CHAPTER 4

Business, Labor, and the Politics of Inflation

I don’t go along with the idea that sees us as heroes on inflation and villains on unemployment. That will take us to a point where no conservative will ever be elected again.

—Richard Nixon, February 1969

Present high inflation threatens the economic security of our Nation…. Inflation is a symptom of economic distress…. Our whole society, the entire American family, must try harder than ever to live within its means.

—Jimmy Carter, March 14, 1980

SINCE THE 1920s, the United States Chamber of Commerce has occupied a grand three-story limestone building straight across Lafayette Square from the White House, in the heart of Washington, D.C.¹ On January 20, 1972, this stately headquarters on H Street, half a city block on all sides and encircled by Corinthian columns, hosted the Chamber’s annual Association National Affairs Conference, an opportunity for Chamber members to discuss national political issues and their role in policymaking. In the realm of national politics, the 1,200 corporate executives and trade association representatives who convened in Washington that winter day certainly had plenty to fret over, not least the fortunes of the Republican Party. Just fourteen months earlier, the GOP and many business-backed candidates had suffered a severe bruising in the 1970 midterm elections, and President Richard Nixon’s prospects for reelection looked doubtful given the weak economy, the resurgence of antiwar activism, and the continued power of organized labor within the Democratic Party. Despite that outlook, an even more pressing problem dominated the conference: the previous summer, the Nixon administration, through its Economic Stabilization Program, had established the country’s first-ever peacetime experiment in mandatory wage and price controls, and the now half-year-old system proved endlessly vexing to the Chamber’s members. (The tens of thousands of military personnel fighting and dying in Vietnam, Laos, and Cambodia at the time likely quibbled with the term “peacetime,” but the phrase nonetheless dominated the discourse.) How, the Chamber conference’s attendees wondered, had inflation grown so out of hand that the federal government—run by Nixon, a supposedly pro-business Republican—had begun controlling prices? How did the program affect their firms and industries? And more important, what could the business community do about the ever more ominous problem of inflation?²

Richard Nixon’s wage and price controls program, a little-remembered episode that nonetheless dominated the administration’s domestic economic policy for nearly three years, began with a nationwide price freeze in August 1971. By executive order, no producer could raise the price of any good or service higher than it had been the previous month, no landlord could a hike a rent, and no worker could receive a higher wage. Although Nixon had vowed to oppose such heavy-handed government action earlier in his term, political and economic circumstances conspired to force his hand. After nearly a decade of expansion, the American economy entered a recession in 1970. Then, in the summer of 1971, an international monetary crisis erupted. Under the Bretton Woods agreement of 1944, the U.S. dollar effectively served as the world’s reserve currency, and the United States promised to redeem dollars for gold at a fixed rate of $35 per ounce. By 1971, foreign central banks had assembled enormous stockpiles of greenbacks and threatened to redeem them immediately, but the United States did not have sufficient gold stocks to back up the dollars in global circulation. To prevent a devastating run on American reserves, Nixon suspended gold convertibility and asked Congress to pass several measures to stimulate the flagging economy. But both the devalued dollar and Nixon’s stimulus programs threatened to put upward pressure on inflation, which had been edging higher since 1965 and reached a 5 percent annual rate in the summer of 1971; hence the wage and price freeze. That fall, the administration replaced the out-and-out freeze with “Phase II” of the controls program, a convoluted system of councils, boards, and commissions designed to gradually liberalize prices and wages while still keeping inflation within a low target range of 2 to 3 percent. By January, when the Chamber held its meeting, business leaders joined the rest of the country in a struggle to understand the complex bureaucracies involved in the new regime.³

Phase II wage and price controls required certain firms—depending on their industry and number of employees—to petition the government for permission to raise their prices or else face tax penalties for noncompliance. But which firms, which prices, under which circumstances, and at what penalties? The details were murky, highly politicized, and deeply frustrating. Confused and anxious, the Chamber’s directors saw the Association National Affairs Conference as an opportunity for their members to learn more about the intricacies of the program as well as to voice their collective concerns about inflation, government-led economic planning, and their sense of relative powerlessness in the political process. For many, the biggest highlight came when John Connally, Nixon’s treasury secretary, rose to address the assembly.⁴

