economic hardship to fill the gap left by the loss of imports. 

The political contrast of the Chilean and French experiments with democratic socialism point squarely to the ways that capitalist political power varies across contexts. International investors were able to flee from France’s socialist experiment, and in effect killed it, whereas a more domesticated capitalist class in Chile stayed and fought to the same end. And both countries were beset by international constraints largely beyond their control that weakened their ability to install democratic socialism: copper price fluctuations in Chile and monetary devaluation in France.

What is unique about this source of power today? 

If you accept that one of the things we need to track in order to understand the character of capitalist power in any period is the character of their assets, then we are led to the question – “what is the character of their assets today?” With respect to capital’s assets, the key transformation since the Volcker shocks of the early 1970s has been financialization. To understand capitalist power today, we need to understand financialization. 

At the core of finance capitalism is the growth of the sphere of circulation relative to the sphere of production as a center of profit-making. In the United States, as well as in other rich capitalist countries, public debt, credit, and stock market capitalization of listed domestic companies have all seen an incredible boom since the 1970s. Wealth, in other words, has become financialized. In fact, almost all new wealth created since the 2008 downturn is held in financial assets. 

Capitalism depends on labor-intensive manufacturing in the Global South and non-urban centers of the core, and cheap precarious labor in the service economy. Yet the circulation and management of money and other financial assets have become key modes of value extraction in all advanced capitalist economies. 

As Cédric Durand demonstrates in Fictitious Capital, the upshot is that, increasingly, ruling-class wealth is tied to four forms of financial profit: (1) Creditors collect more profit from debts on the loans they give. In the United States, the proportion of debt to income lurched from 14 percent in 1983 to 61 percent in 2008. (2) Shareholders collect income from the stocks they own in the form of quarterly dividends. Simply having wealth makes wealth. (3) Speculators make money on capital gains when they sell investments. And (4) large financial institutions charge hefty fees to manage pools of financial assets for clients.

Banks have turned to open markets as both a source of trading profit and for profit on fees and commissions. In the postwar period, investment and commercial banks traded very few stocks on their own accounts. Since the 1980s, proprietary trading, a bank directly playing the stock market rather than managing someone else’s money on it, became a critical source of earnings for investment banks and a growing number of commercial banks. 

Additionally, systematic research by scholars like Greta Krippner (also James Crotty and Engelbert Stockhammer), find evidence of large-scale growth in the amount of financial assets on the balance sheets of non-financial corporations. AA selling credit cards. As a result, even non-financial firms increasingly gain profit from financial activities. 

Financialization transforms the nature of the assets held by the corporate class. The very assets that confer their power. 

Using data from the Federal Reserve’s Distributional Financial Accounts, in 1989, the top 1 percent of wealth holders held most of their assets in private businesses, with a smaller portion in financial assets, such as corporate equities and mutual funds. Workers, by contrast, held most of their assets in real estate and pension funds. Much has changed in just thirty years. In 2019, the top 1 percent of wealth holders have most of their wealth not in private businesses but in corporate equities and mutual funds — liquid financial assets. Similarly, an increasing share of workers’ income is held in pension funds. 

Of course, finance in the US stands out relative to everywhere else. What this great map from the World Bank shows is country size adjusted to reflect the volume of the financial sector’s assets. Even if adjusted for GDP, the US financial system is still more than 110 times as large as the smallest. Without adjustment, it is 34,500 times as large…The smallest, if you are wondering, is the island nation of Tuvalu in Polynesia. 

The transformation of corporate wealth in turn changes the character of corporate political power in government and on the market:  

(1) On the one hand, the growth in the size of the financial industry has increased the amount of resources it has to to lobby the state. Between the 1992 election that put Bill Clinton in office, a darling of Wall Street if there ever was one, and the 2016 election of Trump, the financial sector increased its spending on lobbying by 13 percent. During the 2015-2016 election cycle Wall Street interests spent more than two billion in politics, roughly $1.1 billion on campaign contributions and $898 million on lobbying. That amounts to about 3.7 million per member of Congress.

These transformations have also changed capitalist political power in the market in three ways. (2a) With a greater percent of its assets liquid and not fixed in the political territory, both financial and non-financial sectors of the corporate class in the US have greater capacity for capital flight. 

(2b) Related to this, somewhat ironically, working class wealth is also likely to flee democratic socialism. While there has been renewed interest in worker capital strategies, like David Webber’s book, The Rise of the Working-Class Shareholder, worker-owned capital is just as likely to engage in capital flight as capital held directly by the rich. Retirement funds, even if technically owned by workers, are controlled by fiduciaries and asset managers who invest in ways that prioritize returns above all else. Managers who look after the pools of assets owned by workers will follow those very same market signals.

(2c) As consumer and corporate debt has soared, states have become dependent on banks and credit card companies. Where growth and income have stagnated, their loans have become a crucial source of overall investment and economic life. Our precarious stagnation is clinging to the lifeline of debt. The Fed knows this, which is precisely why interest rates are so incredibly low. Everything is oriented toward a principal message:  “corporations and consumers, please keep borrowing.” In political economies like the US, the state has come to be directly dependent on expanding finance to keep society artificially afloat. 

