The American Prospect

How to Reform Solitary Confinement Margo Schlanger and Amy Fettig Bronx Cheer Harold Meyerson Plus: Bring Back Antitrust David Dayen

liberal intelligence

Fa l l 2 0 1 5

Our China Policy Makes No Sense Clyde Prestowitz

Randall Kennedy

on Ta-Nehisi Coates

Peter Dreier and Aditi Sen

on Hedge-Fund Landlords

What does 42% mean to you?

The figure “forty-two percent” has loomed large in recent headlines. That figure represents two alarming data points: the percentage of honeybees in managed U.S. colonies that mysteriously died in the past year, the highest rate in nine years, and the percentage of U.S. workers that make less than $15 an hour, according to a new study published by the National Employment Law Project (NELP).

42%

Forty-two percent signifies the proximity of a tipping point. Although seemingly disconnected, the accidental coincidence of these trends provides an opportunity to step back and broaden our perspective. Both honeybees and the middle-class play indispensable roles in our society. Colony Collapse Disorder (CCD), the mysterious disappearance of honeybees in recent years, represents a threat to the very foundation of our food systems. Approximately one in every three mouthfuls in our diet benefits from honeybee pollination, which adds more than $15 billion to the value of our crops each year. The NELP figure represents the disappearance of the American middle class, once the envy of the world and the foundation of our economic growth and stability.

When capitalists perform their act without a safety net, we all bear the risk. That was what happened in 1929 and in 2008. In the aftermath of the most recent financial crisis, Judge Richard Posner, a leading proponent of the integration of free-market economic thinking and law, wrote: “We are learning... that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails.” Or, perhaps we need to re-learn the lessons of the Great Depression. The minimum wage is one of those intelligent government guardrails that the Roosevelt Administration put in place to get our economy back on track. If we accept the need for a minimum wage, then we must accept the need to periodically increase that wage to keep pace with the cost of living. If the minimum wage is a poverty wage, then it is not serving its function.

Forty-two percent means that our capitalist economy is in danger of running off the rails. Economic growth has reduced foraging areas for bees. A handful of large publicly traded companies have come to dominate our food systems, aggressively promoting the widespread use of systemic pesticides, a key culprit in colony collapse disorder.

Investors with their eye on the bottom line question what all of this will cost, burying their heads in their portfolios, focused on how a ban on pesticides or a rise in labor costs might affect stock prices. They ignore the larger costs – the damage to the underlying systems that sustain our economy and our lives.

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contents

volume 26, number 4 Fall 2015

Page 9

Page 68

Page 22

Page 62

5 prospects The European Prospect by Robert Kuttner 104 Comment The Politics of Frustration by Paul Starr

notebook 9 55–45 POLITICS IN A 50–50 COUNTRY by THOMAS SCHALLER 12 EMPLOYER POLITICAL COERCION: A GROWING THREAT by ALEXANDER Hertel-Fernandez

Features 16 Our Incoherent China Policy by Clyde Prestowitz 22 Bronx Cheer by Harold Meyerson 34 eight Principles for Reforming Solitary Confinement Margo Schlanger & Amy Fettig 40 Hedge Funds: The Ultimate Absentee Landlords by Peter Dreier & Aditi Sen 46 Bring Back Antitrust by David Dayen 54 Still We Rise by Darrick Hamilton, Tressie McMillan Cottom, William Darity Jr., Alan A. Aja, & Carolyn Ash 62 The New Public Option by Justin Miller 68 Unfriendly Fire by Suzanne Gordon 76 Pushing Civic Tech Beyond its Comfort Zone by Rachel M. Cohen 80 The Unsavory Side of Airbnb by Steven Hill

culture 87 A Caricature of Black Reality by Randall Kennedy 92 It’s Still a Struggle by Samuel Issacharoff 95 Security for a Precarious Workforce by David Bensman 98 A Government both more Secretive and More Open by Mary Graham 101 The Shame of Tax Havens by Reuven S. Avi-Yonah Cover photo by Oktay Ortakcioglu / iStockphoto

1

contributors

Clyde Prestowitz

served in the Clinton and Reagan administrations, and is the author of many books on trade, technology, and Asia. He examines the economic—and geopolitical— flaws of the TPP. “U.S. trade policy is grotesquely planted in the past, and nowhere is this more evident than in the current TPP negotiations,” he says.

Suzanne Gordon

has been researching a book about VA health care, and spotlights the lesserknown successes of the department’s health system.

“I knew VHA care was far better than depicted in the mainstream media before I embarked on my book project,” she says, “but I never knew how good.”

Thomas Schaller

Edwin J. Torres

Harold Meyerson

is a professor of political science at the University of Maryland, Baltimore County. “After reading Hacker and Pierson’s superb article in the Spring Prospect, it occurred to me that the conservative project operates at a much cheaper price because of structural and institutional advantages enjoyed by today’s GOP.”

is a freelance photographer whose images accompany Harold Meyerson’s story on Bronx revitalization. “I was born and raised in the Bronx,” he says.

“This work is a product of my personal frustration with gentrification in the city, and I try to capture the day-today economic realities of my neighborhood.”

has covered the fall and (always incomplete) rise of U.S. cities since he was executive editor of L.A. Weekly in the 1990s. He looks at the Bronx— a borough synonymous with urban decay, but finally seeing signs of revitalization.

“The Bronx is still desperately poor,” he says, “and what it needs are betterpaying jobs.”

Margo Schlanger is a law pro-

fessor at the University of Michigan, and offers eight principles for reforming solitary confinement. “I have been working on this issue for over a decade, and it’s finally got the public’s attention,” she says. “That’s a great place to be, as opposed to where we were ten years ago.”

Amy Fettig is

senior staff counsel for the ACLU’s National Prison Project and co-author with Schlanger of the article about reforming solitary confinement. “I think it’s important to take a close look at the reform effort, identify underlying principles, and lay out a path to ensure real and lasting change,” she says.

David Dayen

writes for Salon. com and is a columnist at The Fiscal Times.

He investigates the rise of monopolies, and the lack of antitrust enforcement. “The 2016 elections are in full swing, and no candidates are talking about antitrust law,” he says, “even as we experience the effects of monopolies constantly in our everyday lives.”

co-editors Robert Kuttner, Paul Starr co-founder Robert B. Reich editor-at-large Harold Meyerson art director Mary Parsons managing editor Amanda Teuscher associate Editor Sam Ross-Brown Writing Fellows Nathalie Baptiste, Rachel M. Cohen, Justin Miller proofreader susanna Beiser editorial interns P.R. Lockhart, Julian Notaro, Isaac Park, Daniel Block, Lauren Gurley contributing editors Marcia Angell, Gabriel Arana, Jamelle Bouie, Alan Brinkley, Jonathan Cohn, Ann Crittenden, Garrett Epps, Jeff Faux, Michelle Goldberg, Gershom Gorenberg, E.J. Graff, Bob Herbert, Arlie Hochschild, Christopher Jencks, Randall Kennedy, Bob Moser, Karen Paget, Sarah Posner, Jedediah Purdy, Robert D. Putnam, Richard Rothstein, Deborah A. Stone, Michael Tomasky, Paul Waldman, William Julius Wilson, Matthew Yglesias Director of Business Operations Ed Connors Development Manager Joseph A. Gallant Jr. board of directors Michael Stern (Chair), Sarah Fitzrandolph Brown, Lindsey Franklin, Jacob Hacker, Stephen Heintz, Randall Kennedy, Robert Kuttner, Mario Lugay, Miles Rapoport, Janet Shenk, Adele Simmons, William Spriggs, Paul Starr Fulfillment Palm Coast Data subscription customer service 1-888-MUST-READ (687-8732) subscription rates $19.95 (U.S.), $29.95 (Canada), and $34.95 (other International) reprints permissions@prospect.org

2 WWW.Prospect.org Fall 2015

Engaging Books Engage the World Hear My sad story

The True Tales That Inspired “Stagolee,” “John Henry,” and Other Traditional American Folk Songs

by Richard Polenberg “An illuminating musical window onto the patterns of the past.”—Allan M. Winkler, author of “To Everything There Is a Season”

national Parks of Costa riCa

by Gregory Basco & Robin Kazmier “The startling beauty of the photographs in these pages captures the elusive secret of Costa Rica’s charm.”

—Mary Jane West-Eberhard, Smithsonian Tropical Research Institute

a sense of Power

The Roots of America’s Global Role

by John A. Thompson “Required reading for all those interested in how America rose to superpower status.”

—Richard Fontaine, Center for a New American Security

ConneCting tHe droPs

A Citizens’ Guide to Protecting Water Resources

by Karen Schneller-McDonald “Offers down-to-earth guidance for recognizing stewardship opportunities and acting.”

—Mark Ruffalo, founder, Water Defense

Cornell University Press

reforMing new orleans

The Contentious Politics of Change in the Big Easy

by Peter F. Burns & Matthew O. Thomas “A rich description of what happened to education, public housing, and public safety after Katrina. ” —Marion Orr, Brown University

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Also available from your favorite bookseller

America’s middle class is facing a new battle

Almost no one stands up for average Americans

Go to www.AmericaWorksTogether.us to find

these days. Now there’s a Supreme Court

out what’s in store for America’s middle class in

case looming that could make our unbalanced

the Friedrichs v. CTA Trojan Horse.

economy even worse.

Let’s make sure the American Dream doesn’t become ancient history.

508-15

Prospects

The European Prospect

by Robert Kuttner

T

he European project after World War II was among the most noble in modern history. Germany, twice the cause of catastrophic wars, would not be punished but rebuilt, rehabilitated, and contained within a larger democratic European whole. The memory of the Great Depression, on which fascism had fed, would be forever banished thanks to a social contract that brought economic security to ordinary people. A united, secure Europe would never again go to fratricidal war.

Western Europe, threatened physically and ideologically by Soviet Russia, was not strong enough to resist militarily without American help, but could offer a model far more attractive than communism—a splendid case of soft power. Christian Democrats called it a social market economy; social democrats thought of it as a more flexible alternative to socialism. Either way, with national variations but a common ethic, the recipe was a stunning success.

It blended economic dynamism with a level of equality and civic vitality not achieved anywhere else, before or since.

The European Union, founded in 1992 as the successor to the original European Economic Community, added a second layer. Europe would be not just a continent with common traditions, converging aspirations and open trade, but an emergent political federation.

It would be more than a customs union—an economic union with a single currency, consistent economic rules, and social Europe balancing market Europe at a continental scale. This was intended

both to defend and to deepen the model. Gradually, the EU was expanded to 28 nations, bringing in once-fascist states of Spain and Portugal, former Soviet satellites, as well as the Nordic and southern European fringe. It was a countermodel to a failed European past, to communism, and to the harsher Anglo-Saxon form of capitalism.

It is an understatement to say that all of this is now at risk. It would be a miracle if the Europe that we have come to admire survives. All of the pathologies evident in the 1930s, which weighed so heavily on the minds of the EU’s architects, are resurgent—the high unemployment, the economic extremes, the perverse austerity policies, the popular backlash against ineffectual parliamentary politics, and the resulting ultra-nationalism.

To grasp what happened is to appreciate a complex brew of resurgent neo-liberalism, a deeply flawed European constitution, mistaken assumptions, weak leadership, the destruction of countervailing institutions that once served to housebreak capitalism, and bad luck. The European story is a variant on trends common to advanced societies everywhere, where the more inclusive brand of capitalism that produced the success of the postwar boom is giving way to a more rapacious society, “red in tooth and claw”—a line from Tennyson embraced by Margaret Thatcher and company.

In the 1970s, the postwar boom faded, a victim of OPEC price hikes, the collapse of the Bretton Woods system of stable exchange rates anchored by the U.S. dollar,

and the exhaustion of the stimulus of reconstruction. For the right, the remedy was a return to a more laissez-faire model, even though there was little evidence that Europe’s social market had anything to do with the economic slowdown. After a rough decade in the 1980s, the moderate leftists who came to power in the 1990s— Tony Blair in Britain, Gerhard Schröder in Germany, Wim Kok in the Netherlands, and Goran Persson in Sweden—concluded that it was sensible to embrace part of the neoliberal recipe, both to seize the political center and energize the private economy.

The modernized social democrats sponsored substantial privatizations, tax cuts, trims in the welfare state, weakening of collective bargaining, and the deregulation of finance. When the center-right returned to power, conservatives doubled down on the formula.

For instance, the rules of the EU require public entities to allow private competition. In Sweden and the Netherlands, social democrats gamely went beyond the minimums. The Dutch privatized the Post Office, to the point where individuals have personal contracts to deliver mail, often at wages below prevailing minimums. The Swedes, thinking to expand consumer choice, embraced a universal program of public school vouchers. The preponderance of private schools are now run by multinational corporations, and schools are declining in performance and are increasingly segregated by class and ethnicity.

The Swedes and Danes undermined the unions by de-linking unionism from unemployment

insurance, weakening the ability of unions to enlist dues-paying members. This past January, a Danish coalition government led by the Social Democrats partly privatized a state energy company by selling 18 percent to Goldman Sachs. That so appalled its left coalition partner, the Danish People’s Party, that the party quit the coalition, bringing down the government. There could hardly be a more iconic symbol of the impact of resurgent financial capitalism on the European democratic left.

For the first four postwar decades, democratically mobilized citizens in strong nation-states anchored the social part of Europe while the European Economic Community, predecessor of the EU, promoted the market part.

The social contracts were created nation by nation, each with its own politics and traditions. In Sweden, social democracy was very much a national project that invoked the rhetoric of patriotism and the Swedish folk to build political alliance between farmers and industrial workers and promote social solidarity. Scandinavian social democracy is built heavily on trade unionism and social bargaining. French égalité involves a heavier role for the state. Germany is something of a hybrid. One size doesn’t fit all.

The architects of enlarged Europe didn’t quite appreciate the delicate balance between the whole and its parts when they created a union just strong enough to undermine solidarity at the national level, but too weak to build it at a continental scale. Or maybe some of them did. It was Friedrich Hayek who presciently

Fall 2015 The American Prospect 5

Prospects

observed that he supported European federalism because it would weaken the power of the state— both nationally and continentally— to meddle with the market.

When Jacques Delors, a moder-

ate French socialist, launched a full-blown European Union in the 1980s, the hope was to expand social Europe and market Europe in tandem. But in the actual Maastricht Treaty of 1992— Europe’s de facto constitution— free movement of goods, services, capital, and people are fundamental rights, and social protections are add-ons. When I interviewed Delors in 2011, he told me ruefully, “I succeeded in making a European monetary policy, but not European social or economic policy.”

After the euro became Europe’s common currency in 2002, leadership of the project passed to German conservatives. Their goal, above all, was fiscal balance.

Helmut Kohl, chancellor at the time of German reunification, and before the launch of the euro, conditioned Germany’s willingness to give up the deutsche mark on extremely conservative fiscal and monetary rules. Germany is obsessed with price stability because of its experiences with hyper-inflation both in the Weimar period and in the chaos after World War II. More recently, the costs of absorbing the former communist DDR pushed Germany well beyond the fiscal norms that Kohl had imposed on the rest of Europe. All of these provisions, hidden in plain view in the Maastricht Treaty, were mere nuisances until the financial crisis of 2008 hit. The Maastricht rules then gave German Chancellor Angela Merkel and the banks a hammer with which to destroy the sovereignty and social solidarity of lesser nations.

Austerity not only served as perverse macroeconomic policy, but the plans imposed on the debtor states of Greece, Spain, Portugal, and Ireland included neoliberal policies that went

6 WWW.Prospect.org Fall 2015

far beyond mere budget balance, reminiscent of the IMF in its worst period. According to their EU masters, these countries needed to restore growth to reassure their creditors. How to accomplish that trick at a time of fiscal belt-tightening? Cut wages, undermine collective-bargaining rights, intensify privatizations, reduce taxes on business, and eviscerate social outlays. Basically, the crisis gave a huge political opening for neoliberal policies that are not even effective economics. The resulting stagnation undermines voter confidence in both the nation-state and in the European Union. The European Central Bank, with far less general authority than the U.S. Federal Reserve, serves mainly as the agent of banks. Thus did a project promoted by social democrats in the 1980s and 1990s become an instrument of deep conservatism.

The premature enlargement of the EU, to include low-wage, lowtax countries on its near borders, undermines the model in other respects. The European social market could coexist beautifully with free trade in goods and services.

But when Eastern European workers are prepared to work at a fraction of the going wage, and at a time of very high unemployment worsened by austerity policies, that cannot help but pull down wages—and nourish resentment of foreigners.

The austerity policies imposed on Europe should be inviting a democratic-left opposition. But, as columnist Wolfgang Münchau recently wrote in the Financial Times, social democrats today “are all but indistinguishable from their opponents.” As social democrats lose credibility and voter support, when they do get to govern it is invariably in coalition with center-right parties. So there is a one-way ratchet effect.

The right comes to power and imposes policies that weaken the model (privatizations, tax cuts, weakening of collective bargaining). When a left-led coalition gets a turn, it can’t muster the

votes to reverse the policies.

Many European cities, most famously Amsterdam and Venice, are substantially constructed on ancient wooden pilings. As long as the pilings are maintained in good order, the city endures. But if the pilings are allowed to rot, a city that looks healthy can sink into the mud. Superficially, the European welfare state seems solid enough.

The social services are still basically intact. The income distribution has worsened, but not nearly to U.S. levels. The trains run. But the political pilings on which the model rests are near collapse.

If Europe needed one more assault

to further undermine the model, it came via the refugee crisis. The crisis laid bare two awful fragilities. The first is the dysfunction of the EU as a confederation with multiple veto points and little capacity for leadership in a crisis.

As Henry Kissinger reportedly said, expressing his skepticism about the EU as a diplomatic player, “Who do I call?”

The second frailty is that, despite all of the efforts of Brussels to forge a common identity, the continent is still, in the famous formulation of General de Gaulle, one of the original Euro-skeptics, a Europe “des patries”—a Europe of nations. When a crunch comes, most citizens are French or Danish first, European second. And most social contracts are still forged—or not—at the level of the polity. The EU is woefully incomplete as a polity, much less a democracy. All over Europe, the EU is increasingly a project of elites, losing the trust of citizens.

Politically, the collision of a lingering and needless economic crisis with a random refugee crisis has energized nationalism, both moderate and neo-fascist. In Norway, Sweden, Denmark, the Netherlands, France, Finland, Austria, and elsewhere, the second- or thirdstrongest party is far-right populist.

Much of this support is workingclass, at the expense of social democrats. In a few places—Spain,

Britain (with Jeremy Corbyn as the new Labour leader), Greece—the economic frustration energizes a nationalist left, disgusted with Brussels destroying national sovereignty. This parliamentary fragmentation makes it impossible for the center-left to govern.

The refugee crisis also makes clear that much of Europe’s social compact assumes a common national identity, to which foreigners do not easily fit in. The Swedes have bravely taken a very liberal position on political asylum. But today, with 17 percent of their population foreign-born, Sweden faces segregated enclaves and backlash. A neo-Nazi party won 13 percent of the vote in the last election. Roma beggars are in the streets of the large cities, a new phenomenon that drives the liberal Swedes crazy. “We have a social bargain where we work hard, pay taxes, and we get a lot back,” a senior member of the Social Democratic cabinet told me. “There is no room for beggars.” Why not prohibit begging and create jobs for the beggars? “Then a hundred thousand more would come!”

Thus Europe’s dilemma.

Europe might be able to accept a million refugees economically, but it cannot do so politically. The refugee crisis is simply an overlay on a deeper crisis of solidarity and common purpose. Unless there is a renewal of popular energy and a burst of progressive leadership, the three-decade era of broadly shared prosperity—les trente glorieuses, as the French call it—will be remembered as a historical blip. The EU aspired to combine that impossible trinity of the French Revolution: liberty, equality, and fraternity. All three are now on the defensive. In a market economy, creating durable popular counterweights to capital is no mean feat, and even harder when political institutions are fragmented and democracy is under siege. There are peculiarly European features to this story, but the broad pattern should be all too familiar to Americans.

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notebook conundum. Hacker and Pierson proceed to investigate a variety of possible explanations for the gap between what Americans want and what elections and government give them. No doubt, as they argue, the Republicans’ electoral success is to some degree attributable to a larger and more intensely committed activist core, stronger media, more money, and the ability to prevent government from acting effectively and then to benefit from the cynicism that grows when it fails to perform.

In their otherwise compelling essay, however, Hacker and Pierson only briefly allude to two mutually reinforcing sets of structural advantages that result in Republican over-representation. One set of advantages arises from the electoral system, the other from the socioeconomic differences between the two parties’ supporters. Taken together, these built-in advantages in the Republicans’ favor systematically tilt the electoral playing field. They make every Democratic victory an uphill climb.

The GOP’s Electoral-System Edge

55-45 Politics in a 50-50 Country Republicans start every election cycle with structural advantages regardless of the issues and all the other factors that usually determine who wins elections.

victor juha sz

By T h o m a s Sc h a l l e r

I

n the 25th anniversary issue of this magazine, Jacob Hacker and Paul Pierson offered an explanation of what they call the “no-cost extremism” of current Republican politics. How does the GOP continue to move rightward and still win, they ask, despite the

American public’s opposition to much of the party’s agenda? “Poll after poll,” they point out, “shows that major GOP positions are not all that popular. Among swing voters, there has been nothing like the party’s right turn. … On many social issues, such as gay marriage,

middle-of-the-road voters have actually moved left. Yet the Republican Party keeps heading right. … In a 50-50 nation, Republicans have learned how to have their extremist cake and eat it too.”

At first blush, this disconnect indeed poses a small-d democratic

A series of characteristics of the American electoral system, including the structure and procedures of the Senate and House as well as the electoral calendar, are now working for the Republicans.

The U.S. Senate was designed to over-represent small states, but only recently has that bias been a Republican advantage. During the mid20th century, the GOP regularly elected senators from large states such as California, Illinois, and New York. But during the past half-century, as a result of the GOP’s dominance of small states and loss of big states, the party has consistently held a higher share of Senate seats than the share of American citizens who vote for its candidates.

Meanwhile, on the other side of Capitol Hill, Republicans have also been able to outperform their share of the vote. In 2012, House

Fall 2015 The American Prospect 9

notebook

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intense and less-than-intense voters count the same: once.

What more likely explains the disconnect between measured public attitudes and political outcomes is a difference in survey methods. Polls of election preferences invariably sample registered or likely voters, whereas many public-policy polls survey the general population. Thus a survey indicating that a slight majority of American adults supports a particular policy may well hide the fact that only a plurality of American voters support that same policy—or even that a voter majority opposes it. What’s popular in the polls is not identical to what’s popular at the polls.

So it comes to pass that, in our supposed 50-50 nation, the voice and vote of one half of the country count more than the voice and vote of the other half. Why would we expect any such political system to produce policy victories—or electoral rewards—in equal measure?

for four years—New Hampshire’s and Vermont’s governors serve twoyear terms—only nine are chosen at the same time as the president. The remaining 39 are chosen in midterm elections or in odd-numbered years.

The vast majority of American state legislators are also elected in nonpresidential elections. Although they did not create the electoral calendar, Republicans benefit from it because of the party’s second set of structural advantages. When turnout is low, more-affluent Americans typically represent a higher proportion.

The Socioeconomic Amplifier

Generational, gendered, racial, and class-based disparities in wealth and political power manifestly favor the Republicans’ older, more male, whiter, and wealthier coalition. In a country where registration is voluntary and voting takes place on a workday, the party with older and more-affluent voters enjoys a boost at the polls. It’s no coincidence that Republicans tend to oppose early or same-day registration but support stricter voter-ID laws to solve the phantom problem of voter fraud. A few months following the 2014 midterms, with despair palpable in his voice, President Obama lamented that the “political map” would “completely change” if every American voted.

Because older, whiter, and affluent voters dominate low-intensity elections held in non-presidential years, the socioeconomic amplifier increases the GOP’s electoral-system edge. In the United States, the incumbent president’s party has historically tended to lose seats in Congress during midterm cycles. But this pattern now has a partisan character it did not have before. Lower turnout rates compound any negative midterm voter reaction against a Democratic president, whereas lower midterm turnout rates partially mitigate whatever retrospective rebuke a Republican president might otherwise be expected to suffer.

Hacker and Pierson ascribe some of the puzzling electoral success of GOP extremism to the greater intensity demonstrated by the Republican Party’s base. To be sure, more-intense voters may donate their time and money, yet the votes of

Winning with Nothing

Under the rule named for former House Speaker Dennis Hastert, legislation is not allowed to go to a vote on the House floor without the support of a majority of the majority party—a rule that effectively provides a veto to an electoral minority.

The Republicans have another advantage that stems from the party’s ideological orientation toward government. They are not just the “party of no,” opposing liberal initiatives.

They are also the party of nothing— the party that is content to have government do nothing.

“Nothing” is the result American politics is best geared to deliver. Nothing is easy to achieve because of checks and balances in the American system and the generally awesome staying power of the status quo. If a series of attempts to change law or policy fail and nothing is done, the status quo “wins.” Without knowing anything about the details of various policy proposals, the degree of popular support and opposition for each of them, or which party and officials control which levers of government, you can generally place a safe bet on nothing happening.

Because conservatives and Republicans are ideologically predisposed to blocking changes or accretions in governmental policy, the victory of nothing is often a victory for the GOP. Delivering zero policy results isn’t a failure

ron edmonds / ap images

Speaker John Boehner maintained his majorities even though Republican House candidates received a million-plus fewer votes nationwide than Democratic House candidates captured. As Hacker and Pierson correctly note, despite losing the national popular vote in that year’s presidential race, Mitt Romney carried more House districts than Barack Obama did. This gap between national totals and district outcomes reflects two developments, one demographic and the other political. Democratic voters are now “inefficiently” distributed because they have become increasingly concentrated in cities, and the GOP has been able to capitalize on population patterns through the strategic use of partisan gerrymandering.

Procedural rules in the Senate and House also favor Republicans. In neither chamber is a mere majority required to pass legislation—in the Senate, because of the filibuster, and in the House, because of the Republican leadership’s so-called “Hastert Rule” (named after the former Republican Speaker Dennis Hastert, though he was neither the rule’s inventor nor the first speaker to employ it). Under the Hastert rule, legislation is not allowed to go to a vote without the support of a majority of the majority party—a rule that effectively provides a veto to an electoral minority.

The bottom line is that the constitutional design of the Senate, population geography and the use of strategic gerrymandering in the creation of House districts, and procedural rules for both chambers all combine to exaggerate contemporary Republican influence on Capitol Hill. Leaving aside all the usual factors influencing elections—state of the economy, issues, public opinion, candidate quality, and campaign finance—the GOP begins every congressional election cycle with a built-in head start, and every session of Congress at representational levels that exaggerate the party’s underlying popular support.

The timing of American elections also magnifies Republican clout. The majority of state and local elections are conducted during lowturnout, non-presidential cycles. Of the 48 American governors elected

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of Republican rule but quite often the objective. As Hacker and Pierson astutely observe, because Republicans repeatedly emphasize that government is the problem and not the solution to most problems, the GOP tends to be rewarded when government fails.

After all, they predicted exactly that!

Look at the Republican response to the passage of Obamacare. Those who mocked the GOP’s repeated votes to repeal the Affordable Care Act miss the point of the kabuki dance Republican legislators performed. Despite talk of “repeal and replace,” most Republicans never intended to provide a substantive policy alternative. Those dozens of congressional “repeal and replace” votes might best be described as “repeal and maybe figure it out later” votes.

But so what? If the primary goal of casting those votes was to remind voters that the GOP wants to undo things, and undoing things can generate sufficient votes to win and hold office, there’s no need to do the heavy lifting of developing workable policy alternatives, building a party coalition around a chosen plan, explaining that plan to the American public, and implementing that policy’s new regulatory rules to make sure they work. All that governing sounds exhausting. As for the GOP ’s conservative media enablers, the title of a new study from Harvard’s Shorenstein Center by national reporter Jackie Calmes says it all: “They Don’t Give a Damn about Governing.” But why should the conservative media care about actual governance if the Republicans they champion and defend need not care about governing to win and stay in office?

The GOP is often brutally honest about its intentions. When asked in 2013 by Face the Nation host Bob Schieffer whether it bothered him that the 113th Congress was on pace to become the least-productive Congress in history, Speaker Boehner responded that congressional Republicans should be judged based not on how many new laws they create, but how many they repeal. Democrats have no such luxury.

Faced with this policy intransigence, Democrats often turn to the courts as a savior institution that can break legislative logjams and deliver liberal policy outcomes. But

Republican extremism isn’t free.

But it requires only a minority of voters to sustain, so in a sense, it is cheaper to buy.

Republicans do not necessarily suffer when Democrats win in court; in fact, the GOP often benefits electorally and politically from landmark liberal court victories. As constitutional scholar Mark Tushnet argues in his book Why the Constitution Matters, the value for many elected officials of landmark court rulings is that these edicts often absolve legislators and executives of having to resolve controversial policy disputes. Elected politicians can simply say the courts forced their hands.

Consider the likely partisan-electoral implications of the Supreme Court’s June ruling in Obergefell v.

Hodges, which legalized gay marriages nationwide. While the Court’s decision was undoubtedly a policy win for liberals, most Democrats, and the few pro-gay Republicans, the anti-gay Republican majority can now foment anger about the ruling among the conservative faithful without having to actually deliver any alternatives.

Republicans who oppose reproductive rights have been raising money and generating votes for four decades by fulminating against Roe v. Wade. Yes, some Republicans are moderating on gay issues, and party officials would rather not allow the 2016 presidential race to be sidetracked by a culture war they are losing. But don’t be surprised if the vast majority of congressional Republicans and state legislators continue to leverage anger over gay rights into campaign dollars, votes, and victories at the polls. For them, Obergefell is a policy defeat, but a political gift.

Democrats sometimes make electoral hay by railing against conservative court rulings, too. But again, given conservatives’ ideologically fueled animosity toward “blackrobed” judges, Republicans stand to gain more electorally and politically from adverse court decisions than Democrats do.

Cheap Politics, Expensive Consequences

Conservatism and the Republican Party over-perform not necessarily because of the quality or popularity of their ideas, but because the “price points” for winning and retaining Republican political victories are lower.

In effect, a supermajoritarian threshold

applies to the enactment of most planks of the Democratic—and certainly the liberal Democratic—agenda. Republican extremism isn’t free. But it requires only a minority of voters to sustain, so in a sense, it is cheaper to buy.

Democrats are not forever or absolutely prevented from winning. But when the true electoral calculus in our supposed “50-50 nation” is systematically tilted in favor of one party, American politics devolves into something akin to casino gambling. Even if that tilt is slight—say, turning a 50-50 nation into a 55-45 government—the effects will be pronounced. A lucky player who repeatedly bets heads in a coin-flip game may win in the short term even if the coin is rigged to produce tails 55 percent of the time. But the longer odds inevitably favor tails, and thus the house.

In the case of the contemporary Republicans, that usually means the U.S. House. It’s no coincidence that the obfuscating prowess of national Republicans coincided with the rise of Newt Gingrich and House Republicans generally, or that the GOP in the postReagan era has controlled the House more often than either the Senate or the White House. This “House-ified” Republican Party is well positioned to ensure the government does what the party wants it to do—nothing. A good speaker who can keep her 218-vote majority together can hold the rest of the federal government hostage. As Grover Norquist told me, “You can govern with just the House.”

Such statements seem absurd only to those who believe governing means doing something. But the Republican Party and its structurally over-represented coalition of older, whiter, more affluent voters aren’t trying to accomplish all that much. Listen closely, and they admit it. Which is why the conjunction of Republican policy failure and Republican electoral success is not a very difficult puzzle to solve— nor, for Republicans, a problem worth worrying about.

Thomas F. Schaller is professor of political science at the University of Maryland, Baltimore County. His most recent book is The Stronghold: How Republicans Captured Congress but Surrendered the White House.

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Employer Political Coercion: A Growing Threat Since Citizens United, companies can legally require workers to participate in politics—and fire them if they refuse.

By A l e x a n d e r H e r te l - F e r n a n d e z

A

common piece of advice for new hires is to avoid talking about politics, sex, and religion in the workplace. But it may be increasingly difficult for workers to keep their politics to themselves. Thanks to the Supreme Court’s decision in Citizens United, employers now have broad legal rights to campaign for political candidates inside their firms as well as in the public arena. And thanks to new technology, they have the means to track their employees’ political opinions and activities.

Managers and supervisors can now legally require their workers to participate in politics as a condition of employment. For instance, in most states, managers have the legal right to mandate worker attendance at a political rally for a favored candidate— and fire or punish workers who decline to participate. Consider the following examples from recent years of employers engaging their workers in politics: ■ An Ohio coal-mining firm invited Republican presidential candidate Mitt Romney for a rally at its plant.

The firm’s management told miners that they would be required to attend the rally, and that they would not be paid for their participation.

■ Executives at Cintas, a provider of uniforms and other workplace supplies, and Georgia-Pacific, a major paper-product manufacturer, sent letters to their respective workforces expressing clear partisan stances during the 2012 election. Executives at Georgia-Pacific, which is owned by Charles and David Koch, distributed a flyer and a letter indicating which candidates the firm endorsed in races ranging from the presidency to state government. The letters warned that workers might “suffer the consequences” if the company’s favored candidates were not elected.

■ A renewable energy company

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whose executives I interviewed reported that it encouraged its workers to contact their members of Congress in an effort to renew a federal tax credit for wind energy, warning its workers of the decline in sales of their products if the credit were to expire.

■ In the wake of a number of highly publicized episodes of racial violence, Starbucks executives launched a campaign for their baristas to start conversations with their patrons about race relations in America. Baristas would write the words “Race Together” on customers’ coffee cups. Staff were also encouraged to visit a company website with essays and videos about race relations. In an earlier 2013 effort, Starbucks CEO Howard Schultz encouraged the store’s patrons to sign a petition to end a government shutdown, and baristas wrote the words “Come Together” on coffee cups.

Beyond these vignettes, there is evidence that employer efforts to recruit workers into politics—what I call employer mobilization—are common in the American labor force. A recent survey I commissioned indicates that perhaps one in four employees, or about 29 million to 39 million Americans, have been contacted by their managers about voting, political candidates, or public policies and political issues.

By comparison, about 100 million Americans reported being contacted by a political party about the 2012 election and about 45 million Americans reported contact from a group other than a party about candidates in that election. Among employers I also surveyed, about half (46 percent) reported engaging their workers in politics.

Employer mobilization is important to understand because it offers companies an opportunity to shape public policy using a resource already at their disposal—their workforce. Top corporate managers responding to my

In most states, managers have the legal right to mandate worker attendance at a political rally for a favored candidate— and fire or punish workers who decline to participate.

survey of firms ranked employer mobilization as a highly effective means of influencing government. Debates over corporate lobbying and the power of business in politics thus ought to consider employer mobilization just as much as they focus on campaign contributions and other standard corporate political strategies.

Coercive forms of political recruitment in the workplace pose a serious threat to workers’ freedom of expression. Not all efforts at employee political mobilization, however, are worrisome. For instance, managers can help workers to register or turn out to vote without endorsing specific candidates. Managers can also help workers to understand potentially relevant policy debates. My polling indicates that this is the norm for most workplace mobilization efforts.

But more intimidating varieties of employer mobilization, such as when employers use threats of layoffs to motivate participation by their workers, put undue political pressure on employees to maintain their economic livelihood. I estimate that about 4 million to 14 million Americans have experienced these more coercive forms of workplace political contact. State and federal lawmakers need to take action to curb the most intimidating forms of workplace political communication while allowing employers to continue other contacts with their workers.

Employer Mobilization in Practice

Employer mobilization ranges from efforts to help employees to register to vote to more intensive efforts, such as those at Georgia-Pacific and Koch Industries, where managers have explicitly endorsed specific candidates that their workers ought to support. In the nationally representative survey of employees I conducted in April 2015, 11 percent of workers experienced “get out the vote”–type mobilization that only discussed voter registration and turnout, while 13 percent reported employer contacts about specific issues or political candidates. These contacts vary in coerciveness. About 7 percent of workers (or 28 percent of mobilized workers) reported employer messages that made them uncomfortable or

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included threats of economic retaliation, such as job loss, changes to hours and wages, and plant closures.

Only half as many workers (12 percent) reported hearing from a union as well as from an employer. Unions in their much-diminished condition in the United States are clearly not equal to employers as players in workplace political mobilization. In some cases, especially on regulatory and trade issues, employers coordinate with unions on mobilization efforts, but interviews with corporate executives indicated that this was relatively uncommon. Most workers who reported union mobilization on the survey did not also report firm mobilization.

Some evidence from other sources suggests that mobilization has been increasing. For instance, the Business Roundtable, an association of about 200 of the largest and most prominent firms in the country, estimates that the share of its members contacting workers about politics increased from 18 percent in 2002 to 66 percent in 2004. The Business-Industry

Political Action Committee (BIPAC), a business group that helps firms to mobilize their workers, estimates on the basis of its own polling that the share of employees hearing from their bosses in politics has risen from 7 percent of employees in 2000 to 31 percent in 2014 (somewhat higher than in my survey). And Reuters, drawing on data from the Federal Election Commission and BIPAC, reported that the number of firms contacting their workers about politics had increased by 45 percent from 2010 to 2015.

Mobilization is highly effective, at least according to corporate managers. Politicians and journalists focus on campaign contributions as the main way that companies influence government. But managers responding to my survey of employers reported that mobilization of workers was about as effective in changing public policy as hiring lobbyists, and that mobilization was even more effective than contributing to political action committees, buying campaign ads, and participating in the U.S. Chamber of Commerce.

Coal miners stand in line waiting to participate in a mandatory rally at the Century Mine near Beallsville, Ohio, for Republican presidential candidate Governor Mitt Romney, August 14, 2012.

Employee mobilization appears to be complementary to these other activities. Companies that reported more traditional political activities such as lobbying or donating to candidates were much more likely to report engaging in worker mobilization compared to less politically active firms.

Interviews with managers reveal that mobilization advances corporate interests in a variety of ways. Mobilization can directly change the preferences of voters in races that the companies regard as critical; these are often at the state level and include referenda and ballot initiatives. Mobilization can also provide the names of supportive employees to be used in lobbying efforts. For example, a firm attempting to change the votes of key legislators in Congress might mobilize workers who live in their districts, encouraging them to contact their representatives.

The Changing Context of Employer Mobilization

Although employer mobilization has a lengthy history in American politics,

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the context has changed. Employers now enjoy more legal rights to recruit their workers to participate in politics than they did even a decade ago.

These rights are further reinforced by workers’ loss of bargaining leverage, as well as by technological advances that enable employers to disseminate their opinions more effectively and to monitor their workers more closely.

The Supreme Court’s decision in the 2010 Citizens United case ushered in a new legal regime for employer mobilization. Most discussion about that decision has focused on the green light the Court gave companies to spend unlimited amounts from their own treasuries on electoral politics.

But Citizens United also allows managers to use employee time (a corporate resource) for campaigning or politics as long as those activities are not coordinated with a candidate.

What is more, there are no federal legal protections for employees who are fired or suffer other reprisals for refusing to participate in politics. If they are employed “at will,” as most workers are, they can have their hours or wages changed or be fired without cause, as long as it is not for a narrowly defined set of legally protected reasons, such as religion, race, or gender.

Only some states have protections in place for private employee speech or political activity. Moreover, many of the state-level political-freedom laws protect an employee’s speech or activities only during off-work hours, rather than limiting political coercion by a manager on the job.

Even before Citizens United, employers had already begun to engage in practices that resembled the ones that the Supreme Court legalized in its 2010 decision. For instance, companies have long used “captive audience” mandatory workplace meetings to discourage workers from supporting labor unions. In the early 2000s, leading companies and business associations had even started to hold captive-audience meetings about a broader range of political issues, including some related to political candidates. Both the First Amendment and the National Labor Relations Act, which governs private-sector labor organizing, permit captive audiences

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Koch Industries helpfully sent its employees a list of candidates endorsed by the Koch brothers.

(Originally published in In These Times.)

on labor-related issues and offer no protections for employees who are disciplined or fired for refusing to attend, leaving early, or asking questions. Citizens United gave firms the confidence to mobilize more—and in more intensive ways—than when the legal status of mobilization was murkier.

Aside from Citizens United and the overall political climate, several other changes in the American workplace have facilitated greater political recruitment of workers by managers.

Most important, American workers have lost much of the voice and bargaining power that they possessed a generation ago. One clear manifestation of this imbalance in workplace power is the stagnation of the typical worker’s wages relative to the productivity of the overall economy, especially since the 1970s. Other signs of reduced worker bargaining power include record levels of wage theft by managers and the rise of on-call positions where employees are not notified of their schedules until just before they are required to report for work.

The collapse of the labor movement, competition with lower-wage economies overseas, the failure to update labor-law protections, and greater

pressures on firms to generate high returns have all contributed to workers’ loss of power and left them in a far weaker position to resist employer demands for political support. In the past, when workers were more secure in their employment, they might have been comfortable refusing to participate in employer-led political activities. Today, not so much: Employees are reluctant to defy management for fear of being replaced.

Advances in technology have also facilitated employer mobilization. Top corporate managers acknowledge in interviews that a company might now launch a mobilization effort with a series of emails to workers, then call virtual town-hall video forums, and finally ask workers to visit a website to send employer-written messages to their elected officials. The new systems permit employers to track which workers read and respond to political requests and which don’t. Employers can easily see, for instance, whether workers opened a particular email about politics, clicked through to websites with additional information, and followed their manager’s request to write a letter to a legislator. In fact, employers can legally use tracking information to reward workers who do the company’s political bidding and punish those who don’t. Indeed, one corporate manager reported to me that his firm kept track of the firm’s “champions,” the workers with the highest participation rates in the firm’s political campaigns. Champions were then invited to become political ambassadors for the firm.

Curbing Coercive Employer Mobilization

While most mobilization efforts do not appear to be coercive and unwanted by workers, some of them clearly are. When employers make political requests of employees to support a particular bill, candidate, or issue, and incorporate implicit or explicit warnings about job loss or cuts to wages and hours, workers may feel pressured to support their employers’ positions. This kind of mobilization poses a serious threat to the right of workers, as citizens, to arrive at their political views and decisions free from

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the undue influence of others. Coercive mobilization also violates individual workers’ rights to free speech, as they are pressured into making political statements that they may not believe but feel are necessary to appease their employers.

More generally, intimidating forms of mobilization pose a challenge to the quality of our democratic institutions and processes. Coercive mobilization tilts the political balance in favor of corporate interests, as firms are able to change worker preferences and behaviors, and thus electoral and legislative outcomes in ways that other groups cannot. Although only 7 percent of American employees have experienced strongly coercive mobilization, this share might well be enough to swing a close election in favor of a particular firm or industry.