Under the Economic Stabilization Program, Secretary Connally chaired an agency called the Cost of Living Council, which coordinated the entire operation and thus served as the public face of the anti-inflation campaign. A conservative Democrat and former Texas governor who was wounded during the Kennedy assassination in 1963, Connally appealed to many businesspeople as a self-made man who had worked his way through law school before parlaying his legal practice into a lucrative career in the oil industry. The tall, charismatic politician comported himself with what Henry Kissinger described as “swaggering self-assurance,” and he practiced fierce political loyalty. In the 1960s, he had worked hard for his fellow Texan Lyndon Johnson; by the 1970s, he transferred that devotion to Nixon, who tapped him to head Treasury largely to appeal to conservative southern Democrats.⁵ Taking the podium to address the Chamber of Commerce’s convention, the fifty-four-year-old Connally displayed the southern bravado for which he was famous, and he minced no words defending his boss and challenging his fellow businessmen. According to the Chamber’s newsletter, the secretary “launched a particularly hard-hitting off-the-cuff talk that chastised the business community for dragging its feet in supporting the Administration’s efforts to revitalize the economy.”

“This Administration,” Connally thundered, “has defended the American business enterprise of this nation far more than you’ve defended yourselves.” At business’s behest, he continued, Nixon had pushed through Congress a massive stimulus package, including investment tax credits, other tax cuts, and reforms to foreign exchange rates that made American manufacturers more competitive abroad. “You asked for it. You got it. But what have you done with it? Nothing!” Connally roared. Meanwhile, he added, “The rest of the world is at work while we’re worrying…. They’re out-working us; they’re out-thinking us; they’re out-planning us day after day.” Business leaders’ handwringing and incessant complaining in lieu of action, Connally maintained, had in fact created the need for the very wage-price controls system that now bedeviled them. Nixon had been forced to implement the controls, the secretary claimed, because employers made irresponsible and selfish decisions to raise prices and accede to wage demands, despite their effect on the national economy. Until business asserted itself against labor unions, he threatened, the controls would continue. “When you make up your minds that you can no longer … expect anybody to support unconscionable and unreasonable wage demands, and when you realize you can’t continue to raise your prices in an unconscionable fashion, we will end controls…. It could be next summer or next fall or maybe it will be four years from now—I don’t know. It depends on you.”⁶ Accusing his fellow business leaders of whining about government even as they kowtowed to labor, Connally put a fine point on many Nixon administration officials’ frustration with the leadership of the business community. If the Chamber conference participants had sought sympathy from one of their own, they found none in John Connally.

The leadership of the Chamber of Commerce did not take kindly to such a dressing-down. For years, as the previous chapters argued, business leaders had bemoaned their political impotence in the face of liberal regulatory policies and labor activism. Despite Nixon’s conservative reputation and his “New Federalism” initiatives that devolved social welfare spending to the states, his embrace of not only price controls but also more muscular social regulation—including especially the EPA and OSHA, both created in 1970—reinforced many business leaders’ conviction that he was at best a fair-weather friend. To hear a prominent member of his administration publicly mock business for what corporate leaders perceived to be their greatest weakness stung deeply and ruffled more than a few feathers.

Several days after the speech, Chamber executive vice president Arch Booth wrote Secretary Connally a letter, which the organization subsequently published for its members, that aimed both to stick up for the business community and to refocus the debate on the causes of and solutions for inflation. After perfunctorily thanking the secretary for his time, Booth launched a pointed defense against the charge that business could do nothing but whine and drag its feet. Although Connally’s “tough-love” approach challenged business leaders to be strong and forth-right, Booth hastened to point out how weak and ineffective firms really were—essentially validating Connally’s premise. “It’s easy to suggest that business must be tougher in resisting unreasonable wage demands,” Booth protested. “But when a strike results, who suffers? Not the strikers, who receive welfare checks, food stamps, and other government aid.” Citing the classic business-conservative view of collective bargaining, Booth implicitly argued that in any contract negotiation, management and labor naturally exercised equal economic power, and the government thus should leave them to negotiate freely on their own. Ideally, Booth believed, the state should act as a neutral arbiter to ensure a level playing field for the two competing sides, yet labor partisans in Congress routinely stacked the deck against employers. The minimum wage, welfare, and government construction contracts all bolstered labor’s collective power unfairly, Booth claimed, to business’s detriment. If the Nixon administration really wanted to empower employees, he told Connally, the place to start was redressing this imbalance of power, not with maligning business leaders for their justifiable complaints.⁷