The upshot of these transformations is the enhanced power of finance. Indeed, the financial sector has become the leading sector of the capitalist class in politics. And we have good evidence for this. Using data from hundreds of regulatory policy proposals and business reactions to them, political scientists Kevin Young and Stefano Pagliari show that there is greater business unity around the financial sector than any other. In short, when finance is subject to possible regulation, other sectors mobilize their lobbying power for it. Finance, in other words, is hegemonic.

What is unique about the source of capitalist political power in the US in particular? 

Though capital’s exit power makes it stronger than it has ever been in politics, we should not turn to pessimism about the prospects for working class power. There are three key factors that set the US apart from both developing and advanced capitalist countries alike. Factors that taken together provide greater governing space for socialists. 

(1) Even though the dollar operates in a regime of floating exchange rates, it functions as the world’s reserve currency. The global financial system uses the dollar as the currency of both trade and credit. This gives the US state an incredible amount of buying power.

Consider international trade — how do two countries that use different currencies buy and sell goods to one another? One solution is to use a third form of money that those currencies can be fixed to, which is precisely the role that gold played in the Bretton Woods system. Since 1971, the dollar — not gold — has played the role of that acceptable currency. This means that countries and businesses have to earn or borrow dollars before they buy things on the international market

With respect to credit, as Adam Tooze points out in his piece “Shockwave” from this month’s LRB, since 2008 corporations all over the world have been taking advantage of low interest rates and have borrowed huge amounts of dollars. 

The shift to this dollar–Wall Street regime was, as the late Peter Gowan showed in The Global Gamble, a “bid for world dominance.” This is a brilliant book, I can’t recommend it highly enough. What Gowan demonstrates is that now the American state can indirectly push other countries around through its own policy for the dollar. Most foreign-held public debt in rich countries is held in US Treasury bonds, which are seen as risk free assets.

For other rich countries, if foreign asset holders sold off their debt, it could trigger a depreciation of their currency, increasing the cost of goods that are held in other currencies and sending their economy into a recession. This is what happened in France.

The US is partially shielded because both its foreign debt and its imports are denominated in dollars. Nobody wants a devaluation of the dollar, as that would only inflate away all of the debts the US owes the rest of the world. In principle, China could lose faith in the dollar and drive down its value. But there are big reasons that would be bad. A dollar collapse would leave China much poorer because its massive US Treasury Bond holdings would be worth much less. 

In short, Washington doesn’t need to earn dollars in international markets — it can simply print them. We trade pieces of paper for real resources. This is the privilege of seigniorage – which in old French translates to “the lords right to mint money.” Uniquely, the US can spend more abroad than it earns abroad. 

So the result is that the US runs massive account deficits – and it finances the deficits by issuing debt in its own currency. 

But that same power affords it significant capacity to adopt a more just approach to growth.

(2) The United States, like other rich capitalist countries, is not bound by tight relationships with external creditors in the same way developing countries are. The US is not like Jamaica and the World Bank and International Monetary Fund. It isn’t like Greece and the European troika. In short, there is no international body threatening the United States, as the United States has done and is doing with so many, if we decide to pursue another economic model.

(3) Because the US economy is so large, financial institutions here are somewhat captured by it. American banks and other financial actors largely depend on the domestic market for their profits. Contrast this with the other center of finance, the UK, where British banks make more of their profits outside of the country. Research by Pepper Culpepper and Raphael Reinke shows this well. When it was bailed out in 2008, HSBC made almost 80 percent of its profits in foreign markets. Compare this to Wells Fargo in the United States, which makes almost all of its profit domestically.

These dynamics afford the American state significant leverage over its financial institutions. Though the state is dependent on liquidity generated by financial institutions, it also plays the role of protector as the lender of last resort. The relationship between the US state and finance is reciprocal, as we saw so dramatically with the 2008 bailouts. The asset paradox bedevils socialists in all rich capitalist countries. The US state, however, is uniquely situated to challenge the power of its dominant financial institutions.

Let me review what I have argued. First, capitalist political power is wielded both through the state and the market. And the source of that power is their control of productive assets. Second, the character of the assets they hold shapes the way they exercise their power. When assets are fixed in a political territory, capitalists stay and fight expropriation threats – when they are mobile they flee to places that are more profitable. Third, the key transformation in the last two decades has been the financialization of capital’s assets – making it more mobile and increasing the power of the financial industry. Fourth, and finally, the unique position of the US in the global political economy affords policy makers here certain space to govern against finance. There simply has not been the political will to do so. 

The historical remedy to capital moves is capital controls, and they would be crucial in the tool kit of any viable democratic socialist government to weaken capital’s enhanced ability to flee today. Governments should impose controls on both outward and inward flows of capital to minimize the chance of destabilizing investor reactions and predation.

But only by challenging the property rights of financiers over their institutions and subjecting them to democratic deliberation would the exit capacity be reversed and the power of financial institutions harnessed for the public good. Ironically, the same exceptionalism that has made it so difficult to organize in the United States for so long may give the US state the capacity to overcome the resistance of capital.

Michael A. McCarthy is an associate professor of sociology at Marquette University. His book, Dismantling Solidarity: Capitalist Politics and American Pensions since the New Deal, was published by Cornell University Press in 2017.

Image: Harrie Van Veen (CC BY 2.0) Flickr

This essay is reprinted from Jacobin Magazine’s Stay at Home Youtube Series.