Mobilization could make an even bigger difference in low-turnout races, such as for state ballot initiatives or referenda, which are an important priority for many businesses.

One means of curbing employer coercion, described in a recent Harvard Law Review article, would be an extension of federal limits on political action committees to companies.

Currently, PACs are restricted from collecting anything of value through “physical force, job discrimination, financial reprisals, or the threat of force, job discrimination, or financial reprisal … or as a condition of employment.” Congress could alter the relevant statute to extend these regulations from PACs to corporations themselves. This straightforward change in language would shield workers from being required to contribute anything of value (such as their money, time, or political voice) to corporate political activities. Companies could thus no longer use the threat of job loss or plant closures to compel worker political activity. Legislation of this kind would at once reach all (or nearly all) private-sector workers, but of course, in the current Congress, no such measure is likely to pass.

Barring federal action, the states could ban coercive recruitment in the workplace, following the lead of New Jersey and Oregon, which have passed versions of the Worker Freedom Act.

That law prohibits employers from discharging, disciplining, or penalizing employees who decline to participate in employer-sponsored activities or communications about religious or political issues. The measure exempts religious or political organizations as well as meetings and communications that are legally required.

States could also pass laws to shore up the rights of employees to exercise their political rights without fear of reprisal from their employers. For instance, the California labor code forbids employers from blocking workers’ political participation and controlling or directing their political activities and affiliations. This is similar to the Oregon legislation, except that it protects employees not only from coercive employer recruitment into politics, but also from employer retaliation for workers’ own political activities off the clock.

A final, long-run strategy for reducing coercive mobilization is to try to change the context of work and improve the bargaining power of employees. If employees feel more secure in their jobs, they will feel more secure resisting employer coercion.

A Starbucks barista writes the message “Race Together” on a coffee cup as part of the campaign to promote race relations by Starbucks CEO Howard Schultz.

Recently, Schultz said that despite being urged to run for president, he had decided not to do so.

The government could help shore up workers’ positions by more vigorously enforcing existing labor standards, while also establishing new protections that take into account the radically changed landscape of employment.

Now is the moment to curb coercive employer mobilization practices before they spread further in the labor force. To delay action will only increase the risk of inciting a political war at work. To see what such a war could look like, we need only examine how the process of labor-organizing has evolved over the past few decades.

According to the best research on these trends by Kate Bronfenbrenner, it is now standard practice for workers to be “subjected to threats, interrogation, harassment, surveillance, and retaliation for union activity.” All evidence suggests that the intensity of these practices has increased dramatically over time, too. It is not a stretch to imagine that in our deeply polarized era, employers might adopt more aggressive political tactics in the same way they have fought unionization.

Addressing workplace political coercion could also raise broader concerns about worker rights. In the eyes of the law, civil rights such as the right to vote and protections against racial or sex discrimination are wholly distinct from statutes governing the ability of workers to organize and collectively bargain with their employers. This artificial separation has hurt both causes.

It has meant that employers who discriminate against workers for trying to organize a union face far weaker penalties than employers who discriminate against their workers on the basis of race or sex. The distinction has also hampered the civil-rights movement by keeping the language of economic power out of civil-rights protections.

Resistance to political coercion is a concern common to the civil-rights and labor traditions. Efforts to curb employer political intimidation could remind Americans that the quality of democracy in the workplace has direct bearing on the quality of democracy at the ballot box.

Alexander Hertel-Fernandez is a doctoral candidate in government and social policy at Harvard University.

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Our Incoherent China Policy The proposed Trans-Pacific Partnership is bad economicsâ&#x20AC;&#x201D; and even worse geopolitics as containment of China.

By C lyd e P r e s t o w i t z

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o k tay o r ta kc i o g lu / i s t o c k p h o t o

n the summer of 2009, I was invited with a few other policy analysts to the White House for a briefing on the newly proposed Trans-Pacific Partnership (TPP). At that time, the potential participants included Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Brunei, Malaysia, Vietnam, and, of course, the United States. Whether or not Japan would be invited to join had not yet been decided.

Noting that the United States already had free-trade agreements with Canada, Mexico, Peru, Chile, Australia, and Singapore, I asked why we needed an agreement that added only the tiny economies of New Zealand, Brunei, Malaysia, and Vietnam. The reply from a member of the National Security Council staff was that it would reassure our Asian allies that America was back; that this agreement would be the economic complement to the increased military deployments of the recently announced “Pivot to Asia” foreign policy, obviously aimed at counterbalancing the spread of Chinese power and influence. Along with health care and a possible treaty on nuclear weapons with Iran, TPP would be a major part of the president’s hoped-for legacy.

My first reaction was surprise. How could America come back to Asia? As far as I could tell, it had never left. The U.S. Seventh Fleet was in its 66th year of patrolling the western Pacific and keeping the seas safe for the mushrooming trade that was making the region rich. The United States still maintained almost 100,000 troops in Japan, South Korea, and Australia, and on the seas to maintain stability. Trade was burgeoning. The enormous U.S. trade deficit with Asia continued to grow as Americans bought everything Asian, and U.S. corporations transferred much of their production and employment, along with most of their technology, to Asia. Thus a policy aimed at correcting an absence seemed to be based on a false assumption.

Of course, this would not be the first time that false assumptions had guided U.S. policy (Vietnam War, Iraq War, War on Drugs, etc.). But it seemed to be a U.S. habit when it came to proposing and negotiating international trade agreements.

That was due largely to the fact that after World War II, the U.S. foreign-policy elite tightly embraced the classical freetrade catechism. As Britain’s 19th-century free-trade crusader Richard Cobden had put it, “Free trade is God’s diplomacy.”

Trade was taken to be mutually beneficial for the countries involved, leading to prosperity, democratization, and ultimately to peace among nations. It was assumed that even unilateral free trade, in which Country A opens its markets while Country B does not, is still a win-win proposition, because the more open country would get cheaper imports and the closed nation was just harming itself. The possibility of strategic use of trade by nations, an insight for which Paul Krugman won the Nobel, was not part of the story.

Thus it was natural to conclude that concessions on trade, such as unilateral market opening, could yield geopolitical objectives with no negative economic consequences.

For example, the United States might want Japan to stop manipulating its currency, but it also might want Japan to vote with it on something in the U.N. Washington has invariably yielded on the economic issue in order to prevail on the geopolitical issue. Geopolitics trumped economics.

The result has been a long series of international trade agreements that tended to disadvantage the United States.

Two recent examples are the deal under which the United States agreed to bring China into the World Trade Organization (WTO) in 2001, and the U.S.-Korea Free Trade Agreement of 2012. In the case of China, U.S. strategic thinking was heavily influenced by the notion that by adopting capitalism (or what the Chinese called socialism with Chinese characteristics), China would more and more become like America. As former Deputy Secretary of State Robert Zoellick noted, we wanted to encourage China to become a “responsible stakeholder in the global system.”

It was widely assumed that globalization would make China and other developing countries rich; that by being rich they would become democratic; and that by being democratic, they would be at peace because democracies tended not to fight each other (or so we told ourselves). Thus, admitting China to the WTO was seen primarily as a way of encouraging the nation’s democratization, but there was also thought to be an economic bonus. Because China’s tariffs were much higher than America’s, it was thought by most economists (who ignored the fact that Japan’s market had remained closed despite its low tariffs) that U.S. exports would gain proportionately more than China’s as a result of trade liberalization through Chinese admission to the WTO. Most of the econometric models projected that America’s 2001 trade deficit of $83 billion with China would shrink dramatically as a result of Chinese tariff reductions providing better access for U.S. goods and services to the Chinese market.

In fact, however, the deficit doubled in three years and by now has redoubled. At the same time, China appears to have become less, rather than more, democratic. The same pattern can be found in the case of the U.S.-Korea Free Trade Agreement of 2012. That deal was mainly aimed at strengthening the U.S.-Korean alliance and has been used as a kind of template for the TPP negotiations. In both cases, a trade deal was done for primarily geopolitical reasons and produced neither the desired political nor economic results—largely because both the geopolitical and economic assumptions were mostly wrong.

The TPP falls very much into this tradition. The proposed

It’s implausible that The Trans-Pacific Partnership would limit or retard the expansion of Chinese influence and power in any way.

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agreement has been widely debunked in this magazine and elsewhere as dubious economics, a deal crafted by and for corporate elites [see below]. However, the administration has sidestepped the economic criticisms by insisting that the TPP is essential geopolitics—a necessary counterweight to the rise of China. But if anything, the TPP is even less plausible as a China-containment strategy.

As President Barack Obama has worked to sell the agreement, he has declared that Congress must ratify the TPP, lest China write the trade rules of the future. Yet China already has concluded free-trade agreements with Singapore, Australia, Chile, New Zealand, Pakistan, Peru, Costa Rica, Iceland, Switzerland, and Korea. It is currently negotiating free-trade agreements with the Gulf Cooperation Council, Norway, and Sri Lanka, and is discussing a trilateral deal with Korea and Japan. Beijing is also leading negotiation of the Regional Comprehensive Economic Partnership (RCEP), which includes the ten member states of ASEAN (Singapore, Philippines, Laos, Cambodia, Indonesia, Malaysia, Thailand, Myanmar, Brunei, and Vietnam), plus Australia, New Zealand, China, India, Japan, and South Korea.

Most of these are also part of the TPP. Countries are understandably playing China and America against each other and hedging their bets on both sides. Consider Singapore. Even as it works to conclude the TPP and warns America of the danger of withdrawal from Asia, it is negotiating assiduously to complete the China-led RCEP. So it’s implausible that TPP would limit or retard the expansion of Chinese influence and power in any way. Conversely, the notion that America will find itself excluded from Asia if it does not adopt the TPP is ridiculous.

Singapore’s Foreign Minister K. Shanmugam, for instance,

The Economics of TPP

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o comprehensive economic analysis preceded the launching of the negotiations to establish the TPP. No economic judgments were made as to which countries were most suited to join a new agreement that seemed to be aimed at something closer to an economic union than a mere free-trade agreement. The U.S. government has made no estimates of the gains

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or losses to which the deal might give rise.

Although there are no official estimates of the likely economic impact of the TPP, a number of private analysts, such as the center-right Peter G. Peterson Institute for International Economics and the center-left Center for Economic and Policy Research (CEPR), have done estimates. They all tend to conclude that the cumulative U.S. gains by 2025 would be

on the order of 0.1 percent to 3 percent of GDP. This is, of course, in the range of a rounding error. Even if the forecast gains are achieved, they will accrue mainly to the top end of the income distribution, with the average working person actually taking a loss.

The main reason for this is that the TPP includes many provisions that may be good for footloose global companies but not necessarily for real people. Provisions for strong

recently warned that failure to adopt the TPP would result in the United States being “crowded out” from the region.

Surely, Shanmugam was not suggesting that Singapore would rescind its defense arrangements with the U.S. Navy, or that Japan would expel the U.S. Seventh Fleet, or that Apple would be forced to withdraw the billions of dollars it has stashed in Singapore if Washington does not ratify the TPP. Nor will adoption of the TPP stop any of the Chineseled deals from going forward.

Thus, to some extent, China will inevitably be writing some of the future rules of world trade. It won’t dictate all the rules, but it will surely have a major role in their writing.

But that is only the beginning of China’s increasing global influence, and the TPP does nothing to counter the other elements. China is on a massive campaign to barter investment in third-world infrastructure projects for access to the raw materials that its economy needs. This offensive naturally yields diplomatic influence.

In late July, The New York Times reported on vast infrastructure and oil-exploration projects in Ecuador, based on loans from Chinese government institutions and stateowned enterprises that are to be repaid from claims on Ecuadoran oil and natural resources. According to the Times, China takes about 90 percent of Ecuadoran oil and requires that contracts for construction and even for labor be funneled to Chinese firms—something the United States cannot do under international rules because it is classed as a developed country, while China retains the developing country label. Similar deals are ongoing throughout Africa.

The money for this Chinese geo-economic offensive comes from China’s nearly $4 trillion of foreign-exchange reserves— and these come primarily from the enormous trade surpluses that China has racked up with the United States over the past

intellectual-property protection could result in delayed introduction of generic drugs and in higher drug prices worldwide.

Evergreening of patents through use of small technology upgrades could lock in large corporate profits for many years while preventing real innovation by small, new companies.

The TPP does make a stab at stronger labor and environmental standards, but these have long proven notoriously dif-

ficult to enforce. On the other hand, provisions for the easing of regulations on foreign investment and Internet traffic, protection of corporations from losses resulting from changes in government policies, and continued approval of inducement subsidies for investment could well

n e r t h u z / f o t o l i at

25 years. This deficit was not foreordained. Consider just one emblematic example—the transfer of General Electric’s avionics (aircraft electronics) business to China.

On January 18, 2011, the same day Chinese President Hu Jintao arrived in Washington for a state visit, GE Chairman and CEO Jeff Immelt announced a new joint venture between GE’s avionics business and Avic, a Chinese stateowned aviation-products maker, which did not previously produce avionics of any significance. Under the announced deal, Immelt, who also served at the time as chairman of Obama’s Council on Jobs and Competitiveness, said GE would transfer its leading-edge avionics technology to Avic and move the manufacture of its products from the United States to China. He emphasized that the arrangement had been cleared by the Departments of Defense and Commerce, presumably in keeping with a statement in a joint press conference with Hu that America would help China develop its own indigenous commercial jetliner.

The important points to keep in mind here are that avionics rely on advanced technology that China did not yet possess.

Production of avionics is not labor-intensive, and China was therefore not a low-cost location for manufacturing. Indeed, the low-cost producing country was the United States. So, in effect, GE was moving its avionics production to a higher-cost location. All the laws of economics and free trade seemed to dictate that China should import its avionics from America.

Yet GE was actually setting up to transfer production and jobs to China and eventually to export avionics from China to America. And this was being done by the guy who chaired the president’s Council on Jobs and Competitiveness.

What was going on here? Well, China has a big, rapidly growing market for aircraft and it has made no bones about pursuing a policy of developing its own, homegrown aircraft

result in further offshoring of American investment, jobs, and technology.

Perhaps the major reason why the TPP will not produce even the minor gains for the United States that are forecast by the models is the impact of exchange rates. These models do not assume that nations manipulate their exchange rates, but several TPP members do just that.

Indeed, as I write, China has just devalued its currency by about 3 percent amid

slowing growth and falling stock markets. When currencies can move 3 percent in just a day, or 2 percent to 30 percent over a period of several months, negotiation of tariffs, subsidy rules, and market-opening measures loses much of its meaning.

Because the TPP will not change this situation, it almost automatically cannot be good for the U.S. economy or the average American. Indeed, it is important to underline that no one in the Asia-Pacific

and avionics capabilities. This is strategic trade par excellence. China was doing here what it had done in most other industries—making sales to China contingent on transferring technology and manufacturing to China. Immelt may be a major-league CEO in Washington, but here he was in Beijing kowtowing, just like all the other peons.

Most incredible of all was the fact that he was being aided in his kowtow by the U.S. government. The president kept him on as chair of the Council on Jobs and Competitiveness, even as he transferred jobs to China. Amazing as it may seem, this did not cause a ripple in U.S. political or media circles.

There were no calls for a congressional investigation and no New York Times or Wall Street Journal editorials pointing out the contradictions and insisting on the conduct of truly reciprocal free trade with China.

These didn’t appear because it all seemed so ordinary.

It wasn’t just the policy of Obama. A whole succession of presidents starting with Ronald Reagan had accepted and even promoted a non-reciprocal and hugely unbalanced trade relationship with China, urging and even indirectly subsidizing U.S. companies to invest in China and to move their production and jobs there.

While America’s leaders seemed to have no concern for the structure of their economy and what it produced, Beijing steadfastly pursued a comprehensive industrial-development policy that aimed to make China self-sufficient in most major industries and technologies. Its Internet whizzes systematically hacked the databases of the U.S. government and of the major American industrial and technology companies. It was no accident that the Chinese stealth fighter unveiled during Defense Secretary Robert Gates’s January 2011 visit looked very much like America’s F-22 Raptor. In conjunction with this thrust for industrial and technological leadership, China

or Latin American regions believes the TPP will in any significant way change the structure of regional trade that has long resulted in huge American trade deficits and lost American jobs, as the United States has played the role of global consumer of last resort.

In view of this, it has been extremely disappointing to hear President Obama demonstrate complete misunderstanding of the realities of global trade and of the TPP. For instance, he

has asked rhetorically in his speeches how anyone could be opposed to opening the Japanese auto market to enable Fords and Chevys to roll on Japanese roads. The very question showed his ignorance of the fact that nothing on the TPP agenda alters the Japanese manufacturers’ control of Japanese dealerships, which is the main mechanism of closure of the Japanese auto market. For example, even though the Koreans are low-cost auto producers

TPP provisions may be good for footloose global companies but not necessarily for real people.

and have been taking market share from the Japanese in the European, Chinese, and U.S. markets, they have completely withdrawn from trying to sell in Japan. Since that is not being discussed, the TPP cannot put American or Korean or European or any other mass-market cars on Japanese roads.

Economically, the TPP is not going to be good for America because many of its fundamental assumptions are simply at odds with reality. —c.p.

Fall 2015 The American Prospect 19

also sought to achieve control of key minerals and naturalresource reserves around the globe. This single-minded drive had now brought China to the status of the world’s secondlargest economy—one that was inevitably a major trade and investment partner with most of the rest of the world.

China’s manipulation of its currency, in violation of

the norm that markets should set currency values, is very much part of this strategy. Washington criticizes the practice, yet refuses to use serious leverage to counter it.

I was present at the Asia-Pacific Economic Cooperation (APEC) heads-of-state meeting in Honolulu in November 2011, when Obama warned in his speech to a group of APECcountry CEOs that China had to stop following its policy of intervening in the international currency markets to keep the yuan undervalued versus the U.S. dollar. Of course, China had been following this policy for many of the preceding 20 years. Nor was the policy unique to China. Japan and the Asian Tigers (South Korea, Taiwan, Singapore) had invented it and were still following it. By keeping their exports inexpensive while causing their imports to be overpriced, this approach had given them large structural trade surpluses with the United States and big dollar reserves.

Along with the strategic trade policies and practices noted above, this was the major source of the $3.5 trillion treasure chest backing the loans, and of the investments China was using to gain broad global influence and control of critical resources. Of key importance in this regard was and is the fact that the $3.5 trillion is not just the net sum of China’s dollar reserves. It is the strategic investment fund of the Chinese government and of the Chinese Communist Party.

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By contrast, in countries such as Japan, Germany, and Korea that also have large dollar reserves, the investment of these funds is directed at maximum financial returns. But in China, the treasure chest often stands behind governmentdirected lending and investment aimed at achieving the strategic objectives of central authorities. China is the major investor in some of the world’s riskiest markets. According to The New York Times, it accounts for 57 percent of all foreign investment in Ecuador, 70 percent in Sierra Leone, 82 percent in Zimbabwe, 79 percent in Afghanistan, and 38 percent in Iraq. Not surprisingly, these are places with a lot of oil and key minerals.

In short, China has a comprehensive national strategy with clear objectives, a coordinated team aimed at achieving the objectives, and the money to pay for whatever it takes to achieve success.

Obama’s plea that he must have the TPP in order to

contain China is embarrassingly superficial as well as disingenuous. If Obama were serious, he would challenge China’s policy of making market access contingent on technology and manufacturing transfers. He would have blocked Jeff Immelt’s kowtow by directing the departments of Commerce and Defense to withhold any authorization for transfer of militarily useful technology to China. He would have removed Immelt from the chairmanship of the Jobs and Competitiveness Council. Imposing a China-like “you have to make it here to sell it here” rule on Chinese sales in the U.S. market would have done far more to contain China and to change the structure of trade in the whole Asia-Pacific region than any TPP. Or, alternatively, inviting China to join the TPP and thus

s u n z i fa / c o lo r c h i n a p h o t o / a p i m a g e s

Take Our Technology (Please): GE executives sign a deal to transfer avionics technology to China as a condition of manufacturing there.

be subject to its much-touted (by the Obama administration) “high standard” rules would at least have put China on the same playing field as the United States. But making a deal with Japan and four minor economies in the Asia-Pacific region will not affect China or its trading relationships at all.

Let’s face it: The TPP partners are not significant enough or geographically well-placed enough for there to be any hope of the deal having an impact on China. While it is being labeled Trans-Pacific, it would be more accurate to call the agreement Trans-American. Of the 750 million people who would be covered by the arrangement, about 500 million are in Canada, the United States, Mexico, Peru, and Chile. Of the remaining 250 million, about 125 million are in Japan, which was not an original TPP country and only came into the deal later for its own domestic political reasons, and for the geopolitical purpose of keeping the U.S. happy in the context of the U.S. unilateral commitment to defend Japan. So the number of people in the Asia-Pacific region truly committed to the purposes of the TPP is about 125 million, of whom about 100 million are in Vietnam. This is just not a consortium of players that is going to have any impact on China.

The one thing that might have been done in the TPP negotiations that, while not affecting China too much directly, would have had the potential to change the whole structure of trade and production in the region would have been to ban currency manipulation among the members and to call upon the International Monetary Fund to enforce its rules against such manipulation globally. Based on Obama’s statement at the Honolulu APEC meetings, one might have thought that his administration would strongly support such an approach. But it didn’t.

Each year, Congress requires the secretary of the Treasury to indicate which countries are engaging in currency manipulation. Although it was common knowledge that China was often manipulating, the Obama Treasury steadfastly refused to report that to Congress. Moreover, when setting the agenda for the TPP, the Obama administration again ducked even putting currency manipulation on the agenda.

It’s a shame, really. Obama has done some very important things—the Affordable Care Act, economic recovery, withdrawal from Afghanistan and Iraq, progress on civil rights and the environment. But on trade, globalization, competitiveness, and dealing with China, Obama has continued the perverse policies of his predecessors. To propose the TPP as a remedy, something that will affect the U.S. economy negatively while having no effect on China, is worse than embarrassing. It’s delusional.

China really going to invade the United States? Consider that the U.S. Navy actively patrols the coast of China and sends surveillance aircraft along its borders every day. How would we Americans react if Chinese aircraft carrier task forces were actively patrolling our Pacific coast around Los Angeles and San Francisco?

Take the Senkaku Islands, to which Japan and China both make claims but which the United States has promised to defend on behalf of Japan. Do we Americans really want to go to war with China over islands that have absolutely no significance to us? In the 19th and early 20th centuries, when the United States was a rising power, Great Britain faced a choice. Should it try to maintain supremacy in the Caribbean Sea and western Atlantic Ocean, or should it back off and let the Americans maintain stability in the region? The Brits decided to yield and what might have been a dangerous rivalry was avoided.

Maybe we should forget the Pivot to Asia and the whole notion of containing China. The Chinese economy actually doesn’t look too healthy these days, and its problems are only likely to become more difficult as its population rapidly ages and its environmental degradation becomes worse. Maybe there’s really nothing to contain. Maybe we should pivot to America and direct the resources now devoted to containment to rebuilding America.

Or perhaps the analogy to Great Britain and the rising America is false. After all, both countries were democracies under a rule of law and shared a tradition of freedom of thought and speech, something that is not at all the case between China and the United States. So perhaps there is a real rationale for containing China. But if that is the case, then America needs a real, comprehensive strategy—not a toothless TPP. A serious American approach would begin with a demand that the IMF enforce its rules on currency manipulation.

It would limit or condition U.S. investment in China and Chinese direct investment in the United States while taxing Chinese investment in U.S. financial instruments. It would use U.S. influence in the IMF to prevent any possibility of the Chinese yuan being made a reserve currency. There is much more that could be included here, but you get the idea.

My main point is that if you’re a dove, the TPP does nothing for you because it will simply increase the trade deficit while worsening the circumstances of the vast bulk of Americans.

If you’re a hawk, the TPP does nothing for you because it’s just not a serious tool for containing China. Thus, either way, Congress should just say no to the TPP.

What should a serious China policy be? It depends

Clyde Prestowitz is the president of the Economic Strategy Institute. He served as vice chairman of President Clinton’s Commission on Trade and Investment in the Asia-Pacific Region, and was counselor to the secretary of Commerce in the Reagan administration.

on our perceptions of America’s national interests. One serious approach would be to back off. That sounds surprising, but think about it for a moment. Does China represent a direct threat to the United States in any way? Is

If Obama were serious, he would challenge China’s policy of conditioning market access on technology and manufacturing transfer.

Fall 2015 The American Prospect 21

Bronx Cheer

The New York borough that once symbolized urban decline is safer and more stableâ&#x20AC;&#x201D; but most Bronxitesâ&#x20AC;&#x2122; lives are still precarious.

By Harold Meyerson Photos by Edwin J. Torres 22 WWW.Prospect.org Fall 2015

Elevated train in a depressed area: The Simpson Street station in the South Bronx

Fall 2015 The American Prospect 23

‘‘T

he Bronx is on Fire,” a journal of the New York real-estate industry recently trumpeted, “Because the Real Estate Market Is Heating Up.” The headline deliberately echoed a famous line attributed to sportscaster Howard Cosell: “The Bronx is burning,” he is remembered saying— though he did not actually use those words—during a 1977 World Series game, as flames shot up in the beleaguered neighborhood beyond Yankee Stadium’s outfield wall. Images of a fiery comeback aren’t confined to trade publications: Under the headline “South Bronx Sizzle,” the Daily News this spring reported on rising property values in the Bronx’s most impoverished quadrant. Once a synonym for urban collapse, the New Bronx was now a hot property.

With so many households spending more than half their income on rent, 99-cent stores, touting 59-cent specials, abound.

Some of the hottest new properties include purchases

by Silvercup Studios—the Queens-based facility where The Sopranos and 30 Rock were filmed—of South Bronx land on which it will erect an additional 120,000-squarefoot studio for other productions, and by the food-delivery company Fresh Direct, which announced it would build a 500,000-square-foot warehouse also in the South Bronx.

Perhaps more remarkable still, veteran Manhattan developers have purchased land on the Bronx side of the Harlem River (which separates Manhattan from the Bronx) and unveiled plans to erect three 25-story market-rate apartment buildings.

The numbers—well, some numbers—bear out the story of the Bronx’s surprisingly upward trajectory. Total property purchases in the borough (“borough” is the term for county in New York City) came to $2.4 billion in 2014, a 39 percent increase over 2013, and a 55 percent increase over 2012. In the first quarter of 2015, the number of building permits in the Bronx increased by 48 percent over the first three months of the preceding year. Since the mid-1980s, the Bronx has seen a boom in the number of rehabilitated or new affordable housing units. “Entire neighborhoods have been reconstructed over the past three decades,” says Dart Westphal, a city planner and housing consultant who is a longtime Bronx resident. “It’s one of the greatest redevelopments in the nation’s history.”

Two kinds of transformations are visible in the Bronx today. Throughout much of the borough, new affordable apartment buildings clad in light-colored brick abound, brightening a landscape otherwise dominated by century-old slate-gray six-story apartments. The newer buildings, funded by public dollars and built and managed by community-development corporations, house families with annual incomes in the $40,000 range, according to City Council Member Ritchie Torres. They’re a boon to working-class Bronxites, even though the units are still too pricey for many Bronx households. The second trans-

24 WWW.Prospect.org Fall 2015

formation—the one touted by the real-estate broadsheets and marveled at by the city’s newspapers—has sprung up on the edge of the borough’s poorest quadrant, the South Bronx. There, just across the river from Harlem, are a growing, though still small, number of market-rate condos and hip drinking establishments.

The Bronx’s problem is not that most residents can’t afford those bars, much less those condos. It’s that they can’t afford the new and rehabbed housing units keyed to families with $40,000 incomes. It’s also that the families that once could afford those units no longer can, as rents skyrocket while incomes either flatline or fall. The Bronx looks better than it used to, but it is still the number-one center of urban poverty in the United States. Indeed, from 1989 to 2011, inflation-adjusted median household income in the Bronx declined by 23 percent.

Much of this decline is probably due to the changing composition of the population, as the upwardly mobile have moved out and low-income immigrants have arrived.

Like the rest of New York City, the Bronx is growing: It has added roughly 270,000 residents since the 1980 census.

Only a relative handful of the borough’s newcomers have higher incomes than existing residents. Most—fleeing unaffordable rents in Brooklyn, Harlem, or Washington Heights, or the deeper poverty of distant lands—come with incomes lower than the Bronxites’. While the median income of established Bronx residents in 2011 was, as the American Community Survey documented, about $20,000, that of those moving there from elsewhere in New York state was roughly $17,000, and from abroad, a bare $8,000. The Bronx is a step up for the newcomers, but their presence in large numbers also deepens the borough’s poverty.

As its population has bounced back, the Bronx has been adding jobs, their number increasing by 9,000 in the decade between 1982 and 1992, by 20,000 between 1992 and 2002, and by 24,000 between 2002 and 2012. Labor-force partic-

ipation isn’t notably lower in the Bronx than elsewhere: In 2013, 74 percent of Bronx households had at least one person with wage or salary earnings, just five points beneath the national average. The jobs that Bronxites hold, however, don’t pay very much: 35 percent of Bronx workers are employed in low-end service-sector jobs, compared to the citywide average of 24 percent.

Clearly, the Bronx isn’t Brooklyn, where the arrival of more-affluent New Yorkers has transformed Willamsburg and a host of other neighborhoods, driving working-class and poor residents to seek cheaper shelter elsewhere. (Median household income in Brooklyn is roughly $46,000; in the Bronx, $34,000.) A walk down almost any commercial Bronx thoroughfare turns up few if any restaurants. Ninety-nine-cent stores abound, but 99 cents is apparently too costly: The store windows invariably feature 59-cent specials. With more than 40 percent of households in the South, West, and NorthCentral Bronx spending more than half their incomes on rent, there’s precious little money left over for anything more than dollar-store consumption.

Rent is far cheaper in the Bronx, of course, than it is elsewhere in New York (median rent in the borough is roughly $800, according to the New York City Rent Guidelines Board), but because property values are rising, rent is, too: In the past year, new tenants in the South and West Bronx have confronted rents that are 32 percent to 34 percent higher than the previous tenants’. Families “are doubling and tripling up in the apartments on the Grand Concourse and in the West Bronx,” says Mary Dailey, a Bronx community organizer since the 1970s who today is the lead community organizer at the Center for Community Change. “That’s what it means to be poor in the Bronx these days.”

For all its woes, the Bronx has made huge progress since the 1970s, when it fell into an almost unprecedented state of disintegration. Throughout much of the borough, the South Bronx in particular, buildings were abandoned or set ablaze (often by landlords seeking to collect the insurance) in startling numbers. During the 1970s, the number of housing units in the Bronx declined from 509,000 to 451,000. Of the borough’s 289 census tracts, 44 lost more than half their buildings to arson or abandonment; seven lost at least 97 percent of their buildings.

In that one decade, the population of the Bronx declined by 21 percent.

“In the seventies,” says Dailey, “you’d walk down the street past blocks of vacant buildings and there’d be packs of wild dogs; you’d have to figure out how to avoid them. In the late eighties and early nineties, people would drive in from the suburbs and stand in line, openly, for heroin; the

lines would run down the sidewalk, down the block. Dealers would shout the names of the brand they were selling.”

“Today,” she continues, “the Bronx is nothing like what it was. The level of poverty is still overwhelming, but it’s much safer.” Like most urban areas, the Bronx has seen a huge decline in crime. In 1990, it was the site of 653 murders; in 2014, just 95. In the 41st police precinct, the notorious “Fort Apache,” murders declined from 44 in 1990 to 4 last year; in the adjoining 40th precinct in the South Bronx’s Mott Haven neighborhood, they went from 72 in 1990 to 7 last year.

The rebuilding of the borough’s housing began in the 1980s, pushed not just by community activists but by Ed Koch—the first in a string of New York mayors to devote substantial city funding, abetted by pension funds, state appropriations, federal housing dollars, and Section 8 subsidies, to the construction of affordable housing or the rehabilitation of existing units. Indeed, from the mid1980s through the mid-2000s, the city’s investment in

Apartment building rising on 153rd Street

Fall 2015 The American Prospect 25

In line at a South Bronx Catholic Charities pantry

affordable housing exceeded that of the next 50 largest cities, according to Mike Gecan, the longtime leader of the Nehemiah affordable housing projects for the Industrial Areas Foundation. Activists sought safety and housing; the city establishment understood that a Bronx so dangerous did New York’s reputation no good. “They needed to get rid of vacant land if only for reasons of social control,” says Tom Waters, a Bronx-based housing-policy analyst and activist.

Between 1987 and 2002, says Gecan, fully 15 percent of Bronx housing units were either built or rehabilitated.

In 1980, as the fires began to subside, the borough had 451,000 housing units; by 2010, it had 512,000. In a borough that had long been a favorite conservative whipping boy for the presumed failings of liberal policies, the manifest success of the commitment of public funds to more and better housing offers a powerful validation of government’s capacities to enhance the public good.

Even as the Bronx grew and its housing stock improved, however, its middle class and many working-class residents

26 WWW.Prospect.org Fall 2015

still fled to safer communities with better services and retail establishments. Like most urban areas, its racial demographics were completely transformed. A borough that had been 98 percent white in 1940 and 27 percent white in 1990 was just 11 percent white in 2010—the lowest share of whites of any county in the United States, save a few that encompass Native American reservations or abut the Rio Grande on the TexasMexico border. By 2010, its African American share, which was a mere 7 percent in 1950, had grown to 37 percent of county residents, and its Hispanic share to 54 percent. But for Florida’s Miami-Dade, this was the highest percentage of Hispanics in any county east of the Mississippi. Yet the Asian population in the Bronx, in marked contrast to Queens, hasn’t really increased.

In the 2000 census, Asians made up 3 percent of the borough’s population; ten years later, just 3.6 percent.

In 57 percent of borough households, a language other than English (most commonly, of course, Spanish) is the language spoken at home. Single women head 31 percent of its households—again, the most for any county other than a handful of reservations and one in Mississippi.

For decades, the congressional district with the highest poverty rate has been the one encompassing the South Bronx. Renumbered and just slightly reconfigured after the 2011 redistricting, New York’s 15th Congressional District has the nation’s highest overall poverty rate (41 percent), the highest child poverty rate (53 percent), and the second-highest poverty rate for residents over 65 (33 percent). The national rate for seniors is 10 percent; the difference partly reflects the large numbers of South Bronx residents who came from abroad and thus collect little, if any, Social Security.

So whence—in the South Bronx, of all places—the

higher rents, the upward pressure on property values from developers? Part of the reason is the geographic logic of New York City booms.

“Real-estate booms here start in the core area—Manhattan—and then spread” to the outer boroughs, says Josue Sanchez, a Bronx native who is associate director of L+M Development Partners, a firm that has built affordable housing and, of late, some more market-rate housing in the Bronx and such kindred communities as Newark. “This boom traveled to Brooklyn, then Harlem, then Queens: In Astoria and Long Island City [a Queens neighborhood close to Manhattan], land prices have tripled or quadrupled; you can’t develop rentals there; it has to be condos. It’s gone to Inwood and Washington Heights [in northern Manhattan]. Now, as the price of land reaches unfathomable levels everywhere else, developers are looking to the Bronx.”

Mother and daughter from West Africa passing a Jerome Avenue 99-Cent store

Fall 2015 The American Prospect 27

New construction in the heart of the South Bronx

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Those same unfathomable prices also provide the Bronx with a ready-made residential clientele: “Pricing in the Bronx would be at an attractive discount for people who can no longer afford Brooklyn,” Sanchez says.

Many of the most buzzed-about developments, like the market-rate 25-story residences or drinking establishments like Charlies, are up and running, or are set to go up, on the banks of the Harlem River near the Third Avenue or Willis Avenue bridges into Manhattan, just a few blocks’ walk from 125th Street and Lenox Avenue, the center of the much more gentrified Harlem. The Bronx neighborhoods that have seen the development of some market-rate housing in recent years—the southern end of the Grand Concourse, Mott Haven on the borough’s southern edge—also are just a couple of skips and jumps from Manhattan, and home to subway stops with trains that within minutes can carry riders to Manhattan’s East and West Sides. The southern tip of the Bronx is a developers’ paradise: a jumble of abandoned factories that offers developers lots of space in a city that’s notably short on it, as well as the ability to avoid the hassles that would arise if there were any residents they had to displace.

To the extent that genuine market-rate housing is coming to the Bronx, it may best be described as riparian—a river-hugging environment with little in common with the surrounding fields, like the trees that abut a river but won’t take root beyond the river’s banks.

In this case, the trees are the projected high-rises, the river is the Harlem, and the social and commercial life of its residents, their daily errands, will likely be conducted on the opposite shore.

One reason the projects planned for the edge of the South Bronx aren’t likely to spread inland, gentrifying as they go, is that the area has the highest density of public housing in the nation. The Bronx has 44,000 such units, while Brooklyn, with nearly twice the population, has 58,000. “It’s harder for high-end gentrification to happen anyplace where the density of public housing is high,” says Gecan, who headed a project that built some of the first affordable housing in the post-1970s Bronx. “They just don’t go together.”

The upscaling of the Bronx, however spatially confined, may find itself temporally confined as well. “Historically, when the booms finally reach the Bronx, they’re just about played out,” says Westphal. The invariable progression of investment from Manhattan outward, says Sanchez, has meant that periods of rising investment have to last many years for the Bronx to get its share. “This cycle,” he cautions, “has already lasted a long time.”

“Look at the years that Bronx property values boomed,” says Westphal. “1907, 1929, 2007. The seeming rule of

capitalism is that the boom runs out by the time it reaches the Bronx. Maybe this time will be different, but I have my doubts.”

Discount electronics store, also in the heart of the South Bronx

Ever since the Bronx began the large-scale con-

struction and rehabilitation of affordable housing in the 1980s, it has been chockablock with community-development corporations—nonprofit community groups, some church-affiliated, that get public funding to partner with developers to build housing that its members, and others like them, can afford. “There was a good deal of community organizing in the seventies,” says Dailey, who was then one of the community organizers “trying to deal with the consequences of population flight and the radical decrease in city services when the city nearly went into bankruptcy.

In the eighties, with the influx of housing funding, many of those groups went into community development. Only a few organizations maintained a primary focus on organizing. ” The transition was understandable, and hardly peculiar

Fall 2015 The American Prospect 29

Ritchie Torres, the New York City Council’s youngest member, champions public housing, hospitals, and transit as “great equalizers.”

to the Bronx or New York. Organizing in poor communities is never an easy task, and it often proved easier to sustain a development corporation than a grassroots activist group.

With so much funding pouring into Bronx housing, the morphing of activist groups into development organizations was all but inevitable.

As the Bronx grew poorer, reviving community activism became correspondingly more challenging. “For effective community organizing,” says Dailey, “you want a somewhat economically diverse group of people. Even if the majority of members are low-income, you need some members and leaders who are not dealing with the ravages of a povertystricken life—having to move all the time, dealing with crises that poverty brings.”

At times, the Bronx has been known for a vibrant, sometimes radical, working-class politics. Housing projects built by clothing workers unions before and during the New Deal became home to concentrations of left-leaning activists; a friend who grew up in one of those projects in the 1940s once told me that as a child, she assumed every household’s morning papers were The New York Times and The Daily Worker (the paper of the Communist Party). In 1917, Socialist Party mayoral candidate Morris Hillquit, running on a platform of opposing U.S. participation in World War I, won 31 percent of the Bronx vote (he won 22 percent citywide); in 1948, Progressive Party presidential candidate Henry Wallace, who had Communist support, won 17 percent of the Bronx vote (he won 2 percent nationwide).

Today, the Bronx has no comparable political culture or organizational life. “In my district,” says Ritchie Torres, who represents the central Bronx on the New York City Council, “we have some organizations that have a rich history of community organizing, but in general, civic society in the Bronx is lacking. My district has 160,000 residents, 60,000 registered Democrats, and 6,000 voters. With such a low level of civic engagement, we’ve had a lot of public officials who ended up in jail. And this comparative lack of civic and organizational infrastructure has been a challenge for the Working Families Party”—the New York progressive group that backed Torres’s successful 2013 council candidacy, and whose supporters, Torres included, constitute a majority on the council.

When Torres ran in 2013, he was a 24-year-old district director for a councilman from an adjoining district. He’d made a name for himself by exposing landlords who kept their buildings in disrepair. His youth, he says, was a factor in his victory: A number of prospective voters lived on the top floors of six-story walkups—a climb Torres had no trouble making. He’s one of the youngest members ever to serve on the council, and is the first openly gay council member from the Bronx.

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A few blocks south of Torres’s district office is the Arthur Avenue corridor—a sparkling two-block island of Italian eateries, bakeries, specialty-food shops, and sidewalk dining to which connoisseurs of Italian cuisine, or people who just want a good cannoli, flock from miles around. “They come from Westchester, Manhattan, Nassau County,” a veteran counterman in an Arthur Avenue meat market tells me. “They don’t come from around here.” The neighborhood, says Torres, is largely Mexican, though of late it is home to Albanian immigrants as well.

“The Bronx is arguably the birthplace of the affordable housing movement,” Torres says, and he sees his job as a vehicle to revitalize that and kindred progressive movements. He’s beginning modestly. “I’m trying to build more of civic infrastructure in my district,” he says. “Like all council members, I was given $1 million in discretionary funds, and we’ve held elections—with precinct walks, phone banks, ballot boxes—across the district, where residents vote on the projects they want to fund with that million.” So far, the residents have voted for security cameras on streets and in schools, and for renovations to parks.

“I was born in a public hospital in the Bronx, grew up in public housing in Throgs Neck [in the Southeast Bronx], attended public schools here, and take the subway to get around town—I’ve never owned a car,” Torres says. Not surprisingly, he has become one of the most eloquent and persuasive defenders of public institutions in the life of the poor and the polity.

“We have a severe crisis of affordability in the Bronx,” he begins. “Here, in Fordham [the neighborhood where his district office is located], more than 50 percent of households pay more than half their income in rent. They’re all at risk of becoming homeless. Public housing [home to roughly 170,000 Bronx residents] keeps tenants’ rent to 30 percent of their income. The trouble with private affordable housing is that most units are increasingly unaffordable to the poorest residents. In my district, where median household income is close to $20,000, most of my constituents are priced out of affordable housing.” Before the 2008 crash, some investors used debt financing to buy up tracts of affordable housing, Torres says, planning to displace the tenants and charge higher rents that would pay off the debt and generate profits. The crash ended that particular play, but not before it jacked up housing costs that haven’t come back down.