As Booth and Connally’s testy exchange demonstrated, the business community’s vague political anxieties crystallized around specific policy battles in the early 1970s. Indeed, fiery debates over price controls presaged a decade-long battle over the politics of inflation—whom to blame for it and how to fix it—that loomed large over American politics and profoundly shaped the development of organized business lobbying. The controls program itself brought business leaders’ frustrations, both with their political opponents and with themselves, into sharp relief. On one hand, corporate leaders argued that mandatory price restrictions flew flagrantly in the face of free-market economics and would surely lead to disaster—business failures, supply shortages, layoffs. Moreover, many believed, the very fact that the economy had devolved to a point that controls appeared necessary reaffirmed how politically weak business had become in national policymaking. At the same time, many businesspeople reluctantly accepted the controls, at least for a time, because of their intense fear of inflation. This inability to decide which was worse—the disease or the treatment—spawned a sense of political paralysis that only exacerbated business leaders’ collective sense of impotence.

This chapter traces the complex politics of inflation from the onset of wage-price controls in 1971 through the peak of America’s inflationary experience during the Carter administration. During those years, the country’s major business associations successfully mobilized a powerful lobbying operation by negotiating the new political terrain that inflation created. From the frustrating nadir, typified by the public spat between Connolly and Booth, organized business leaders rebounded mightily, successfully engaging in both ideological debates and interest group politics to bolster their institutional unity and achieve clear policy victories.

The source of business groups’ revival in the 1970s lay in their successful navigation of the politics of inflation. Historically, battles over price instability emerged along the class lines created by an industrial political economy—they pitted the interests of workers against those of employers, or labor against capital. According to a simplified model, modest increases in nominal prices tended to redistribute wealth downward by shrinking the value of accumulated wealth while reducing the real value of debt. Traditionally, this tendency meant that financiers championed stable-money policies while debtors (particularly farmers) pushed for inflationary policies. In the aftermath of World War II, the class-based divisions over inflationary policies continued, albeit in a revised form. As Keynesian economic thinking came to dominate American policymaking, most economists accepted the Phillips Curve, which predicted that inflation and unemployment moved in opposite directions. The stewards of national economic policy thus faced a clear trade-off: pursue price stability (to the primary benefit of capitalists and employers) or risk some inflation in the interest of expanding economic growth and job creation.⁸

Figure 4.1. Images like this, published by the U.S. Chamber of Commerce to promote a television special in 1971, expressed the common argument that inflation functioned as a type of tax on all Americans. In it, the greedy caterpillar of price instability eats away at the purchasing power of the American dollar. Courtesy of Hagley Museum and Library.

As the quotes that begin this chapter indicate, those classical conceptions dissolved during the 1970s. Speaking at the beginning of his term, Richard Nixon recapitulated—and then rejected—the traditional view that Republicans, because they favored business, put inflation fighting ahead of economic growth, while Democrats, the party of the working class, worried instead about unemployment. For Nixon, that traditional political model promised nothing but ruin. Yet by 1980, Democratic president Jimmy Carter precisely reversed Nixon’s calculus, calling for national sacrifice among consumers in defense of price stability and accumulated capital. The worm had turned, and business-oriented inflation fighting became Carter’s top priority, negative consequences for workers be damned.