Torres chairs the council’s public-housing committee, and sees the city’s public-housing stock, which still is home to nearly 600,000 New Yorkers, as a distinctly positive part of urban planner Robert Moses’s complex legacy. For decades, the city’s public housing—which constitutes 15 percent of all the public housing in the nation—provided decent living spaces in well-maintained developments and

The Melrose public housing projects in the South Bronx

Fall 2015 The American Prospect 31

Rush hour, 3rd Avenue and 149th Street

32 WWW.Prospect.org Fall 2015

was the greatest source of affordable housing for poor city residents. For the past several decades, however, the federal government, and then state and local governments, saw public housing as a failed model and opted to fund publicly subsidized private housing instead.

The dim view that most public officials and their constituents take toward public housing, however, is in large part the result of decades of underfunding. “Public housing is in a state of catastrophic decline,” Torres says, “due to a perfect storm of disinvestment. In 1998, the state cut off all operating subsidies; the city did the same in 2003.

If a private landlord cut off funding for the operation and maintenance of his building, there would be legal consequences.” Federal funding has been greatly reduced as well. “The New York City Housing Authority [the city’s public housing agency] has capital needs of $17 billion to bring all its housing stock into good repair over the developments’ life expectancy. It gets $300 million a year from Washington.”

“There is no constituency for public housing,” Torres continues. “Its residents are black and brown and poor; they have no political power. One look at public housing and it’s clear that black and brown lives don’t matter.”

“Public institutions are the great equalizers in American life. Housing, hospitals, parks, libraries, transit—all are in deepening decline. A $15 minimum wage would be an appreciable improvement in the life of the Bronx, but it won’t change the dynamics that are driving inequality here so long as the neglect of the great equalizers—public hospitals, housing, transit—persists. We’re constrained by Washington and Albany’s disinvestment in cities. We can’t increase the minimum wage, we can’t even install speed cameras, without Albany’s approval.”

How to obtain the leverage to better the Bronx’s

lot is, clearly, no easy challenge. To keep housing more affordable, says Mary Dailey, the city could offer developers grants and incentives to retrofit or rehabilitate properties in return for setting stricter affordability standards. But the key to affordability in the Bronx is less about rents than it is about preserving and expanding public institutions, and raising its residents’ wages.

One promising development is the deal that community activists struck with the company that is redeveloping the immense Kingsbridge Armory in the West Bronx into the largest ice-skating facility in the world, with nine rinks and a 5,000-seat arena. The armory had lain unused for years when the Northwest Bronx Community and Clergy Coalition first proposed to the city back in the 1990s that the space be converted to schools, a bookstore, a park, and a community center. It wasn’t until 2010, however, that the city and the coalition found a developer willing

to transform the armory. And while the developer’s plan to develop an ice-skating facility was a far cry from what the coalition had initially sought, the coalition had altered its demands accordingly. If the developer wanted the city’s approval and assistance for the project, it would have to adhere to a community benefits agreement that required the facility to hire half its workers from the surrounding neighborhoods, and pay them a living wage of $10 an hour.

Community benefit agreements were first devised by the Los Angeles Alliance for a New Economy, and the national organization it spawned, the Partnership for Working Families, provided a road map for the Bronx coalition’s campaign. The agreement was reached in 2013, and when the facility opens in 2017 (or, given developments’ vicissitudes, 2018), it will provide much-needed jobs to the community. (In light of the successes of the Fight for 15 movement to raise minimum wages, and of New York Governor Andrew Cuomo’s call for a $15 statewide minimum wage, the level of the living wage the facility will pay will likely be renegotiated.)

Somewhat surprisingly, the Armory deal is one of the first community benefits agreements in New York City. It provides a template for possible future agreements with employers like Fresh Direct—if major projects continue to locate in the Bronx, and if Bronx community and labor activists can develop the clout to persuade local elected officials to withhold approval unless the companies agree to provide decent jobs to local residents. That’s a lot of ifs—few Bronx neighborhood organizations have the track record of the Northwest Coalition; a consistent share of borough elected officials have a history of cutting sweet deals for developers in return for payoffs; and the continued relocation of studios, warehouses, and major retail outlets to the Bronx can’t be assumed. On the other hand, the stretch of abandoned factories on the Bronx’s south shore is one of the few remaining sites in New York with room for major developments, and the new crop of elected officials affiliated with the Working Families Party favor such policies as community benefit agreements. Whether the South Bronx can produce an organization as effective as the Northwest Coalition, however, remains unclear. The poverty there is deeper and more extensive, the political disengagement much more pervasive.

At their best, however, community benefit agreements cover relatively small groups of workers. Like the rest of urban America, the Bronx cannot solve its most fundamental problems on its own. The disinvestment in public institutions and the abysmally small paychecks its residents take home can only be remedied at the state and federal levels. Even more than new affordable housing, much less the strip of gentrification set to rise on its boundary with Manhattan, what the Bronx needs most is a raise.

“The seeming rule of capitalism,” says Westphal, “is that the boom runs out by the time it reaches the Bronx.”

Fall 2015 The American Prospect 33

Eight Principles for

Reforming How we can reduce, make more humane, and ultimately eliminate a practice that, in Justice Kennedy’s words, drives prisoners “to the edge of madness” B y Ma r go S c hlan ge r a nd Am y Fe t t i g

34 WWW.Prospect.org Fall 2015

Solitary Confinement

l i s a b lu e / i s t o c k i m a g e s

A

fter a half-century of steep increases in imprisonment, a bipartisan consensus is finally emerging that the United States keeps too many people locked up. The current incarceration rate is four times what it was in this country in 1970 and five to ten times higher than rates today in Western Europe and other developed democracies. The cost to the American public is enormous—over $85 billion a year. In this one area, the Koch brothers and Grover Norquist agree with a broad swath of religious leaders, civil rights and civil liberties advocates, and liberal politicians. All criticize our current criminal justice policies as inhumane, ineffective, and unduly costly.

As we move away from the harshly punitive policies of recent decades, our aim shouldn’t only be cutting the rate of incarceration. We also need to ameliorate the conditions of confinement—and in fact, we’ve already begun making progress. In 2003, public concern about sexual assault in jails and prisons led to passage of the landmark Prison Rape Elimination Act, now (at long last) reflected in a nationwide regulation aimed at curbing sexual abuse.

A separate effort to reform solitary confinement is in an earlier phase. Although some states have taken steps to reform solitary, no one has yet spelled out systematically what needs to be done. That’s the goal of this article: to set out the latent principles of current reform efforts and make the case for pursuing them intensively.

In July, reform efforts received a boost when President Barack Obama denounced the overuse of solitary confinement and ordered Attorney General Loretta Lynch to conduct a thorough review. But we already know, as the president himself noted, that the current overuse of solitary “is not going to make us safer. … It’s not smart.” What we need now are guidelines for change and commitments to carrying them out.

Many of the advocates who have fought for these reforms over the past decade want to end solitary confinement entirely, not merely reduce its use and make it less harsh.

We agree with that ultimate objective, but we see the reduction and amelioration of solitary as necessary steps to its eventual elimination. Even those who oppose ending solitary may agree about ending the most brutal and inhumane aspects of the practice.

The Solitary Situation

In a remarkable concurring opinion in June, in a case involving a death-row prisoner who spent the past 20 years in solitary, Justice Anthony Kennedy described the “human toll” of long isolation. Being locked up alone brings prisoners “to the edge of madness, perhaps to madness itself,” Kennedy wrote, citing a published summary of the “terrible price” that solitary exacts: “anxiety, panic, withdrawal, hallucinations, self-mutilation, and suicidal thoughts and behaviors.” In states where data are available, such as Texas, California, and New York, half or more of all prison suicides take place in solitary confinement settings.

Humans are social animals, but life in solitary is characterized by extreme social isolation and environmental deprivation. Prisoners spend 22 to 24 hours a day in cells smaller than an average parking space, many without a window. The cells themselves are usually made of concrete blocks, while the doors are solid metal with a slot for a food tray. Thin slits in the door may allow officers to see into the cell but give the prisoner little view out. Inside, cells have a concrete platform or metal frame that serves as a bed, along with a built-in desk, shelf, stool, and a metal toilet. Prisoners sleep and eat in their cells, a foot or two from that toilet.

Typically, prisoners in solitary are allowed to leave their cell five hours a week to exercise—but exercise too, is solitary, in a bare cage or concrete enclosure not much larger than the cell itself. Bathing is limited to two or three 15-minute showers a week. Solitary prisoners move out of their cell only in handcuffs and shackles, restrained so they have to shuffle rather than walk, alongside two or more guards. Even then, they are prevented from conversing with others.

The practice of solitary confinement spread as a result of the severe institutional strains created by the rise in incarceration. Prison officials simply did the most expedient thing they could think of—they locked prisoners down.

Once considered a punishment of last resort, solitary confinement soon became a regular, even commonplace feature of prison life. Beginning in 1983, many states built entire prisons—often called “supermax” prisons—dedicated to long-term solitary confinement.

Today, solitary confinement has become far too routine.

Solitary is not now, if it ever was, reserved for the “worst

Fall 2015 The American Prospect 35

of the worst.” Prisoners are in solitary for talking back to officers, posting on a Facebook page, or possessing too many stamps. The estimate usually offered—out-of-date but the best information available—is that on any given day, approximately 80,000 people are held in solitary confinement settings in prisons across the country. That figure understates the number of federal prisoners in solitary and does not include any of the thousands of men, women, and children subject to solitary in jails, immigration detention centers, military facilities, and juvenile justice facilities.

While some prisoners spend days or weeks in isolation, many others are subject to solitary for months, years, and even decades. A recent lawsuit in California focuses on just prisoners who have spent more than a decade in solitary; that lawsuit has several hundred plaintiffs.

Emerging Principles for Reform

You can find a timeline of the Pelican Bay case and other reform milestones at http://tinyurl.com/ solitary-milestones

Since 2010, efforts to reform solitary confinement have made headway in almost half the states. Federal class-action lawsuits have led to changes in ten states, and additional legislative and policy measures in 14 others. Some measures have been halting and piecemeal, others more thoroughgoing. In California, to take one example of a significant reform, Federal Judge Thelton Henderson banned the state from housing inmates with serious mental illness at the state supermax at Pelican Bay. Placing these inmates in solitary confinement, Henderson wrote, is “the mental equivalent of putting an asthmatic in a place with little air to breathe.”

Eight reform principles are emerging from these efforts.

These principles would limit who is subject to solitary and for how long, make the conditions of confinement more humane, and provide necessary oversight of the practice.

➊ Prisoners should never be subject to long-term solitary confinement when it is not truly necessary for safety and security.

Corrections officials have used solitary confinement not only to house disruptive or dangerous prisoners but also to discipline inmates for violating rules and even to provide “protective custody” for vulnerable prisoners. Some of these uses are unnecessary and counterproductive.

Employing solitary confinement for protective custody discourages prisoners from reporting threats when they face such risks as assault or rape by other inmates. Instead of reporting those threats, they gamble on staying in the general prison population, and sometimes they lose. Special units for vulnerable prisoners are a better alternative.

Prison officials use solitary confinement far too often to punish minor misbehavior that they could punish more appropriately through the revocation of various privileges.

According to a recent report from the Vera Institute of

36 WWW.Prospect.org Fall 2015

Justice, prison officials in Illinois “found that more than 85 percent of the people released from disciplinary segregation during a one-year period had been sent there for relatively minor infractions, such as not standing for a count and using abusive language.” Similarly, in Pennsylvania, 85 percent of prisoners found guilty of “failure to obey an order” were sent to solitary confinement. Washington state has led the way in avoiding the overuse of solitary and relying on more proportionate punishments instead.

In many states, corrections department leaders don’t know why prisoners end up in solitary. They overestimate the number sent there for serious, violent misconduct. So every state needs to examine how solitary confinement is used and to create alternative practices and housing units that can equally or better serve safety and security. States that have undertaken this kind of review, such as Maine, Mississippi, and Colorado, have been able to drastically reduce the number of prisoners in solitary.

➋ Solitary confinement should be used for the least time possible.

Although systematic data are unavailable, the months and years that many prisoners stay in isolation are too long. The average is nearly four years in Texas; before Illinois closed its supermax prison, the average there was six years. Prisoners and experts both report that the mental stress of solitary confinement is harder to withstand when it stretches on for years or without any limit. (In Massachusetts, prisoners can be assigned to a disciplinary term of ten years in solitary!) Where states have conducted prisoner-by-prisoner reviews, they often find that even among the prisoners housed in solitary confinement for violent acts, many could be returned safely to ordinary prison cells. Such reviews should be done frequently, and by a team that includes not just custody staff but also mental-health and case-management personnel who can make appropriate arrangements for alternative housing.

Washington state, for example, has developed what officials call an “Intensive Transition Program” for prisoners with chronic behavior problems, including repeat violence, moving them through a curriculum teaching self-control and gradually increasing opportunities for social engagement until they can safely return to the prison’s general population. Germany, where long-term solitary confinement is all but unheard of, provides a model for minimizing the practice. Prison officials there have found that when solitary confinement is used only as a last resort, and only for as long as necessary, they do not need it for more than a few days or weeks at a time, even for the most dangerous prisoners.

➌ Prisoners who are particularly vulnerable to serious medical and mental-health injury should not be

confined in solitary confinement for more than an emergency period.

should be to keep everyone safe, not to make them suffer.

Even the most disruptive and dangerous prisoners should have access to television, radio, books, and some social interaction. Similarly, there’s no penological reason to keep a cell brightly lit even at night, or too dim to see clearly even during the day; human health depends on daily rotation of light and dark. While many prisons do normalize lighting in solitary confinement, all prisons should. Another important reform is to give prisoners in solitary access to outdoor exercise and a window with a view of the outside: Daylight is important for mental health.

In addition, prisoners must be given a break from social isolation through increased access to phone calls, visits from friends and family, and closed-circuit television rehabilitative programming. Some prisons have also worked out ways to allow safe, regular, and meaningful human contact with custody and clinical staff as well as other prisoners. Training staff to engage with these prisoners in a positive and constructive manner is crucial.

Prisoners with serious mental illness often adapt very poorly to life in prison; they may get along badly with other prisoners and violate both significant and minor rules. They may attack others and be vulnerable to attack. For all of these reasons, they are frequently sent to solitary—indeed, they may make up as much as one-half of those subject to solitary confinement. The results can include horrendous damage. When placed in solitary, many of the mentally ill deteriorate dramatically and engage in bizarre and extreme acts of self-injury and self-destruction. At the notorious federal supermax in Florence, Colorado, a mentally ill prisoner sliced off one of his own fingers with a safety razor and ate it with his instant ramen noodles. Later, he reported the action to officers, in distress because he was a vegetarian.

Nearly every federal court to consider the question has ruled that placing individuals with serious mental illness in such conditions violates the Eighth Amendment prohibition against cruel and unusual punishment. The first wave of solitary-confinement reform has consisted of policies barring any but the shortest solitary terms for prisoners with serious mental illness.

Recent reforms have also sought to limit solitary confinement of other vulnerable prisoners. Immature brain development in people under 21 makes young inmates especially likely to be damaged by the stresses of solitary confinement. Prisoners with significant developmental or cognitive disabilities are similarly unable to cope. Solitary confinement should also be limited for prisoners who are pregnant, elderly, or chronically ill. For all these groups, the social isolation and idleness of solitary confinement, as well as the lack of access to care in segregated housing, create serious risks to health.

Solitary confinement causes and exacerbates health problems. The conditions of isolation—the solid doors, low visibility inside cells, barriers to communication with health-care providers—are also obstacles to detection and treatment. As a result, some reform efforts include more frequent and in-depth medical and mental-health rounds by professional staff, allowing prisoners confidential opportunities to seek treatment and giving staff opportunities to observe prisoners and identify health problems before a crisis occurs. Again, capacity-building and enhanced training for staff are key.

➍ Out-of-cell time is critical.

➐ Prisoners should be given realistic incentives and

Prisoners in solitary confinement are usually allowed less time out of their cells than are inmates of maximumsecurity prisons. Those in solitary get two hours, tops, a few days a week, and that time is spent alone exercising in a cage, showering, or shackled and handcuffed while being escorted by two correctional officers. In contrast, maximum-security prisoners typically have five or eight hours a day out of cell, and they can interact with other prisoners and staff during that time. Life in maximum custody remains harsh, boring, and stressful. But those extra hours out of cell and opportunities for social engagement make maximum security less damaging and more humane than solitary.

➎ Solitary confinement should not include sensory deprivation or complete social isolation.

The purpose of locking prisoners alone in their cells

➏ When prisoners are placed in solitary confinement,

they should be closely monitored by correctional and health staff.

support to follow facility rules.

Once solitary is limited to genuine safety and security needs, the prisoners who get assigned to it may need help to get out and stay out. Enabling prisoners to exert some control over their environment is good for their mental well-being. So reformist state prison systems have started to define multiple privilege levels within solitary confinement and to give prisoners clear guidance about conduct needed to get from one level to the next. These step-down programs offer prisoners increasing out-ofcell time, access to group activities, and other incentives.

They are often coupled with programming that helps prisoners learn and practice cognitive-behavioral techniques to reduce anger and violence. Although data on the efficacy of these programs are scarce, some prison systems report that they are reducing the number of

The first wave of solitaryconfinement reform has consisted of policies barring any but the shortest solitary terms for prisoners with serious mental illness.

Fall 2015 The American Prospect 37

inmates in solitary confinement and improving prisoner behavior and safety.

Experts have cautioned, however, that the participants in step-down programs are still in solitary confinement— and the psychological stresses of isolation often lead to behavior problems. For these programs to be effective, minor rule violations should cause only minor setbacks, not months of additional time in segregation. The goal should not be perfect behavior but sufficient compliance that solitary confinement is no longer needed for safety and security.

➑ Empower independent oversight.

Reformers ought to take some satisfaction from the direction in which things are moving.

It’s all too easy for prison officials to revert to overuse of solitary confinement. Sustained reform must include mechanisms for continued observation and intervention by committed, independent reformers. People outside corrections departments—in the legislature, prisoners’ rights advocacy organizations, and other groups—need to be empowered at least to advise and ideally to oversee the reforms.

Solitary confinement has spread and grown without adequate information about the practice. That’s one of the reasons the first step in reform has often been an internal review, nearly invariably with results that surprise corrections officials. Changing a system that is hidden from view is particularly challenging. Intelligent reform requires the systematic collection and analysis of data about who is sent to solitary, why, and for how long, and what happens while they are there and afterward.

In addition, because the changes often require significant shifts in everyday prison practices, some systems are bringing in outside experts with experience in emptying solitary units to make recommendations and assist in carrying out changes. Litigation frequently empowers both the prisoners’ lawyers and independent experts to monitor and enforce remedial court decrees. One state, Colorado, has designated a group that includes prisoners’ rights advocates to advise the Department of Corrections on the proper treatment of mentally ill inmates in segregation.

consecutive days.” You don’t minimize torture—you ban it.

Stopping solitary, not reducing it, is the goal of many in the reform movement. But minimization strategies— especially working to exclude vulnerable groups such as prisoners with serious mental illness and young prisoners—have broader public appeal. Some reformers are concerned that emphasizing partial and ameliorative measures may undermine the goal of abolition. After all, if solitary is particularly inappropriate for certain populations of prisoners, does that make it appropriate for others? Will reforms entrench the practice of solitary confinement for some prisoners, even if they rule out solitary for others?

Our view is more optimistic. We see the reform and ultimately the abolition of solitary confinement as a long-term project. Shrinking the number of prisoners in solitary will help not just those who are rehoused in less-brutal conditions but also those who remain. In moving prisoners out of solitary, prison and jail officials develop alternative housing and custody strategies and facilities, which can then be extended. As Justice Kennedy implied in his opinion in June, abolishing solitary is more feasible—and may even be found to be constitutionally compelled—if “workable alternative systems for long-term confinement exist.”

Reducing the extent and harshness of solitary confinement may also have indirect political advantages. When supermax solitary units are sufficiently depopulated, their per-prisoner cost may become unsustainable politically.

Solving a large part of a problem may enable officials to see how they can address the remainder—as long as the remainder continues to be perceived as a problem. It is the role of advocates to ensure that solitary confinement continues to be seen as a problem.

Reformers ought to take some satisfaction from the direction in which things are moving. The public and prison officials in state after state are embracing more humane and effective practices for prisons. If the emerging principles of reform are fully implemented, there would be many fewer prisoners left in solitary and they would face less-damaging conditions. And once we’ve gone that far, the abolition of solitary will be within reach.

These eight emerging principles will drastically

shrink the extent of solitary confinement and ameliorate its worst problems. The principles do not, however, include abolishing prolonged solitary confinement altogether. Abolition is the recommendation of the U.N.’s special rapporteur on torture, Juan Méndez, who wrote that prolonged solitary “can amount to cruel, inhuman or degrading treatment or punishment and even torture” and called on the international community “to impose an absolute prohibition on solitary confinement exceeding 15

38 WWW.Prospect.org Fall 2015

Margo Schlanger is the Henry M. Butzel Professor of Law at the University of Michigan. She served as a member of the Vera Institute’s Commission on Safety and Abuse in America’s Prisons and as the reporter for the ABA’s Criminal Justice Standards on the Treatment of Prisoners. Amy Fettig is senior staff counsel for the ACLU’s National Prison Project and directs the ACLU’s Stop Solitary campaign, which seeks to end the practice of long-term isolation in our nation’s prisons, jails, and juvenile detention centers.

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Hedge Funds the Ultimate absentee Landlords

By Peter D r eier a nd Ad it i Sen

E

ach month, Esperanza Rosales sends $1,785 to the Blackstone Group, one of the world’s largest private equity firms. Steve Schwarzman, the CEO, has a net worth of $11.8 billion and last year earned $690 million. He owns a Park Avenue apartment, a villa in Jamaica, and large estates in Palm Beach, the Hamptons, and St. Tropez. Rosales, a 45-year-old seamstress, pays her rent to Invitation Homes, a Blackstone subsidiary established in 2012, which owns the modest 1,200-square-foot house in South Los Angeles where she lives with her husband (who is unemployed), her four children (one of whom is autistic), and her daughter Yuri’s three children. Rosales explains that her nine-member household lives “day to day, month to month” in order to pay the rent and the additional $400 to $500 a month in water and electricity bills. Invitation Homes has already told them that their rent will go up another $100 a month next year.

Yuri, 29, who had to drop out of community college to help her family make ends meet, works in the shoe department at Nordstrom.

She explained that the rent and utilities take

40 WWW.Prospect.org Fall 2015

up more than half of their household income.

“It’s extremely hard to pay the bills,” she said. “The kids go without new toys. They like ice cream but that’s now a luxury. We have to sacrifice a lot of their basic necessities so we can pay the rent.”

Some of their neighbors also live in houses owned by Invitation Homes, which has been accumulating foreclosed and about-to-be-foreclosed homes and then turning them into rental properties. With more than 40,000 houses in its inventory, Blackstone is now the nation’s largest owner of single-family rental homes.

The company charges as much as 180 percent of fair market rent in a given city—but invests little in maintenance and repairs.

Nearly eight years after the start of the global financial crisis, some of the same corporate actors that precipitated the housing crash are buying up distressed housing assets in bulk, including delinquent mortgages and vacant houses that are a product of the crash.

Their business strategy works like this: Hold some rental properties in recovering markets via subsidiaries. Syndicate ownership of some of these properties via a new kind of security

that allows investments in pools of rental properties, not unlike the syndication of subprime securities—allowing Blackstone to cash out for a quick profit. Either way, there are three seriously negative effects. First, the supply of affordable owner-occupied housing is depleted.

Second, in the case of rentals, there is a greater distance between the tenant and the ultimate absentee owners. Finally, the strategy of Blackstone and other hedge funds competes with and undermines efforts by local governments and well-established community-housing and lending organizations to reverse some of the damage of the subprime collapse by reclaiming foreclosed homes for the benefit of residents.

Community development financial institutions (CDFIs), often working with local government and neighborhood groups, have the capacity to purchase large inventories of underwater mortgages and distressed properties—including vacant houses that owners lost through foreclosure and occupied homes where underwater borrowers are on the brink of foreclosure—and stabilize them as affordable housing. Certified by the Department of the Treasury, CDFIs raise funds from private and

m e l m e lc o n / lo s a n g e l e s t i m e s / g e t t y i m a g e s

Blackstone Rangers: Executives of the hedge-fund subsidiary inspect one of its San Fernando Valley rental properties.

public sources to offer a range of financial products and services to low-income communities that are often underserved by conventional lenders. Through these mission-driven investments, CDFIs have developed long-term, local expertise that is essential to meeting the financial needs of low-income communities and distressed neighborhoods. Yet they are being crowded out by hedge funds that are working hand in hand with HUD, Fannie Mae, and Freddie Mac. “This whole process shows just how tilted the playing field is for the big banks and hedge funds,” said Senator Elizabeth Warren, the Massachusetts Democrat who has been the Senate’s most vocal critic of Wall Street abuses.

“Many of these banks and funds were responsible for fueling the housing bubble in the first place—leading to the crash that hit these families like a punch to the gut. Now these same banks and funds are turning around and scooping up these loans at bargain-basement rates so they can profit from them a second time.”

Several years ago, community groups began noticing the growing presence of Wall Street speculators in their neighborhoods, one of

the aftershocks of the epidemic of foreclosures.

Several local groups examined records, interviewed tenants, and issued reports—including “Blackstone: Atlanta’s Newest Landlord,” by Occupy Our Homes; “The New Single-Family Home Renters of California,” by Tenants Together; “The Rise of the Corporate Landlord,” by the Right to the City Alliance; “Renting from Wall Street: Blackstone’s Invitation Homes in Los Angeles and Riverside,” by Strategic Actions for a Just Economy; “REO to Rental in California: Wall Street Investments, Big Bank Financing, and Neighborhood Displacement,” by the California Reinvestment Coalition; and “When Wall Street Buys Main Street,” by the Center for American Progress.

These reports have documented that in areas where Wall Street investors own a significant number of these single-family homes—including Atlanta, Las Vegas, Phoenix, Miami, Tampa, Orlando, Charlotte, Dallas, Chicago, Detroit, Denver, and Los Angeles and nearby Riverside— their practices have harmed tenants and undermined long-term neighborhood stability.

In April of this year, for example, one-quarter of all home sales were to cash-carrying

investors. Since 2010, institutional investors backed by Wall Street have purchased a total of 528,369 single-family homes nationwide, led

by Florida (78,155), California (52,802), Georgia (46,914), Arizona (35,979), and North Carolina (34,769), according to RealtyTrac. These represent about 4 percent of all single-family homes sold during that period, and a higher percentage in distressed markets. Together, these Wall Street entities have raised close to $70 billion to buy these homes. Rents are expected to increase by 3 percent a year on average through the next decade, and to rise even higher in parts of the country that the Wall Street firms are targeting.

Blackstone is the largest institutional investor in single-family homes, followed by American Homes 4 Rent, Colony American Homes, Fundamental REO, Progress Residential, Starwood Waypoint Residential, American Residential Properties, and Silver Bay Realty Trust. These and other hedge funds and private equity firms accumulate most of their single-family homes by buying them through foreclosure sales and at auctions of properties by financial institutions.

Fall 2015 The American Prospect 41

The most discouraging part of the story is that the U.S. government now views hedge funds as useful partners, to clean up the inventory of distressed housing wholesale rather than helping distressed residents. The Obama administration sponsored several iterations of programs intended to help homeowners at risk of foreclosure keep their homes. But the programs benefited mainly bankers. (See David Dayen’s “A Needless Default” from The American Prospect’s Winter 2015 issue.) According to the special inspector general for the Troubled Asset Relief Program,

by June 2015 fewer than 1.3 million homeowners out of 5.7 million eligible applicants actually received permanent loan modifications through the largest of these programs, and only about 900,000 are still in the program.

With support from housing activists, President Barack Obama appointed former Representative Mel Watt, a North Carolina Democrat, to head the Federal Housing Finance Agency (the FHFA oversees Fannie Mae and Freddie Mac), but Watt has been a major disappointment. He has refused to allow principal reduction on mortgages held by these two agencies. As a result, millions of owners remain underwater and are likely to lose their homes. When that happens, Blackstone and other Wall Street speculators will be there to scoop up the properties and expand their growing rental empires.

The Department of Housing and Urban Development (HUD) and FHFA own or guarantee the distressed mortgages on many singlefamily homes. HUD, Fannie Mae, and Freddie Mac are auctioning off tens of thousands of non-performing loans that they want to get off their books. The vast majority has gone to hedge funds and private equity firms. Working hand-in-glove with Wall Street, they’ve sold off many of these houses—called delinquent assets in real estate lingo—to Blackstone, Lone Star, and other investors.

And there is a double standard. Although Fannie Mae and Freddie Mac have been unwilling to offer principal reduction to struggling homeowners, they often offer steep discounts when they sell these mortgages to Wall Street speculators, who typically foreclose on the homeowners, adding to their inventory of homes scooped up in private foreclosure sales. Fannie and Freddie impose few conditions on the bulk buyers.

42 WWW.Prospect.org Fall 2015

They neither require them to consider principal reduction in the modification process nor to consider the affordability needs of communities when putting homes on the rental market.

“We spent years trying to persuade policymakers that principal reduction was better for homeowners, their communities, and even lenders in the long run,” said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights. “We were hopeful that things would change after Mel

Of these loans, fewer than 2 percent have gone to nonprofit buyers. The rest (98 percent) have gone to Wall Street companies. Five Wall Street entities—Lone Star (with 19 percent); Blackstone (with 19 percent); Angelo, Gordon & Co. (with 11 percent); and Selene Residential Partners and the Royal Bank of Scotland (both with 6 percent)—account for 64 percent of all public loan sales. Between them, the five companies have bought more than 70,000 loans from government entities. (In the latest round of sales, Goldman Sachs popped up on the purchaser list for the first time, buying 677 loans from Freddie Mac).

Between 2006 and 2011, Americans lost

The same banks and investors that caused the mortgage meltdown profit once again by exploiting the mess they made.

Watt took over [FHFA] last year. Unfortunately, we have only seen progress around the edges.

And with this shift we’re seeing toward a rental economy, and a lack of sustainable investments in communities, I’m worried that a lot of the ‘recovery’ we hear about in housing will prove to be illusory.”

It is hard to imagine a more vivid example of the incestuous link between Wall Street and Washington. The same banks and investors that caused the mortgage meltdown now stand ready to profit once again by exploiting the mess they made. Over the past few years, HUD and FHFA agencies have auctioned off about 150,000 distressed single-family properties and mortgage loans.

about $7 trillion in home equity—the largest overall loss of wealth than at any time since the Depression. During the crisis, 5.8 million families lost their homes to foreclosure. Even today, more than one in ten homeowners, or about 5.1 million, are “underwater”—their homes worth less than their mortgage payments. Much of the supposed progress in the reduced numbers of underwater homes is the result of seven years of foreclosures and distress sales.

Since 2005, the nation’s homeownership rate has plunged from a peak of 69.1 percent to 63.4 percent in the second quarter of 2015, the lowest since 1967. At the same time, the number of single-family homes occupied by renters has grown. Fourteen million households now live in single-family rentals. The number of single-family homes for rent has increased by more than two million since 2007, up by about 17 percent.

Banks targeted communities of color for subprime and other risky mortgages. Not surprisingly, those communities have suffered the greatest hardship. Between 2005 and 2009, the median net worth for African Americans fell by 53 percent; for Latinos, it was a 66 percent decrease. In contrast, median net worth for whites fell by only 16 percent. While white families have experienced a rebound in wealth since the crisis, African American and Latino families have continued to lose wealth since 2010.

The Rosales family is characteristic of what occurred. They had owned their own home for over two decades, but lost it to foreclosure after the housing bubble burst and their lender refused to modify their mortgage. After the

mark lennihan / ap images

bank evicted them from their home, the fam- from its real-estate segment. Blackstone’s net it was narrowing future single-family home ily looked for a place to live in the same South income in 2013 came to $2.9 billion. The next purchases to a handful of markets: Seattle, Los Angeles neighborhood so the younger chil- year, it paid Schwarzman more than $690 mil- Atlanta, Miami, Orlando, and Tampa.

Another major player is Lone Star Funds, a dren could attend the same school. Two years lion—the largest-ever annual payment for a ago, their daughter Yuri saw a “for rent” sign CEO of a public company. private equity firm that manages more than $45 in front of a house that Invitation Homes had Bayview Acquisitions LLC, of which Black- billion in assets. To date, it is the single largest purchased after another homeowner had lost stone holds a significant share, has bought buyer of non-performing loans from HUD and it as a result of a foreclosure. nearly 24,000 non-performing loans through Freddie Mac, having purchased the notes for Favian Gonzalez, a community organizer HUD’s Distressed Asset Stabilization Pro- over 22,500 homes across the country. Its CEO, with Strategic Actions for a Just Economy gram (DASP). This makes Blackstone the sec- John Grayken, has a net worth of $5.2 billion.

(SAJE), encountered the Rosales family when ond-largest buyer in the program. Another Lone Star’s subsidiary, Caliber Home Loans, he was door-knocking in South Los Angeles. Blackstone subsidiary, Invitation Homes, pursues a strategy of buying and selling disHe quickly discovered that a growtressed properties, and has contining number of residents who had ued some of the predatory practices once owned their homes were now that led to the mortgage meltdown a renting from absentee Wall Street decade ago. Despite obtaining these landlords like Invitation Homes and homes at a discount, Caliber steers homeowners into loan modificawere not protected by the city’s renttions with balloon payments that control law, which exempts singlehave to be paid if the home is sold, family homes. if the loan is refinanced, or when SAJE conducted a survey of Invithe loan matures. This traps owntation Homes’ renters in Los Angeers into a situation that makes it les and Riverside. Nearly half of all residents interviewed (46 percent) difficult for them to refinance or sell reported problems with plumbing, their homes if necessary. Addition39 percent had issues with roaches ally, Caliber often offers homeownor insects, and 22 percent had had ers temporary modification terms problems with rodents or termites. with “five-year interest-only” loans.

More than 20 percent reported heatThat means homeowners are not paying down principal at all and ing or air-conditioning malfuncwill owe as much after five years tions, another 20 percent reported of payments as they did when they problems with mold, and 18 percent began the process. In the sixth year reported having roof leaks. of these loans, a homeowner could “The mom-and-pop landlords are find herself with a much higher disappearing,” said Gonzalez. “HousHedged Bets: Stephen Schwarzman, co-founder and CEO of the Blackstone Group interest rate, which could result in es that were owned by long-term losing the home. residents are now for rent. These tenA Pennsylvania couple sent monthly checks has a troublesome record on tenants’ rights. ants are paying a lot of money, but they have no For example, in Chicago, the company has security. That’s the sucking sound of Wall Street to Caliber, but the company rejected their payrequired tenants to rent property “as is” and ments and misstated the amount of payments wiping out our community’s wealth.” has used leases that indemnify the company they had already made. Caliber’s actions led The Blackstone Group is one of the from damages caused by its own negligence. the couple to default on their loan, but a Lackaworld’s largest private equity firms, with $333 Such “as is” rentals—terms that are not stan- wanna County court judge ruled in their favor, billion in assets under management. The firm dard in residential leases—and indemnification saying that their unsuccessful attempts to conspecializes in leveraged buyouts, but since the clauses are likely violations of local housing tinue to pay was a reasonable defense. financial crisis, it has also spent nearly $7.5 laws, including Illinois’s Landlord and Tenant In Detroit, a man whose home had been million to purchase the 40,000 single-family Act, as they shift the risk and expense of owner- foreclosed tried to buy back his home from homes it manages as rentals across the Unit- ship to tenants. Tenants have also reported that Caliber. Caliber had taken control of the morted States. In Atlanta, Blackstone purchased the company has failed to carry out the renova- gage on the home after it merged with Veri1,400 homes on a single day in April of 2013. tions promised to them when they signed the crest, which had bought the mortgage from the That year, Blackstone collected $4.7 billion in initial lease. Last year, Blackstone, which owns original lender. During eviction proceedings performance fees—70 percent of which came properties in at least 14 cities, announced that in front of a district court judge, Caliber had

Fall 2015 The American Prospect 43

agreed to sell back the house to the resident at double the market value. Caliber kept sending eviction notices but wouldn’t return the man’s calls, even though he was trying to repurchase the house with the help of a loan from a nonprofit organization.

A number of consumer complaints against Caliber and Vericrest suggest that such incidents are a distinct part of Lone Star’s business model, and are not isolated. Complaints often allege that the Lone Star affiliates took payments from homeowners without updating the homeowners’ statuses or applying the payments to their accounts—a practice that appears intentional and not because of incompetence. Other complaints include allegations that the companies tried to foreclose without notice or after just one late payment.

Other major Wall Street players in the single-­ family rental business have had their own troublesome track records with risky, reckless, and illegal banking practices, facing lawsuits, fines, and settlements. But HUD and FHFA continue to sell them properties and mortgages with few safeguards in place for homeowners or neighborhoods. For example, a Royal Bank of Scotland subsidiary, RBS Financial Products, Inc., has purchased more than 5,000 distressed single-family mortgages from HUD, despite a history of financial abuses and legal problems.

In addition to the hedge funds that purchase distressed loans and foreclosed homes, a number of major banks have provided financing to companies that have become large absentee landlords. For example, Wells Fargo extended $1 billion in credit to American Homes 4 Rent.

Bank of America and JPMorgan Chase have made loans to Silver Bay Realty Trust, another major player in the single-family rental business. Blackstone is backed by Morgan Stanley, Citibank, and Bank of America.

Just as many banks pooled large numbers of risky subprime loans into private securities and sold them off to unsuspecting investors, Blackstone and other private equity firms and hedge funds have created a new kind of security to allow them to cash out some of their new inventory of homes for rent. In 2013, Blackstone partnered with Deutsche Bank to offer the first “single-family rental-backed security” to Wall Street investors, priced at $480 million. Since then, Wall Street firms have sold

44 WWW.Prospect.org Fall 2015

more than $9.8 billion of these bonds backed by rents for single-family homes. Financial analysts at Keefe, Bruyette & Woods estimate that in the next five years, this could expand into a nearly $1 trillion industry. But others are worried that these bonds—backed by rent checks rather than monthly mortgage payments—could suffer the same fate as mortgage-backed securities, which exploded as part of the housing crash. The success of these bonds depends on keeping the homes filled and the rents high, which could pose problems if the wages of American workers remain stagnant or suffer another decline. Blackstone reaps the gains and passes along the risks—to tenants on one side and investors on the other.

A 2013 report by economists for the Federal Reserve warned, “Investor activity may pose risks to local housing markets if investors have difficulties managing such large stocks of rental properties or fail to adequately maintain their homes. Such behavior could lower the quality of the neighborhoods in which investors own rental properties.”

They added: “A future appreciable increase [in] the extent of investor holdings and leverage, or unforeseen difficulties in managing such large single-family-rental inventories, could raise financial stability risks by increasing the odds of financial distress amongst a large number of investors, the institutions providing their funding, and homeowners in affected markets.

In particular, it will be important to monitor the development of markets for bonds backed by rental-income streams for the development of potentially destabilizing structures or concentrated exposures.”

Last year, California Representative Mark Takano—whose Riverside district has been hit hard by foreclosures and has recently seen a large influx of Wall Street landlords—sent a letter to Mary Jo White, chair of the federal Securities and Exchange Commission, asking the SEC to investigate the risk posed by rentalbacked securities. Earlier this year, Takano also asked the House Financial Services Committee to hold hearings on the topic. “Proper oversight of new financial innovations is key to ensuring we don’t go down the same road of the unchecked sub-prime mortgage-backed security,” he wrote, “and create an unsustainable bubble that will wreak havoc when it bursts.”

There is an alternative to the Wall

Street–Washington real-estate nexus. In stark contrast to Wall Street speculators, several well-established nonprofit organizations promote affordable housing and legitimate mortgage loans. Community development finance institutions have a good track record of helping homeowners avoid foreclosure and of creating much-needed affordable rental housing. These CDFIs are lenders and developers with a social mission. They’ve developed programs to buy seriously delinquent mortgages and offer a “restart” for struggling homeowners, by reducing principal down to current market value and otherwise modifying the loan. When these nonprofits are not able to return homeowners back to good standing or they acquire vacant properties, they have a housing disposition plan based on the affordable-housing needs of the communities. A recent study found that CDFIs are more than twice as likely to focus their home-purchase and home-improvement loans in high-poverty areas than are conventional lenders.

Some of the best CDFIs, such as Chicago’s pioneering Shorebank, were the collateral damage of the subprime collapse. Shorebank made no subprime loans, but the impact of other subprime losses in the neighborhoods where it operated undermined housing values and pushed many of its mortgage loans into the red as property values plummeted and unemployment rose. But there are still hundreds of healthy CDFIs that, unlike the mainstream financial sector, actually increased lending during the recession.

Hogar Hispano Inc. (HHI) is a CDFI founded by the National Council of La Raza in 2004.

Headquartered in Washington, D.C., it works in 31 states, focusing on areas hit hard by the economic crisis and bypassed by the nation’s so-called housing recovery. HHI acquires and renovates distressed properties for resale or lease to working-class families. It also purchases delinquent mortgages and works with the families to modify their loans so they can afford to remain in their home as homeowners. It has already helped homeowners reduce more than $4 million in principal.

National Community Capital (NCC) was formed in 2012 to reduce foreclosures and stabilize neighborhoods across the country.

NCC currently operates in Florida, New Jer-

sey, and North Carolina, and has capacity to expand to other states. It has purchased 673 homes in New Jersey (mostly in Newark) and 329 in Florida, and has helped nearly 2,000 other families in financial trouble.

NCC invests in local communities by purchasing non-performing-loan pools. If the properties are occupied, NCC helps homeowners stay in their homes by modifying their mortgages through principal reduction. If the homes are vacant, NCC rehabs the properties and sells them to local owner-occupants on affordable terms, based on the current value of the house.

Thanks to NCC, Kendith and Ebalease Broxton and their three kids can remain in their home in Tampa. Kendith is a self-employed construction worker who earns about $20,000 a year. The family was severely underwater on their mortgage, with a loan nearly two and a half times larger than the value of their house, which plummeted in value after the nation’s housing market collapsed. After the modification program, their debt went from nearly $285,000 to a little over $72,000. Their $1,455 in monthly mortgage payments has been cut to $600 a month.

The approach of NCC and other communityoriented lenders offers a dramatic contrast with the business model of Blackstone and other hedge-fund landlords—and argues for a very different approach. A growing number of community activists, mayors, and other local officials, as well as members of Congress, led by Senator Warren, are pushing HUD and FHFA to adopt new rules that will require the agencies to sell their portfolios of distressed mortgages to purchasers that put the interests of occupants and neighborhoods first, instead of selling them to speculators.

“Our government agencies are supposed to work for American families—not for the biggest financial institutions—and they should be doing more to work with nonprofits to help families stay in their homes,” says Warren.

HUD and FHFA have used an auction process for the majority of loans they’ve sold to date, selling to the highest bidder without regard to the quality of the bidder’s program when it comes to saving homes from foreclosure and creating affordable housing. Housing advo-

cates have proposed several ways to address this: One way is the creation of a “first look program” that allows nonprofits first chance to bid on the pools before opening the auction up to all bidders. Alternatively, the government could establish a point system that gives more points to bidders with strong neighborhoodstabilization programs—a system common in government bidding. Additionally, a growing number of cities and states are asking HUD and FHFA to make “direct sales” of mortgage pools

“The last thing we need is HUD and Fannie Mae selling troubled mortgages to hedge funds.” in a given geography to qualified nonprofits.

Earlier this year, a coalition of consumer, civil-rights, and community groups—Right to the City, Americans for Financial Reform, the Center for American Progress, the Center for Popular Democracy, the National Consumer Law Center, the National Community Reinvestment Coalition, National Council of La Raza, the National Association for Latino Community Asset Builders, the National Fair Housing Alliance, the Leadership Conference on Civil and Human Rights, the California Reinvestment Coalition, and the Greenlining Institute—sent a letter to HUD, asking the agency to stop auctioning off the loans until it puts in place rules to limit sales of

HUD and FHFA loans and properties to Wall

Street speculators; to give priority to nonprofit groups in the disposition of troubled properties; and to require buyers of these loan pools to help homeowners avoid foreclosure. The activists also want FHFA director Mel Watt to immediately begin offering principal reduction to homeowners whose mortgages are held

by Fannie Mae and Freddie Mac and who are drowning in debt.

“Predatory lending and the housing crash took a big toll on San Francisco and particularly our working class African American and Latino neighborhoods,” said John Avalos, an elected member of the city’s Board of Supervisors. “The last thing we need is HUD and Fannie Mae selling troubled mortgages to hedge funds.”

The Center for Popular Democracy and Local Progress (a network of progressive local elected officials) enlisted the mayors of 17 cities, including New York, Los Angeles, Oakland, Newark, Pittsburgh, and Minneapolis, to co-sponsor a resolution they took to the annual U.S. Conference of Mayors meeting in June. The resolution, urging HUD and FHFA , as well as banks, to sell delinquent mortgages to nonprofits for foreclosure prevention and affordable housing, not to speculators, passed unanimously. These local elected officials are joining with community groups and taking their demands directly to the directors of HUD and FHFA in Washington, D.C. “We can’t let Wall Street colonize our neighborhoods. Wall Street got us into this mess and now they’ve found one more way to make money while harming our neighborhoods,” said Amy Schur, campaign director of the Alliance of Californians for Community Empowerment.

“Our communities need HUD, Fannie Mae, and Freddie Mac to stop facilitating this housing grab by speculators and instead advance the goal of neighborhood stabilization. They need to make it a priority to sell their delinquent mortgages to responsible nonprofits committed to saving homes from foreclosures and creating affordable housing.”

Peter Dreier teaches politics and chairs the Urban & Environmental Policy Department at Occidental College. Aditi Sen is a research analyst with the Center for Popular Democracy.

Fall 2015 The American Prospect 45

Bring Back

Antitrust Despite low inflation and some bargain prices, economic concentration and novel abuses of market power are pervasive in todayâ&#x20AC;&#x2122;s economyâ&#x20AC;&#x201D;harming consumers, workers, and innovators. We need a new antitrust for a new predatory era.

By David Dayen

46 WWW.Prospect.org Fall 2015

I

n the late 1980s, Thomas Shaw of Little Elm, Texas, watched a news report about surging HIV and Hepatitis C contractions among health-care workers. When treating patients, nurses and hospital personnel would accidentally stick themselves with used needles.

Shaw had childhood friends suffering from

The tight grip of incumbents on the med-

AIDS, and he wanted to help. “I knew I couldn’t

ical-supply industry is far from exceptional.

Much of what we buy comes from a deceptively concentrated market. This is all the more surprising, given the wave of competition unleashed by the Internet.

The unaware consumer walks into a supermarket and sees aisles brimming with a daunting array of choices. But the majority of products come from just ten manufacturers.

You’re made dizzy by the sheer variety of toothpastes, for example, but 70 percent of sales go to just two companies: Proctor & Gamble and Colgate-Palmolive.

One company, Luxottica, makes virtually every different brand of sunglasses in the world.

They also own nearly all the eyeglass retail outlets, from LensCrafters to Pearle Vision to Sunglass Hut. Several years ago, Tyco bought up all its competitors and now makes practically every plastic hanger in America. You’d be excused for thinking you have many options for booking airline tickets and hotels online, but when the Expedia-Orbitz merger clears, there will only be two (Priceline is the other).

America gets its cable and Internet service mostly from four companies, after AT&T ’s successful merger with DirecTV. There are only three big airlines, four if you count Southwest; four big commercial banks; and five big tradebook publishers, six before Random House merged with Penguin.

Even where you don’t discern market concentration, it lurks behind the scenes. “Underneath GM and Chrysler are the suppliers,” says the New America Foundation’s Barry Lynn, author of the book Cornered: The New Monopoly Capitalism and the Economics of Destruction. “There are different brands, but

fix the biology side of it, but I could fix one part because I’m a mechanical engineer,” Shaw says.

So he went to the nearest drugstore and bought a bunch of syringes. He spent years taking them apart until he finally came up with a way to solve the needle-stick epidemic.

Shaw’s syringe operated like a ballpoint pen: Once you fully depressed the needle into the patient, a ring would snap and retract the needle, allowing workers to safely pull out the implement.

He called it VanishPoint. If disposed of after a single use, it would eliminate needle-stick entirely.

Shaw patented VanishPoint and formed a company, Retractable Technologies, in 1997.

He got a Small Business Innovation Research grant, $650,000 from the National Institutes of Health, to manufacture his product and get it to market. But that’s when he learned about Becton, Dickinson & Co. (BD), which sells 80 percent of all syringes in America.

After 18 years in operation, after a federal law mandating that hospitals work to prevent needle-stick, and after two successful lawsuits resulting in BD paying more than $400 million for violating anti-monopoly statutes, Retractable Technologies made only $34 million in global sales last year. BD, with an inferior, more expensive product, sold $8.4 billion, the payouts to its competitor serving only as the cost of doing business. In 2000, the Centers for Disease Control estimated 380,000 needle-sticks at hospitals every year. Today, they estimate 385,000.

“You turn on the TV and watch politicians talk about unleashing the power of the free market, that’s absurd,” Shaw says. “The American public is being denied a free market, being denied competition.”

everyone’s using the same windshield wipers and the same alternator. With cat food there are like 100 different brands, but they’re all coming out of the same plant.”

This accelerated consolidation can be selfperpetuating, with incumbents discouraging competitors from getting a foothold, or buying them up as soon as they gain some market share. Market concentration has a powerful impact on the day-to-day lives of every American, not just because monopolists have pricing power. Monopolies can also stunt innovation, degrade quality of service, increase inequality, and concentrate political power.

This trend operates against a background of weakening antitrust enforcement. Some of the new techniques to defend market power were not anticipated by the authors of the major antitrust laws more than a century ago. Others would be all too familiar, such as squeezing and then buying out competitors, or creating tying arrangements to compel a consumer to buy one product as a condition of buying another. “We’re back to a little bit of the new Gilded Age,” says Allen Grunes, a former antitrust official at the Justice Department.

This hidden concentration and its negative effects on consumers may seem paradoxical.

First, this is a low-inflation economy. So if monopolists are jacking up prices, why does this not show up in a higher consumer price index? Secondly, thanks in part to the Internet, some innovation does result in greater consumer choice and price discipline. Amazon, for instance, has forced booksellers to cut prices. Internet shopping generally increases consumer knowledge to shop for the best deals.

But in a segmented economy, monopoly pricing power and suppression of innovation in some sectors can co-exist with competitive markets elsewhere. As for low inflation, much of it reflects depressed wages, in some ways driven by market concentration. So the consumer is hit twice—once in the paycheck and again at the store. And the Internet, for all of its ability to facilitate shopping around, has facilitated platform monopolies or near-

Fall 2015 The American Prospect 47

Retractable Technologies initially held

talks with BD about licensing their VanishPoint syringe. But BD would not commit to actually using the technology, which would have required them to retool machinery. Thomas Shaw didn’t want to see VanishPoint die. But even after getting clinicians interested in using the syringe, he couldn’t get hospitals to buy it.

As a Washington Monthly story in 2010 on

Stuck: Thomas Shaw with his retractable syringe.

Retractable explained, most hospitals acquire supplies through group purchasing organizations (GPOs), coalitions of affiliated hospitals that buy in bulk at a discount. The vendors actually pay all the GPO’s administrative costs, as long as the hospitals buy entirely from the narrow group of vendors. Shaw discovered that BD had contracts through GPOs with a “90/10” requirement. If a hospital bought 100 syringes from BD last year, they had to buy 90 the next year to qualify for the discount. If the hospital failed to purchase 90 percent, they would lose the discounts and pay a penalty, a cost of millions of dollars. This contractual obligation fortified the monopoly.

Unable to sell his product, Shaw worked with nurses’ organizations to pass the Needlestick Safety and Prevention Act in November 2000. It revised rules from the Occupational

48 WWW.Prospect.org Fall 2015

Safety and Health Administration, mandating hospitals to reduce their reliance on equipment that exposes workers to blood-borne pathogens. Committees within hospitals would have to “document annually consideration and implementation of appropriate commercially available and effective safer medical devices.” But hospitals still resisted Retractable’s syringe, wary of breaking the GPO contracts.

Shaw went to the Federal Trade Commission in 2002, complaining about being locked out of the market. The FTC had jurisdiction to bust up monopolies, but took no action. Shaw also sued BD and several GPOs under the Sherman Antitrust Act. BD settled the case for $100 million in 2004. Retractable Technology took the money to survive as a viable business.

But even after the settlement, nothing changed. The $100 million was the going rate for BD’s shareholders to maintain their monopoly, a pittance compared to its profits.

American progressives

have long had an ambivalent view of bigness. The split was evident in the presidential election of 1912. Bull Moose Teddy Roosevelt’s idea was to allow some concentration to most efficiently distribute goods, but to let experts regulate those firms for the public benefit. Democrat Woodrow Wilson, and his adviser Louis Brandeis, saw concentrated power as dangerous, and held that monopolies that unduly restricted competition should be broken up.

The fuel for the Brandeis-Wilson perspective came from below. In the late 19th century, economic regulation was a function of the states, which were unable to deal with the rise of giant national trusts. The growth of railroad and telegraph monopolies restricted the channels for the flow of information and the transport of goods, raising prices in some cases and denying access to markets in

others. Farmers, gouged by railroad tycoons and fearful of the trusts’ power, organized the Granger movement and others, fomenting a revolt against these practices and ultimately compelling national politicians to act.

The Sherman Antitrust Act of 1890, passed almost unanimously by Congress, gave the Justice Department (and later, via the Clayton Act, the Federal Trade Commission) authority to attempt to block anti-competitive mergers and price-fixing through the courts; the act authorized criminal penalties as well as civil remedies. But the Sherman Act authors made clear that “innocent monopolies” created by superior business practices could be tolerated as long as they did not suppress innovation and price competition. So even in the heyday of antitrust, the courts rejected the proposition that size per se was anti-competitive.

Restraints of trade had to be demonstrated.

In Standard Oil v. United States , for example, the Supreme Court effectively modified the Sherman Act, saying that monopolistic restraint of trade was only objectionable if it was “unreasonable,” a determination to be made by the courts. The decision did break up Standard Oil, ending their Gilded Age dominance.

However, U.S. Steel won its antitrust case in 1920, as did International Harvester in 1927, because they passed the reasonableness test.

Without a bit of monopoly power, pure competition would be mutually ruinous to necessary profits and innovation. The economist Joseph Schumpeter famously wrote, “Every grocer, every filling station, every manufacturer of gloves or shaving cream or handsaws has a small and precarious market of his own that he tries—must try—to keep by price strategy, quality strategy, ‘product differentiation’—and advertising.” This was what mid-century economists termed Monopolistic Competition—a balance between pure competition and some necessary market power.

Some cases, however, were deemed so potent that they required companies to be broken up. In United States v. Alcoa (1945), the Court referred the case to the Second Circuit Court

r e t r a c ta b l e t e c h n o lo g i e s , i n c .

monopolies such as Amazon and Google, with other anti-competitive effects.

The Internet, for all of its ability to facilitate shopping around, has enabled platform near-monopolies such as Amazon and Google, with anti-competitive effects on users, suppliers, and on potential rivals. of Appeals, which ruled that even though Alcoa didn’t pursue an industry monopoly, their acquisition of one through superior management could and did enable them to engage in monopolistic behavior. So they found Alcoa guilty of violating the Sherman Act, in a way that would never hold today. The 1953 case against United Shoe Machinery found the same thing. The 1966 proposed merger of Von’s and Shopping Bag grocery stores, which would have created market concentration of just 7.5 percent in the Los Angeles region, faced a court-ordered breakup. “During antitrust’s structural era, horizontal mergers were strongly presumed to harm competition,” wrote law professor Jon Baker of American University in 2013.

In general, the Justice Department’s Antitrust Division was fairly aggressive during the period between the 1930s and the 1960s, seeking to safeguard market competition while recognizing that scale could sometimes be procompetitive. And then, a future failed Supreme Court nominee named Robert Bork took this nuance to an extreme, arguing that antitrust enforcement was actually bad for innovation and consumer well-being.

In his 1978 book The Antitrust Paradox,

Bork, a devotee of University of Chicago economic theories, contended the Sherman Act was merely a “consumer welfare” prescription, not a presumption against market power (which generally can’t exist in Chicago theory).

So if a merger made the resulting business more efficient, that merger should be approved.

Scale, likewise, generally enhanced efficiency.

In both cases, consumers would see the benefits in lower prices. If the incumbent abused its dominant position and raised prices beyond a market-clearing price, competitors (by definition) would invariably arise. The power of incumbency was assumed away. The “paradox” of his book’s title was that antitrust enforcement made consumers worse off.

Recent scholarship has shown Bork’s assumptions to be backward. John Kwoka,

an economics professor at Northeastern University, collected retrospective data on 46 closely studied mergers, and found that 38 of them resulted in higher prices, with an overall average increase of 7.29 percent. In cases where the Justice Department imposed some sort of condition for accepting a merger, like divestiture of some product lines or bans on retaliation against rivals, the price increases were even higher, ranging from 7.68 percent to 16.01 percent. By this analysis, consumers don’t benefit at all from merger activity, as market power overwhelms whatever efficiency gains.

But Bork’s ideas found a ready ally when Ronald Reagan took the White House. In 1982, Bill Baxter, head of the Antitrust Division at the Justice Department, rewrote the guidelines the agency would use to examine mergers, incorporating many of Bork’s theories. The earlier 1968 guidelines, authored by Assistant Attorney General Donald Turner, looked skeptically upon mergers where the resulting company would control as little as 5 percent of an industry. Baxter’s rewrite incorporated supposed efficiency into the equation, and significantly increased thresholds for market concentration that would even trigger official scrutiny, much less litigation.

Changing the enforcement guidelines transformed antitrust policy without altering a comma of the law. What was once a political issue became a question for micro-economists, and corporations could always find one to assert massive efficiencies from any merger. Judges began to require a higher threshold for merger challenges as well as a presumption against abuse of market power, as the Bork intellectual theories infected the entire apparatus.

In 2007, Retractable Technologies sued

BD again. They claimed that BD marketed inferior “safety” syringes to comply with federal law. Their main safety syringe was a retrofit of BD’s old plastic one, which added a sheath that health-care workers would slide over the needle. This only created one more potential for a needle-stick during the sheathing.

Retractable alleged that BD intentionally

kept their substandard syringe on the market to drive down public perception of the VanishPoint. They also claimed that BD lied about the sharpness of their needles and the accuracy of their measurements of medicine.

After six years of legal wrangling, a jury ruled on the antitrust portions of the case, agreeing with Retractable that BD sought to monopolize the syringe market and made false statements to customers. A federal district court affirmed the jury’s verdict, awarding Retractable $340 million in damages and requiring BD to admit it lied to customers.

The case is pending before the Fifth Circuit Court of Appeals, but BD did send letters to its GPOs acknowledging the lies. One responded by canceling Retractable’s contract instead.

Instead of relenting after having two antitrust cases go against them, BD sought approval last fall at the FTC for a merger with medical supplier CareFusion. Retractable wrote to the FTC strongly objecting to the merger, highlighting the millions of health-care workers unnecessarily harmed by BD’s monopoly over syringes, the company’s admitted falsehoods, and the harm to competition from allowing the market to entrench further. The FTC never responded to the letter, and cleared BD’s merger.

Since the Reagan Justice Department neutered antitrust enforcement, a posture substantially ratified by increasingly conservative courts, two new factors have reinforced the trend. The first is the rise of intensified merger and acquisition activity, driven less by economic efficiency than by the fact that M&A is a huge Wall Street profit center that fits with the desire of CEOs to run bigger empires that produce fatter paydays. Mergers and acquisitions activity is poised to hit a record this year, with $4.58 trillion in takeover announcements expected.

Obviously, more mergers mean more commissions for the Wall Street firms that shepherd the deals, as well as more opportunities to profit from trades. Investors are also demanding consolidation as a means to increase pricing power and to show growth. It’s easier to use

Fall 2015 The American Prospect 49

While some monopolies generate “cheap” goods for Americans, antitrust policy should look beyond prices to incorporate all of the consumer effects of market concentration. Monopoly intensifies income inequality. market power to extract more from suppliers and consumers than to make a better product and increase sales volume. “From society’s perspective, it’s complicated. But from the inside, I always want to have a monopoly,” said billionaire venture capitalist Peter Thiel in London in May. The preference for debt over equity in the tax code also incentivizes mergers, since borrowed money to acquire companies produces a tax break. In principle, antitrust enforcement provides a counterweight, but as merger activity has increased, antitrust has declined. Today, corporate America’s most innovative activity is financial engineering, rather than invention that enhances consumer welfare.

Despite all the buzz about the start-up culture, entrepreneurship has suffered from these barriers to competition. The New America Foundation found start-ups fell 53 percent between 1977 and 2010. This removes urgency from incumbents to invest, and makes the economy sluggish.

Merger activity, John Kwoka shows, typically leads to price increases, as companies controlling concentrated markets gouge consumers. You can see the consequences of oligopolistic pricing simply by looking at your cell phone or cable bill, sectors where dominant players still enjoy market power.

A second complicating factor is the rise of electronic commerce. In principle, this should be good for competition and consumer welfare.

But here we need to introduce the lesser-known cousin of monopoly—monopsony, meaning market power exercised by a dominant seller, or in the case of the Internet, a dominant platform. A good illustration is the market power that Google enjoys over the division of advertising income. It piggybacks on expensive content generated by magazines, newspapers, and others in the media, and takes a large share of advertising revenues. There have been widespread complaints that Google uses its market power to take too big a cut of the advertising dollar at the expense of content originators.

Senator John Sherman, author of the Sherman Act, never anticipated this abuse in 1890.

50 WWW.Prospect.org Fall 2015

Digital platforms using market power gained by controlling access to their audiences is a variant on the venerable problem of common carriers that abuse their positions as choke points. As early as 1913, the U.S. government began treating AT&T as a regulated monopoly, and insisted that it provide connectivity with rival independent phone companies.

Regulators have not asked the same of Google or Facebook. “We have one fantastic victory in recent times, net neutrality,” said Barry Lynn of the New America Foundation. “For some reason, the wise folks at DOJ and FTC are not able to see that Amazon is largely analogous to the cable problem, the broadband problem.

You need a neutral platform.”

Courts have on occasion held that abuses of monopsony are antitrust violations. In the A&P case of 1949, the Supreme Court agreed that A&P was using its dominant economic position to demand discounts from suppliers that were not available to its competitors, thus denying a level playing field among supermarkets. But there have been no successful cases against Google or Amazon for abusing their dominant position as platforms. Late in the Clinton administration, the FTC issued a staff paper warning of the multiple potentials for abuses of market power in e-commerce. But in a follow-up report under George W. Bush, the FTC held that the Internet was only beneficial for consumer welfare. Platform monopsony should be a fertile area for FTC investigation, but President Obama’s FTC has been quiescent.

The rise of the Internet has been doubleedged for market concentration. For example, Amazon is the dominant delivery outlet for books, willing and able to keep out publishers if they don’t conform to their standards. This produces bargains for consumers, but undermines supplier industries, in this case author royalties and publisher earnings. “The focus on consumers led people to think, if Amazon can get cheaper prices, who’s to complain, without realizing that monopsony power is squeezing authors,” says Nobel Prize–winning economist Joseph Stiglitz. “The consumer may

get better prices, but not on the other side.”

Monopsony creates many spillover effects.

Suppliers can cut corners on labor and environmental standards to keep their profit margins up amid the squeeze. Wages can drop.

So even if inflation stays low, the public can suffer. In other words, while some monopolies and monopsonies generate “cheap” goods for Americans, antitrust policy should look beyond simply prices and efficiency to incorporate all of the consumer effects of market concentration. And they are legion.

The case of Retractable Technologies

shows how monopolies can inhibit innovation, by preventing start-ups from getting products out. Monopolization also has a significant effect on quality of service. With reduced competitive pressures from the outside, businesses have no reason to upgrade services.

Concentrated markets magnify disruptions.

On July 8, IT issues knocked out the New York Stock Exchange, and the computer system of United Airlines went down. Because the NYSE has competing exchanges, others picked up the trading slack and stock volume went virtually unchanged. Because there are only three other major airlines, and in many cases none that fly the same routes as United, the computer glitch grounded thousands of flights nationwide and caused bottlenecks and flight delays that lasted for days. There were no redundancies in the airline industry to step in.

In many sectors, such as health care, market concentration leads to more market concentration. Hospital consolidation was motivated in part by providers’ desire to increase their ability to bargain with insurance companies for better prices. In reaction, insurance companies also consolidated, each side seeking leverage over the other. Once Anthem completes their merger with Cigna, and Aetna merges with Humana, there will be a “Big Three” in health insurance (UnitedHealth is the other).

Perhaps most critically, given the current political climate, monopolies drive inequality.

Executives and Wall Street traders make astro-

seth wenig / ap images

nomical incomes, while wages are squeezed.

Post-merger price increases, from health care to cable TV service to airline tickets, translate into a decline in real wages. Big mergers also encourage reduction in actual wages, when consolidations produce layoffs and limit avenues for employment. And though high skills are supposedly a defense against wage cuts, cartel behavior by Silicon Valley firms to prevent raiding each other’s workers kept wages for coders and engineers low.

Suppliers to platform monopolies experience a price crunch across the spectrum, reducing their own profits and funneling them to the biggest firms, where they pass to executives. “High concentration in the PC platform market with Microsoft gives rise to the richest person in the country,” says Stiglitz. “Monopoly increases wealth at the top, and for average Americans real wages decrease.”

Senator Sherman did not anticipate the Internet, but he previewed this broader problem in 1890 when he warned of the “inequality of condition, of wealth, and of opportunity that has grown within a single generation out of the concentration of capital.” And in the Citizens United age, all this market power and collection of exorbitant monopoly profits can’t help but lead to the entrenchment of political power.

“Monopolies are as much political forces as they are economic ones,” says Zephyr Teachout, a former New York gubernatorial candidate and Fordham University law professor who now runs Mayday PAC, a federal political organization dedicated to public financing of elections. “I talk about fair elections as the rhythm of an open, free democracy, and decentralized economic power as the melody.”

This past July, Retractable Technologies wrote a 15-page letter to FTC commis-

sioners, stressing how the agency “has sat on its hands while America’s dedicated healthcare workers have had their hands pricked, stabbed and bloodied by needles that often carry deadly diseases.” The company reiterated the long history of anti-competitive

practices by BD, including the two occasions the Department of Agriculture in five cities, where courts found them guilty of attempted with Attorney General Eric Holder and Agrimonopolization. “Retractable Technologies culture Secretary Tom Vilsack attending. The would like to know just how much court-ver- field hearings looked at monopsony power— ified public harm a company has to commit the concentration of agribusiness conglombefore the FTC will be motivated to do its job,” erates, like Tyson, ratcheting down the rates they pay farmers for meat and poultry. “This the letter concluded.

In response, the FTC ’s Health Care Divi- was great, all these farmers, herders, everyone sion met with Shaw, Retractable’s CEO, in late involved in the production of food, they’re up August. Regulators admitted that American in arms,” says Maurice Stucke, antitrust law consumers pay more for health-care prod- professor at the University of Tennessee. “DOJ ucts than any country in the world, and Shaw itself said, the message is coming through.” offered that market concentration and the GPO hustle contributed to that. But the lack of resources and the need to expend so much effort on complex economic models to justify a case forces the FTC to choose its battles judiciously.

“They said, if you had a case where everything’s done, maybe we could get something done,” Shaw says. “Short of that, there’s nothing they can do. My problem with that as a taxpayer and inventor Trust Buster: Candidate Zephyr Teachout (r) with her running mate, Tim Wu and manufacturer is, if they’re not coming to Little Elm and starting a busiBut when it came to actual enforcement, the ness, why am I coming up here to do their job?” administration largely took a pass. According to data collected by Northeastern UniversiAt the outset of the Obama adminis- ty’s John Kwoka, from 2009 to 2011, for every tration, things looked promising for a resur- merger that reduced competitors in a margence of antitrust. George W. Bush’s Antitrust ket to four or fewer, the administration made Division had been dismissive of antitrust, in some investigation or challenge. But for merga manner straight out of the pages of Robert ers that left five or more competitors, they Bork. Antitrust chief William Kolasky said enforced none of them. Historically, a good in a speech in 2002, “All of us know that the chunk of those would have been challenged. rationale for most mergers is pro-competitive “These are moderately concentrated indusand that most mergers have no adverse effects tries, right on the cusp,” Kwoka says. “They on competition.” Bush’s FTC issued a report on took a pass on every one of them. It’s remarkSection 2 of the Sherman Act that was defer- able and a complete anomaly.” ential to monopolies. The incoming Obama Stucke points to a George’s Foods acquisition administration withdrew it. of a Tyson poultry processing plant in HarriThen, the new head of the Antitrust Divi- sonburg, Virginia, that the Justice Department sion, Christine Varney, held joint hearings with decided to challenge. Instead of blocking the

Fall 2015 The American Prospect 51

Antitrust policy has become divorced from politics, confined to specialized lawyers and mathematicians instead of citizens and activists. Without grassroots momentum, regulators can safely ignore the issue. acquisition, the Antitrust Division required minor capital improvements to the plant, including repairing the roof. “They settled on, it was like chicken feed,” Stucke says. “I can’t think of any other case where part of the remedy is to repair the plant’s roof.”

These conduct remedies are precisely the ones that Kwoka showed to be extremely ineffective in his retrospective studies. Yet they became a hallmark of Obama-era antitrust enforcement. The Comcast-NBC merger included a series of behavioral remedies. US Airways and American Airlines had to merely divest some slots at Reagan National and LaGuardia Airports. The LiveNation-Ticketmaster merger also included conditions, like divestitures and anti-retaliation provisions.

Three years later, the merged company controlled more than 80 percent of the primary event-ticketing market.

It’s true that the administration faces hurdles from a judiciary that still adheres to the lessons of the Chicago school and places heavy burdens on the enforcement agencies. In Verizon v. Trinko (2004), Justice Antonin Scalia called charging monopoly prices “an important element of the free-market system,” and said that it must be protected “to safeguard the incentive to innovate.”

“One problem is that bad cases not brought by the government tend to make bad law,” says Allen Grunes, the former antitrust official, now in private practice. “The Supreme Court has been able to cherry-pick those cases to move things in a conservative direction.”

But the administration’s decision to close four of the seven antitrust field offices (in Atlanta, Cleveland, Dallas, and Philadelphia) in 2012 was taken as a strong signal. These field offices did primarily criminal cases, such as conspiracies to rig municipal contracts or construction bids. Dozens of prosecutors lost their jobs. The shuttering of over half of the field offices damaged agency morale. “The remaining offices can’t cover the territory,” says Robert Connolly, chief of the field office in Philadelphia when it was closed. “I think there’s a sense that the

52 WWW.Prospect.org Fall 2015

Antitrust Division is not that interested in local and regional cases. … They want a case with headlines, a lot of zeroes.”

The administration has had a better record on mergers that created heavy market concentration, blocking proposed mergers such as AT&T with T-Mobile, and Comcast with Time Warner. More recently, enforcement agencies have been praised for investigating the airline industry for price collusion, suing to block General Electric’s sale of its appliance business to Electrolux, and stopping the merger of the nation’s two largest food distributors, Sysco and U.S. Foods.

In some sense, these successes represent a last frontier. “Many of our industries have simply hit the wall, with high levels of concentration allowed by 20 years of lax enforcement,” says Diana Moss, vice president of the American Antitrust Institute. “As a result, mergers in markets with two, three, or four rivals are almost always going to raise competitive concerns. … The next administration is looking at a pretty grim landscape.”

BD’s anti-competitive behavior dates

back to at least the Eisenhower administration. Back in 1960, the Justice Department cited BD for price-fixing violations of the Sherman Act. BD agreed to a consent decree, but the company took advantage of a quirk in the language of the order. The consent decree only committed BD to end their illegal practices for reusable glass syringes.

So BD simply shifted to plastic disposable syringes, and engaged in the same behavior.

In fact, the routine reuse of plastic syringes by replacing the needles exposed patients and health-care workers to equipment that could not be re-sterilized, facilitating the global AIDS and Hepatitis C outbreaks.

Despite 55 years of anti-competitive behavior, BD’s market monopoly remains in place.

And tellingly, no other medical supply conglomerate has ever tried to enter the market. “Johnson & Johnson told us, they don’t sell Band-Aids and we don’t sell syringes,” says Thomas Shaw.

The market split allows monopolies to maximize profits as long as they stay out of competition. The big guys don’t mess with one another’s markets, and the little guys can’t get in.

Shaw believes his plight will only change if the public wakes up to the perversion of the free market, which long ago ceased to miraculously guide toward the best solutions through open competition. In fact, the markets don’t self-correct. “There are a lot of invisible hands, most of them are in our pockets,” Shaw says.

In 1964, historian Richard Hofstadter gave a speech at the University of California, Berkeley, titled “What Happened to the Antitrust Movement?” He wondered why anti-monopoly sentiment ceased to become the subject of public agitation. “Once the United States had an antitrust movement without antitrust prosecutions,” Hofstadter said. “In our time, there have been antitrust prosecutions without an antitrust movement.”

Now we have lost both the movement and the prosecutions. When we talk about banks that are too big to fail, we’re talking about antitrust.

When we talk about the high cost of health care, we’re talking about antitrust. So many of our key domestic issues are fundamentally questions about whether we should tolerate monopolies, or dismantle them. But this formulation—a centerpiece of public debate in the last robberbaron era between the 1880s and 1910s—has all but disappeared from popular discourse.

Can anti-monopoly sentiment be revived?

When New York’s Working Families Party first recruited Zephyr Teachout to run for governor, she said she would only do it if she could talk about monopolies. “They polled it, and they were correct that nobody knew what I was talking about,” Teachout says. But when she eventually ran an insurgent campaign against incumbent Andrew Cuomo, she was determined to talk about it anyway.

“The minute you got past the sound-bite level, people responded to the concentration of power,” Teachout says. They did campaign events at places where people paid their cable bills, using the pending Comcast–Time War-

v i r g i n i a m ayo / a p i m a g e s

ner merger, eventually abandoned, as the hook. She engaged farmers in upstate New York about monopsony power, and discussed Amazon and big banks on the stump. And it resonated. After only one month of campaigning, Teachout won 35 percent of the vote, with particular strength in upstate counties where farming issues were prominent.

“The Tea Party talks to people and says, ‘You’re out of power because government is taking it away from you,’” Teachout says. “Far too often, Democrats say, ‘You’re wrong, you’re not out of power.’ That’s dissonant with our lived experience. You’re out of power … because your priorities don’t matter and JPMorgan’s do.”

Beyond Teachout, you can see through the haze the stirrings of a grassroots antitrust agenda. The greatest anti-monopoly victory of the modern age, the Federal Communications Commission’s net-neutrality rules, owed much to a smart, tech-savvy movement that leveraged big protest platforms. Web-native activists fought for the decentralized power of the Internet, without gatekeepers collecting tolls along the way. And they made the connection to things like the Comcast–Time Warner merger, which failed amid public outcry.

“After this existential threat to the Web, you see the same groups becoming interested in the deep history of anti-monopoly laws,” Teachout says. “It’s kind of an exciting intellectual moment, a fusion between old-school farmers who have been complaining for 30 years and new net-neutrality dreamers.”

Monopolists have long used technological advances to consolidate power, from Gilded Age tycoons leveraging control of railroads and telegraphs to Amazon using its first-mover status in e-commerce to squeeze book producers, or Google harvesting traffic to their marketleading search engine to serve ads. It’s easy to translate the need for a neutral platform for websites into the same need for book sales or car ride–sharing.

The European Union, in fact, did file formal antitrust charges against Google, accusing it of forcing search engine users into its own shop-

ping platforms, and bundling Android phones goals, connecting anti-monopolization with with their own apps, to prevent competitors fighting climate change. from performing the same functions. The FTC There are a lot of reasons for runaway monopshut down its own investigation into Google olies: an intellectual hijacking by Chicago-school over the same concerns in 2013. But an inad- conservative economists, the over-financializavertent disclosure revealed that the agency’s tion of the economy, a failure of federal antitrust Bureau of Competition recommended bring- enforcement. But perhaps the biggest reason is ing a lawsuit, arguing that Google’s conduct that antitrust policy has become divorced from “has resulted—and will result—in real harm politics, confined to specialized lawyers and to consumers and to innovation in the online mathematicians instead of citizens and activists. search and advertising markets.” The political Without grassroots momentum, politicians and leadership ignored the recommendation. enforcement agencies can safely ignore the issue.

The next administration must show “leadership that has a certain intellectual curiosity,” says Maurice Stucke, pointing to the Google case as a missed opportunity. An alteration in posture would make enforcement far more vigorous, and bringing more cases will give litigators more experience and confidence to negotiate the judicial barriers.

The American Antitrust Institute plans to create a transition document for the incoming administration, as they did for Europe Leads: The EU’s Margrethe Vestager, scourge of the Google monopoly the Obama transition.

But at a time of political disempowerment, That’s the challenge for a small band of academteaching about the dangers of monopolies and ics, think-tank fellows, and activists: to make how we have the laws on the books to fight monopolies a vital issue again, connecting with them, and creating upward pressure to do it, the severe economic anxiety Americans feel.

“In 2016, I hope that there’s 20 candidates offers great potential for a paradigm shift.

Connecting Senator Elizabeth Warren’s fight running on an anti-monopoly platform, makagainst a rigged financial system and Al Fran- ing it the heart of their campaign,” Teachout ken’s fight against media concentration can says. “It’s important to not believe that our spark broader political energy. current pathological capitalism is the only kind You could see this potential in Washington, you can have. We can have a version of capitalD.C., where in August, the city’s Public Service ism that’s not this concentrated.”

Commission rejected a merger between energy firms Exelon and Pepco, citing “more active David Dayen is a contributing writer to participation by parties and interested persons Salon.com and a weekly columnist for The than any other proceeding in the Commission’s Fiscal Times. His forthcoming book Chain of more than a century of operations.” Activists Title: How Three Ordinary Americans Uncovargued a giant Exelon conglomerate would fail ered Wall Street’s Great Foreclosure Fraud will to devote resources to the city’s clean-energy be published in 2016.

Fall 2015 The American Prospect 53

Still We Rise

Students on the campus of Howard University, 1946.

Photo by Alfred Eisenstaedt

54 WWW.Prospect.org Fall 2015

The continuing case for Americaâ&#x20AC;&#x2122;s historically black colleges and universities

by Darric k Hamilton, Tr essie McMilla n Cot t om, Willia m D a r ity Jr ., Ala n A. Aj a , a nd Ca r olyn Ash

Fall 2015 The American Prospect 55

Some Notable HBCU Alums

Ella Baker Activist

Shaw University

Regina Benjamin U.S. Surgeon General

Xavier University (LA)

Ed Bradley Journalist

Cheyney University (PA)

Calvin O. Butts Academic, Activist

Morehouse College

Shirley Caesar Performer, Musician

Shaw University

Henry Cheatham Politician

Shaw University

Kenneth Clark Pyschologist

Howard University

In his best-selling book, Between the World and Me, TaNehisi Coates observes that his own alma mater, Howard University—one of the oldest of the black universities—was “The Mecca” for African Americans. “On the outside black people controlled nothing, least of all the fate of their bodies, which could be commandeered by police.” But “here at The Mecca, we are without fear, we are the dark spectrum on parade.” For countless others, the safety and affirmation of black universities has been a haven. The roster of notable black Americans who have attended HBCUs is astounding.

Rather than promoting a self-fulfilling prophecy of anticipated failure by black students, HBCUs offer black students the potential of a “stereotype safe” environment. Marybeth Gasman, a professor of higher education at the University of Pennsylvania, writes that HBCUs provide black students with “an empowering, family-like environment of small classes, close faculty-student relationships, and life without the daily racial tensions experienced off campus.”

Perhaps this helps to explain why under-resourced Xavier University in New Orleans is so remarkably efficient in producing black doctors. Xavier University, a historically black institution, has only about 3,000 students, yet leads the nation in black graduates who eventually complete medical school. Xavier achieves this success by countering social stigma and promoting expectations of success among their faculty and students, tailoring a curriculum that includes intensive hands-on instruction and peerstudy groups, and fostering cooperative student environments free of racial hostility.

But with public universities in general losing state fiscal support and private colleges, except for the most elite, getting squeezed, the HBCUs that represent those safe and nurturing spaces for thousands of students are at risk of extinction.

Last year, the former chancellor of North Carolina Central University, Charlie Nelms, wrote an open letter in The Huffington Post to HBCU graduates. Nelms chastised black alumni for failing to give back to the institutions that had given so much to them, and called for tithes, or regular morally bound payments, to alma maters. But this is a heroic view

56 WWW.Prospect.org Fall 2015

of black financial capacity that is at odds with the sad reality.

In February, the South Carolina State House Ways and Means Subcommittee on Higher Education voted to temporarily shut down heavily indebted South Carolina State University. Loyal students, alumni, and political defenders of the state’s only public HBCU sought to save their financially strapped college—among their remedies to save the institution was more alumni giving. The state legislature relented, but the university budget included faculty and staff reductions, fewer institutional scholarships, and proposed building closures.

Ohio’s Wilberforce University recently created an ambitious strategic plan to fiscally rejuvenate the oldest private HBCU in the country and avoid disaccreditation, which would prevent its students from receiving federal grants or loans. Aside from the goal of increasing enrollment to generate capital, the university, along with loyal alumni and student groups, has turned to emergency fundraisers.

But do blacks generally have the financial capacity to save HBCUs with their own donations to their respective alma maters? Given the historical, cumulative, and persistent black-white wealth gap in the U.S., this is not only unlikely, but a distraction.

Paul Quinn College, a private, religiously affiliated HBCU in Dallas, has pursued drastic and innovative approaches to avoid financial demise. One of Michael Sorrell’s first controversial acts as president eight years ago was to terminate Paul Quinn’s mediocre and cash-strapped football program. Two years later, the college partnered with Pepsi­ Co to transform its old football field into an organic community farm, which provides healthy and affordable food options in the food desert surrounding the campus. Food from the college’s farm also goes to the Dallas Cowboys, the school’s largest client, and is served in the high-end suites at AT&T Stadium. “The farm saved this school,” Sorrell said during an interview last year on ESPN. Inclusive of sales and fundraising activities, the We Over Me Farm raised about $1 million for Paul Quinn’s last fiscal year, which amounted to just under 10 percent of the school’s budget.

In the fall of 2015, Paul Quinn College will also become the first urban work college, inspired by the model of Berea College in Kentucky. With this “New Urban College Model,” as it is being dubbed, students at Paul Quinn will pay greatly reduced tuition rates in exchange for work on campus or with local businesses. Eighty-four percent of the students at Paul Quinn are Pell Grant–eligible.

While both the community farm and urban-college work model are innovative and highly commendable, their scale is necessarily limited. Creative efforts like these are not

photo previous spread: get t y images; baker: libr ary of congress

H

istorically black colleges and universities played a heroic role educating African Americans during the long era when most institutions of higher education were for whites only. At a time when the society is nominally more open but deeper patterns of racial hostility are belatedly being exposed and discussed, HBCUs still have a major role to play. For many black students, they are safer and more nurturing places.

the solution to “saving” HBCUs collectively, no more than they can rely on tithing.

HBCUs and the Legacy of Racism HBCUs have been dying since they were first born. Founded

by various combinations of the formerly enslaved, abolitionists, and white philanthropists, HBCUs were tasked with “uplifting the Negro” through education. From the start, the task was monumental, the rhetoric lofty, and the funding paltry. Their noble mission has been hobbled by institutional racism since the beginning.

Ira Katznelson’s When Affirmative Action Was White documents that, by 1950, the GI Bill generated more spending on education than the Marshall Plan that rebuilt Europe. While this infusion of finance exponentially increased the growth of historically white colleges and universities, the context of a racially unequal distribution of GI benefits along with insufficient Jim Crow–segregated housing capacity limited the ability of HBCUs to accommodate black veterans.

The GI Bill is but one example of several postwar policies in which the federal government invested heavily in the greatest growth of the American middle class. However, African Americans and HBCUs were largely frozen out of many of those benefits, just as they had been excluded earlier from many of the benefits of the New Deal.

Structural racism at the federal and state levels directed resources disproportionately to whites. Most elite colleges and universities were closed to blacks, or open only in token numbers. As a result, African Americans had to rely largely on the few black-serving institutions of higher education. But the capacity of these institutions was restricted by the same racist policies.

HBCUs took in a record number of African American veterans whose GI Bill benefits, albeit far more limited than those made available to white veterans, finally made college a possibility. HBCUs could have taken in many more black veterans were it not for the compounding effects of racist federal policies that limited capacity and expansion.

Separate was far from equal.