This transition occurred because, during the 1970s, the politics of inflation increasingly revolved around middle-class consumers, a category that muddied the easy distinction between “labor” and “capital.” As wages failed to keep pace with rising prices, consumers felt the pinch. Purchasing power declined, and the higher cost of everyday goods outweighed the advantages of a smaller debt load. But who should pay the price of reducing inflation—corporations through their profit margins, or workers through their paychecks? As an interest group, consumers held no inherent loyalty to either business or labor, so union and corporate leaders competed fiercely for their support. Couching their policy preferences in terms of pocketbook politics, political agents from each side blamed the other for the high cost of living, and each insisted that the other shoulder the painful burden of resolving it. On one hand, labor and other left-leaning political activists castigated excess profits, executive compensation, and corporate greed. On the other, business leaders and their surrogates denounced the inflationary effects of wage demands that outpaced productivity as well as wasteful government spending.⁹

Figure 4.2. Business leaders saw themselves in direct conflict with labor for the support of middle-class consumers. Here, members of the U.S. Chamber of Commerce perform that conflict by imitating striking workers to “protest” the advantages they believed labor wielded over business, particularly among policymakers (such as those who favored “food stamps for strikers”) and in collective bargaining agreements that rewarded “strike violence” with “wage increases in excess of productivity gains.” This event occurred at the Union Power Luncheon during the Chamber’s 1971 annual meeting. Courtesy of Hagley Museum and Library.

The contentious debates over inflation in the 1970s sharpened the battle lines between labor and business, fueling the right-wing critique of liberalism as well as corporate leaders’ political mobilization.¹⁰ Wading into the thick brambles of wage-price controls, labor law, and economic planning, organized business groups took up those political challenges and emerged triumphant. Yet as this chapter demonstrates, their success did not come easily. Although the collective mouthpieces of the business community yearned mightily to engage in national politics, they faced substantial obstacles. Their ambivalence over wage-price controls and the penchant for worrisome handwringing for which Connally chastised the Chamber of Commerce reflected a much larger trend. Maintaining a united front on such contested policy issues and making a confident political case against organized labor required a good deal of energy and coordination, not to mention deep pockets and tremendous will. By successfully running the gauntlet of inflation, organized business groups achieved important victories. By demonizing liberal notions of economic planning and dampening public support for labor, they established themselves as a powerful force in national politics.

THE POLITICS OF WAGE-PRICE CONTROLS

Long before Richard Nixon announced his Economic Stabilization Program, the major mouthpieces for American business had staked a clear position against using mandatory price controls to curb inflation. Prior to 1971, the country’s only experiences with compulsory price-fixing by the federal government had unfolded amid the exigencies of war; in the aftermath of each world war and the Korean War, business leaders placed themselves at the forefront of the political push to abandon controls and allow market mechanisms once again to determine the going rate for goods, services, and labor. In the 1960s, both before and after the escalation of hostilities in Vietnam, Presidents Kennedy and Johnson each administered price “guideline” programs, although the annual inflation rate hovered around 3 percent for most of the decade. Under those voluntary programs, government experts determined acceptable percent increases for wages and prices industry by industry. In lieu of formal legal power, the government relied on moral and political suasion, the process called jawboning, to compel unions and firms to comply. Among employers’ associations and the heads of major industrial corporations, however, even voluntary guidelines provoked howls of protest. According to a NAM subcommittee: “Attempts to reduce inflationary pressures through ‘guideposts’ for wage-price behavior or selective controls are both self-defeating and destructive to the economy.”¹¹

The end of the Kennedy-Johnson period and the advent of the Nixon administration provided some relief for business leaders who continued to fret about price controls. Ironically, Richard Nixon had cut his teeth in government as a bureaucrat with the Office of Price Administration, which implemented national price controls during World War II, but the Republican president made his philosophical opposition to mandatory controls clear early in his term. Nonetheless, in the summer of 1970, opinion polls showed that the public increasingly supported the use of price controls to rein in inflation. In a cynical move, congressional Democrats passed the Economic Stabilization Act that August, giving the president the authority to impose price controls and hoping that Nixon would bear the political costs for not doing so.¹² For their part, corporate leaders insisted that the government keep this newfound power in the drawer. “[T]he only occasion when wage, price and rent controls might be used,” a Chamber of Commerce executive warned Congress, “would be during extreme emergency conditions involving an imminent external threat to the national security.”¹³