The historic outright refusal of many white colleges to admit black students, coupled with constraints on the growth of HBCUs and far narrower access to federal subsidies for college education for blacks—all products of public

policy—resulted in a significant unmet black demand for higher education. The drastically restricted capacity of African Americans to build wealth interacted with the financial deprivation of the very institutions that had the greatest commitment to providing blacks with higher education. That pattern persists—and alumni giving from a low-resource alumni base is unlikely to dismantle it. A vast web of prejudices, policy, and history continue to threaten these institutions’ survival.

Howard University

Samuel DuBois Cook

Academic, University President Morehouse College

A Resource Under Siege Of the 100 HBCUs, 51 are public and 49 are private. The

National Center for Education Statistics reports that from 1976 to 2011, the total number of students enrolled at HBCUs rose by 45 percent, and that the black student share of enrollment in higher education overall rose from 9.6 percent to 15.1 percent. However, the share of black students enrolled at an HBCU fell from 18 percent to 9 percent. HBCUs became slightly more diverse, with the share of non-black student enrollment increasing from 15 percent to 19 percent.

In terms of revenue, HBCUs collected about $8.45 billion for the 2010–2011 academic year, which is about 2 percent of the total $531.05 billion collected across all public and nonprofit private schools. In the 2010–2011 academic year, revenue per enrolled student was similar for public HBCUs and public universities in general—$21,550 and $21,384, respectively. However, private HBCUs had far less revenue per student than traditionally white, private nonprofit institutions: $39,722 versus $53,759.

Given the persistence of racial economic disparity, it’s not surprising that HBCUs receive a smaller share of their revenue from private gifts and grants and investment (endowment) income, and are more reliant on federal and state government. For the 2010–2011 academic year, HBCUs received 6.6 percent of their revenue from private gifts and grants, compared with the 10.7 percent received by private institutions. Not surprisingly, the private HBCUs’ share of revenue from endowment income was less than half of what accrued to all private colleges and universities—11.3 percent versus 25.9 percent. The flip side of this disparity is greater dependence on government.

From 2010 to 2011, HBCUs received 28 percent of their revenue from federal government sources, compared with

Historically black institutions— safe and nurturing spaces for thousands of students— are at risk of extinction.

f e n t y : d av i d wa s h i n g t o n / c r e at i v e c o m m o n s

Ta-Nehisi Coates

Writer (did not graduate)

Anna J. Cooper Author, Scholar

St. Augustine’s College

The Delany Sisters

Annie Elizabeth Delany Dentist

Sarah Louise Delany Educator

St. Augustine’s College

David Dinkins

Mayor of New York City Howard University

Marian Wright Edelman

Advocate, Activist, Organizer and Founder of the Children’s Defense Fund Spelman College

Ralph B. Everett

President and CEO, Joint Center for Political and Economic Studies Morehouse College

Adrian Fenty

Mayor of Washington, D.C. Howard University

Fall 2015 The American Prospect 57

Poet, Activist

Fisk University

Alex Haley

Pulitzer Prize–Winning Author Alcorn State University

Abram Harris Economist

Virginia Union University

Shani O. Hilton Journalist, Editor

Howard University

Langston Hughes Poet, Novelist

Lincoln University

Sharon Pratt Kelly

Mayor of Washington, D.C. Howard University

Jesse Jackson Activist, Politician

North Carolina A&T State Uni.

Samuel L. Jackson Actor

Morehouse College

Have HBCUs Outlived Their Purpose?

Black students are no longer explicitly barred from attending historically white colleges and universities. However, black students still represent only a small percentage of the student body at many of these institutions. For example, while 28 percent of South Carolina’s population is black, they make up only about 10 percent and 6 percent, respectively, of the student bodies at the University of South Carolina and Clemson University. By contrast, the nearly 3,000 students enrolled at South Carolina State University are overwhelmingly black.

Despite the promise of integration, black students frequently report feelings of isolation and the burden of representing their race in alien spaces. Some spaces are not only alien, but explicitly hostile. For example, in December 2014, members of the Clemson chapter of the Sigma Alpha Epsilon (SAE) fraternity threw a gang-themed “Cripmas” party. The university placed SAE on probation in April 2015 for two years. This same fraternity also made national headlines in

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March 2015 after video surfaced of University of Oklahoma SAE chapter members singing, “There will never be a nigger at SAE. You can hang him from a tree, but he’ll never sign with me. There will never be a nigger at SAE.” The chapter was immediately shut down, but the damage from this egregious case, which just happened to be caught on video, is done. Such hostility suggests that traditionally white institutions should not be the only option for black students. HBCUs provide options for students whose academic development might benefit from being in less-hostile environments.

Students are not the only perpetrators of racial hostility on majority-white campuses. For instance, a 2012 study published in the Journal of Labor Economics by two Duke University faculty members and a graduate student (Peter Arcidiacono, Esteban Aucejo, and Ken Spenner) is indicative of the ongoing stereotype of cognitive inferiority often ascribed to black students by faculty at predominantly white institutions. The authors argued that black students at the highly selective institutions tend to switch from what they deem as “harder” majors (natural sciences, engineering, and economics) to “softer” majors (humanities and social sciences) as a result of enrolled black students having weaker academic backgrounds.

The evidence? SAT scores. The irony is that it is the presence of the stereotype itself that severely lowers performance of black students on high-stakes testing like the SAT (an empirically questionable predictor of “success,” especially by race) in the first place. This is based on more than 20 years of well-documented experimental research of the phenomenon of stereotype threat, pioneered by social psychologists Claude Steele and Joshua Aronson.

The authors demonstrate that on high-stakes tests, social stigma leads to exaggerated score differences between stigmatized and non-stigmatized groups.

In fact, this need for a stereotype-safe environment with a “sympathetic touch between teacher and pupil” was articulated by W.E.B. Du Bois 80 years ago in his 1935 essay titled “Does the Negro Need Separate Schools?” In his own words: It is simply calling a spade a spade. It is saying in plain English: that a separate Negro school, where children are treated like human beings, trained by teachers of their own race, who know what it means to be black in the year of salvation 1935, is infinitely better than making our boys and girls doormats to be spit and trampled upon and lied to by ignorant social climbers, whose sole claim to superiority is ability to kick “niggers” when they are down. I say, too, that

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Nikki Giovanni

about 12 percent for all colleges and universities. Some of these differences in federal funding may be driven by a larger share of Pell Grant recipients at HBCUs, whose students tend to be less affluent than their white counterparts. Despite the tendency of black students to come from lower socioeconomic backgrounds, students bore a similar tuition burden across HBCU and non-HBCU institutions.

Students at HBCUs, few of whom have wealthy parents, were also more reliant on student loans. A 2015 report from the Wisconsin HOPE Lab, which studies higher education and student-loan trends, finds that “not only have black students always borrowed more than white students, for as long as the federal government has tracked these things, but the growth in take-up rates of federal student loans between 1995-96 and 2011-12 was also greater for black students than white students.” The differences are especially acute for the most risky loans in the student-loan universe, namely parent loans and unsubsidized loans. Both come with less-beneficial repayment terms like higher interest rates, fewer safeguards for managing long-term repayment, and higher rates of default.

To add insult to injury, for-profit institutions, which are often corrupt and guilty of misleading claims about their success rates, have disproportionately targeted black students, at the expense of both HBCUs and legitimate nonprofit community colleges. (See Mark Huelsman’s “Betrayers of the Dream: How Sleazy For-Profit Colleges Disproportionately Targeted Black Students,” from The American Prospect’s Summer 2015 issue.)

certain studies and discipline necessary to Negroes can seldom be found in white schools.

Although he was not speaking directly about higher education (and not defending segregation mandated by whites), Du Bois recognized that learning environments are shaped by peer cooperation and that administrators, teachers, and students shape the culture and curriculum of the educational process by influencing students’ norms, motivations, aspirations, and educational content. For Du Bois, “a mixed school with poor and unsympathetic teachers, with hostile public opinion ... is bad,” and a segregated school with “inadequate equipment, poor salaries and wretched housing, is equally bad.”

More than 60 years after Brown v.

Board of Education, segregation is still the norm in elementary education, and Du Bois’s words still resonate. There is an important place for black colleges and universities, as nurturing environments of inspiration and affirmation, and curriculum relevant to the students they serve. As Ta-Nehisi Coates writes, “I knew I was literally walking in the footsteps of all the Toni Morrisons and Zora Neale Hurstons, all of the Sterling Browns and Kenneth Clarks who had come before.”

Given the continuance of racial hostility vividly exemplified by the leaked video of the SAE chapter members’ singing, and the ongoing societal presumption of black inferiority maintained by many college faculty and administrators, HBCUs have not outlived their purpose—indeed, their need calls for greater strengthening.

between these similarly educated households. In fact, the $23,400 median-wealth figure for black families is only two-thirds of the median wealth of white families whose head never finished high school. When we compare family wealth for heads of households who had earned a graduate or professional degree, the disparities are even larger.

The typical white family with a head that has a graduate or professional degree has more than $200,000 more wealth than the typical similarly educated black families ($293,100 versus $84,000 in median wealth).

The vast majority of black wealth is held in home equity, money that cannot be tapped for alumni donations. The typical black family has only $200 in liquid wealth (wealth readily convertible into cash), and when retirement savings are removed, the value of their liquid wealth falls to $25. That may be why Charlie Nelms focused on a church tithing analogy, since African Americans are famous for generous support of their churches.

The low black net worth is not due to a black propensity for profligacy. After accounting for income, the best available evidence indicates that there is little difference in black and white savings rates—and in some income categories, the black rate is slightly higher. The white advantage in net worth is mainly the consequences of access to inheritances and other intergenerational transfers of resources, and a legacy not clouded by racist obstacles to education, earnings, and stable home ownership—all of which built wealth that could be passed along to future generations.

Presumably, blacks with little wealth might draw on their incomes to sustain HBCUs. Here, too, there are problems. First, there is the racial income gap. According to a 2014 Census Bureau analysis, the real median household income for blacks was calculated at $34,600 in 2013, while the same statistic for (non-Latino) whites was calculated at $58,300, a figure reasonably higher than the overall median household income of $51,939 for all groups in 2013.

Moreover, blacks already are self-taxing their income at rates higher than whites: Blacks have a significantly higher rate of charitable giving than whites with similar financial resources. Researchers Richard Steinberg and Mark Wilhelm find that “if anything, black families are slightly more generous [than white families] ($1,363 per family versus $1,325).” And the work of economists Ngina Chiteji and Darrick Hamilton, an author of this article, demonstrates

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The vast majority of black wealth is held in home equity, money that cannot be tapped for alumni donations.

The Relationship Between Black Wealth and Black Colleges

Despite the fact that blacks proportionally engage in more giving than whites relative to their incomes, the overwhelmingly black alumni base of HBCUs does not have the wealth capacity to “save” HBCUs. According to the Census, the typical black family holds about $7,113 in net worth. This is a mere 6 cents for every dollar of wealth held by the typical white family, whose median net worth is well over $100,000.

Even for families whose head earned a college degree (the alumni donor base for colleges), the typical black family has only about $23,400 in wealth, while the typical white family has close to eight times that amount, with a median wealth of $180,500. This amounts to a difference of about $160,000

Charles S. Johnson

Sociologist, Academic, Activist Virginia Union University

Lonnie G. Johnson Engineer

Tuskegee University

Evelynn H. Hammonds Scientist, Academic

Spelman College

Martin Luther King, Jr. Activist, Minister, Nobel Prize Winner

Morehouse College

Gladys Knight

Performer, Musician Shaw University

John Lankford Architect

Shaw University

Spike Lee Filmmaker

Morehouse College

Thurgood Marshall U.S. Supreme Court Justice Lincoln University

Walter E. Massey Physicist

Morehouse College

Fall 2015 The American Prospect 59

that if we expand our notion of charitable giving to include relatives and friends in need, the kin and social networks to which middle-income black families belong have substantially more need than their white middle-income counterparts. To put as fine a point on this as possible, black alumni are not failing black colleges. Instead, blacks have markedly lower financial resources and higher need.

Social-science research confirms that black students and their families are doing more with less. Research by economist Patrick Mason and sociologists Dalton Conley and William Mangino demonstrates that blacks attain more years of schooling and credentials than whites from families with comparable resources. Yunju Nam, a professor of social work at the University of Buffalo, has documented that the median net worth of black parents who offer financial support for the higher education of their adult sons and daughters is onefourth of the median net worth of white parents who do not provide any support for their children’s college education.

Could market strategies rescue HBCUs? Many institutions have shifted their focus to what Sheila Slaughter and Gary Rhoades have called “academic capitalism,” to stave off institutional entropy—partnerships with entrepreneurs, for-profit distance-learning ventures, licensing of research breakthroughs, and the like. But even if this idea did raise valid concerns about academic mission, how feasible is it for HBCUs? Most HBCUs enroll students who benefit from institutional resources that have little market value: remedial education, housing, and intensive teaching and counseling.

Shifting attention away from these resources and toward marketable services undermines the students whom we are presumably shoring up HBCUs to serve. It takes money to make (and give) money. It takes a lot of money to maintain intensive teaching and counseling for students who need to be academically successful, while also investing resources in market activities. Obviously, if HBCUs had enough money to do both we wouldn’t be asking how to save them.

Wealth-chasing and alumni tithing are no solutions.

Historically, despite a record of racial disparity, government funding has been key. A feasible plan for saving HBCUs not only would ensure that public-funding streams remain, but also would build black wealth, raise black income, and increase public investment in black institutions. This could include a federal job-guarantee program,

designed in the spirit and practical capacity of a permanent, WPA-like program to simultaneously reduce black and Latino unemployment while radically restoring our ailing infrastructure. A good complement would be what the late black historian Manning Marable labeled a “baby bonds” plan, ensuring every person a publicly financed development account they can access when they turn 18.

This approach should be accompanied with more universal tuition-free models at public universities, with expansion of Pell Grants for nonprofit institutions. In their article in Diverse: Issues in Higher Education, Victor Borden and Rhonda Sharpe highlight the alarming growth in the share of two-year associate degrees delivered by for-profit community colleges to black students, which rose from 12 percent in 1993 to 16 percent in 2013—nearly twice as high as the 9 percent share of the two-year associate degrees delivered by for-profit community colleges across all races. President Barack Obama has embraced community colleges as institutions worthy of public investment.

Four-year institutions that serve blacks and Hispanics also deserve increased support. It is noteworthy that subsequent to the initial proposal, requests in Congress have been expanded to include some grant funding to HBCUs. Black Americans are highly motivated to pursue education, but the reality is that black Americans as a group are also crippled financially. Long-term salvation for HBCUs, which have long served as a vital source of black professionals, requires both a marked change in the wealth position of blacks and a public-sector commitment on a par with the investment that led to the massive postwar expansion of historically white academic institutions.

Historically, despite a record of racial disparity in support, government funding has been key— and needs to be again.

Darrick Hamilton is an associate professor in the Milano School in the economics department at the New School for Social Research. Tressie McMillan Cottom is an assistant professor of sociology at Virginia Commonwealth University. Alan A. Aja is an associate professor and deputy chair in the department of Puerto Rican and Latino Studies at Brooklyn College, CUNY. Carolyn Ash is managing director of Ash Consulting Group, which provides support to schools committed to diversity. William Darity Jr. is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics at Duke University.

Samuel L. Myers Sr. Academic, Economist

Morgan State University

Samuel L. Myers Jr. Academic, Economist

Morgan State University

Wanda Sykes

Comedian, Actress Hampton University

Kwame Ture

(Stokely Carmichael ) Political Activist, Chairman of the Student Nonviolent Coordinating Committee Howard University

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Governor of Virgina, Mayor of Richmond, Virginia Virginia Union University Howard University

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Activist, Ambassador, Mayor of Atlanta, Georgia Howard University

Fall 2015 The American Prospect 61

The New Public Option Despite hostile courts, can our campaign-finance system be reformed from the bottom up?

B y Just in Mil ler

O

n paper, Juan Mendez wouldn’t have jumped out as a prime candidate for public office in Arizona.

He was a young Latino guy, a firstgeneration American who’d grown up in poverty. He’d never been elected to public office before, he didn’t have any money, and he wasn’t well connected within the state’s Democratic Party.

But given Arizona’s public campaign-finance system, the typical connections to party apparatuses and donor circles were not needed for an unknown candidate who wanted to run using public funds. Having long been active in local progressive politics, Mendez, at just 26, decided in 2012 to run for an open state representative seat that included his hometown of Tempe. “We needed to make sure we brought certain views of people who have historically been kept out of the conversation,” Mendez says.

To qualify for a public campaign grant under Arizona’s Citizens Clean Elections system, Mendez had to prove that he had sufficient public support by reaching a threshold of at least 250 $5 donations from citizens in his district.

That meant a lot of initial time spent pounding the pavement and knocking on doors—and not incidentally, it meant energizing democracy.

“It’s really hard to start the campaign,” he says.

“A lot harder than going to a developer, PAC, or union and telling them what they want to hear.”

Mendez qualified for the public grant and ended up running in the Democratic primary.

While this was traditionally a progressive district, Mendez says he wouldn’t have even considered running without the option of public funding. He became the youngest legislator in the state, was re-elected in 2014, and was recently named co-chair of the Arizona Legis-

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lative Latino Caucus. He’s been at the forefront of the state’s progressive agenda, calling for immigration reform, the expansion of voter rights, paid sick leave, and a “yes means yes” law to combat sexual assault. “[Public funding] allows a much wider pool, different walks of life, to be involved,” Mendez says.

Campaign-finance reform programs like Arizona’s have proven to be largely successful at increasing the diversity of candidates and voter engagement while minimizing the influence of special-interest lobbyists in the halls of power.

But over the past five years, an unprecedented upsurge of money in politics has blunted the effectiveness of public campaign-finance models, leaving those who still utilize the funds vulnerable to powerful outside-spending groups and privately financed candidates.

A string of court decisions seemed to all but prohibit efforts to constrain the influence of big money in elections. These rulings began in the wake of Watergate with Buckley v. Valeo, broadly equating campaign spending with free speech; then Citizens United in 2010 and

McCutcheon in 2014. Taken together, these decisions have allowed virtually unlimited private election funding. In a 2011 case, Arizona Free Enterprise Club, the court banned “triggered funding” for clean candidates, under which big influxes of PAC or private candidate spending would trigger additional public matches for candidates choosing the public-financing option.

“Arizona’s program gives money to a candidate in direct response to the campaign speech of an opposing candidate or an independent group,” Chief Justice John Roberts wrote in the majority opinion. “This goes too far; Arizona’s matching funds provision substantially burdens the speech of privately financed candidates and independent expenditure groups without serving a compelling state interest.”

Still, the decision was fairly narrow, and left some room for reformers to be creative with public-funding models. Under the Arizona ruling, the current doctrine is that public-financing laws based on the spending of others—like triggered funding—are a violation of free speech, but public-finance systems that utilize grants and small-donor matching are constitutional.

Some legal gray areas remain regarding the scope of Arizona Free Enterprise Club. “There haven’t been a lot of cases decided after that to fill in exactly how far that would extend,” says Brent Ferguson, a money-in-politics counsel at the Brennan Center for Justice.

But reformers aren’t waiting for courts.

This November, Maine voters will consider a referendum on a comprehensive campaignfinance reform initiative, which includes robust improvements to its public-funding system. In Arizona and Connecticut, advocates are pushing the legislature to improve the existing program. And in Seattle, there’s a ballot initiative

Outsiders Who Won: State Senator Gary Holder-Winfield, shown above at the senate chamber in Hartford, Connecticut, and Arizona State Representative Juan Mendez (left) both took advantage of their state’s public-finance systems.

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States of Reform

in the upcoming election that would enact the country’s first voucher-based public campaignfinance system. Meanwhile, the 2016 election is already looking to be a possible blockbuster for campaign-finance reform. In addition to pledging to overturn Citizens United, all the leading contenders for the Democratic presidential nomination have committed to expanding public funding to all federal races, and there are a number of state-level efforts to get public campaign finance on their respective 2016 ballots.

Grant-based systems have long led the way in state campaign-finance reform. In 1996, Maine became the first state in the country to establish a public-funding system for all candidates. The result has been what some say is one of the most blue-collar legislatures, with representation from everyday working people like farmers, teachers, and even a convenience-store clerk. “For several election cycles, it changed the culture of the state,” says David Donnelly, campaign manager for that ballot initiative.

In much of Maine, voters have come to expect candidates to run using the Clean Elections program. When Cathy Breen decided to run for an open state senate seat in a district outside of Portland in 2014, public funding was her only chance to run a remotely competitive race. Her privately financed Democratic primary opponent outspent her by 6 to 1. Still, Breen managed to win handily, and she thinks that the optics of a clean candidate versus a well-financed private candidate were

an important benefit. She went on to beat her Republican challenger (who also ran clean) in a highly contested general election.

“I honestly don’t know if I could’ve been elected without clean elections,” Breen says.

“It takes an enormous amount of volunteer time, but that’s the way it should be. Not who has the best ad or radio spot.”

In Maine, lobbyists lost sway and good policy found its way into law with less resistance.

“The change in culture was very significant and palpable. Legislation that was able to pass in post-reform would not have been possible prior because of too much influence of lobbyists,” says Ann Luther, a board member for Maine’s League of Women Voters.

(Weirdly, Maine’s clean-elections system has coexisted with a far-right populist governor, Paul LePage, who was narrowly elected in 2010 and 2014 in three-way contests. The past election was the first gubernatorial election that wasn’t included in the Clean Elections program, after the state legislature decided to cut costs in the system. At this writing, LePage

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b r e e n s tat e s e n at e c a m pa i g n

petitive race against an incumbent,” says Karen Hobert Flynn of Common Cause, a group that led the push for reform in the state. “The goal was to put money in the hands of challengers so there were competitive races.”

In New Haven, Gary Holder-Winfield was a vocal activist on a broad swath of issues—from incarceration to homelessness. He was also a constant thorn in the side of local politicians. “My activism ran me afoul of the local party machine,” he says. So, in 2008, when Holder-Winfield, who is black, decided he wanted to run for the open state representative seat in his district, he knew that he’d have a hard time currying any favor—let alone raising any money—from the local establishment Democrats.

“There was never really a challenge before. Nobody challenges a longtime incumbent,” he says.

Running And Winning Clean: State Senator Cathy Breen of Maine (in blue shirt at left) was outspent by her primary opponent by 6 to 1.

“Before the program, you couldn’t challenge entrenched Democrats. There was may be headed for an impeachment showdown the unfortunate moniker of “Corrupticut.” The no race, no excitement, no reason to vote.” with the legislature.) breaking point came when Republican GovHappily for him, the 2008 election was According to an upcoming report from the ernor John Rowland was forced to resign the Campaign Finance Institute, 13 states and prior year amid a major corruption scandal, the first to give candidates access to public 17 cities and counties now have some type of giving reform advocates a political atmosphere campaign funding. In the Democratic primapublic-funding system in place. The major- that allowed them to pass a number of cam- ry, Holder-Winfield went up against a New Haven alderman who had the backing of the ity of the existing programs are either those paign-finance policies. that match contributions at a ratio of 2 to 1 or Connecticut’s voluntary public system party. He recalls walking more than 52 hours less, or public grants that fund all or some of requires that candidates meet a threshold of a week on average, knocking on doors as he a candidate’s campaign. Some hybrid models small donations—between $5 and $100—from worked to collect $5,000 in donations from combine matching funds with grants. constituents living in their district. Once they 150 residents—the requisite level of support to Arizona’s, Maine’s, and Connecticut’s public reach that amount, which varies based on the qualify for public funding. He succeeded and grant systems have been the most successful in level of office, the candidate receives a lump- was given $25,000 to run his primary camgetting ordinary citizen candidates to partici- sum grant to run their campaigns. From then paign. Holder-Winfield ended up winning by pate—and often win. Candidates, who must to on, they aren’t allowed to take any more contri- 100 votes in the primary, and went on to win prove support through small donations, invari- butions and are strictly limited in the amount unopposed in the general election.

The former engineer has since ascended to ably spend far more time talking with poten- of personal money they may use.

Through four election cycles, Connecticut’s the state senate through a special election. tial voters. In 2014, almost 300 candidates were elected in those three states using the system has appeared to be a triumphant success. Since assuming public office, he’s become a clean-elections system. In Connecticut, which In the 2014 election, participation remained leader in criminal justice reform and is largeremains the most well-funded, 84 percent of high as 73 percent of all candidates opted in. ly credited for forcing political debate on the the incoming legislature in 2014 used the pub- Clean candidates won 84 percent of their respec- state’s death penalty and getting legislation lic program—as did all six statewide winners, tive races, according to a report from Public successfully passed in 2012 to ban it.

For years, public financing has become including Democratic Governor Dannel Malloy. Campaign (now renamed Every Voice), a campaign-finance reform organization.

The Connecticut Citizens’ Election program embedded in the civic culture of numerous cities was passed in 2005 in response to a slew of “When we looked at designing the program, and states, producing other tangible improvepolitical scandals that had earned the state we looked at what it would take to run a com- ments to democracy. Small donors’ voices are

amplified through matching funds and grantqualifying requirements. They are more engaged in the process because politicians spend more time face-to-face with everyday voters and not touring the elite donor fundraising circuit, which is an insular echo chamber of wealthy, (mostly) white people who have a vastly different policy agenda than most citizens. According to the Every Voice Center, half of the $74 million in political contributions to ten presidential campaigns this year as of July came from just 1 percent of the ZIP codes in the country.

Those who have long been marginalized in the world of big-money politics find that their power increases with just a $5 contribution. By negating the ever-rising cost of privately financing a campaign, a more diverse array of candidates— women, people of color, ordinary working-class citizens—is able to run for office. And of course, the political influence that industry lobbyists wield is diminished when elected officials aren’t indebted to industry contributions.

Coping with a New World of Money

Despite these successes, public campaignfinance systems face an existential crisis. The reforms of the 1990s and 2000s are increasingly overwhelmed by today’s new financial flows. Recent court decisions have stimulated a torrent of private money. Campaign-finance reformers are now grappling with how to revitalize public-finance models and prove to potential candidates that by opting in, they aren’t condemning themselves to an election loss.

The now 30-year-old Juan Mendez entered the Arizona statehouse just as Arizona’s public grant system was suffering blow after blow.

The Supreme Court deemed the state’s “triggered funding” a violation of free speech. Citizens United unleashed a scourge of outside spending. And in 2013, the legislature hiked the campaign contribution limits from $440 to $4,000 and the cap on PAC contributions to candidates was eliminated entirely.

In Arizona, Democrats have lost many seats, and the moderate Republicans have given way to the Tea Party right-wingers. Lobbyists have returned to their powerful perch in the statehouse, and the state’s powerful utilities sector has gained influence over a growing segment of the legislators.

Voter turnout in the state has continued to decline in each election. In presidential years, turnout dropped from 78 percent in 2008 to 74 percent in 2012; in midterm years, turnout fell from 56 percent in 2010 to 47 percent in 2014.

Candidate participation in the clean-election option dropped, too. It reached a peak in 2008, with 82 percent of Arizona Democrats and 52 percent of Republicans running on clean funds, according to the Campaign Finance Institute. By 2014, just 43 percent of Democrats and 14 percent of Republicans opted in.

“There are too many people who got elected on clean funds then dropped it to connect with power players,” Mendez says. “We have these

Court decisions defining money as speech have left room for a surprisingly effective array of state and local public-financing alternatives. giant utility companies that have started throwing dark money everywhere. I have to walk around knowing that they could target me.”

In recent years, reformers like the Arizona Advocacy Network (AAN) have been playing a game of whack-a-mole, trying to beat back legislative attempts to weaken the public system. The Arizona Voter Protection Act states that legislators can’t overturn a voter-mandated provision—like the Clean Elections program—without a supermajority. That hasn’t stopped public-­f unding foes from trying, says AAN Executive Director Sam Wercinski, who recounts more than 14 attempts to repeal the act since it was first passed back in 1998. Every single one failed—except for the case that led to the Supreme Court ruling that banned trigger funds.

Still, Republican legislators haven’t relent-

ed. Every year since 2009, Republicans have tried to pass referendums that would get a repeal initiative on the ballot. Those efforts were successful the first few times, but ultimately deemed unconstitutional. In more recent years, a coalition of reform advocates has been successful in blocking referendum efforts. But the power of the “money versus the many,” in the words of Wercinski, is relentless.

City Limits

For a number of big American cities—New York City, San Francisco, Los Angeles, Miami— public matching-fund systems, which leverage small donations, have proven to be effective in reforming politics. Strategists also say that these types of models are more flexible than one-time grant allotments that no longer have the safety net of triggered funding.

In New York City, real-estate developer money has long run roughshod over the political process.

But in recent years, the city has put campaignfinance reform on the front burner as it enacted strong disclosure requirements, contribution limits, and, at 6 to 1, the strongest small-donor matching-fund system in the country.

“Without public campaign financing, New York City politics would be completely owned by the real-estate industry. Just like oil money controls Texas,” says Bill Lipton, director of the New York Working Families Party. The progressive party, with its strong focus on working-class economics, has seen a stark ascendance in power within both the New York City Council chambers and the mayor’s office, largely in part to the public-funding system.

Candidates that the Working Families Party (WFP) have backed for office, including current Mayor Bill de Blasio, are largely responsible for passing laws mandating paid sick leave and living wages, as well as ending the racially tainted policing practice of “stop and frisk.”

One of those in the WFP cohort that ran in 2009 and assumed office in 2010 was Brad Lander, now deputy leader for policy on the city council and a co-founder of the council’s Progressive Caucus. He has run as a clean candidate both times he was elected. Lander says that he probably wouldn’t have ever considered getting into New York City politics without the public option. A number of other city officials who have utilized the public option, including Council

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Member Jumaane Williams, Public Advocate Letitia James, and Council Speaker Melissa Mark-Viverito, are indicative of the broadened political access that the system offers.

“It’s a pain in the ass to comply with,” Lander says, “but it’s essential for democracy.” The program withstood a challenging test in the 2013 election when Jobs for New York, a PAC propped up with nearly $7 million in real estate–industry money, supported a number of Democrats with more corporate-centrist leanings who were running against progressives. Clean candidates prevailed in almost every one of those races, Lander says.

An emblematic contest occurred in District 38, a largely Latino district in Brooklyn.

Carlos Menchaca challenged longtime incumbent Sara Gonzalez, whom Jobs for New York supported with nearly $300,000 in independent expenditures. The PAC also spent nearly $50,000 in mailings that blasted Menchaca for having just recently moved to Brooklyn from El Paso, Texas, and tried to cast him as a political operative. While he did have some outside spending support from labor, it paled in comparison to the real-estate industry that was trying desperately to keep a friendly politician in the seat. Menchaca beat Gonzalez handily in the primary—58 percent to 42 percent—and at the age of 32 became the first Mexican-American to be elected to office in the city.

A 2010 study by the Campaign Finance Institute and the Brennan Center for Justice found that small-donor diversity greatly increased in New York City when their donations were publicly matched. Compared to state assembly races that don’t offer public matches, small-donor participation in some of the city’s poorest and most diverse areas skyrocketed in city council races. Residents of the predominately black and poor neighborhood of Bedford-Stuyvesant were 24 times more likely to donate in a city council race than a state assembly race; in Chinatown, 23 times more likely; 12 times more likely in the largely Latino areas of Upper Manhattan and the Bronx.

Future Fixes

For now, public campaign-finance systems are acting as a stopgap against—not a solution to—windfall political money. “This is not about small donors magically appearing and

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big donors suddenly tucking their tails and running away,” says Michael Malbin, executive director of the Campaign Finance Institute. “It’s about shifting a candidate’s behavior through incentive.”

Even with the encouraging successes in places like New York City and Connecticut, other systems are scrambling to ensure that they can remain effective in the face of constant attempts to disarm them legislatively, and unfettered streams of independent expenditures.

While the 2015 elections may be an off year for most, campaign-finance reformers will be keeping a close eye on results in Maine and

Public-financing and matching systems make a huge difference in who is able to run for office— and who wins.

Seattle. In Maine, the Question 1 ballot measure would bolster the state’s existing system and expand reform. In response to years of budgetary raids of the program and gubernatorial vetoes on new disclosure laws, the measure would increase funding from $2 million to $3 million by eliminating some corporate tax breaks, and would require independent expenditure groups to disclose their biggest donors.

It also would give teeth to campaign-finance enforcement by upping compliance penalties.

The Supreme Court’s ban on triggered matching dealt a blow to Maine’s program, which, like Arizona’s, had a trigger mechanism to combat high outside spending or wealthy candidates. That, in tandem with a gold rush of outside spending in the state, has rendered the Clean Elections system far less competitive than it had been.

“Clean Elections candidates become hogtied, basically,” explains Andrew Bossie, executive director for Maine Citizens for Clean

Elections, “because they can’t raise any additional money and all of a sudden you’ve got these outside groups or a privately financed candidate that’s just spending lots more than a clean-elections candidate.”

Question 1 would give candidates the ability to continue raising small donations on top of their grant if they face heavy independent expenditures or a well-financed private candidate.

Seattle is another variant on the story. The city briefly offered partial public funding for elections until a state ballot initiative banned public funding in 1992. The state legislature overturned that initiative in 2008, allowing localities to use public-funding systems so long as they were passed by popular vote and only used local funding.

According to the city’s 2011 election report, campaign spending had reached an all-time high and small contributions had fallen to an all-time low. As the average amount of money spent by a winning candidate exploded by 60 percent and the incumbent re-election rate rose to 84 percent, the number of candidates competing for contested seats decreased.

In 2013, a group of citizen activists ran a ballot initiative to institute a fair elections system. The plan was very narrowly defeated. One study from the Sightline Institute shows how the 2013 candidates were by and large financed by wealthy, white donors who live in Seattle’s luxurious waterfront and view homes. Half of the election’s money came from 0.3 percent of Seattle’s adults. More than 25 percent of the money came from 391 donors who contributed $1,000 or more. Seattle neighborhoods that contributed the most money and represent just 4 percent of the population gave more money than the neighborhoods that contributed the least but are home to 64 percent of the population.

“Every day, I see the rich and powerful … walk around City Hall and talk to the politicians they have funded,” Council Member Kshama Sawant, a socialist, told a local alt-weekly. In June 2014, Seattle City Council President Tim Burgess blocked a motion to put a campaign finance–reform initiative on the ballot. Reformers responded with a new initiative, which has made it onto the 2015 ballot. Burgess, currently facing a pro-reform challenger who has criticized him for reliance on big donors,

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has since come out as supporting the initiative. The Honest Elections Seattle measure would give voters four $25 vouchers to contribute to the candidates who have opted in to the system, have gathered a certain threshold of $10 donations from local voters, and have agreed to specific spending and contribution limits.

Public candidates who face a disproportionately funded opponent would be able to appeal to the city’s campaign-finance commission for an increase to the spending cap. The goal is to increase voter participation and give more diverse candidates access to the political arena. In addition to the voucher system, the initiative calls for a slowing of the revolving door, restrictions on corporate and lobbyist political spending, and sets contribution limits at $500 for all races.

Ballot success in Maine and Seat- Re-engaging Congress In Reform: Representative John Sarbanes of Maryland speaks at an anti–Citizens United rally. tle could be a turning point for substantive campaign-finance reform. “I do think has officially gone beyond paying lip service the Republican-controlled Congress is unlikely it can provide momentum to other states to to the damages to democracy doled out by to touch it. show something can be done on this,” Maine’s Citizens United, and is now finally offering “It’s difficult to imagine a bill now being Andrew Bossie says. “Then, hopefully, other up solutions. “This signals a greater accep- brought to the floor that would set up a sysstates will adopt public campaign-finance laws tance by mainstream elites that these policy tem that we’ve proposed,” Sarbanes admits. that will lead to a groundswell of support that ideas are the way that we’re going to solve But, he says, the task is to build a network of works for federal change, where the problem this problem,” Donnelly says. “There’s a very grassroots advocates across the country so that high likelihood that the debate of the solu- when there is a moment where real reform has is immensely bigger.” tions goes to the center of the debate in the a political opening, there’s a solution ready to presidential campaign.” be pushed through.

Can Real Reform Representative John Sarbanes of Mary“These opportunities can come up suddenBubble Up to Washington? land has become one of the leading campaign ly,” Sarbanes adds. “If you’re not ready then, it Early in September, Hillary Clinton unveiled an ambitiously robust plan to “return integ- finance–reform proponents on Capitol Hill, can pass them by.”

Also, the current members of the Supreme rity to American elections.” In addition to and recently introduced the Government by calling for an overturn of Citizens United the People Act, which would bring a public Court will not live forever. At some point, a and for requiring disclosure from dark-money small-donor matching system to all congres- new Court majority could revisit the doctrine groups, the proposal included a small-donor sional races. Senator Dick Durbin has a similar that money is free speech, a doctrine that has matching system for presidential and con- bill, the Fair Elections Now Act, in the Senate. plainly impoverished rather than enriched gressional races.

“We’re very encouraged and try to showcase democracy. It’s undeniable that with big money “It’s as good, if not better, than anything the efforts that are being made at the state comes big influence. The mobilization of cleanwe’ve seen from a presidential candidate,” says and local level,” Sarbanes says. “It’s important elections strategies at the state and local level Donnelly, who is now president and CEO of to just say to the skeptics out there: ‘This isn’t is serving as a counterweight to that trend a pipedream.’” by empowering voters and expanding access Every Voice. “She gets it right.”

However, despite broad bipartisan support to political power. This wave of democratic With challengers Bernie Sanders and Marfrom the electorate for limiting the influence reform could pave the way for more far-reachtin O’Malley having already endorsed publicfunding systems on a federal level, the topic of money in politics and Sarbanes’s bill garner- ing reforms that the courts may well revisit of money in politics in the Democratic field ing a high number of Democratic co-sponsors, and accept.

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The Sacramento Veterans Affairs Medical Center in Rancho Cordova, California

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Unfriendly Fire

Despite ideological attacks and under-funding, the Veterans Health Administration is a model public system.

B y Suza nne Gor d on

rich pedroncelli / ap images

T

he other day, as part of my current research on patient care at the Veterans Health Administration (VHA), I tagged along with an occupational therapist named Heather Freitag. She works for the VHA’s Home Based Primary Care Program (HBPC) in San Francisco, and was making her first visit to a 79-year-old Korean War veteran suffering from dementia.

The man’s wife, only five years younger, was clearly overwhelmed by the burden of caring for him by herself while dealing with her own mounting health problems. For more than an hour, Freitag scrutinized every niche and cranny of their tidy bungalow in the Excelsior district of the city.

The VHA caregiver quickly discovered that her patient’s narrow, sagging bed made it too difficult for his wife to turn him. In his frail condition, the two-inch lip around their shower stall had also become an insurmountable obstacle to daily bathing. The veteran’s lack of mobility had already resulted in two small bedsores that could—if not properly treated—lead to serious infection and costly hospitalization.

The goal of Freitag’s primary-care team is to prevent such problems from occurring. They try to keep patients comfortable and where most would like to remain—in their own home for as long as possible. After returning to her office, Freitag put in an order for a special bariatric hospital bed complete with a state-of-the-art air mattress.

She also began designing a plastic chair that would ease the man’s difficulty with home shower access.

In caring for this veteran, the HBPC would dispatch to the same San Francisco address a physician, a nurse practitioner, a nutritionist, a geriatric psychologist, and a physical therapist. And, of course, they would be supplemented by home health-care aides (who will be the only providers I can ever expect to see, under similar circumstances, when utilizing my own, privately funded, long-term care insurance sometime in the future). Indeed, for most elderly shutins, home-care workers are the main caregivers who render heroic critical services that help people function in daily life.

Such carefully coordinated, high-quality care may be

unusual elsewhere, but it is not a rarity at the VHA . In the year I’ve spent visiting VHA hospitals and clinics all over the country, I’ve found it to be the norm. While observing primary-care providers and geriatricians, palliative care and hospice specialists, mental-health practitioners, designers of prosthetic devices, medical and nursing researchers, as well as experts in team training and patient safety, I’ve also interviewed veterans of all ages as well and their family members. Every health-care system has its critics and complainers. But, in 30 years of writing about the interaction between patients and providers, I’ve never seen better institutional support for the latter caring for the former.

This is all the more remarkable because the VHA’s patient population is far older and sicker than the national average. A large fraction of the vets who are cared for by the VHA have disabilities stemming from combat. Yet the VHA delivers care to this challenging population more compassionately and more cost-effectively than other segments of our health system.

Right-wing Wreckage and Pack Journalism

In 2007, journalist Phillip Longman wrote a book on the VHA entitled Best Care Anywhere. In it, he demonstrated that our health-care delivery system for veterans (at least those who qualify for VHA services) is far better than Medicare and way better than private insurance—and a better, more-comprehensive model for broader health-care reform than even a single-payer system. But most readers of the daily press would find Longman’s picture at odds with the story of the VHA recently depicted in the media.

That’s because of one recent overblown scandal combined with the Republican scapegoating of a fine public system that they underfund—and would love to privatize.

In February 2014, a VHA doctor in Phoenix, Arizona, blew the whistle on his own facility where administrators had been falsifying records about the time it took for patients to see a doctor. These revelations about appointment delays,

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as reported in The New York Times and other media outlets, led to the resignation of then–Secretary of Veterans Affairs Eric Shinseki. President Barack Obama quickly appointed a replacement for him from the private sector, Robert A. McDonald, former CEO of Procter & Gamble.

In February 2014, Vermont Senator Bernie Sanders, then chairman of the Senate Committee on Veterans’ Affairs, had asked for a $24 billion appropriation for the Department of Veterans Affairs (mostly for health care), which Senate Republicans blocked. After the Phoenix wait-time scandal broke, Sanders brokered a deal with Republican Senator John McCain, and Congress grudgingly gave the Department $16 billion—$8 billion less than requested.

This kind of under-funding was guaranteed to lead to problems, not only because the VHA , in correcting its wait-time issues, has attracted many new enrollees, but also because of the nature of the veteran population the VHA serves. Nonetheless, McDonald changed VHA managerial practices, fired some administrators responsible for the Phoenix “scandal,” and, most important of all, began recruiting much-needed new staff—particularly primary-care providers.

Despite the VHA’s vigorous efforts to root out a localized management scam and, with far greater difficulty, to remedy a shortage of primary-care providers that is nationwide in scope, congressional Republicans and many in the mainstream media continue to depict the VHA as being in a state of ongoing, almost terminal crisis. The Times, for example, has published article after article depicting the VHA as a “troubled health system, especially in rural or out-of-the-way posts.” According to the publication’s multiple reports, sources are quoted over and over again attesting to the VHA’s “corrosive culture,” and the fact that it has lost the “trust” and “confidence” of its patients, and has been rendered a “demoralized and dysfunctional agency.”

The resulting pack journalism has had its negative effect.

Even though one of its major stories challenged the contention that veterans had died because of wait times, the headline broadcast precisely the opposite: “V.A. Official Acknowledges Link Between Delays and Patient Deaths.”

It is ironic that the VHA has been criticized for failing to welcome new veterans as patients. The real culprit is Congress, which keeps narrowing eligibility.

Getting the Story Right The real VHA story is ideological opposition by the right—

and clinical excellence despite chronic under-funding. The main opponents of the Veterans Health Administration are congressional Republicans. This Republican opposition is odd, since Republicans go to great lengths to demonstrate

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their support for Americans in uniform. But when vets return home and are hidden from view, the right shortchanges their care and then blames the VHA . During the Senate debate about the $24 billion Department of Veterans Affairs allocation, for example, Alabama Senator Jeff Sessions echoed the sentiments of his fellow Republicans, insisting, “I don’t think our veterans want their programs to be enhanced if every penny of the money to enhance those programs is added to the debt of the United States of America.” Has he asked any vets about that?

The long-term Republican goal is to privatize the VHA, a policy that would cap costs, increase middleman profits, reduce the efficiencies of a fully integrated system, and drastically cut care. Only six months after Congress allocated funds devoted to increasing access to VHA services, the results of its own $8 billion shortfall were clear. Because of its successful efforts to provide more services to more veterans, the VHA was facing a budget gap and asking for another $2.5 billion. As Deputy Secretary of Veterans Affairs Sloan Gibson tried valiantly to explain at a June 25 hearing of the House Committee on Veterans’ Affairs, the VHA has so successfully addressed wait-time problems that it has now added 7 million more patient appointments and increased the number of patients receiving treatment, in some places by almost 20 percent. That success, obviously, increases costs.

But within the Republican caucus on both sides of Capitol Hill, this rise in costs was more proof of the VHA’s dysfunction. House Speaker John Boehner of Ohio fulminated: “The VA’s problem isn’t funding—it’s outright failure. Absolute failure to take care of our veterans.”

No injection of funds, he opined, can fix the department because it is just “a mess.”

Meanwhile, Florida Republican Jeff Miller, new chair of the House Veterans’ Affairs Committee, accused the VHA of “a startling lack of transparency and accountability.” On July 21, 2015, in an op-ed in the Pittsburgh Post-Gazette, Miller went even further, accusing the Department of Veterans Affairs of “years of mismanagement and a blatant lack of transparency and accountability. The department can’t seem to meet any of its vital responsibilities—providing health care, approving disability benefits and constructing hospitals—without going billions over budget and falling years behind schedule.”

On July 22, McDonald appeared at another hearing before the House committee. He explained why the shortfall had reached $3 billion and suggested various ways to sort out some irrational practices that Congress had built into the Veterans Affairs budgeting practice, which gave Miller another opportunity to attack the veterans’ health system.

After these show-trial hearings, Congress did give the VHA a temporary budgetary reprieve, by funding the shortfall. Even so, the new anti-VHA narrative, so popular with

would-be GOP privatizers of the VHA , now dominates the public imagination. When I tell my liberal and progressive friends that I am writing about VHA health care, I invariably get some version of “Oh, that must be so depressing.” Can you blame them? While the media and congressional Republicans gleefully jump on any hint of problems at the VHA , news about its innovations in care rarely makes the headlines. Like many members of the media, most people don’t understand how difficult it is to care for the very particular population of veterans the VHA actually serves. Moreover,

tion, pensions, the GI Bill, survivor benefits, and home loans, among other things. Then there’s the National Cemetery Administration, which is in charge of burials and cemeteries. Another central player in VHA health care is the Department of Defense, which issues discharges from the military and determines the five discharge categories that underpin eligibility for VHA health care. In many instances, veterans attribute delays in getting health care to the VHA , when the hold-up may be with the VBA or the Defense Department’s determination of a veteran’s discharge status.

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Army veterans wait for their rides following treatment at the Veterans Administration Puget Sound Medical Center in Seattle.

few politicians and pundits understand or acknowledge that many of the problems the VHA faces reflect the skewed priorities of both our broader health-care system and the institutions that educate its future professionals.

In fact, confusion about veterans’ health care is so profound that many veterans themselves don’t understand which branch of the Department of Veterans Affairs, or of the government, is responsible for either their good or bad experiences. Many think that the Department of Veterans Affairs, commonly known as the VA, is actually one unified agency, when in fact it is comprised of three different branches. There’s the VHA , which is the health-care system.

Then there’s the Veterans Benefits Administration (VBA), which determines who is eligible for what benefits, which include the Medical Benefits Package, disability compensa-

A Research Powerhouse

With its salaried staff of about 250,000, the Veterans Health Administration is the nation’s largest and only publicly funded, fully integrated health-care system. Its 150 hospitals, 819 clinics, 300 mental-health centers, and other facilities—many located in rural areas that the private sector ignores—care for more than 230,000 people a day.

As Longman describes in his book, the VHA was the first health-care system to develop, implement, and embrace the kind of health-care information technology that other hospitals and health systems are now trying—with far less success—to utilize.

One of the VHA’s primary missions is research, and with its high number of enrollees it has become a research powerhouse that produces scientific advances that benefit

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Health Care For the Old

With the exception of Medicare or Medicaid (which are not integrated delivery systems), no other health-care system cares for as many older and poorer patients as the VHA .

Because of the pattern of America’s participation in various wars, most of the veterans the VHA serves are far older (the average age in 2012 was 62) than the typical patient. Older people, of course, are more challenging to treat, and vets have more medical conditions than most. Go into a waiting room at a VHA hospital or clinic anywhere in the country, and you will not see a mix of older and younger patients.

You’ll see a bunch of guys proudly wearing baseball caps that say “Vietnam Veteran,” or “Korean War Veteran.” There will even be the occasional octogenarian or even nonagenarian, but you will see very few people under 40—and of course there will be hardly any women. (This is not only because fewer women serve in the military, but also because female veterans now benefit from a new push to serve women more effectively through a system of women’s clinics, which have their own separate spaces within larger facilities.)

Because Congress has not allocated sufficient funds to provide health care to all 22 million American veterans, the VHA also has had to institute an overly complex system of eligibility requirements that assure that the system cares for the sickest and poorest—and actually excludes some of the healthiest and wealthiest—veterans. To be one of the estimated nine million veterans who currently have the highest priority of eligibility for the VHA’s full Medical Benefits Package, veterans must have an honorable discharge. Not all eligible veterans have to have been in combat, but all of them—if they served after 1980—must provide evidence that they have some health problem related to their service—known as a “service-connected disability.” The level of service connection—the scale goes from 10 to 100 percent—covers a spectrum that goes from, say, back strain or knee injuries caused by carrying 60-to-100-pound packs during basic training or combat, to more serious, chronic conditions like diabetes, heart disease, multiple myeloma, and amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s Disease) from which Vietnam vets exposed to Agent Orange now suffer, or the traumatic brain injuries or amputations suffered by those who served in Iraq or Afghanistan. Many combat veterans may have physical and mental illnesses for which they need treatment—in fact, veterans suffer from mental illness at a higher rate than the general population, and also have a higher toll of chronic illness. An estimated 16 percent to 30 percent of combat veterans, for example, have PTSD, as do many female veterans who have been victims of military sexual trauma.

Apart from Medicaid, no other health-care system in the U.S. treats as many poor and low-income patients—many of

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The VHA has been a leader in the use of telemedicine to reach distant patients, and in its hospitals it routinely delivers carefully coordinated, high-quality care to an often disabled and mostly elderly population.

all Americans, not just veterans. To cite just two examples, the VHA , in partnership with the National Institutes of Health, conducted the studies to prove that the shingles vaccine—which millions of senior citizens now take—was indeed safe for all Americans. VHA researchers also did pioneering work documenting that post-surgical mortality was reduced when patients with known cardiac risks were given beta-blockers before surgery.

Now this is standard practice not only for veterans, but for all patients who undergo surgery.

The VHA recently launched the Million Veteran Program to study how genes impact health.

Needless to say, findings will not be limited to the use of veterans alone.

Long before the cost-effectiveness of palliative and hospice care was better recognized elsewhere, the VHA was providing some of the best services in the country to people with advanced and terminal illnesses. Although it took the federal government far too long to officially recognize post-traumatic stress disorder (PTSD), VHA psychologists, psychiatrists, and social workers have developed pioneering treatments that are the gold standard for anyone suffering from PTSD today. The VHA is also the pace-setter in diagnosing and developing new understanding of traumatic brain injury (TBI) and chronic traumatic encephalopathy; its institutional research and knowledge is now benefitting victims of pro-football headbanging that occurs far from any foreign battlefields. Its Polytrauma System of Care is also pioneering new methods of rehabilitation for TBI. The VHA is a leader in the use of telemedicine for patients suffering from both mental and physical illness—a development recently featured on the front page of The New York Times (without, of course, mentioning any VHA role in it).

whom are unemployed and homeless, not to mention mentally and physically ill, or abusing drugs, alcohol, and other substances. The Department of Veterans Affairs doesn’t only provide health-care services to these low-income or homeless veterans; it also provides them with social and legal support. In 2012, the department launched its Housing First program to assure that even veterans who were abusing alcohol or drugs or had other unaddressed healthcare needs could find shelter, which will hopefully make it possible for them to address other serious health problems.

It is ironic that the VHA has gotten a reputation for failing to reach out to and welcome new veterans as patients.

The real culprit is Congress, which keeps narrowing eligibility. While some outreach efforts may have lagged in some specific places, I have been repeatedly impressed by the amount of outreach that is done on a daily basis to recruit new veterans and make sure those already enrolled have access to services. For example, I followed a VHA social worker who spends her days patrolling the streets of San Francisco trying to find homeless veterans who were not connected to the VA. She and other social workers all over the country also make sure that veterans in board-and-care homes, shelters, and transitional housing facilities are not being exploited by the kind of unscrupulous “entrepreneurs” who prey on the poor, mentally ill, and homeless.

In West Haven, Connecticut, I recently visited a remarkable program called the Errera Community Care Center, which provides intensive services for mentally ill and homeless veterans, including not only finding them permanent shelter but also landing vets jobs and getting them connected to primary-care medical providers. Over and over again, in VHA hospitals and clinics all over the country, I have watched clerks, nurses, and primary-care providers practically walk veterans to appointments, call them to remind them about this or that service, and even visit their homes to make sure they are safe.

At the West Haven VA, I spent a day at one of the system’s 13 Blind Rehabilitation Centers. These residential facilities serve some of the 157,000 veterans who are legally blind or the one million who suffer from the kind of low vision that makes it difficult for them to navigate daily life. Here, veterans whose private-sector ophthalmologists or optometrists may have dismissed their particular ocular disease by saying, “There is nothing further to be done,” spend multiple weeks in an inpatient residential program learning how to function in daily life. Therapists—who have themselves spent hours wearing goggles or glasses that simulate the vision problems of their patients—teach them how to walk with a cane, cook, do leather or woodwork, or use computer programs that are specially designed to allow them to recover daily function. When they return home, they take special microwaves, iPads, iPhones, computers,

or other equipment with them, courtesy of the VHA . The private sector does not offer any similar inpatient residential program with such extensive benefits.

Battle-Related Trauma

In most health-care systems, younger patients are usually the healthiest and least expensive. Not so in the VHA .

Veterans from the recent wars in Iraq and Afghanistan suffer from battle-related trauma that may, in the years to come, dwarf the physical and mental-health problems of those who served in Vietnam. Because of the military’s successful system of battlefield hospitals and triage, these young men and women have survived trauma and injury that would have quickly killed those in prior conflicts. And because of their combat experiences and multiple tours of duty, many also suffer from PTSD, traumatic brain injuries, and perhaps even amputations—in other words, polytrauma. One in six veterans who served in these conflicts also has a substance abuse problem.

The VHA has waived its standard eligibility requirements and is providing care to post–September 11 veterans for five years after they leave the military. After that, it will continue to provide care for any servicerelated conditions. Some of the veterans I have interviewed include men who have lost a leg or an arm and who are fitted with stateof-the-art prosthetics—usually unavailable in the private sector—not only for daily but also for athletic use as well. Others—like a 28-year-old who spends his nights at home on guard duty, patrolling the perimeter, by checking the locks on the doors to make sure no one can get in—may receive intensive, inpatient treatment for PTSD. In 2010, the VHA launched a program to support caregivers who are tending to post-9/11 veterans with mental or chronic physical illnesses at home. In our larger health-care system, family caregivers are essentially on their own when they care for a loved one who has a major mental-health or physical disability. Many are rewarded for their service by loss of jobs or promotions, and may eventually sacrifice their own health because of the emotional and physical stress of their caregiving burden. The program provides these caregivers with training, supportive services—including mental-health counseling— and even financial stipends to help them shoulder their burdens. Why does the VHA take on this long-term commitment? Because the VHA has a lifelong commitment to its patients and their families, it recognizes that it is cost-effective to help keep the veteran in his or her home

While the media and congressional Republicans gleefully jump on any hint of problems, news about the VHA’s innovations in care rarely makes the headlines.

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rather than paying for hospital or nursing-home care.

Despite the fact that the VHA has an expensive and challenging population to serve, it does so at a far lower cost than would be incurred if the private sector were to provide the same services. Although it is difficult to compare VHA care to the private sector because so many veterans have so many more severe problems, a 2004 RAND study documented that, at least in 1999, the full range of services the VHA provided would have cost 21 percent more in the private sector. Inpatient care in the private sector would have cost 16 percent more, outpatient care 11 percent more, and prescription drugs a whopping 70 percent more.

These estimates were based on Medicare and Medicaid payment methods.

The VHA can produce these savings because the government negotiates lower prices with the pharmaceutical industry, physicians and other healthcare providers are paid on salary and don’t have an incentive to over-treat, and care is more focused on prevention, early treatment, and patient function, which saves money over the long term. And of course, there are no for-profit middlemen, as in the private, partly for-profit, insurancebased system.

There are no current studies comparing costs in the VHA with the private sector. It may, however, be safe to assume that if private-sector providers were to provide an equivalent level of service (and that is a very, very big “if”) to aging veterans as well as those returning from America’s current wars, the costs would be astronomical. Some critics of the VHA insist that it is too costly to provide the level of services I have described. In his Senate testimony on his February 2014 budget request, Bernie Sanders eloquently addressed this critique: “When our men and women come home from war, some wounded in body, some wounded in spirit, I don’t want to hear people telling me it’s too expensive to take care of those wounded veterans. I don’t accept that. If you think it’s too expensive to take care of veterans, don’t send them to war.”

Despite the fact that the VHA serves an expensive and challenging population, it does so at far lower cost than the private sector would charge for comparable services.

A Primary-Care Shortage

To care for these veterans requires not only money and time, but people. And herein lies one of the VHA’s most serious problems—one that helped produce the wait-time problem in 2014. To hire enough staff—particularly primary-care physicians (PCPs), nurse practitioners, and physician assistants—the VHA depends on the supply produced by medical schools and residency programs and other

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health-care professional schools. The ability to recruit also depends on health-practitioner choices.

The American health-care system has long had a primary-­ care crisis. Only about 20 percent of medical students choose to go into primary care, where salaries are lower.

When the VHA tries to recruit new PCPs, it has only a very limited pool from which it can pull. For its primary-care providers, the VHA is also in competition with institutions that may offer higher salaries, and with market newcomers like doc-in-the-box shops such as CVS or Walmart, who lure nurse practitioners with the promise of salaries $30,000 or $40,000 higher than those paid by the VHA . Any problems the VHA has recruiting for “rural or out-of-the-way posts,” as the Times described it, are not unique to the agency but reflect the broader health-care system’s long-standing difficulty convincing physicians—and even nurse practitioners—to practice in rural settings. Specialists in the private sector also earn far more than they do at the VHA .

The negative media attention the VHA has received has not helped this or any other kind of recruitment. At the VHA , health-care professionals do not experience the kinds of insurance-company denials and hassles that plague those in the private sector. In VHA primary-care clinics, providers can actually spend more time with their patients: Patient panels in the VHA average 1,200 patients, compared to 2,000 to 3,000 in the private sector, which translates to half an hour per visit rather than 10 to 15 minutes.

VHA physicians also save on malpractice since they do not have to pay for that kind of insurance coverage. These are not facts promoted by media outlets that have repeatedly portrayed demoralized and depressed department staff.

Far from being demoralized by their patients or their work at the VA, most of the staff I have talked to actually can’t imagine working in the private, for-profit system.

Many have, in fact, fled that system because they could not stomach the restrictions imposed on their time with patients or the pressure to make choices dictated by institutional bottom line rather than needs of patient care. As one VHA physical and occupational therapist told me: “In the private sector, even with the best insurance, you get to give a patient either a walker or a wheelchair but not both. Here, I can give this veteran both, and I can design a shower chair especially for him.”

Or as Andrew Budson, a neurologist who is a clinician, researcher, and the associate chief of staff for education at the VA Boston Healthcare System (truth in advertising, he’s also my cousin) explains: “I don’t have the same kind of minute-to-minute pressure that they have in the private sector in terms of generating Relative Value Units (otherwise known as patient visits). Obviously here, people have to be productively occupying their time. But if you need to spend ten more minutes with a patient, you may be able

to prevent a hospitalization. There aren’t the same pressures as I know my colleagues [have in the private sector], where they have to see patient after patient after patient.”

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Defending a Public Good

The failure of the media and politicians to present a balanced and accurate picture of our nation’s only public, nationally integrated health-care system could not come at a worse time.

The Affordable Care Act has fallen far short of full coverage of the previously uninsured. The recent Supreme Court decision upholding the ACA could, under a very different Congress, lead to reform efforts to address the growing risk of cost-shifting to patients and the money wasted on insurance-industry middlemen and expensive fee-for-service, but often futile, care.

If, however, too many Americans have concluded, based on mixed ACA experiences and erroneous media reports about the VHA , that government is incompetent in matters of health-care reform and administration, that does not bode well for the systemic changes we still very much need.

The fact that a federally run, direct-service program actually delivers cost-effective and appropriate care could help

counter such damaging public perceptions. If we listen to them, one of the most respected parts of the population— vets—consistently attests to the positive experiences that most such patients and their families have had, over the years, with this remarkable system.

To find a better health-care model, we don’t have to turn our gaze north, in the usual direction, to Canada, or across the pond to the UK and other European countries, or even limit ourselves to calling for “Medicare for all.” Eight million of us already have something better than Medicare and more akin to the UK’s National Health Service, right here, in America—with the private-insurance industry almost completely eliminated from the equation. The real question we need to ask was posed just last month by an obviously impressed UK physician, during an NHS study visit to the VHA in West Haven: “Why,” he wondered out loud, “do you have to be a veteran to get this level of care in America?

Why isn’t it available to all Americans?” Why indeed.

A large fraction of its patients have disabilities stemming from combat, yet the VHA continues to provide more compassionate and costeffective care than other segments of our health system.

Suzanne Gordon is a journalist and co-editor of a Cornell University Press series on health-care work and policy issues.

One of her latest books is Beyond the Checklist: What Else Health Care Can Learn from Aviation Teamwork and Safety.

Fall 2015 The American Prospect 75

Pushing Civic Tech Beyond Its Comfort Zone By all means, let’s use technology to improve government services.

But the real promise is greater political accountability.

By Ra c hel M. Cohen

Y

ou’re walking down the street in New Haven, Connecticut, texting on your smartphone. As you turn a corner, you notice a big pothole in the middle of the road. Skimming through your cell, you log into SeeClickFix, an app for citizens to report non-emergency issues to local government. Snapping a photo of the pothole and geo­ coding the picture with your GPS coordinates, you submit the report and continue walking, confident the relevant agency will tend to the matter. Other SeeClickFix users can also see that a new pothole has been reported, and where.

Potholes have symbolized the everyday problems that citizens call upon local and even national politicians to address. Senator Al D’Amato of New York was nicknamed “Senator Pothole” because of his reputation for tending to his constituents’ needs. It was a compliment—it meant he was available, responsive, and got things done, at least the small, concrete things his constituents cared about. But when it comes to taking action on local civic problems, there are now options besides contacting a public official. Tools like SeeClickFix allow citizens to gather local information and organize collectively based on what they learn. “If

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you as an elected official have established your power on the sole exclusive rights to that information, then our app is not something you’re going to be in love with,” says Ben Berkowitz, SeeClickFix’s CEO and co-founder.

SeeClickFix offers some interesting opportunities for citizens, such as allowing them to monitor whether the government has dealt with their concerns and “reopening” the complaint if they dislike how the government responded.

“There’s an element of shifting power that’s baked into the code of SeeClickFix that makes it more of a service for people and less of a service for bureaucrats,” says Micah Sifry, cofounder of Personal Democracy Media, which focuses on intersections between politics and technology. SeeClickFix also provides useful services for governments—Jennifer Pugh, who works in the chief administrator’s office in the New Haven local government, said that her office’s adoption of SeeClickFix technology has allowed it to organize work orders more systematically. She hopes that in a few years, when a greater number of departments start to use SeeClickFix, they will be able to conduct new kinds of citywide analysis.

Moreover, in theory, SeeClickFix technology

should one day allow journalists, political opponents, and independent groups to publish data comparing the responsiveness and performance of local governments, allowing citizens to see how well theirs stacks up in relation to others.

Some, perhaps hoping to stir up excitement, inflate the case for new technology—heralding it as the savior of government accountability and promoter of a more just democracy.

“With these digital tools, citizens and their officials can revolutionize local government, making it more responsive, transparent, and cost-effective than it ever has been,” write Stephen Goldsmith and Susan Crawford in their book, The Responsive City: Engaging Communities through Data-Smart Governance. That exaggerated rhetoric about “revolutionizing” government shouldn’t be taken seriously; it only sets up people for later disappointment. But, in a more modest but still significant way, tools like SeeClickFix can help improve the accountability and performance of government—local government in particular.

Accountability, however, is ultimately a political matter, and civic tech cannot simply steer clear of politics in the belief that technology will solve problems on its own.

The Obama Tech Letdown

Following his savvy 2008 campaign, Obama entered the White House with great expectations from the tech world. He was “the first Internet president,” as Omar Wasow, cofounder of BlackPlanet.com and now an assistant professor of politics at Princeton, called him. During George W. Bush’s second term, open-government advocates had begun to lay the groundwork for increasing transparency in the next administration, whichever party won the 2008 election. Their recommendations were just being finalized at the time of Obama’s victory. “We interacted quite a bit with the transition team and really conveyed to them that this was a bipartisan area the administration could take a lead on,” said Sean Moulton, the open government program manager at the Project on Government Oversight (POGO).

In his inaugural address, Obama declared that “those of us who manage the public’s dollars” will “do our business in the light of day, because only then can we restore the vital trust between a people and their government.” A day later, he issued two memoranda, one calling for greater government compliance with Freedom of Information Act (FOIA) requests, and another that committed his administration to bring about “an unprecedented level of openness in government.”

These memos sent expectations soaring in the worlds of civic tech and open data. Silicon Valley perked up its ears. “When the president of the United States says something like that, it becomes a big deal and a big business,” says Tiago Peixoto, an applied political scientist who researches democracy’s relationship to technology. We’ve seen the rise of for-profit companies—like SeeClickFix—that focus on improving government service delivery. “Civic hackathons” began to crop up in cities across the country and even at the White House, encouraging coders, entrepreneurs, and others to figure out ways to use technology for civic ends. “[Obama’s administration] was the first time we ever had a U.S. chief information officer, a U.S. chief technology officer, and a U.S. chief data officer,” says Gary Bass, founder of the Center for Effective Government (originally called OMB Watch), a nonprofit organization committed to public accountability, transparency, and citizen participation. Suddenly

government leaders were discussing how they could recruit top tech talent. The culture of the federal government seemed to be shifting.

But several years later, public trust in government has declined to historic lows. Much of that decline reflects the general hostility of conservatives to the Obama administration, not to its information policies. But even for liberals, the promise of an “open government” seems elusive. A 2015 Pew survey found that just 5 percent of Americans say the federal government shares its data very effectively.

The civic-tech community, which had hoped to facilitate a democratic revival, is also puzzling over its lack of success. “I think civic tech started getting trendy with Obama, and it’s still trendy, but we haven’t had as big of an impact as we expected,” said Dan O’Neil, the executive director of the Smart Chicago Collaborative and one of civic tech’s early pioneers.

app’s “thanks” feature, citizens can send messages of gratitude to the government agency that addressed their complaint. Ideally these types of features can help to increase trust between citizens and government, an important ingredient for democratic participation.

One of SeeClickFix’s most admired features allows users to “reopen” a report they’ve filed if they’re not satisfied with how the government responded to it. People have praised the technology for empowering citizens with the last word.

I asked Jennifer Pugh, of the New Haven government, if there have ever been times when citizens reopen requests that her colleagues have closed, and she told me that it happened all the time. In many cases, she explains, the government is not able to provide what citizens are expecting, or the government does not agree with what an individual complainant has asked for. “We don’t have a

Accountability is ultimately political, and civic tech cannot simply steer clear of politics in the belief that technology alone will solve problems.

Local Experiments, New Tools

Still, there are plenty of examples of local governments experimenting with technology over the past few years to help increase its responsiveness and reduce government costs. With improved data analysis, New York City was better able to anticipate which buildings were at risk of catching on fire. Boston was able to speed up the time it took to deliver new recycling bins on request. Many companies, organizations, and individuals have also started leveraging government data to develop their own civic tools, from Waze, a crowd-sourced traffic-data company that provides users with timely and accurate travel information, to Nextdoor, a tool that uses census data to create private social networks for local neighbors to interact.

Apps like SeeClickFix offer a greater degree of civic opportunity than apps that allow you to track your packages in the mail or those that notify you when the next bus is expected to arrive. SeeClickFix users can earn “civic points” for utilizing different features, such as commenting on other people’s reports. Through the

lot of resources; we’re limited on money,” says Pugh. So New Haven often closes out requests on SeeClickFix, and if people reopen them, officials usually just leave them there. “The downside is that it looks like there is a lot of open issues out there, but in fact they’ve been dealt with. We just can’t come to an agreement about how to address it,” she says.

When citizens file complaints through SeeClickFix, there’s no guarantee that the government will do what the citizen has requested. These tech tools do not eliminate some of the basic challenges facing governments, like determining how to spend a limited budget of resources. But what SeeClickFix does offer is an easier way to raise issues, and a means for the public to better understand which requests have been addressed. This in turn creates new opportunities for activists and journalists to press for details on the government’s decisionmaking process. Why didn’t residents in this part of town have their pothole fixed? Why did you decline to put in the speed bump I requested when I am upset by the fast traffic

Fall 2015 The American Prospect 77

on my block? Why did so many people from all over the city report vandalism on the same day? Such questions have become easier for the public to ask in the age of SeeClickFix. Peixoto, who has been studying the intersections of democracy and technology for the past 14 years, thinks that when newcomers flooded the civic-tech space at the start of Obama’s first term, “there was no way to ensure that the critical mass of people would absorb the lessons we had already learned by then.” This has led to what Peixoto sees as “some naïve assumptions” repeated inside new civic-tech circles. Specifically, he points out that many civic-tech leaders overestimate what technology can do on its own.

Some have encouraged technologists to dismiss the government entirely, or just treat it as a platform from which to launch civic projects independently. But researchers have learned that civic technology generally carries a far greater

ented, companies from competing for contracts.

Together, these issues create a government tech situation that is both expensive and dysfunctional. The best-known recent example was the disastrous rollout of the federal health insurance exchange website, Healthcare.gov. It not only went far over budget—originally estimated to cost $500 million, it hit $1.7 billion by its initial rollout in 2013, and exceeded $2 billion a year later—but the website also just didn’t work well at all. It continually crashed, stalled, and left customers unable to purchase healthcare plans. Of course, once the website did start performing better later on, the news media had little interest in reporting on its successes.

In many ways, the embarrassing Healthcare.gov scandal served as a turning point for the Obama administration. “It was only after that that the alarm bell finally reached the Oval Office,” says Sifry. “This wasn’t working.

“Today a regime can call itself ‘open’ if it builds the right kind of website--even if it does not become more accountable,” Robinson and Yu point out. impact when it works in conjunction with the government, like SeeClickFix, rather than on its own. SeeClickFix’s government partnership helps to explain its steady growth and impact.

Why Civic Tech Isn’t Easy

It’s understandable why some civic-tech leaders feel unenthusiastic about dealing with the government. In Silicon Valley, technologists are encouraged to “fail fast, fail often.” But within the public sector, taxpayers don’t necessarily want their leaders taking big costly risks, and politicians in turn fear the backlash if innovations fail. The cultures are different.

There is also a talent pipeline problem—government simply does not have enough people coming to work for it who possess advanced technological skills. “You see so many agencies with so little knowledge and capacity around the technology, they don’t even know what they want or how to communicate with the contractors they hire,” said Moulton. The government bidding process itself is also notoriously difficult, precluding many smaller, and perhaps more tal-

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You can’t just make good speeches. You also have to find good people who can deliver on those promises.” Since then, far more serious attention has been paid to federal information technology and government procurement.

In 2014, the administration created two new agencies in the executive branch—18F in the General Services Administration and the U.S. Digital Service (USDS) in the White House— both designed to improve the government’s technological capacity. The government has been trying to improve procurement issues for decades, but the tools and methods available today are different.

“From open-source tools to the refinement of methodologies like human-centered design and agile development, these are all things you wouldn’t have heard of two decades ago,” says Aaron Snow, the executive director of 18F. “These are all things that make it actually possible for us to accelerate the rate [at which] government improves its technological capacity.”

While USDS technologists consult with agencies to figure out how to improve their work,

the staff at 18F helps federal agencies become savvier about procurement. Speaking at the Personal Democracy Forum this past June— an annual conference for the civic-tech community—Haley Van Dyck, USDS’s co-founder, said her office has been deploying “hyper-networked teams across government” to disrupt and transform tech practices and agency cultures. And though 18F and USDS work specifically with federal agencies, they share their code freely online so that local governments can reuse and repurpose it for their own needs.

At times, federal officials will use code first developed within local city agencies, too.

From Open Data to Accountability

In 2012, David Robinson and Harlan Yu, two technology consultants and open-government data theorists, published a law review article noting that the term “open government”—which was first used in the 1950s during debates that led to the passage of the Freedom of Information Act—has now blurred considerably and confusingly with the “open data” movement.

“Today, a regime can call itself ‘open’ if it builds the right kind of website—even if it does not become more accountable,” they point out.

Consequently, Yu and Robinson urge the public to distinguish more clearly between efforts to hold governments accountable and technology that enhances government services.

Tiago Peixoto built off of this analysis in an essay published one year later. For there to be government accountability, he argues, four things need to happen. First, government information must be disclosed—this is where open data would come in. Second, this disclosed information must reach members of its intended public. Third, citizens—not necessarily everyone, but a constituency large enough to influence government—must be able to understand the disclosed information and react to it. Fourth and finally, public officials need to respond to the public’s reactions or be sanctioned by the public through institutional means.

So with this in mind, can tools like SeeClickFix be used to create a more accountable government? In some cases, increased public transparency now exists within areas that were previously more opaque. That’s important. SeeClickFix users can compare how long they’ve been waiting for a streetlamp bulb to

per sonal democr acy media

Civic hackathons like this one have sought to bring together coders interested in improving government.

be replaced or for a pothole to be fixed. They can compare which parts of town had their requests answered more quickly. “It’s helpful to have a record of needs that are systematic and easy to measure,” says Robinson. News organizations can also launch investigations when reporters or watchdog groups notice that citizen complaints are going ignored.

Greg LeRoy, executive director of Good Jobs First, a watchdog organization that seeks to promote accountability for public programs subsidizing economic development, says he first understood how crucial transparency was for accountability back in the late 1970s, when he worked for National People’s Action (NPA), a grassroots social justice network. At the time, NPA pushed for the passage of the Home Mortgage Disclosure Act (1975) and the Community Reinvestment Act (1977). “There were allegations that banks were redlining communities of color, but there was no real evidence [before these laws were enacted] to prove it,” he said.

Technology on its own cannot get the government to disclose information, but it can prove extremely valuable for those who want to understand what is released. While LeRoy’s organization has been around since 1988, he says the rise of the Internet and data technology “has everything to do” with how his organization has changed over time. All states have their subsidy information in electronic

form; they could share much or all of it online if they wanted to. The first state to do so, in small amounts, was Ohio in 1999. But governments have shown that without public pressure they will generally not disclose information or will release just small amounts of information to mollify critics. Good Jobs First has tried to overcome this resistance by conducting research, promoting public discussion, and encouraging activists to push for improved transparency laws. In 2007, they published their first national report card study—“The State of Disclosure.” By that time, 23 states had put some amount of subsidy information online. Three years later, when their next study was published, the number had increased to 37.

But “the data that states do put online,” LeRoy says, can amount to a “Tower of Babel.”

States often hide information in obscure appendices, upload contracts in non-searchable PDFs, or publish audits that are impenetrable. As a result, Good Jobs First recognized that “transparency” could mean very little, in practice. But this is where new civic technology developed by third-party organizations has been invaluable. Good Jobs First was able to launch its comprehensive Subsidy Tracker tool in 2010 by compiling and organizing more than 100,000 records from across the country into one unified searchable database and getting additional subsidy program information

through FOIA requests. “Technology has definitely been at the core of how we improve our data and make it more accessible for average citizens to understand,” LeRoy says.

The Center for Responsive Politics, another watchdog organization that focuses on money in politics, knows its ultimate objective is to move people into action—step three of Piexoto’s four-step process. “We use technology to provide information in lots of different ways,” explains Sheila Krumholz, the center’s executive director, because the group recognizes that presenting information in just one format won’t resonate with enough people. Krumholz thinks the organization has played a key role in educating citizens about the impact of money in politics, but says its challenge now is to figure out how to design the kind of “aha” moments that inspire people to act on what they learn, rather than simply tune out and disengage.

But inspiring people to act inevitably has political implications. Eric Liu, the CEO of Citizen University—a group that works with leaders, activists, and practitioners around issues of citizenship and organizing—says it’s not enough to make government more efficient. He encourages civic-tech leaders to reckon more with politics, power, and inequality. While it’s great to have an app that can help you find out when the next bus is coming, it would be even better, he argues, if you could activate the smarts and skills of people within civic tech to help push city leaders to develop a stronger public transportation system.

“Civic tech is excellent at transparency, civic tech is excellent at efficiency, civic tech is excellent at creating a sense of community,” said Liu in a speech at the Personal Democracy Forum this past June. “Civic tech is excellent at a lot of dimensions of what you might think of as customer service.”

The civic-tech community could help Americans create not only a more efficient government, but also a more politically accountable and fair one. Doing that would require the community to venture into political territory that it’s largely avoided up to this point. But if civic tech is going to make a big impact, there is no turning away from politics. It’s something investigative journalists have long understood: Making people with power uncomfortable is part of the job. It’s part of the job of civic tech, too.

Fall 2015 The American Prospect 79

The Unsavory Side of Airbnb How the popular matching company facilitates landlord conversion of entire rental buildings to de facto hotels

‘‘B

elonging is the idea that defines Airbnb,” says its young, 34-year-old billionaire CEO and co-founder Brian Chesky. “Really, we’re about home.

You see, a house is just a space, but a home is where you belong. … That is the idea at the core of our company: belonging.”

Airbnb has captured the imagination of both travelers and homeowners. Most of its hosted rentals are an inexpensive, adventurous way to travel, as well as a source of extra money for some residents. Airbnb is cool. No question, there is a legitimate and innovative use for web and app-based companies that match residents and travelers. Craigslist was an early, successful pioneer in this digital space.

Launched in a San Francisco apartment just seven years ago, Airbnb has taken this service to a dramatically new level of expansion. It has become a global behemoth with a market valuation of $25 billion—more than three times that of the 50-year-old Hyatt Hotels chain.

But in touristy cities with housing shortages and hot real-estate markets—New York, San Francisco, Los Angeles, and many more—Airbnb plays a less savory role. Not only does Airbnb facilitate illegal conversions of entire buildings from tenant apartments to de facto hotels, it has also become part of the landlord lobby that resists enforcement of local laws prohibiting such abuses. To be sure, places like San Francisco would suffer the effects of conversions even without Airbnb, but the evidence shows that Airbnb supercharges the process.

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Take the case of Chris Butler, who was evicted from his rent-controlled apartment on the grounds that the owner’s husband needed to move in (a legally acceptable reason for evicting a tenant, called “owner-occupied move-in”). Yet the husband never moved in, and instead the owner listed that unit as well as another on Airbnb for $145 a night, considerably more than the $60 a night the tenant paid. So the tenant sued the landlord for unjust eviction. “They forced me out of a home I loved,” says Butler. “It was incredibly difficult to find a place, especially because I have a really old dog. I ended up paying over double what I was paying there.”

In another lawsuit, tenant Susan Whetzel claims that she was illegally evicted from her rent-controlled apartment, which was then rented out via Airbnb. The owner claimed that he was converting his three-unit building into condominiums, but the building was never converted. Whetzel claims she was harassed by the owners until she finally moved out, and then discovered her apartment listed on the Airbnb website for $250 a night, more than four times her rent. With an attorney’s help, she filed suit, asking for her apartment back, plus damages. Her lawsuit is still pending.

San Francisco City Attorney Dennis Herrera also filed a lawsuit against two property owners, accusing them of evicting longtime tenants, two of them disabled, so the owners could illegally convert the residential buildings into pricey tourist hotels using Airbnb, VRBO,

and other short-term rental services. Another city attorney’s investigation found that iconic residential developer Angelo Sangiacomo had been brazenly renting out 16 rent-controlled units as short-term tourist hotel rooms, marketed as “the SOMA Suites Hotel.”

These are just a small sample of the many tenants who have been “Airbnb’d.” Yes, besides being a multibillion-dollar hospitality company, Airbnb is also now a verb. For many in the city of Saint Francis, to be “Airbnb’d” is a decidedly nasty experience.

In a tight housing market, rent-controlled apartments are prey for what we might call “slamlords,” who promote condo conversions or renovations that would justify massive rent increases. Airbnb provides another layer—a powerful financial incentive as well as a technique for landlords to convert their apartment buildings into tourist hotels. An accidentally leaked memo from huge realestate developer Coldwell Banker Commercial put the net annual income for renting units of a Los Angeles apartment building to local residents at 5.6 percent. But if those units were rented via Airbnb, the projected rate of return was 13 percent—well over twice the profit.

Theresa Flanderich is a retired nurse who has lived for 30 years and raised her son in a two-bedroom apartment in charming, touristy North Beach in San Francisco—and has been desperately fighting eviction as a landlord tries to remove her (and other tenants in her building, including a man in advanced stages

j e n s k a l a e n e / d pa / a p i m a g e s

B y Steven H ill

of Parkinson’s disease). She gave me a tour of her neighborhood. Just on her street alone, Theresa can point to five buildings where all the tenants have received eviction notices.

Theresa shows me one building, pointing out four lockboxes that are visible on the banister outside the front entryway to four apartments—the telltale sign that this building has been Airbnb’d. The constant carousel of new faces can check themselves in and out of each apartment, accessing the key via the lockbox for which they are given the combination, without ever meeting the landlord or manager. The transaction can be completed anonymously, facelessly, over the Airbnb website or app. Where before this building housed families who were part of the neighborhood, now, says Theresa, it’s an Airbnb tourist hotel.

Theresa has had to turn into a tenant-rights activist to fight her own eviction. She and her neighbors formed the North Beach Tenants Committee. Joe Tobener, a San Francisco attorney who is representing Chris Butler in his lawsuit, has represented many of these tenants. “We get about 60 calls a week,” he says, many of them from people being illegally displaced so landlords can use Airbnb, VRBO, or other services to rent to tourists. “There’s so little enforcement [in San Francisco], it’s like the Third World,” he says. “Airbnb is contributing to the displacement of long-term tenants.”

According to a report by the city’s Rent Board, nearly 2,000 tenant units had evictions in 2013, a 13 percent increase from 2012. Since most rented locations house more than one person, housing experts have estimated that figure represents at least 5,000 individuals evicted in 2013.

How much of this displacement and damage

The Way It Was Supposed To Work: Airbnb was meant to give people around the world the ability to share a spare room or couch to make a little extra money.

is attributable to Airbnb? The answer to that is a matter of much controversy, and is mired in a lack of reliable data—to which Airbnb itself contributes, by refusing to provide even anonymized data to city officials. All of this plays out intensely in local politics.

San Francisco, like New York and many other cities, has had a housing crunch for many years. The causes are multiple, ranging from zoning rules to rising market values and a scarcity of public funds for affordable housing.

Fall 2015 The American Prospect 81

City Hall utterly failed to anticipate the current housing shortage, a study by The San Francisco Examiner revealed. From 2007 to 2014, more than 19,000 new housing units were built in San Francisco, but two-thirds (nearly 13,000) of them sold at prices only affordable to the rich.

Five thousand of them (28 percent) were priced for the poor, and only 1,213 (6 percent) were priced for the middle class. The economics are simple: Developers profit a lot more by building high-income housing for wealthy techies and the Chinese and international elite. So not all of San Francisco’s housing crisis reflects the impact of Airbnb.

Airbnb claims that with San Francisco having 220,000 rental units citywide, the

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company’s nearly 6,000 hosts represent too small a footprint to make a difference on the overall housing market. That sounds reasonable until you look at the numbers more closely. A study from the nonpartisan legislative analyst’s office in San Francisco, which serves the Board of Supervisors (the name for the city council), estimated that between 925 and 1,960 units citywide have been permanently removed from the housing market because of Airbnb activity. To Airbnb, that is a small amount of lost housing, compared to citywide supply.

But with a perilously low vacancy rate of a mere 2.9 percent—around 6,400 units across the entire city—Airbnb is devouring a huge

chunk of available vacancies. If the upper figure of 1,960 units lost is correct, the legislative analyst’s office concluded that Airbnb is singlehandedly removing nearly a quarter of available vacant units from the housing market. Certain popular neighborhoods like Haight-Ashbury and the Mission have been hit even harder, with Airbnb listings consuming nearly a third of the vacancies there. The U.S. Census estimates approximately 2.3 persons per San Francisco household, so that would amount to over 4500 people who potentially have lost access to housing as a result of Airbnb listings.

San Francisco, like most cities, has had a long-standing law prohibiting the renting of a domicile for less than 30 days. The reason

steve rhodes / corbis

You Can Fight City Hall: Protesters calling for tougher regulation of illegal conversions, San Francisco, September 15, 2015

was to prevent the city’s residential housing stock from becoming tourist hotels. In San Francisco, almost two-thirds of residents are renters (compared to a national average of one-third renters), yet property owners and wealthy developers wield tremendous political and economic clout.