But the case for price controls persisted. Many policymakers and economists argued that the “psychological expectation” of inflation could only be reversed by strict government action. According to this argument, people who anticipated inflation tended to behave in ways that actually caused inflation. For example, workers would demand larger pay raises to offset future increases in the price of consumer goods, and companies would increase their prices preemptively because they expected higher labor and supply costs to cut into future profits.¹⁴

Moreover, the demands of electoral politics also pushed Nixon to reassess his stance. Chastened in the 1970 midterm and struggling in the polls, the president worried that appearing to side with business interests could damage his already weakened prospects for reelection. Moreover, Nixon simply did not feel as beholden to business as many corporate leaders had hoped a Republican president would be. In part, this was personal: Nixon viewed the “East Coast establishment”—including top industrialists and financiers—with loathing and jealousy, a bias some scholars have suggested had roots in his sense of social inadequacy as a teenager.¹⁵ Just as important, Nixon calculated that he had little to lose politically by distancing himself from big business but much to gain. While business-oriented conservatives would never back his opponent, Nixon could structure his domestic policies to woo traditionally Democratic voters, including white ethnics, poor southerners, and members of the working class.¹⁶

Ultimately, a perfect political and economic storm forced the president’s move. Amid mounting public clamor for direct action against inflation, a lackluster economy, an international monetary crisis, and, eventually, the encouragement of all his economic advisors, Nixon came around. On August 15, 1971, he announced a “New Economic Policy,” including a complete freeze of wages, prices, and rents. With that announcement, the Republican president business conservatives had hoped would undo Great Society liberalism and liberate free enterprise from excessive regulation instead inaugurated what Time magazine called “one of the most complex of bureaucratic exercises” known to the modern presidency.¹⁷

But a funny thing happened on the way to national economic planning. Despite their outspoken prior hostility to price controls, most prominent business leaders greeted Nixon’s freeze with cautious enthusiasm. The chairmen of General Motors and Chrysler declared themselves “pleased” and “delighted” with Nixon’s dedication to solving the inflation mess, and the president of Republic Steel called the New Economic Policy “a bold, progressive, forward-looking program.” The head of Pan American Airlines told Nixon that the wage-price freeze could “spark a revival for the lagging air travel industry.” Financial institutions were particularly supportive, and many lenders promised not to raise interest rates (which were technically not frozen), easing the flow of credit to firms that might need cash but could not raise prices.¹⁸ As the chairman of Metropolitan Life Insurance assured the president, “the general feeling [among top executives] was one of pleasure and relief that a firm and broad policy of action was taken.”¹⁹ Even the NAM and the Chamber of Commerce accepted the move as a fait accompli and offered clear, if not ebullient, votes of confidence. Chamber president Archie K. Davis, head of Wachovia Bank, praised Nixon’s “bold and decisive leadership in moving against our domestic and international economic problems.” And looking forward, NAM president Werner Gullander pledged “the wholehearted cooperation of the industrial community to supporting President Nixon’s efforts to control inflation.”²⁰

If chief executives and association leaders appeared to turn on a dime and accept mandatory price controls, their gestures of support in fact masked severe apprehensions, which many, quite diplomatically, reserved for private venues. In the fall of 1971, for instance, the Chamber of Commerce produced a twenty-minute slide show for local business leaders that described August 15, 1971, as “doomsday for free enterprise in America.” According to the Chamber’s public relations department, the freeze had been a necessary evil, brought on by “an intolerable economic crisis”—spiraling inflation, declining productivity gains, increased competition from foreign manufacturers, and shrinking exports. Despite its official support, however, the organization implored its members to remain vigilant and help keep the administration focused on the “root causes” of inflation: “union power and excessive government spending.”²¹ Perhaps, the Chamber suggested, this “doomsday” scenario had a silver lining from a public relations perspective: an opportunity to raise “public awareness of our economic problems” and provide the American voter “a compelling reason for listening to—and understanding—rational solutions to our economic ills.” Using the freeze as a teachable moment, Chamber directors launched a major public information campaign that included full-page ads in Washington-based newspapers in the fall of 1971 that declared “Let’s Freeze Government Too!”²²

Offering a tepid yet favorable response to the freeze, despite the cognitive dissonance involved, business leaders played the politics of inflation shrewdly by aligning themselves with public opinion and against the major mouthpieces of organized labor, which largely criticized Nixon’s decision. Although labor and its legislative allies had long supported the concept of price controls—or “incomes policy”—in general, the AFL-CIO leadership, as well as a vocal minority of the rank and file, complained that such a program, administered by ostensibly business-oriented Republicans, would focus too much on wages, hurting workers. The wage-price freeze threatened to nullify pay increases that had been negotiated but not yet implemented, giving “the working man,” in the words of a Louisiana-based member of the United Papermakers and Paperworkers union, “the short end of the deal.”²³ But Americans in general—and even a majority of union households—looked quite favorably on the plan. In the summer of 1971, the Gallup organization reported that 70 percent of the public supported the measure, a figure that only grew as inflation dropped from 4.6 percent to 3.8 percent that fall. Critics argued that inflation had in fact started to decline before August 15 (a claim economists later validated), but the program’s apparent success surely bolstered its popularity.²⁴ That combination of public support and labor opposition created a golden opportunity for business leaders and economic conservatives. Business Week magazine, for example, argued for the freeze precisely because labor opposed it. Although a few outspoken conservatives—most prominently William F. Buckley Jr. of the National Review and economist Milton Friedman—criticized the plan as essentially statism, most conservatives joined business leaders in shelving their philosophical disappointment and forging a consensus view that economic reality demanded harsh medicine.²⁵

In the fall of 1971, as the administration rolled out “Phase II” of the controls program, members of the business community continued to profess qualified enthusiasm. Many, like PepsiCo CEO Donald Kendall, couched their support in terms of political and economic necessity. Kendall, a prominent Republican who had accompanied then vice president Nixon to Moscow in 1959 and witnessed the Kitchen Debate with Nikita Khrushchev, told Nixon that while he “normally believe[d] in the free market place,” it had been “necessary to put on controls.” More ominously, Kendall also warned that Nixon had no choice but to maintain the program until inflation declined; abandoning the fight against inflation now would give “the opposition … a specific campaign issue for 1972.”²⁶

While corporate leaders like Kendall focused on the political stakes, others confessed that the program’s actual mechanisms made the medicine easier to swallow, whatever their ideological misgivings. As John Connally took pains to explain at the Chamber’s association meeting in January 1972, the administration had largely developed the architecture of the controls program with business interests in mind, and each of Phase II’s most important components relied heavily on business input. The Pay Board, modeled after World War II’s War Labor Board, comprised fifteen members, five each from organized labor, business, and the “public”—that is, people who did not represent any union or company—who determined when workers could receive higher wages and how much. The Price Commission, which regulated the end prices that companies could charge, consisted of seven members from the public led by a business school dean.²⁷

Indeed, the vicious politics of inflation flared most vividly at the Pay Board, whose tripartite nature pitted labor representatives like AFL-CIO president George Meany against the “business” and “public” members. After a series of bitter 10 to 5 votes in which the public and business representatives voted for far more restrictive wage increases against the labor contingent, four of the labor members quit the board. In Meany’s words, they refused “to be a part of the window dressing for this system of unfair and inequitable Government control of wages for the benefit of business profits.” Only Frank Fitzsimmons of the Teamsters remained, and Nixon rearranged the board to include only one representative from labor and one from business. The spat convinced many corporate leaders that Connally was right to present the controls as “business-friendly”—anything that made Meany so furious couldn’t be all bad.²⁸

Business leaders also appreciated that the White House so openly defended the importance of corporate profits. For example, the Pay Board declared early on that it would rule on petitions for wage increases based solely on improvements in worker productivity, exactly as management wished.²⁹ And although the Price Commission had an explicit mandate to trim corporate profits (on the theory that net revenues exceeded costs only because prices were too high), it issued major exemptions when profits came from gains in productivity or sales. Such a focus on productivity and capital reinvestment took much of the ideological sting out of price controls, even as it fueled labor’s accusations that Phase II offered too much to business. Indeed, shortly before he quit the Pay Board, George Meany ranted that the Price Commission was “more concerned with profit margin maintenance and total profit expansion” than with actually keeping prices down for consumers. Widespread consensus about the need to combat inflation, as well as Phase II’s institutional favoritism toward business, softened the hard edges of government-mandated price controls.³⁰