Not surprisingly then, the Airbnb-ing of San Francisco is part of what Tenderloin Housing Clinic Executive Director Randy Shaw has called a “massive rezoning of the entire city for tourist use.” Ted Gullicksen, who was executive director of the San Francisco Tenants Union, said, “We call it the ‘hotelization’ of San Francisco. Seniors, families, and low-income tenants are being pushed out.”

As a result of all this disruption, Airbnb has found itself in the middle of political battles in many cities. The company’s executives have disavowed responsibility for any of this ravaged landscape, claiming that Airbnb is merely a booking agent, an intermediary facilitating commercial transactions between two parties. And it has found a willing army to mobilize—its “regular people” hosts, who have been turned out by professional Airbnb organizers to pack city hall hearings.

One of the clear redeeming aspects of the Airbnb platform is how it has permitted some everyday San Franciscans to rent out a spare room and earn income during an economically troubled time. After interviewing some of these “home-sharers” (as they call themselves), I’m convinced that this service is a genuine boon to them. During legislative hearings and before the media, the Airbnb spinmeisters have portrayed these home-sharers as the face of the company.

But here’s what’s deceptive about that framing: Data analysis of Airbnb usage in San Francisco tells a decidedly different story about who is benefitting. Although Airbnb refuses to share its numbers, a 2014 report commissioned by the San Francisco Chronicle found that of the (at the time) nearly 5,000 homes, apartments, and private or shared rooms for rent via Airbnb, two-thirds were entire houses or apartments with no owner present during the rental period, and almost a third of Airbnb rentals were controlled by people with two or more listings. Some of the “whole house” or “whole apartment” rentals are from hosts who happen to be away. But many others are being

rented out by professional property managers who are handling multiple Airbnb rentals on behalf of absentee home- and condo owners.

A separate study conducted by data analyst Tom Slee found similar results. He calculated that about 70 percent of Airbnb revenue comes from hosts who are renting out an entire home or apartment, and 40 percent comes from Airbnb hosts with multiple listings.

In other words, a great deal of Airbnb’s revenue and commercial activity in San Francisco does not come from the listings of “regular people” who own and live in their homes and are merely renting out a spare room. Instead, an increasing amount comes from the types of professional landlords who are removing housing from the market and making it exclusively available for tourists. Many of these landlords are getting

sional landlords has caused an uproar. Airbnb has been fined in Barcelona (for violating local laws), pilloried in London, its hosts subjected to unannounced inspections in Paris (for illegal rentals), and banned under most circumstances in Berlin (to protect the city’s housing stock). In New York, State Attorney General Eric Schneiderman launched an investigation, including subpoenaing data from Airbnb and, when the company refused to comply, taking it to court.

His investigation found that nearly 40 percent of Airbnb’s $451 million in revenue—some $168 million—came from hosts who had at least three listings on the site. In a story similar to San Francisco’s, many of Airbnb’s 25,000 or so “hosts” are not in fact “regular people” looking to rent out a spare room in their home; they are professional operators who took on multiple

In hot housing markets, an increasing share of Airbnb host revenue comes from landlords converting rental apartments. rid of rent-controlled housing, and are even evicting thousands of people like Chris Butler, Susan Whetzel, Theresa Flandrich, and her neighbors. It would be useful to know how the number of Airbnb de facto hotel rooms in San Francisco and elsewhere compares with bona fide host rentals. But, of course, the company won’t share that data.

Whatever its remarkable founding origin as a rags-to-riches story that began in Brian Chesky’s living room in 2008, Airbnb has morphed into a giant loophole for professional real-estate operatives, allowing them to evade long-standing city laws that previously had protected the local housing stock by banning short-term tourist rentals.

San Francisco Planning Commissioner Hisashi Sugaya (who later left the commission) said, “Short-term rentals have been around a long time. It hasn’t been a big to-do. But these companies [like Airbnb] have shoved it back in the city’s face by enhancing the ability of people to break the law.”

San Francisco isn’t the only place where the

Airbnb-ing of the local housing stock by profes-

leases in desirable locations, resulting in what The New York Times called the “professionalization” of short-term rental hosting.

One of those New York City operators, Robert “Toshi” Chan, was revealed to be the Airbnb “host” of more than 200 apartments in dozens of different buildings, known collectively as Hotel Toshi. He leased the apartments from landlords for 20 percent over market rate, and then re-rented them on Airbnb as illegal shortterm rentals for fabulous amounts. Eventually, Toshi’s illegal operation was uncovered and he was shut down, agreeing to pay a $1 million settlement for not obtaining proper hotel permits or insurance.

The state attorney general’s report also exposed that nearly three-quarters of all Airbnb rentals in New York City were illegal and in violation of numerous hotel-tax, zoning, and other laws, including the law forbidding short-term rentals of less than 30 days. Yet Airbnb has defended its practices by doubling down with its company line that New York City, San Francisco, and other cities are operating under an old business model. In a June 2014 interview with host Katie Couric, CEO Brian

Fall 2015 The American Prospect 83

Chesky complained that a “lot of the laws are 20th-century laws, or sometimes even 19th-century laws, in the 21st century.”

Meanwhile, in Los Angeles, a study of Airbnb listings by the Los Angeles Alliance for a New Economy (LAANE) found that while a majority of the 8,400 hosts were the overhyped “regular people” renting a spare room in their home, those rentals generated just 11 percent of the company’s revenue. The other 89 percent was generated by professional landlords and agencies, and those renting out an entire home or apartment rather than a spare room. As in San Francisco, many of these are being rented out by professional property managers on behalf of absentee owners. One apartment building with 227 units in downtown Los Angeles had 20

Tokyo, Mexico City, Rio de Janeiro, and others, 60 percent or more of guest visits came from hosts with multiple listings, with London and Berlin showing a 50-50 split.

What all these cities have in common is that they are major tourist meccas that already had housing shortages and affordability pressures.

In cities and towns with ordinary housing markets, services like Airbnb can provide a useful add-on to existing lodging options for tourists. But in these magnet cities, the evidence is compelling that, while Airbnb has offered the “regular people” standard as the face of its company, in city after city the data do not support this “couch-surfing” narrative. Instead, a significant chunk of the local housing stock is being turned into tourist hotels run by professional landlords and property managers.

One New York real estate operator was revealed to be the Airbnb “host” of more than 200 apartments in dozens of buildings. percent of its units listed on Airbnb. The LA ANE study also found that more than 7,000 houses and apartments had been removed from the rental market in metro Los Angeles for use as short-term rentals, which represented “nearly seven years’ of affordable housing construction at the current rate of housing development.” Touristy Hollywood, Santa Monica, and hipster Venice Beach have been particularly devastated. Similar problems were uncovered by a study of Airbnb in Portland, Oregon.

How about cities outside the U.S., in Airbnb’s far-flung global operation? Using the same statistical methods from his San Francisco and New York studies, Tom Slee collected data on more than 90,000 hosts and 125,000 listings—about a fifth of Airbnb’s total at the time—from 18 major cities all over the world, to draw a portrait of Airbnb’s global business. His findings follow the pattern in San Francisco, New York City, Los Angeles, and other U.S. cities. Forty-four percent of Airbnb’s revenue and 45 percent of guest visits in these 18 cities came from hosts with multiple listings.

In certain cities, including Rome, Barcelona,

84 WWW.Prospect.org Fall 2015

Airbnb has resisted, with all the lawyers

and lobbyists that a billion-dollar company can hire, any attempts to regulate their business model, not only in San Francisco but everywhere else. In San Francisco, Mayor Ed Lee’s chief financial benefactor, Ron Conway, who is a billionaire Silicon Valley venture capitalist (and the most influential Republican in this most Democratic of cities), has a significant financial stake in Airbnb. So does billionaire tech investor Peter Thiel, a politically connected local who co-founded PayPal and whose net worth in 2013 shot up from $1.4 billion to $2.2 billion. The Bay Area is perhaps the most pro-technology region in the country, so the failure to enforce local law has also been aided by an influential core of public officials who are in fawning thrall to the techno sapiens gurus of Silicon Valley.

Documents obtained by the 48 Hills investigative website through a Public Records Act request found that regulators had known about the increasing number of illegal rentals since 2011, yet did nothing about it. Indeed, it is a simple matter to look on the Airbnb or VRBO websites and see who the violators are; their websites are virtual advertisements for the

hosts’ criminality, with homes brightly photographed and displayed. But city officials declined to “troll” (as one city memo called it) the websites, and adopted an exasperating handsoff policy of only responding when someone filed a complaint. Despite the fact that thousands of violations had been occurring every week for several years, a city-planning staffer’s memo dated April 4, 2014, noted that only three cases had been sent violation letters, and only 15 cases had been closed since 2012.

The Board of Supervisors eventually passed legislation to legalize and regulate short term host rentals such as Airbnb, attaching a few timid conditions that hosts are supposed to follow. But as critics had predicted, those conditions have proven impossible to enforce, particularly since the legislation inexplicably failed to require Airbnb to provide the data about hosts that would enable enforcement.

Even though hosts are required to register with the city, to date only about 14 percent have. A San Francisco housing inspector told me: “The board allocated no new funds or resources for enforcement, and the Planning Commission which was assigned enforcement responsibility is not set up to do this. They don’t even want to do it.”

But outside San Francisco, officials in other cities seem to have reached the limits of their tolerance for Airbnb’s disruption. In New York, Attorney General Schneiderman not only forced Airbnb to give up data needed for enforcement, he succeeded in getting Airbnb to kick some of the worst landlord violators off of its platform. Recently, Santa Monica officials, fed up with the rampant hotelization of their beach town, passed a law explicitly outlawing rentals of less than 30 days, though permitting the renting of a spare room as long as hosts followed certain licensing requirements and paid the city’s 14 percent hotel tax.

And even in San Francisco, local residents have taken it upon themselves to do what the tech-enamored city officials will not do.

A coalition of homeowners, neighborhood groups, and tenant-supporters have collected tens of thousands of signatures to place on this November’s ballot Proposition F, which would greatly rein in Airbnb. Among other things, the measure will limit all short-term rentals to 75 days a year, require quarterly reports

s h a n n o n s ta p l e t o n / r e u t e r s / l a n d o v

from hosts, and make it illegal for platforms such as Airbnb to list hosts who are not registered with the city. Perhaps most importantly, it would require Airbnb and other hosting platforms to provide the data, such as guest and revenue reports for each host, which would allow enforcement. If Proposition F passes in Airbnb’s hometown, it may blow some wind out of the sails of the company’s soaring $25 billion trajectory.

Not surprisingly then, Airbnb is pulling out all the stops to defeat it. It is mobilizing its home-sharer hosts and its network of political insiders; its lobbyists are meeting with key leaders to win the Share This: Critics of Airbnb outside a hearing on abuses of the sharing economy, New York City Hall, January 20, 2015. endorsements of inf luential organizations. A search on LinkedIn reveals legal pressure from officials such as New York’s to be a good corporate citizen. Several of these that Airbnb regularly hires staffers who have Schneiderman. After all, with one stroke of actions are the same as those recommended by experience managing political campaigns. the computer mouse, Airbnb could “evict the the legislative analyst office in San Francisco, A December 2014 job posting for an Airbnb evictors”—proactively expel from its website yet the Airbnb-tainted Board of Supervisors “community organizer” position, for example, any hosts who are effectively professional land- backed away from imposing such a regulatory listed “recruiting, training, and managing lords or property managers operating tour- framework. That’s when local residents took advocates of home sharing” as the primary job ist hotels. Let’s imagine for a moment that the matter into their own hands by collecting responsibility and “community organizing in Chesky has an epiphany and decides to truly signatures for Proposition F. It’s crucially important to recognize that political campaign[s]” as the top desired quali- embrace the “sharing and belonging” ethos if the only hosts really were “regular people,” that he espouses.

What could Airbnb do to fication for the position. Airbnb is putting all of who lived in their own home and occasionally partner with local governments and tenant its operational strength into defeating Proposirented out a room or the whole house while tion F, including already spending a reported associations, and make short-term rentals into away, nobody would object much. But that half a million dollars as of early September. something positive? What policies should local would wipe out a sizable chunk of Airbnb’s But proponents have powerful political allies governments enact? business model and make Airbnb much less as well, including some labor unions and for1. Delist the professional landlords and valuable to investors waiting for a mammoth multi-property agents from the Airbnb site. mer Mayor and now Senator Dianne Feinstein, a politically moderate Democrat who calls the 2. Cooperate with cities like San Francisco, IPO. Airbnb has become its own worst enemy current law unworkable and unenforceable, Santa Monica, and Portland, which require by stubbornly refusing to work with local offias it incentivizes “illegal conversion of resi- hosts to register with local agencies, by delist- cials to figure out a way to enforce sensible laws dences to de facto hotel rooms.” She character- ing any unregistered hosts. that prohibit conversions of rental apartments izes Proposition F as “common sense change” 3. Pay the same hotel occupancy taxes into de facto hotels. Consequently, a backlash that will “close loopholes and provide effective that all hotels pay in all 34,000 cities in which appears to be brewing. enforcement tools” while still allowing people Airbnb operates, or collect them from the hosts to rent out an extra room from time to time, or and turn them over to the cities.

Steven Hill is a senior fellow with the New their entire house while on vacation.

4. Provide the anonymized data (host’s America Foundation and a Holtzbrinck Fellow name and address, as well as number of rental at the American Academy in Berlin. He is the Despite his rhetoric about sharing, trust, nights and rates charged by each host) that cit- author of the forthcoming book Raw Deal: How and belonging, CEO Brian Chesky and his ies need to enforce regulations and taxation. the “Uber Economy” and Runaway Capitalism investors have not backed down, except under It really wouldn’t take very much for Airbnb Are Screwing American Workers.

Fall 2015 The American Prospect 85

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Ta-Nehisi Coates

A Caricature of Black Reality Ta-Nehisi Coates has written the race book of the year.

Too bad it’s disempowering. By Randall Kennedy

andre chung / getty

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a-Nehisi Coates’s Between the World and Me is an open letter to his 15-year-old son, Samori. It conveys worry over Samori’s prospects and posits a stoical parental philosophy on raising a black man in America.

Coates’s portrayal of the African

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American past, present, and future is gloomy. He asserts that the subordination of blacks has been an integral feature of the good fortune that Euro-Americans have enjoyed. “A mountain is not a mountain if there is nothing below,” he observes. “You and I, my

son, are that ‘below.’” True in 1776, “it is true today.”

Coates presents American history as a chronicle of atrocities. The consolidation of white America, he writes, “was not achieved through wine tastings and ice cream socials, but rather

through the pillaging of life, liberty, labor, and land; through the flaying of backs; the chaining of limbs; the strangling of dissidents; the destruction of families; the rape of mothers; the sale of children; and various other acts meant, first and foremost, to deny you and me the right to secure and govern our own bodies.” Portraying the recent, highly publicized killings of blacks by police officers as reflections of racist business as usual, Coates tells his son that “there is nothing uniquely evil” about these

Fall 2015 The American Prospect 87

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officers “endowed with the authority to destroy your body”; they “are merely men enforcing the whims of our country, correctly interpreting its heritage and legacy.”

Past encounters haunt Coates. He notes the time when, as a youngster growing up in West Baltimore, he found himself on the receiving end of a black boy’s brandished pistol, a twitch away from serious injury or even death.

He recalls the day when a white man in Manhattan threatened to call the police on him when, in defense of his son, he raised his voice against a rude white woman. An event that occurred shortly after he left Howard University left an especially deep mark on his thinking: A schoolmate, Prince Jones, was shot to death in September 2000 by an undercover Prince George’s County, Maryland, police officer who suspected the student of being a drug dealer. Not only was the officer’s suspicion mistaken, there is good reason to believe that he acted wrongly, probably criminally, in shooting Jones and that his plea of self-defense was fraudulent and should have been discounted.

Coates writes that the killing and the absence of any subsequent prosecution of the officer “took me from fear to a rage … and will likely leave me on fire for the rest of my days.”

The death of his schoolmate, Coates writes, so scarred him that a year later, when al-Qaeda attacked America on September 11, 2001, he was unable to distinguish between the officers who had killed and absolved the killing of his schoolmate and the officers who sought to save lives at the flaming Twin Towers. “I could see no difference between the officer who killed Prince Jones and the police who died [on September 11]. They were not human to me.

Black, white, or whatever, they were the menaces of nature; they were the fire, the comet, the storm, which could—with no justification—shatter my body”—and, by implication, shatter the body of his son.

Coates’s letter includes recollections of his courtship with Samori’s mother: I fell in love at The Mecca [Howard University] one last

88 WWW.Prospect.org Fall 2015

time, lost my balance and all my boyhood confusion, under the spell of a girl from Chicago. This was your mother. I see us standing there with a group of friends in the living room of her home.

I stood with a blunt in one hand and a beer in another. I inhaled, passed it off to this Chicago girl, and when I brushed her long elegant fingers, I shuddered a bit from the blast. She brought the blunt to her plum-painted lips, pulled, exhaled, then pulled the smoke back in. A week earlier I had kissed her, and now, watching this display of smoke and flame (and already feeling the effects), I was lost and running and wondering what it must be to embrace her, to be exhaled by her, to return to her and leave her high.

Coates’s refusal to hide his enjoyment of sex and drugs is accompanied by a refusal to withhold heterodox views regarding religion and politics. He abjures what he sees as mythologies that offer cheap, false comforts: “Some time ago I rejected magic in all its forms.” This rejection was a “gift” from his parents, “who never tried to console me with ideas of an afterlife and were skeptical of preordained American glory.” Coates maintains that “in accepting both the chaos of history and the fact of my total end, I was freed to truly consider how I wished to live—specifically, how do I live free in this black body.”

Carrying on his parents’ ways, Coates relates to his son his belief that there is no God, no hereafter, no assurance that good triumphs over evil. He tells his son that the United States is neither divinely blessed nor peculiarly noble. Far from it. “The entire narrative of this country,” he says to Samori, “argues against the truth of who you are.”

Many ambitious black parents tell their children that although they will inescapably confront daunting racial impediments, these obstacles can be surmounted by guile and effort. “Tietie, you lose,” my own father used to say to me about competing against white peers. “So don’t let it be close.” I

Coates and his son Samori, in one of many snapshots that appear in the book

Between the World and Me

by Ta-Nehisi Coates

Spiegel and Grau

say something similar to my children.

Coates proceeds differently. “All my life I’d heard people tell their black boys and black girls to ‘be twice as good,’ which is to say ‘accept half as much.’ And these words would be spoken with a veneer of religious nobility, as though they evidenced some unspoken quality, some undetected courage, when in fact all they evidenced was the gun to our head and the hand in our pocket.” Coates abjures accommodating what he perceives as racial blackmail. He rejects what he sees as a corrupting racial double standard. “No one,” he observes, “told those little white children … to be twice as good.”

Repudiating the perfectionist strand in black middle-class respectability politics, Coates tells his son: “You are human and you will make mistakes. You will misjudge. You will yell. You will drink too much. You will hang out with people you shouldn’t.”

Those inevitable flaws, Coates writes, should not be the occasion, the excuse, for sending black youth to prison or the morgue.

“Not all of us can always be Jackie Robinson,” he protests. “Not even Jackie Robinson was always Jackie Robinson. But the price of error is higher for you than it is for your countrymen, and so that America might justify itself, the story of a black body’s destruction must always begin with his or her error, real or imagined.” Despite appreciating the increased risks that black male youth face on account of their mistakes, however, Coates refuses to urge upon

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his son a regimen of racially self-conscious caution. He believes that such stratagems of self-denial are futile because there is no secure refuge from racism in America. “You have been cast into a race,” he tells Samori, “in which the wind is always at your face and the hounds are always at your heels.” Given these unavoidable dangers, Coates urges his son to live boldly according to his own wants, not diffidently according to restrictive fears. “My wish for you,” he says to Samori, “is that you feel no need to constrict yourself to make other people comfortable.”

The principal demand that Coates imposes upon his son is a demand that he participate in ongoing struggles on behalf of black Americans. Sounding very much like the distinguished, late law professor Derrick Bell, Coates encourages an unwavering commitment to the black liberation struggle despite believing that, ultimately, the United States has been and will remain a white man’s country. Martin Luther King Jr. assured blacks near the end of his life that they would eventually reach the racial promised land. To Coates, however, such talk is mystification. He sees no redemptive victory ahead. Coates exhorts his son to struggle against racism “not because it assures you victory but because it assures you an honorable and sane life.”

Between the World and Me is a slim volume of only 152 pages. But it was the big “race” book of the summer, garnering widespread publicity, and climbing to number one on the New York Times bestseller list. It has been lavishly praised. It is, says Toni Morrison, “required reading.” The New York Times columnist David Brooks called it “a great and searing … mind-altering account of the black male experience.” In Vogue, Megan O’Grady exclaimed that “Coates has penned a new classic of our time,” a book that is “urgent, lyrical, and devastating in its precision.” On the right, Rich Lowry, editor of National Review, panned the book, describing it as “profoundly silly at times, and morally blinkered throughout.”

Critical, too, were intellectuals on

the left, such as Michelle Alexander in The New York Times Sunday Book Review, Spencer Overton in The Huffington Post, and Melvin L. Rogers in Dissent. Their shared complaint is that Coates’s pessimism is excessive, his despair disabling, his fatalism disempowering. “For Coates,” Rogers observes disapprovingly, “white supremacy does not merely structure reality; it is reality.” But “when one views white supremacy as impregnable, there is little room for one’s imagination to soar and one’s sense of agency is inescapably constrained.” Even as they criticized Coates, however, these observers on the left highly praised his book. It displays, says Rogers, “great beauty and power” and “overflows with exquisite insights about the embodied existence of blackness and the warped logic of white supremacy.”

In my view, Between the World and Me is considerably less impressive than Coates’s typical blogs, op-ed pieces, and magazine articles—work that I often admire even when I am in disagreement with it. His book is afflicted by a pervasive rhetorical and conceptual laxity. He writes that Eric Garner was “choked to death for selling cigarettes.” Is that statement accurate? Did the officer choke Garner to death for selling cigarettes? Or did the officer, criminally over-reacting, choke Garner in order to subdue a suspect whom he perceived to be resisting arrest—an action that led to Garner’s death? Those two formulations portray actions that are leagues apart morally.

In the most infamous racially motivated crime in modern American history, two men killed Emmett Till because the teenager waved or maybe whistled at a white woman in violation of Jim Crow etiquette that rigidly forbade black men from showing any sexual interest across the race line.

They intentionally killed Till for violating a white supremacist protocol.

(They confessed as much to a journalist in an interview for which they were paid after an all-white jury acquitted them of charges for murder.)

By contrast, the officer in Staten Island, New York, did not intentionally kill Garner for the infraction

The claim that intentions do not and should not matter is an erroneous, vacuous, mischievous notion that a thoughtful person should abjure.

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of selling loose cigarettes. I am not exonerating the officer. The infamous videotape that captured the violent arrest of Garner shows that he engaged in criminal misconduct, most likely involuntary manslaughter. That he did not have to stand trial regarding any criminal charge was an egregious miscarriage of justice. Still, Coates’s description of the wrongful conduct to which he rightly objects is misleading. Killing Garner to punish the selling of loose cigarettes was almost certainly not the animating motive behind the cop’s disgraceful conduct.

Coates writes that “what one ‘means’ is neither important nor relevant. It is not necessary that you believe that the officer who choked Eric Garner set out that day to destroy a body. All you need to understand is that the officer carries with him the power of the American state and the weight of an American legacy, and they necessitate that of the bodies destroyed every year, some wild and disproportionate number of them will be black.”

Hold it. Are we to take seriously the proposition that “what one ‘means’ is neither important nor relevant”?

Consider the following: I hit you with my car. Is it irrelevant whether I mean to hit you (a serious crime) or whether my hitting you was inadvertent (at most a tort for which I may have to compensate you for injuries sustained)? Shouldn’t it matter greatly whether a police officer said (a) that he meant to kill a suspect, or (b) that he did not mean to kill a suspect although the suspect did, in fact, die as a result of the officer’s conduct?

The claim that intentions do not and should not matter is a notion that is bandied about casually in some circles. But it is an erroneous, vacuous, mischievous notion that a thoughtful person should abjure.

An important concept in Coates’s book is what he refers to as “The Dream.” He defines it only vaguely.

He seems to intend for it to refer to a myth about the United States that he suspects that many Americans believe is real—the image of the noble, innocent, well-intentioned, generous country that is open, full of

Fall 2015 The American Prospect 89

opportunity, and committed to liberty and justice for all. Coates tells his son:

From Guernica to Human Rights Essays on thE spanish Civil War Peter N. Carroll The best essays by one of the leading experts on the Spanish Civil War Spain’s cause drew 35,000 volunteers, including 2,800 Americans. This work focuses on both the personal and political motives that led ordinary Americans to risk their lives in a foreign war. Carroll’s essays are based on oral histories of surviving veterans and original archival research—including material from the once-secret Moscow archives. From Guernica to Human Rights is essential reading for those interested in the Spanish Civil War and its aftermath.

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90 WWW.Prospect.org Fall 2015

I have seen that dream all my life. It is perfect houses with nice lawns. It is Memorial Day cookouts, block associations, and driveways. The Dream is treehouses and the Cub Scouts.

The Dream smells like peppermint but tastes like strawberry shortcake. And for so long I have wanted to escape into the Dream, to fold my country over my head like a blanket. But this has never been an option because the Dream rests on our backs, the bedding made from our bodies.

Those who believe in the Dream, Coates maintains, are not only misguided; they are dangerous. The Dreamers, he writes, “are pillaging Ferguson … they are torturing Muslims, and their drones are bombing wedding parties. … [The] Dreamers are quoting Martin Luther King and exulting nonviolence for the weak and the biggest guns for the strong. … The Dreamers accept this as the cost of doing business, accept our bodies as currency, because it is their tradition.”

Given the disparate nature of the acts noted, not to mention the variety of those engaging in the conduct he scorns, I am not at all sure about whom Coates is speaking when he refers to “Dreamers.” Sometimes he seems to be referring exclusively to whites. Hence he writes: “We [black folks] have taken the one-drop rules of Dreamers [white folks] and flipped them. They made us into a race.

We made ourselves into a people.”

In describing the depredations of Dreamers, however, Coates leaves unaddressed a puzzling ambiguity. After all, the person in control of the United States drones that have bombed wedding parties is a black American—President Barack Obama.

Is he a Dreamer?

Elsewhere Coates has written trenchantly about Obama. He has lauded him, scolded him, and berated the president’s right-wing detractors. In Between the World and Me,

however, he never mentions Obama (or, if he does, it is with vanishing brevity). Ignoring Obama fits with a central feature of Coates’s message: that despite apparent alterations in the racial demographics of power in America, despite Obama and Loretta Lynch, despite Condoleezza Rice and Colin Powell, despite Oprah and Jay-Z, the essential structure of American pigmentocracy remains intact, with whites (and honorary whites) on top. John Hope Franklin titled his great narrative of African American history From Slavery to Freedom. Coates sees the matter differently: As slaves we were this country’s first windfall, the down payment on its freedom. After the ruin and liberation of the Civil War came Redemption for the unrepentant South and Reunion, and our bodies became this country’s second mortgage. In the New Deal we were their guestroom, their finished basement. And today, with a sprawling prison system, which has turned the warehousing of black bodies into a jobs program for Dreamers … our bodies have refinanced the Dream of being white.

Opposed to the notion that the Obama phenomenon reflects and reinforces a decisive discontinuity in America’s racial history, Coates simply ignores the president. But no portrayal of the current American racial scene is credible without an explanation of the selection and reselection of a black chief executive by a predominantly white electorate.

I am not arguing that the Obama presidency marked the end of white domination, or widespread discrimination, or extensive resentments against public policies perceived as helping a colored “them.” I am arguing, however, that Obama’s election exposes features of the society of which it is imperative that all Americans, including young African Americans, be aware.

One feature, happily, is an unprecedented opportunity for skilled

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African Americans, like Samori’s dad, to pursue ambitions that would have been ruthlessly thwarted previously. That in no way excuses the terrible plight faced by uneducated, unskilled, unemployed, impoverished, traumatized blacks consigned to dangerous, isolated, neglected areas like Ferguson and West Baltimore. The unprecedented opportunities available to affluent or middle-class African Americans, however, complicate a picture that Coates simplifies unduly.

Simplification to some extent is always required to convey a point. But Coates reduces too much and too one-sidedly.

He prides himself on being a realist.

Here he has become a caricaturist.

Racial sentiment is, to be sure, a major force in American life. It is not, however, the exclusive explanation of discord, unfairness, or tragedy. Coates sometimes writes as if race—or, more precisely, white domination—was the master variable that accounted for all that goes wrong for black Americans. Consider the single event about which Coates writes most searingly: the death of his Howard University schoolmate Prince Jones. Coates notes that the cop who killed Jones was black and that blacks were among the authorities who oversaw the local police department and thus presumably played a role in the decision to forgo prosecuting the officer. Under those circumstances, it seems that one seeking to understand what happened might consider explanations that are not immediately or directly racial in character: excessive decentralization of police authority; policies that give undue leeway to police officers to resort to deadly force; incentives that dissuade prosecutors from bringing criminal actions against police even when strong evidence points to criminal wrongdoing; misinformation that encourages electorates of all racial backgrounds to be far too accepting of police malfeasance. Coates pictures the killing of Jones, however, as a direct deployment of homicidal white power. After pointing out that Jones’s killer was a black cop, Coates proceeds to discuss the case as if it was a simple replication of more familiar scenarios in

which it is a white cop perpetrator who does the killing: The killing fields of Chicago, of Baltimore, of Detroit, were created by the policy of Dreamers. …

And the premise that allows for these killing fields—the reduction of the black body—is no different than the premise that allowed for the murder of Prince Jones. The Dream of acting white, of talking white, of being white, murdered Prince Jones as sure as it murders black people in Chicago with frightening regularity. … The same hands that drew red lines around the life of Prince Jones drew red lines around the ghetto.

Coates offers no evidence to suggest that a hankering to act white, talk white, or be white had anything to do with the shooting of Prince Jones. Nor does he offer any evidence to suggest that a racist devaluation of black life prompted or facilitated this black officer’s egregiously wayward conduct. The possibility that the offending cop was a dangerously bad officer who posed a threat to everyone, regardless of race, is not a hypothesis that Coates seems to have considered for even a moment.

Coates is right to focus on the relationship between white racism and black-on-black violence. Withholding the protection of law enforcement from African Americans, thus subjecting them to the criminality of black neighbors, has long been one of the cruelest manifestations of white dominance. Of course, black police officers can and do enact anti-black scripts that they have internalized.

That is a possibility warranting attention. But it is only a possibility among others. Coates doesn’t even consider alternatives. He writes that “‘blackon-black crime’ is jargon, violence to language, which vanishes the men who engineered the [really restrictive] covenants, who fixed the [racially discriminatory] loans, who planned the [racially isolating] projects.” He insists that behind apparent black racial pathology is the omnipresent reality of white domination—in this

A difficulty with attributing this much influence to white folks is that doing so negates the will of black folks.

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instance an act of white supremacy carried out by a black marionette.

“To yell ‘black on black crime,’” he contends, “is to shoot a man and then shame him for bleeding.”

A difficulty with attributing this much influence to white folks is that doing so negates the will of black folks. This brings to mind Ralph Ellison’s critique of Gunnar Myrdal’s An American Dilemma. Myrdal averred that “the Negro’s entire life and, consequently, also his opinions … are, in the main, to be considered as secondary reactions to more primary pressures from the side of the dominant white majority.” Objecting to this formulation, Ellison asked: Can a people … live and develop for over three hundred years simply by reacting? Are American Negroes simply the creation of white men, or have they at least helped to create themselves out of what they found around them? Men have made a way of life in caves and upon cliffs; why cannot Negroes have made a life upon the horns of the white men’s dilemma?

Echoing Ellison, I maintain that within the confines of a still-racist America, blacks—including black cops—have the wherewithal to do bad things that are not properly attributable to white racism. Just as blacks have done wonderful things independently of white domination—consider the blues, gospel, jazz, and rap—so, too, have blacks done dastardly things independently of white domination.

Consider bigotry by African Americans that cannot properly be excused as mere black imitations of white folks’ vices.

Ta-Nehisi Coates is smart, energetic, and insightful. I anticipate reading his work in the months and years to come. I hope and expect that it will be better than this overpraised epistle.

Randall Kennedy is a contributing editor and board member of the Prospect and professor at Harvard Law School. His several books include The Persistence of the Color Line: Racial Politics and the Obama Presidency.

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It’s Still a Struggle

town were divided 60-40 between white and black voters, they allowed each voter to vote for all five councilmembers. A cohesive white voting bloc could then capture all the council seats, as opposed to breaking up the voters into single-member districts where distinct majorities could form.

The struggle against excessive majoritarian power led to a second generation of voting-rights cases.

Section 5 of the act, the preclearance provision ultimately compromised by the Shelby County decision, played little role in those cases, as did the Justice Department. Instead, private litigants were buttressed by the 1982 amendment to Section 2 of the Voting Rights Act, and by the Supreme Court’s 1986 decision in Thornburg v. Gingles, which simplified the proof required for claims that minority voters did not get their just due in the electoral process.

To his great credit, Berman well understands this shift to secondgeneration cases and the redirection of voting rights toward actual political power. In Berman’s terms, Section 2 became the sword, while Section 5 moved to the background as the shield. The ensuing litigation doomed multimember representation in virtually any community with a minority presence. Redrawn district lines then permitted a broad generation of minority representatives to gain office at every level of government.

The fight for voting rights hasn’t been the straightforward battle we once might have expected to win and be done with. By Samuel Issacharoff b

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n March 7, 1965, John Lewis helped lead protesters on the historic march over the Edmund Pettus Bridge in Selma, Alabama.

Lewis walked side by side with Hosea Williams until the marchers were set upon by Alabama state troopers.

The infamous Bloody Sunday assault left Lewis with a fractured skull, one of dozens of civil-rights protesters injured for demanding the constitutional right to vote. Bloody Sunday was also the precipitating event for the well-chronicled efforts to enact a voting rights act that merited the name.

Exactly 50 years later, Lewis returned to cross the Edmund Pettus Bridge once more. Now marching as a 15-term incumbent congressman from Georgia, Lewis walked hand in hand with Barack Obama. Nothing at that commemoration could have better symbolized the dramatic transformations unleashed by black voting rights than the presence of these two political figures. At a time when registration and election participation rates are essentially identical for blacks and whites, the voting rights struggle had seemingly achieved its goals, well beyond what anyone could have envisioned 50 years ago.

But the gathering on the Edmund Pettus Bridge in 2015 was not a moment of unalloyed celebration.

Only two years earlier, the Supreme Court, in a case from neighboring Shelby County, had largely undone the centerpiece of the Voting Rights Act. Moreover, voting rights now face new challenges in the states without the benefit of national legislative and judicial support that the struggle had in the past.

Voting rights triumphant, with John Lewis as the central protagonist, provide the powerful opening narrative for Ari Berman in Give Us the Ballot. As in a classic Greek tragedy, however, the rise presages the fall. And the fall in this telling is the

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counter-mobilization by conservative zealots, who connived to take power in the Department of Justice and the Supreme Court. That story gives the book its clean moral arc, if at the cost of the more complicated intersection of race and politics.

The most riveting part of the story is also the best known. Berman beautifully recounts the struggles for the elemental right to cast a ballot. He avoids the temptation to see the passage of the act as the central piece of the drama, and instead tells of the town-by-town interventions of civilrights activists and federal registrars, a process that took roughly a decade.

The Voting Rights Act contained a wonderful gambit of suspending literacy tests and all other voting “devices” in the South and allowing their reintroduction only if approved (“precleared”) by the Department of Justice. Suspension provided the opening wedge for the civil-rights movement to gain the franchise.

In the real world of politics, however, the Voting Rights Act proved maddeningly insufficient. In the era when blacks were denied the ballot, their exclusion fully explained the lack of black political representation, the indifference of government, and all the pathologies of cradle-to-grave segregation. Political power required representation, and that required translating votes into winning elections. In a 1969 Mississippi decision properly highlighted by Berman, the Supreme Court acknowledged that, to be effective, the Voting Rights Act had to confront the use of election rules that diluted minority voting power, even when black citizens could vote. At the height of Jim Crow, many Southern jurisdictions not only used restrictive registration procedures to limit black voting, they also adopted at-large or multimember voting districts that over-rewarded voting majorities. For example, if a

So far, so good. What Berman

Give Us the Ballot: The Modern Struggle for Voting Rights in America

By Ari Berman

Farrar, Straus and Giroux

misses, however, is the difficult distributional issues that emerged in the second-generation cases. The early voting-rights cases tended to come from places that had not elected a black to office since the end of Reconstruction. Proof that blacks and whites voted differently (termed “racially polarized voting”) and that blacks were geographically concentrated meant that little judicial imagination was required to see that majority-reinforcing multimember districts were keeping the black minority from gaining elective office.

I litigated quite a few of these cases, which dominated the struggle over voting rights in the 1980s. The choice was usually straightforward: Either

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perpetuate all-white local councils or permit the first minority representatives. The Voting Rights Act admitted of only one choice.

But what happens when the question becomes more complicated, and instead of a choice between zero black representatives and some, the question is how many? The Supreme Court viewed the Voting Rights Act as protecting against a famine, but not guaranteeing a feast. In Johnson v. DeGrandy, a critical 1994 case from Florida that Berman omits, the Court confronted claims by rival sets of minorities that each was entitled to more than proportional representation. Black and Latino voters already each controlled a number of districts proportionate to the group’s share of the population, but they could have had more. Each group demanded a diminution of the other’s electoral

share to further its own representation. In the state legislature, one frustrated black representative had asked whose people had been on the Edmund Pettus Bridge after all. The Court found that there must come a point, according to Justice David Souter, where minorities had to “pull, haul and trade” in politics, as any other interest group must in a pluralist democracy, and voting-rights claims had run their course.

Once the issue in voting-rights cases becomes the allocation of representatives, the game is zero-sum.

As districts get created, there are predictable losers, and some folks (whom I have termed the “filler people”) have to be assigned to districts where they will almost certainly be on the losing side. The history of the second generation of voting-rights law is filled with groups that bristle at being put

On the 50th anniversary of “Bloody Sunday,” President Barack Obama walks across the Edmund Pettus Bridge in Selma, Alabama, holding hands with Amelia Boynton Robinson and Representative John Lewis, who were both beaten that day. On the left are Sasha and Michelle Obama and on the far right is Laura Bush.

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in the position of predictable losers.

The question of who gets how much leads to the much deeper problem of the intersection of race and politics.

The dirty little secret of voting-rights law is that the courts never figured out how to deal with partisan realities. In a 1971 case from Indianapolis, Whitcomb v. Chavis, the Court confronted routine electoral losses by a black community submerged in a multimember state legislative district that included neighboring white suburbs.

The exclusion of black representation was pressing, but the Court could not find a way to remedy it. Whites voted Republican and blacks voted Democratic. The Court concluded that in our partisan system someone wins, someone loses, and if black voters chose to vote for the losers, there was no constitutional issue. So strong was the taboo against addressing

Fall 2015 The American Prospect 93

The MIT Press

Hardcover | $25 | £17.95

FRACKING THE NEIGHBORHOOD Reluctant Activists and Natural Gas Drilling Jessica Smartt Gullion What happens when natural gas drilling moves into an urban area: how communities in North Texas responded to the environmental and health threats of fracking.

Urban and Industrial Environments series Hardcover | $29 | £19.95

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Recounting votes in MiamiDade County, Florida, November 20, 2000

As a result of partisan politics, a new generation of voting-rights conflicts and cases emerged.

Florida 2000 taught that voting rules and voter access matter, sometimes dramatically.

Republican officials would better protect black citizens than the man whose half-century of struggle epitomizes black voting rights. All four liberal Supreme Court justices sided with Ashcroft, while the conservative majority allowed Lewis and the black politicians of Georgia to play the political card. When Section 5 of the VRA

was renewed in 2006, however, the one alteration the Republican Congress made was overturning Georgia v. Ashcroft. Packed minority districts were just what Republicans wanted.

By 2013, when the Supreme Court handed down its decision in Shelby County, Section 5 was largely a secondary issue. The Justice Department had been issuing about five objections a year, and even those were concentrated in fraught, partisan redistricting disputes. As voting-rights cases had evolved, Section 5 lost importance. Occasionally invoked, it was rarely central.

But as a result of partisan politics, a new generation of voting-rights conflicts and cases emerged. Florida 2000 taught that voting rules and voter access matter, sometimes dramatically. Then President Obama won handily in 2008 and 2012 with turnout pushing 60 percent. In 2010, by contrast, with turnout 20 points lower, Republicans ran the table.

With the parties more polarized and the undecided center diminished to a couple of network studio audiences on election eve, elections became a game of turning out the faithful and demoralizing the opposition.

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PLASTIC WATER The Social and Material Life of Bottled Water Gay Hawkins, Emily Potter, and Kane Race “A delightful exposition of the multiplicity of a mundane object. The authors demonstrate bottled water in all its variation, as an entity which enacts diverse global, political, commercial, environmental, and ethical contexts. Drinking water can never be the same again!”

—Steve Woolgar, Linköping University and Oxford University

partisanship directly that the entire law of vote dilution developed exclusively in the one-party Democratic South, or later in one-party Democratic urban areas. Even the statistical test for polarized voting foundered once party was introduced as a confounding variable.

In the old one-party Democratic South, the black vote threatened the local political order, but not the national distribution of power. Only after the South began to realign along the national political axis did the Voting Rights Act become a clear political instrument. The opening gambit came from Republican operatives Lee Atwater and Ben Ginsberg, whose “Operation Ratfuck” offered Republican aid to minority candidates in the creation of packed minority districts in the South, thereby diminishing Democratic electoral prospects. Following the 1990 Census, the Republican Department of Justice used the preclearance authority of Section 5 to demand concentrated black districts (what the Supreme Court struck down as the “max-black” plan). In Texas, for example, the state gained three additional congressional seats after 1990 and created three new majority-minority districts. But it then faced an objection from the Justice Department, which wanted greater minority concentrations to minimize prospective Democratic gains. (Disclosure: I helped represent Texas and later Florida in defending their redistricting plans.)