BUSINESS TURNS AGAINST CONTROLS

Despite those soft edges, many business leaders remained ambivalent about the wage-price controls program, as the Chamber members’ testy exchange with John Connally brought into focus. Many believed that business’s tacit acceptance of the controls exposed a crucial ideological inconsistency that would ultimately weaken their defense of free enterprise in the long term. By June 1972, a Chamber committee recommended that the organization formally renounce the controls program and begin to work against it. The board of directors, however, voted against the proposal, persuaded that the controls had in fact reduced inflation somewhat and that ending them abruptly, in the words of their in-house economist, “would restore market discipline but would threaten stability from a possible price surge.” The risks of inflation, the board concluded, simply outweighed the benefits of returning to a market-based system.³¹

Leaders at the NAM likewise disputed what public position to take on the controls. Congress would have to reapprove Nixon’s authority to mandate price controls in the spring of 1973, and the NAM’s leaders believed their organization should play a major role in that debate, one way or another. When twelve men and one woman on the NAM’s Ad Hoc Committee on Phase II failed to reach consensus on the program in November 1972, the group’s chairman polled more than one hundred executives on the board of directors, hoping to locate “the views of industry.” Instead he found only more ambivalence.³² Ultimately, despite its clear philosophical predisposition to “free enterprise,” the NAM’s Executive Committee granted Nixon a guarded vote of confidence to continue the controls.³³

Although the NAM and the Chamber struggled to achieve consensus among their vast memberships, the newly formed Business Roundtable found greater success articulating a clear defense of free markets and opposition to the price controls regime. Born right in the thick of Phase II—the LLSC and the CUAIR merged in October 1972—the Roundtable represented the sum of management’s fears about inflation. Moreover, its streamlined and hierarchical structure facilitated consensus building among its members.

Just one month after the merger that brought it into existence, the Business Roundtable launched its first official foray into the world of direct lobbying in response to growing frustrations with Phase II. In November 1972, Roger Blough led a Washington-bound contingent that included John Harper of Alcoa, Richard Gerstenberg of General Motors, John deButts of AT&T, and Beverly Murphy, the retired CEO of Campbell’s Soup and the Roundtable’s chairman. The five men arranged a private meeting at the White House with budget director Caspar Weinberger, Council of Economic Advisors (CEA) chairman Herbert Stein, and Federal Reserve chairman Arthur Burns, where they forcefully argued for an immediate end to the controls program. Such a display of unanimity among the leaders of major corporations no doubt impressed administration officials, who did not hear as much consensus from other corners of the business community. Yet the officials doubted, in Murphy’s words, “that controls in one form or another could be lifted without serious economic effects”; rather, they persuaded the Roundtable CEOs that they were actively working on “alternate plans to replace the present control program.” This seminal meeting thus marked a vital coming-of-age for the big-business CEOs who formed a united front against economic planning, even as it reaffirmed the uphill struggle for influence they faced. For their part, the Roundtable CEOs focused on the silver lining. Despite failing to stop the controls immediately, the nascent business group lauded itself (privately) for opening a direct pathway to policymakers.³⁴