The greatest omission of Berman’s book is his failure to address Georgia v. Ashcroft, a 2003 Supreme Court case that shows the paradoxes of the late-stage Voting Rights Act. As Georgia trended Republican, none other than John Lewis brokered a deal to lower the black percentages of incumbent legislative districts so as to spread around more Democratic votes. The gambit was that some electoral vulnerability for black incumbents was worth the potential gain of holding on to committee chairs as part of a Democratic majority.

The Bush administration Department of Justice, under John Ashcroft, objected that the Lewis initiative was “retrogressive.” In other words,

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Suddenly, nearly identical voter restrictions emerged from the same conservative think tank for introduction in Texas, North Carolina, Kansas, Wisconsin, and Pennsylvania—in short, anywhere that Republicans held control. Voter ID requirements, curtailment of early voting, frequent purges of voter rolls—the game plan was the same regardless of whether the jurisdiction had a significant minority population, was covered under Section 5, or had a history of active discrimination.

Using the instrumentalities of power to keep enemies from voting is deeply wrong; no game can allow the players to manipulate the rules. The sources of the politics of voter exclusion are complicated, but they begin with the unique American institution of partisan control of the electoral process. For Berman, the partisan dimension can be quickly overcome by invoking race and the glorious history of the Voting Rights Act, which keeps the moral arc of the story neat. But the simple tale here obscures the deep partisan stakes in matters of claimed voter fraud and voter suppression.

The warm reception of Berman’s book is a tribute to his craftsmanship in the telling of a great story. But it also reflects the allure of a simple world of moral absolutes. Placing everything in the context of race and then focusing on an evil, anti-democratic cabal diminishes what we can learn from history. As Columbia law professor Jamal Greene writes, “A Voting Rights Act for the 21st century would recognize that racial discrimination may be our original sin, but it is not our only one.” The precision of the Voting Rights Act in targeting certain practices in a certain place and time proved its great strength and its later constitutional vulnerability. Because it worked so well, the Voting Rights Act as created in 1965 exposed the need for a broader legal commitment to the right to vote, one not limited by geography or even by race.

Samuel Issacharoff, professor of law at the New York University School of Law, is author most recently of Fragile Democracies: Contested Power in the Era of Constitutional Courts.

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Security for a Precarious Workforce What will it take, economically and politically, to broadly regularize employment? By David Bensman b

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n recent years, the labor market has been marked by a shift from standard employment to new forms of contingent work. While Silicon Valley has painted a picture of opportunity, informality, ingenuity, self-reliance, and a sharing economy, for most people this new world turns out to offer mainly insecurity. The “fissuring” of workplaces, in David Weil’s term, has meant that workers have lost their status as employees, including legal protections and eligibility for social insurance. New scheduling software saves costs for managers but makes daily life insupportably unpredictable; digital supervision and surveillance intensify managerial control; 24-7 email messages impose workplace priorities on life at home.

Employers, meanwhile, have discovered they could circumvent 20th-century labor protections by contracting with workers rather than employing them; they could franchise their businesses and disclaim responsibility for workers hired by franchisees; they could construct global value chains so that contracted suppliers would do the actual employing of workers. As all these changes were going on, unionism declined. By 2015, union members comprised only 6.6 percent of the private workforce in the U.S., down from a postwar high of 34 percent.

Guy Standing terms this new workforce “the precariat.” Standing began this work as a researcher for the International Labour Organization and shifted to academia in 2006.

He is currently at the University of London. In The Precariat (2011) and A Precariat Charter (2014), Standing depicts a new kind of working class.

Unlike the old proletariat, which was based on employment in long-term jobs (“the standard employment relationship”), the precariat has no security, and scant prospect of gaining any.

These workers have short-term jobs, often without an employer and almost always without a union, and have little

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bargaining leverage. They may labor on behalf of a staffing agency, or put in part-time hours, work as an “independent” contractor, or get paid under the table. Even if they are in a “skilled” position, they are responsible for obtaining and maintaining their skills.

They receive few or no benefits from the enterprise, and no health coverage, pension contribution, or stock option.

Not only do such workers lack career ladders, they lack careers. Their resumes show a succession of jobs with painful gaps. Working for no remuneration—interning, looking for jobs, networking, writing resumés, receiving job counseling, training, retraining, returning to school, professional development—these are all the responsibility of workers trapped in the precariat, and they eat up a lot of time. Many workers in the precariat are women or immigrants, and a large portion are young.

Standing holds that the precariat has different interests, outlooks, and social relations than the traditional working class. They don’t look to unions because unions don’t provide what they need, and the unions seldom look to them as potential recruits because labor law makes them almost impossible to organize. Nor does the precariat look to social democratic parties to represent their interests.

Those parties see the old working class as their constituency, and increasingly their base is the educated middle class.

Beginning in the 1990s, many European social democrats bought into the neoliberal ideal of labor flexibility.

Without political or union representation, Standing warns, the precariat is a “dangerous” class. Its members have so few social ties that they are drawn to populist and even fascist appeals.

Syriza may appeal to them, but so does Golden Dawn. Standing asserts in The Precariat, without evidence, that the Tea Party draws much of its strength from the precariat, but, he adds, so did the Occupy movement, in which young radicals played the leading role.

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While Standing’s analysis is brilliant in its evocation of the isolation of workers in precarious jobs, he overstates the claim that “the precariat” is a new, emerging social class. Clearly, Chicago teachers are in more precarious situations today than they were a generation ago. Their pensions are threatened, their job tenure insecure, their work supervised intensively by business-minded superiors—but they are still members of a labor union, which mobilizes them politically and represents them in collective bargaining. Michigan autoworkers are still members of the UAW, but they are divided into two tiers and watch helplessly as jobs and investments are sent to Mexico. A better argument is that labor as a whole is becoming more precarious; the new world of work is a “gray zone” in which the rules are changing, ambiguous, and often contradictory, where old standards linger but no longer fit changing workplaces.

Standing is convinced that work will never be made decent unless all

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people enjoy basic security. To Standing, insecure people make bad choices, can’t plan and prepare for the future, relate badly to each other, and suffer poor physical and mental health.

Based on his analysis of the new world of work, Standing composed A Precariat Charter as a manifesto.

Before labor markets and workplaces can be made decent, he contends, everyone must be guaranteed a basic income. Standing rejects what he terms the “labourist” bias of previous generations of progressives, who saw guaranteed employment, not guaranteed income, as the necessary basis for social security. Standing invokes ancient Greece and its distinction between necessary but undesirable labor and citizen-enhancing work.

Much labor, he argues, is inherently degrading, isolating, or meaningless. Providing everyone with such jobs should not be our goal. Rather, he insists, our aim should be to ensure that everyone can participate in rewarding work, and to de-link basic

Thomas Geohegan argues that the right to form or join a union is a basic civil right.

income from employment. He has in mind both participating in the life of the community, and helping to reproduce the basis for human existence.

Not all work need be remunerated, and not everyone should work for wages.

With these principles in mind, A Precariat Charter lays out a series of steps to construct a new system of work and labor. He calls for the elimination of unpaid internships, the regulation of employment agencies and brokers, and standard contracts for informal labor.

Regulatory boards, enforcement agencies, and licensing authorities should include workers from the precariat in governance as mechanisms of worker voice, a proposal that will seem more novel in the U.S. than in Europe. All workers need time to take care of family issues, to participate in their associations and neighborhood institutions, to engage in leisure pursuits, to prepare for new jobs, careers, or creative endeavors. Popular struggles to control working time, such as the campaigns for stable schedules, paid sick leave and

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family leave, and payment for overtime, are all important harbingers of the needed change.

These ideals are compelling, but politics is not a strong point of Standing’s analysis. Since he mostly dismisses labor unions and social democratic parties, Standing can only point to worker centers, May Day rallies, community-based cooperatives, immigrant-rights groups, and mostly small, left-wing European parties as groups that could stand together to give voice to and organize for the demands of the precariat. But it’s far from clear that a movement based on these groups could produce the reforms that Standing eloquently proposes.

Politics is also a challenge for

Thomas Geoghegan’s wonderful new book, Only One Thing Can Save Us. A heroic labor lawyer and an author who reaches a general audience, Geoghegan largely shares Standing’s analysis that the New Deal/Social Democratic system of labor regulation has been overtaken by events. Based on his long experience representing workers who wanted a union and a collectivebargaining contract and were often disappointed when legal remedies proved futile, Geoghegan argues that “Old Labor,” based on the National Labor Relations Act, no longer serves to empower workers.

Yet Geohegan is passionately prounion. Organized labor is “the only thing that can save us”—but the next labor movement will have to adapt to the economic changes of the past 40 years, including the resurgence of the corporate right in politics, and the increasing individualism in American culture. It will have to base workers’ power more on their individual rights and the efficacy of the legal system, and less on collective action and principles of solidarity.

His core idea is that the right to join a union must become a civil right, protected by the whole legal apparatus erected by Congress in the past 50 years to protect civil rights through the courts. Geoghegan recounts how Martin Luther King Jr. not only joined with the labor movement to press for “Jobs and Justice,” but he insisted that the right to join a union was an

A Precariat Charter: From Denizens to Citizens

By Guy Standing

Bloomsbury

Under the Bus: How Working Women are Being Run Over

By Caroline Fredrickson

The New Press

Only One Thing Can Save Us: Why America Needs a New Kind of Labor Movement

By Thomas geoghegan

The New Press

important civil right. Geoghegan argues convincingly that once joining a union becomes a civil right under the Civil Rights Act of 1965, it will be far easier for a worker fired for union sympathies or union-organizing efforts to go to court to demand remedies.

Paradoxically, in Geohegan’s vision, unions would lose their role as the agents who represent workers dismissed illegally, but labor lawyers would be in a far stronger position to gain real justice for their clients. Yet the politics of persuading Congress to define the right to join a union as a civil right will surely be as difficult as the politics of traditional labor reform.

Politically mobilized women could transform blocked politics, according to Caroline Fredrickson’s Under the Bus. Fredrickson suggests that women are providing leadership and impetus to the counter-movement for decent work in America. Fredrickson, a former staffer for Senator Tom Daschle and now president of the American Constitution Society, shows how women, along with people of color, poor people, and immigrants, have been systematically marginalized by American labor laws and denied equal opportunities and equal pay in the workplace.

She aims her sharpest critiques at the National Labor Relations Act, which denied coverage to domestic workers, agricultural workers, and temporary workers, and the Fair Labor Standards Act of 1938, which not only embodied these exclusions but added a disastrously vague definition of employment. But according to Fredrickson, even recent legislative efforts have failed to empower women, by neglecting the changing realities of the household.

The result, she argues, has been disastrous for American families, where children are forced into “selfcare” because day care is so expensive.

The American economy has also suffered as women’s workforce-participation rates flattened, after having risen in the 1980s and 1990s—and then declined. Their high rates of turnover imposed costs on employers; likewise, women’s productivity was limited by discriminatory job assignments and meager advancement opportunities.

As Fredrickson notes, the flip side of

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this story is that most of the new labor campaigns disproportionately would help women. She points to campaigns for stable schedules, paid sick leave, expanded family leave, and expanded overtime regulations, as well as higher wages and the unionization of domestic workers, fast-food workers, and other retail employees. These, she argues, are indications that women are rebelling against a labor regime that doesn’t match their needs and values.

Fredrickson’s evidence of women’s mobilization to enhance workplace regulation challenges Standing’s and Geoghegan’s conclusions that the New Deal order has broken down to such an extent that progressive movements need an entirely new paradigm.

While Standing’s portrait of precarious workplaces is accurate, and Geoghegan’s discouragement with the inefficacy of labor-law enforcement is entirely understandable, there is growing evidence of hopeful change.

Ever since SEIU’s Justice for Janitors campaign demonstrated that unions could organize immigrant workers who possessed limited bargaining power and few marketable skills, union organizing in the U.S. has been on an upswing. At first, it seemed this was an isolated instance, overshadowed by deunionization, but after the Great Recession weakened the neoliberal consensus and Occupy created a new discourse about inequality, it has become clear that campaigns for a higher minimum wage, a domestic workers’ bill of rights, and paid sick leave are not marginal.

Meanwhile, the Obama administration, many municipal and state governments, and even state and federal courts have responded with enhanced enforcement against wage theft and misclassification, new regulations on overtime and joint employment, and higher wage standards.

It remains to be seen whether the current upsurge can grow into a durable movement. Even if it does, precarious labor income is likely to persist. Standing is correct to urge us to revisit and embrace the concept of a basic income guarantee.

David Bensman is a professor in the School of Management and Labor Relations at Rutgers.

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A Government Both More Secretive and More Open The same decades that saw the growth of national-security secrecy saw the rise of the public’s “right to know.” By Mary Graham b

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he next president, whether Republican or Democrat, will inherit an unsettled and acrimonious debate about government secrecy. The debate was inflamed by President George W. Bush’s secret detention of terrorist suspects and warrantless surveillance of Americans and citizens of other countries. Far from putting the controversy to rest, President Barack Obama has only deepened it as he has expanded the use of armed drones and introduced offensive cyber weapons, altering the dynamics of international conflicts without any public debate.

Two important new books reach starkly different conclusions about whether the United States remains caught in an era of ever-increasing secrecy or has been transformed by a culture of openness. Frederick A. O. Schwarz Jr. argues that the nation remains in a Secrecy Era (his caps) in which officials make decisions behind closed doors without even thinking about the benefits of public discussion. Excessive secrecy, motivated by long-standing bureaucratic incentives and intensified by fear of communism and terrorism, has turned America into a “democracy in the dark.”

Michael Schudson, in contrast, chronicles the emergence of sunlight.

He documents the creation of a culture of openness between 1945 and 1975 that has made government and business so much more accountable that it has changed the character of American democracy. A better-educated, more critical public produced reformers in Congress, inquisitive civic advocates, skeptical journalists writing for knowledgeable audiences, and demanding consumers.

Both authors write with authority.

Schwarz, chief counsel of the Brennan Center for Justice at New York University School of Law, worked as a partner

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in a prestigious New York law firm, as chief counsel to a Senate committee chaired by Idaho Democrat Frank Church that investigated intelligence agencies’ abuses during the 1970s, and then as New York City’s corporation counsel under Mayor Ed Koch.

Schudson, a professor of journalism at Columbia University, is a sociologist who has written widely about popular culture and the evolution of American media. Both build on the sturdy foundation laid by Senator Daniel Patrick Moynihan in his studies of the role of secrecy and openness in American democracy, both in the 1997 report of the Senate commission on government secrecy, which he chaired, and in Secrecy: The American Experience, the book published a year later.

Schwarz’s scope is limited. His subject is the national-security secrecy that, he argues, overwhelmed America’s traditional culture of openness after World War II and gradually produced a vast and permanent bureaucracy. To bolster his argument, he provides carefully researched, engagingly written stories of government secrecy gone amiss. Secrecy limited debate about whether to drop the first atomic bomb on a Japanese city or on a military target in 1945, after a test showed that its explosive force was much greater than officials expected.

Secrecy hid President John F. Kennedy’s deal with Soviet leaders to end the Cuban missile crisis by removing U.S. missiles from a Turkish base near the Russian border, deceiving a generation of foreign policy experts as well as the American public. Schwarz’s accounts of the excessive secrecy of intelligence budgets, sensitive scientific and technological advances, and presidential records make fascinating reading. His criticism of the secret policies of President George W. Bush and Vice President Richard Cheney is more strident.

Democracy in the Dark: The Seduction of Government Secrecy

By Frederick A.O. Schwarz Jr.

The New Press

The Rise of the Right to Know: Politics and the Culture of Transparency, 1945–1975

By Michael Schudson

Harvard University Press

He calls Cheney a master manipulator of information in an administration where “monarchical powers bested democratic persuasion.”

I found the stories Schwarz tells from his own experience as chief counsel of the Church Committee in 1975 and 1976 particularly enlightening. An extraordinary moment in American politics triggered a broad investigation that led to significant limitations on official secrecy. A series of developments—official deception surrounding the Vietnam War, President Richard Nixon’s resignation after revelations about his secret abuses of power, stolen FBI documents, a CIA director’s demand for an accounting of illegal activities, and Seymour Hersh’s investigative reporting on domestic spying—produced bipartisan support for a remarkable accounting of intelligence abuses.

The committee revealed CIA participation in plots to assassinate foreign leaders, decades of freelance spying and misinformation campaigns by J. Edgar Hoover’s FBI, and a long history of secret monitoring of international telegrams by the National Security Agency (NSA). As a result, Congress and Presidents Gerald Ford and Jimmy Carter restricted FBI eavesdropping to criminal investigations and required warrants from a new intelligence court for domestic surveillance. These measures underscored earlier bans on domestic spying by the NSA and covert actions without specific approval by the president, as well as assassinations.

Schwarz adds a thoughtful essay on the anatomy of effective investigations of abuses, studded with examples of inquiries that fell short.

What I find missing from this thoughtful book is an account of the nation’s progress toward holding presidents and their intelligence agencies accountable for their actions. Thanks in part to the Church Committee’s investigation and the durable reforms that followed, we no longer have the unfettered government secrecy that characterized much of the Cold War. The picture is mixed. While the years since 2001 have witnessed an expansion of national-security secrets, they have also featured remarkable checks on executive authority. During

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the Bush administration, concerned officials in intelligence agencies and the Justice Department reminded the president about the legal limits of their authority just weeks after the September 11 terrorist attacks. Agency inspectors general investigated the roundup of Muslim men, and Bush’s programs of secret detention, interrogation, and domestic surveillance.

Journalists, bloggers, and insiders with cell-phone cameras pieced together portions of the story. The courts and Congress acted relatively quickly to question, debate, and limit some of the administration’s actions.

The Supreme Court ruled that the president could not unilaterally create new military commissions, decree interrogation methods that ignored the law, or deprive prisoners of their right to challenge their incarceration. As Justice Sandra Day O’Connor wrote: “We have long since made clear that a state of war is not a blank check for the president when it comes to the rights of the Nation’s citizens.”

The strength of these limits on the president remains uncertain. They did not deter two presidents from secretly approving the collection of Americans’ phone records, a practice that remained hidden for 12 years

until Edward Snowden, a government contractor, leaked thousands of classified NSA documents to the press. The ensuing debate generated constructive ideas to allow searches for terrorist networks while minimizing privacy intrusions, and in June Congress enacted limits on bulk collection of telephone metadata. But the problems of secrecy and security have hardly been put to rest. In July, as the Obama administration began developing an insider-threat program to block future leaks like Snowden’s, federal officials disclosed that hackers perhaps linked to China stole the personnel records of more than 20 million current and former government employees and applicants.

The early Cold War decades did not only leave a legacy of heightened secrecy in the national-security arena. Michael Schudson makes a convincing argument that during exactly the same period, an unprecedented culture of government openness emerged primarily in domestic institutions. Schudson recounts in detail how the public gained the right of access to government documents; to agencies’ predictions of the environmental consequences of their actions; to basic information

As secrecy in national security increased during the Cold War, an unprecedented culture of government openness emerged primarily in domestic institutions.

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about processed foods; and to the deliberations and individual votes of Congress. Thanks to Schudson’s own research and reporting, each of these accounts features an unexpected cast of characters, and each shows how big changes can begin with the actions of a few impassioned individuals.

The public’s right to examine government documents, for example, resulted from more than a decade of efforts led by John Moss, an unassuming and tenacious member of Congress from California’s Central Valley.

Newly elected in 1953, Moss became incensed at the secrecy of President Harry Truman’s loyalty investigations of federal employees, which President Dwight Eisenhower expanded. He hammered away at the absurdities of government secrecy in dozens of hearings and forged a critical alliance with leading newspaper editors. When the politics of the moment finally aligned with a decade of hard work in 1966, President Lyndon Johnson, who had his own reasons for keeping secrets, forced a compromise that weakened Moss’s legislation. Nonetheless, Congress approved the Freedom of Information Act overwhelmingly, with the help of a young representative from Illinois, Donald Rumsfeld, who cosponsored the bill and rounded up Republican votes.

Likewise, a little-known Senate staffer, Lynton Caldwell, worked for years to provide a mechanism that would require agencies to consider and publicize the environmental consequences of their proposed actions.

And consumer advocate Esther Peterson worked for years for the government and then for a progressive grocery-store chain, Giant Food, to inform consumers about the freshness, ingredients, and comparative pricing of packaged foods.

Schudson was surprised, and so was I, to find that these “right-toknow” initiatives began in the 1940s and 1950s, when fear of communism and Soviet atomic power preoccupied the nation, rather than during the 1960s, the decade more often associated with social activism.

Reformers even borrowed Cold War rhetoric in accusing executive agencies of constructing a “paper curtain”

Fall 2015 The American Prospect 99

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to block public access and charging that companies were withholding essential information about food that consumers needed in a modern, free-market economy.

The media’s growing skepticism about government credibility, according to Schudson, also dates from those early postwar years, when reporters had trouble prying information out of powerful agencies, and when dissembling after incidents such as the 1960 crash of a U-2 spy plane in Soviet territory showed that officials could not always be trusted. But growing skepticism did not trigger a momentous increase in investigative reporting, which remained difficult and costly.

Instead, Schudson’s own research shows, the biggest change in the character of newspaper stories was the emergence of interpretive reporting that tells “the story behind the story.”

Schudson concludes that an increasingly educated public schooled in critical thinking has helped expand

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The government’s collection of phone records remained secret for 12 years before the leaking of NSA documents by Edward Snowden, shown here during a video interview in June.

civic engagement, polling, audits and inspections, and the many forms of media vigilance. These changes, in turn, have produced a fundamental shift in accountability in American government, from a reliance on the checks and balances provided by the president, Congress, and the courts to what Schudson calls a publicly monitored democracy, or “monitory democracy.”

These two books, then, are not as much in conflict as they first appear.

Often, openness has been a reaction against excessive secrecy. Congress’s early “right to know” initiatives were triggered in part by frustration with Truman’s expansive national-security secrecy. National-security policy, in turn, has been influenced by the many forms of accountability that Schudson describes, including internal audits, civic watchdogs, and media scrutiny.

Experience has taught that no law can keep a president from deceiving the public, or from ignoring the

Constitution’s edicts. Presidents are more often held accountable these days, but accountability usually occurs after some of the damage has been done. As the 2016 elections approach, all presidential candidates will promise openness. Perhaps the cadres of public monitors Schudson describes will find ways to dig beneath that rhetoric in order to examine their track records. How willing have they been to share with constituents their most difficult choices or come clean about embarrassing mistakes? How patient have they been with opposing views and angry protesters? How well have they made decisions in crises, respected confidences, and protected their constituents’ privacy? To prevent deception and abuse, we ultimately have no choice but to rely on the American voter.

Mary Graham co-directs the Transparency Policy Project at Harvard’s Kennedy School of Government.

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The Shame of Tax Havens Taxes evaded in offshore havens could fund a lot of public services. By Reuven S. Avi-Yonah b

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ax havens cost the world’s governments hundreds of billions of dollars a year, promote corruption, and undermine the rule of law.

They are part of a larger worrisome pattern in which the world’s corporations outrun the governing capacity of states. A tax haven is a nation that refuses to cooperate with major countries in order to lure multinational corporations and investors to nominally book transactions in its locale.

These transactions can be outright illegal, or borderline, but beyond the reach of legitimate tax authorities.

Gabriel Zucman, a young French economist now at the London School of Economics and the University of California at Berkeley, has written a masterful survey of the origins, importance, and dangers of tax havens. The Hidden Wealth of Nations is a tremendously important contribution to the current discussion of how to adjust the world’s income-tax systems, which are over a century old, to the realities of the 21st century.

Zucman makes three crucial contributions. First, he offers an absorbing account of how tax havens came into being in the period between the two world wars, and how they became much more important after exchange controls were relaxed in the 1980s.

Second, Zucman delivers a far-reaching and rigorous quantitative evaluation of the scale and dynamics of tax havens in today’s global economy. And third, Zucman proposes remedies.

The most original part of Zucman’s book is the second, in which he offers the most comprehensive evaluation to date of the scope of the tax-haven problem. Zucman came up with a brilliant new way of calculating the wealth hidden in tax havens by comparing reported financial assets and liabilities in the world’s financial centers. He concludes that around 8 percent of the world’s financial wealth is held in tax havens.

But this overall number masks the true importance of the havens, because in

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developing and emerging countries the percentage can be much higher. Zucman estimates that in Africa, the share of financial wealth held offshore is around 30 percent, while in Russia and the Middle East it is above 50 percent.

Zucman calculates that these numbers translate into about $200 billion in lost income-tax revenue worldwide. This is a large number, but it is significantly below some other estimates. For example, Joseph Guttentag and I estimated in 2007 that the U.S. alone loses $50 billion a year to illegal evasion in tax havens, based on data from the Boston Consulting Group and Merrill Lynch. This number may be lower now because of the enactment of the Foreign Account Tax Compliance Act of 2010 (FATCA), a law that requires foreign banks and other financial institutions to report accounts held by Americans to the IRS or face a 30 percent tax on their U.S. income. FATCA has had a substantial deterrent effect. But as Zucman points out, FATCA has significant built-in loopholes; for example, the penalty can be avoided by using a bank that has no U.S. assets. In any case, his $200 billion is a useful lower estimate, and a big enough number to induce political action.

Zucman proposes several steps.

The most important would be to create a worldwide register of financial wealth, recording who owns what in stocks and bonds. This register would act as a central depository coordinated by governments and international organizations, and it would allow national tax administrations to fight tax evasion by levying taxes on capital-income flows and wealth stocks.

Zucman points out that private registers of financial assets already exist, such as those maintained by the Depository Trust Company in the U.S. or by Clearstream in Luxembourg. His idea is to combine them and enlarge the field of data, and to transfer ownership of the data to the public. “Combined with

The Hidden Wealth of Nations: The Scourge of Tax Havens Gabriel Zucman

University of Chicago Press

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an automatic exchange of information between the banks of all tax havens and foreign tax authorities, a financial register would deal a fatal blow to financial secrecy,” he writes.

But what if some tax havens refuse to cooperate? In that case, Zucman proposes to levy sanctions proportionate to the costs that tax havens impose on other countries. For example, he suggests that a tariff of 30 percent on goods imported by France, Germany, and Italy from Switzerland would suffice to induce the Swiss to cooperate.

In addition, Zucman suggests that corporate use of tax havens (which is legal, and therefore numerical data are more readily available) can be curbed by adopting an apportionment system for global consolidated profits, such as that used by American states and Canadian provinces, and proposed by the European Commission. Allocating profits based on actual commerce would reduce the benefit derived from artificial booking of income in tax havens. He estimates that such a tax would increase corporate tax revenue by about 20 percent on a global basis, and that it would primarily benefit the large European countries and the U.S. I have some misgivings about Zucman’s solutions. Like Thomas Piketty’s wealth tax, the proposed register seems to require too much global cooperation among governments to be realistic. Moreover, it seems unlikely that a sanctions regime can be applied to all tax havens at once.

As for the corporate tax, while I am a big fan of formulary apportionment, there are serious practical problems to overcome with any proposal, which Zucman breezes by in the few pages he devotes to solving the corporate tax problem.

Fundamentally, I believe that the problem with Zucman’s solutions is that he is not radical enough. His proposals are based on the traditional consensus, reached by the League of Nations in the 1920s, that investment income should be taxed by the countries in which individuals reside, while business income should be taxed by the countries in which it is earned. In my opinion, this consensus should be reconsidered in light of current realities.

The original rationale for the

Fall 2015 The American Prospect 101

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consensus (the “benefits principle”) was that economists in the 1920s believed that active (business) income was earned primarily in the country of source, because that is where business activity took place, while passive (investment) income was earned primarily in the country of residence, because that is where the invested capital was accumulated. Economists no longer believe in the validity of this analysis, because most types of income have more than one source.

Nevertheless, Zucman reflects the common view that the so-called benefits principle still makes sense, because most active business income is earned by corporations and most passive investment income is earned by individuals. Since most investors have a country of domicile, individual residence is meaningful as a basis for taxation in a way that corporate residence is not. Thus, it makes sense to tax individuals based on where they reside and corporations based on where their income is earned. However, this strategy has been overtaken by new tax-avoidance techniques.

This system did function reasonably well until the 1980s. For active income, it could generally not be earned without taxation by source countries, because corporate investments by multinationals were generally immobile and tax competition was limited in scope. The 1979 Dupont case is a good illustration of the limits of tax-planning in the preglobalization era. It involved a U.S.based multinational manufacturing goods in the U.S. and selling them in Europe. Both activities were subject to high levels of taxation. Dupont tried to avoid this result by routing the sales through a Swiss subsidiary, but the U.S. court rejected this attempt, and Subpart F of the Internal Revenue Code was enacted in 1962, in part to prevent it from happening again. The underlying assumption behind the Subpart F compromise, which taxes U.S.-based multinationals on passive investment income but not on active business income, was that active business income would be taxed at its true source. If that were the case, deferring U.S. taxation would not induce the multinational to shift its income

If nothing is done about havens, the rich will continue to evade their fair share of taxes.

offshore, because the U.S. tax savings would be offset by the foreign tax cost.

In the 1980s, however, multinationals became much more mobile as the focus shifted from heavy manufacturing to services and intangibles. The result was tax competition as multinationals acquired the ability to pit one country against another. By 1995, Intel, which builds a new chip factory about every other year, was able to boast that tax competition enabled it to avoid paying any foreign tax, having pitted Mexico against Costa Rica as new plant locations, and Israel against Ireland in 2014, earning tax holidays where they settled.

On the individual level, the relaxation of exchange controls and the abolition of withholding taxes on interest (beginning with the U.S. portfolio interest exemption in 1984) created a world in which an estimated $7 trillion in income (according to Zucman’s data) can be routed through tax havens and not declared to residence authorities.

The result has been that by the early 21st century, most cross-border income is untaxed. In the case of multinationals, this is because the source jurisdiction either lacks the authority to tax or because taxation at the source is premised on a physical presence in that country. But in the age of electronic commerce, it is easy to avoid the required physical presence in the source country. Alternatively, even if the physical presence exists, source jurisdictions frequently grant tax holidays to multinationals to induce them to invest and create jobs there.

Residence jurisdictions, meanwhile, do not currently tax business income for fear that multinationals will move elsewhere, as the current U.S. inversion saga confirms. (Multiple U.S. corporations, like Burger King, nominally moved their residence, but not their headquarters, to lower-tax countries.)

In the case of individuals, exchange of information has not proven effective in deterring tax evasion via offshore secrecy jurisdictions, and no withholding taxes are levied by source jurisdictions.

The problem with this state of affairs is that in the absence of taxation of cross-border flows, the progressive income tax cannot be maintained

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because it is easier for the wealthy to earn cross-border income. The result has been a worldwide shift to taxing consumption rather than income.

Since 2008, there has been an attempt to revive the income tax on cross-border income. This has culminated in two major projects, the Covention on Mutual Administrative Assistance in Tax Matters (MAATM), which was inspired by FATCA but is now signed by more than 80 countries, and the OECD Base Erosion and Profit Shifting (BEPS) project.

However, while both of these projects are helpful, neither is likely to solve the underlying tax-avoidance strategies. In both cases, the problem is that too many countries need to cooperate for the regime to be effective. In the case of MAATM, every tax haven has to sign on because otherwise, all the funds can be routed through the non-cooperating havens.

We are far from there, and even the U.S. has not signed MAATM (it has implemented FATCA , but that applies only to U.S. residents and can be avoided by using financial institutions that have no U.S. presence).

In the case of BEPS, the project only addresses artificial profit-shifting, not tax competition, and it only applies to the OECD and G20, not to the many source countries outside these two organizations. Thus, it is likely that multinationals can avoid BEPS by sourcing income in countries that are not subject to it.

Fundamentally, if the income tax is to be preserved in the 21st century, multilateral solutions are needed. Both MAATM and BEPS are such solutions, but they are hampered by the focus on residence jurisdictions for passive investment income and source jurisdictions for active business income.

There are too many residence jurisdictions in the first case, since every country has rich people, and too many source jurisdictions in the second, since multinationals operate globally.

Thus, in my opinion, it is time to re-evaluate the benefits principle first propounded in the 1920s. Most of the current issues can be solved if we tax passive investment income primarily at its source, and active income primarily at residence.

Because most individuals are relatively risk-averse, portfolio investment flows overwhelmingly to a small number of countries—the U.S., the European Union, and Japan. Even the so-called BRICS nations (Brazil, Russia, India, China, and South Africa) mostly attract portfolio investment through mutual funds that are relatively easy to tax. Thus, if the “big three” can coordinate to reinstate a withholding tax on interest, dividends, and royalties flowing from them, most of the problem of taxing investment income can be solved. Crucially, money cannot stay in tax havens and earn decent rates of return, so the cooperation of tax havens is not needed (unlike in the case of MAATM or Zucman’s proposal).

For active business income, more than 90 percent of multinationals are headquartered in the G20, and none of those countries have a tax rate below 20 percent. So if they currently taxed their multinationals on a coordinated basis and restricted the ability to move out, most of the problem would be solved.

This approach also solves the oftcited problem of double taxation. Once passive income is taxed at source, taxpayers may be able to credit the tax upon declaring it to their residence country. And once active income is taxed at residence, a credit can be given to source-country taxes, if the source

Action Aid protesters lampoon the role of Barclays Bank in helping clients set up offshore tax havens.

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country responds to the limitation of tax competition by re-imposing its tax.

Zucman’s book makes a crucial contribution to understanding the scope of the problem of tax havens. He is to be commended especially for his brilliant use of the data to estimate the problem. But his solutions depend on an unrealistic level of global cooperation. A more measured approach that requires cooperation by fewer countries seems to me to be better.

If nothing is done about tax havens, the rich will continue to avoid the progressive income tax. And if that happens, ordinary middle-class Americans will be reluctant to pay their taxes. Our tax system is built around voluntary cooperation; if most Americans refused to cooperate, the IRS could not force them to do so. As the Greek experience has recently demonstrated, once a tax culture of non-­payment is established, it is very hard to change. Zucman’s book is an important call to do something about the scourge of tax havens before it is too late.

Reuven S. Avi-Yonah is the Irwin I. Cohn Professor of Law and director of the International Tax Program at the University of Michigan. He has served as a consultant to the U.S. Treasury and the Organisation for Economic Co-operation and Development (OECD) on tax competition.

Fall 2015 The American Prospect 103

comment

The Politics of Frustration

by Paul Starr

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epublican primary voters, we are told, are furious about the failure of their party’s elected leaders to deliver on their promises. Despite controlling Congress, those leaders have done nothing about illegal immigration and have failed to repeal Obamacare, defund Planned Parenthood, or prevent the agreement with Iran from going through.

Fed up with career politicians and fearing dire changes in American society, the party’s rank and file have instead gravitated to candidates who have never held public office—Donald Trump, Ben Carson, and Carly Fiorina. At least, that has been the story in the early going of the presidential race.

On the left, there is an analogous impatience. Just as Republicans are frustrated with the Republican Congress, so progressives are frustrated with the Obama presidency. The standard measures of economic inequality show little progress. Median incomes remain stagnant. The nation and the world continue to hurtle toward a fateful reckoning with climate change.

To some extent, both the conservative and progressive frustrations have the same origin—limited power in a divided government. Neither side is able to get its way because neither party controls all the levers of power.

But there is an additional parallel. Both conservatives and progressives say the parties’ agendas aren’t radical enough.

In the Republican campaign,

candidates have been trying to outdo each other in radical appeals. Build a wall on the Mexican border—and the Canadian one too. Ban abortion—even in cases of rape and incest. Abolish the Department of Education. Abolish the Internal Revenue Service.

Institute a flat tax—no, abolish income taxes altogether. Unilaterally abrogate the new agreement with Iran and show the Ayatollah we mean business. Send troops to Iraq again and to Syria as well.

The Republican primaries are a case study in a social psychological phenomenon known as “group polarization.” When people talk only with those who share their views, they tend to move toward the extremes. None of the candidates, except occasionally Ohio Governor John Kasich, dares talk like a moderate.

On the Democratic side, the candidates are unlikely to race to the left in a way that’s comparable to the Republican race to the right. But the idle talk about adopting single-payer health care and emulating a Scandinavian welfare state has a similar air of unreality about it. Without a total remaking of American society and politics, these ideas have no chance of being enacted outside of Vermont (which didn’t get anywhere with single-payer after initially approving it).

I get that Democrats need to inspire their base, but I have never found political delusions inspiring.

The Republican candidates ought to provide motivation enough for Democrats to show up at the polls.

In Europe, the conservative and social democratic parties may be close enough that voters see no meaningful difference between them. But in the United States, the gap between the Republicans and Democrats is cavernous.

It is also simply not true that the Obama presidency has failed to make good on the crucial issues of our time. The Affordable Care Act is

Steadiness of purpose is what matters now, especially for the Democrats. the most significant program benefiting low-income working people to have been enacted in decades.

Recent changes in taxes have been strikingly progressive. The rate on top incomes has risen from 35 percent to 39.6 percent, and capital gains taxes for high-income people have jumped from 15 percent to 23.8 percent (counting the extension of the Medicare tax to capital income that was part of the ACA).

Obama has also taken important steps on climate change, providing funds for research on radical innovation in energy, imposing regulations on carbon emissions from power plants, and laying the ground for progress in international negotiations.

The Democrats now face one political imperative above all

others: holding the presidency so as to restore a liberal majority on the Supreme Court. To be sure, Democrats will have a chance to move the Court further if they also regain control of the Senate, but the presidency is the key. The next four years will likely bring at least one and possibly two retirements among the Court’s liberal justices, and if a Republican president replaces them, conservatives will be able to consolidate their majority and entrench far-right constitutional ideas.

If Democrats can prevent that from happening, there will come a time when they can again pass substantial liberal legislation.

But it is not likely to be in the next four years because of the Republican hold on the House. Republican leaders have to control the frustration in their ranks to avoid being stuck with a reckless and unqualified presidential nominee. Democrats have to overcome the frustrations in their ranks to be able to get their voters to show up and to sustain support despite the Republicans’ likely continued power to block major legislative initiatives. It is tricky to be inspiring and realistic at the same time.

We want our leaders to disregard the chains of political practicality, which they can do in exceptional circumstances like a national crisis.

This is not that kind of moment.

The challenge now for Democrats is to avoid getting ahead of themselves and to understand that they will be able to do a lot more in the future if they can focus on what they have to do now.

volume 26, number 4. The American Prospect (ISSN 1049-7285) is published quarterly by The American Prospect, Inc., 1333 H Street NW, Suite 300 East Tower, Washington, DC 20005. Periodicals-class postage paid at Washington, DC, and additional mailing offices. Copyright © 2015 by The American Prospect, Inc. All rights reserved. No part of this periodical may be reproduced without the consent of The American Prospect, Inc. The American Prospect ® is a registered trademark of The American Prospect, Inc. Postmaster: Please send address changes to The American Prospect, P.O. Box 421087, Palm Coast, FL 32142. printed in the u.s.a.

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When Unions Are Strong, Families Are Strong

women, from 77 cents for women in general compared with every dollar a man earns, to 89 cents for union women. And a union contract makes an even bigger difference for women of color.

By Randi Weingarten, President AMERICAN FEDERATION OF TEACHERS

Take what we’re doing in McDowell County, W.Va.—the eighth-poorest county in the nation. Our union brought together public and private partners who have collectively invested more than $16 million in the last four years. The county, which was built on the coal industry, is being transformed by things it never had before—like widespread broadband access, dental care and addiction treatment.

epublicans have staked out endless signature issues: shutting down the government, vilifying immigrants, denouncing rights like paid sick leave and equal pay because they are “women’s issues,” privatizing education, and—wait for it—obliterating the rights of working people to negotiate together for better wages and benefits that can sustain their families.

New Jersey Gov. Chris Christie recently said that our teachers union deserves a “punch in the face.” Former presidential candidate, Wisconsin Gov. Scott Walker, wanted to nationalize his plan to destroy public sector unions. Yet unions are now more popular with Republicans than Christie and Walker are. That’s right, the latest polling showed that while both governors’ support in the polls ranged from zero to no higher than three percent, a full 42 percent of Republicans support unions.

In fact, support for unions is increasing. Last month’s Gallup poll showed that in just one year, support for unions grew five points to nearly 60 percent. And according to the Brookings Institution, more than 50 percent of nonunion workers say that if an election was held in their workplace tomorrow, they would vote for union representation.

Unions like the American Federation of Teachers are strengthening our families, schools and economy—at the bargaining table, ballot box and beyond.

And in New York City, our union’s work in encouraging infrastructure investments by pension funds is creating jobs by helping to finance the building of the new LaGuardia Airport. Five years ago, we made a commitment—through the Clinton Global Initiative with the AFL-CIO and the Building Trades—to invest $10 billion of our members’ pension funds into infrastructure. We’ve already created

tens of thousands of good jobs, and the LaGuardia project furthers this commitment.

Yet we are still the object of unrelenting attacks. Politicians like Christie and Walker, and the wealthy special interests that support their plans, want to eliminate unions because they see anything that helps working families get a bigger piece of the economic pie as eroding their power.

The U.S. Supreme Court case Friedrichs v. California Teachers Association is their latest tactic. Focused exclusively on public service workers—like teachers, nurses and firefighters—the case could undermine unions’ efforts to make our voices heard on issues that affect all of us: fighting for smaller class sizes, working so we can all retire with dignity, holding billionaires accountable for paying their fair share, and making sure employers understand we are working harder and harder just to get by.

Walker has said that the way to eliminate unions is to “divide and conquer.” But that’s not what Americans want. Hardworking Americans know that, as Hillary Clinton has said, “When unions are strong, families are strong.

And when families are strong, America is strong.”

When working people are supported, the economy is strengthened.

So why would a governor advance an agenda that both presses his finger on the scale of inequality against working people and places a dead weight on the economy, as it has in Wisconsin? Especially since we know that when working people are supported, as they’ve been in neighboring Minnesota, the economy is strengthened?

The same wealthy special interests and CEOs who back Walker’s policies and manipulate economic rules in their favor want to make it even harder for working people to come together, speak up and get ahead.

Photo by Michael Campbell

All across the country, though, people understand that unions are good for their families. Journalist Denis Hamill recently wrote about the sea change when his father’s factory was unionized: Workers’ terrible pay and working conditions improved immediately. Unionization was a lifeline, lifting families out of tenements and into the middle class.

That’s still the case, as a new study from researchers at Harvard University, Wellesley College and the Center for American Progress shows. Children in areas with higher union membership have more economic mobility, and children in union households have better outcomes.

Unions also give women a leg up. According to a new report from the Institute for Women’s Policy Research, the wage gap between men and women narrows for union

Photo by Michael Campbell

Weingarten speaks about educational justice in front of the U.S. Supreme Court.

Follow AFT President Randi Weingarten: www.twitter.com/RWeingarten

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