Tensions between business and the administration dissipated slightly in January 1973 when Nixon, claiming imminent victory over inflation, announced Phase III of the Economic Stabilization Program, which made price controls even more palatable to business by jettisoning the Pay Board and Price Commission and implementing broad standards rather than rigid regulations.³⁵ But that brief moment of optimism proved to be short-lived. The administration’s hopes that inflation would continue to decline in 1973 were summarily dashed when, freed of Phase II strictures, many firms quickly raised prices to catch up on lost revenues. Moreover, a global economic expansion led to greater consumption and production, and an unexpected shortfall in wheat, grain, and rice harvests around the world caused unregulated agricultural prices to spike. Wholesale inflation hit an astounding 21 percent annual rate in the first three months of 1973, and consumer staples like food and petroleum grew especially dear.³⁶ Nixon faced widespread criticism that his “voluntary” program was merely a sop to business and his administration scrambled desperately to recover.³⁷ To curry favor with consumers, the president flexed Phase III’s muscle in late March by freezing wholesale and retail prices for beef, pork, and lamb.³⁸ To allay public fears that his administration looked out only for big business, he required all firms with more than $250 million in annual sales to submit prior notice of any price changes, even though inflation was by then rooted in food and commodities.³⁹ And in June the president threw a Hail Mary pass: Freeze II, a two-month moratorium on price, but not wage, increases, followed by Phase IV controls. This new plan, in Nixon’s words, entailed “tighter standards and more mandatory compliance procedures” for corporations but did not change the standards for wages, which, the president claimed, had “not been a significant cause of the increase in prices.”⁴⁰

In the short term, the policy shift fanned the flames on all sides. By mid-July, 75 percent of Americans claimed to support Nixon’s economic policy. The freeze on food and petroleum, where heightened demand and nearcapacity production systems caused gasoline prices to creep ever higher, garnered particularly high praise.⁴¹ Organized labor also began to reconsider its longstanding skepticism in light of Phase IV’s fixation on prices rather than wages. Frank Fitzsimmons of the Teamsters applauded Nixon for “look[ing] a serious national problem right in the eye and … tak[ing] bold action.”⁴²

To be sure, the Manichean politics of inflation meant that policies that pleased labor drove business to distraction, and Freeze II brought none of the accolades and solidarity that business leaders had offered Nixon when the whole program began in August 1971. Walter Wriston, CEO of First National City Bank and a member of the Business Roundtable’s Policy Committee, offered Nixon a (deeply flawed) history lesson, claiming that wage-price controls would lay waste to freedom and prosperity: “There is no instance in recorded history, since the Roman Emperor Diocletian first put controls on 900 items in the third century, when such action has halted inflation,” he said. Contradicting himself, Wriston said that even though the first freeze “did a great deal to break up the psychology of inflationary expectations,” resurrecting such a policy only proved that “Government intervention in free markets becomes addictive.”⁴³ By siding with the consuming public and labor, Richard Nixon had squandered whatever goodwill he had with conservative business leaders.

Meanwhile, Phase IV prompted an immediate about-face among the boards of directors of the NAM and the Chamber, who had struggled so mightily to achieve a consensus in defense of free markets. Inflation raged as fiercely as ever, but without preferential treatment from the government, ideology prevailed and business leaders declared war on the Economic Stabilization Program. In September 1973, the NAM’s board of directors voted overwhelmingly to steadfastly oppose the continuation of wage and price controls and immediately began publicizing its new creed. A fiery brochure called “Why NAM Is against Wage and Price Controls” provided a coherent set of talking points for the NAM’s network of member companies, arguing that Phase IV typified “a tendency that is politically inevitable in any system of controls—a marked bias against profits.”⁴⁴ The Business Roundtable’s leaders likewise declared that continuing controls could “only aggravate dislocations which inevitably follow an extended period of interference with the operation of free markets.”⁴⁵

Events on the ground gave credence to business leaders’ new mantra as the economy deteriorated rapidly in the summer of 1973. Bare shelves at grocery stores, layoffs, shuttered factories, and the grotesque slaughter of unmarketable farm animals by the thousands all testified to the market dislocations generated by Freeze II.⁴⁶ When Nixon ended food price controls in August, grocery bills skyrocketed. Then just as the food price shock normalized, OPEC cut off oil exports in retaliation for American support for Israel in the Yom Kippur War of October 1973. The embargo brought the already strained petroleum industry to near collapse and pushed overall inflation rates even higher. As energy eclipsed food prices as the country’s primary economic woe, the White House transferred gasoline price controls to the new Federal Energy Office.⁴⁷ Organized business groups, finally able to articulate their long-held case against government interference in the operations of the free market, at last found a more attentive public. Support for Phase IV decreased rapidly, as confidence in the government’s ability to restrain inflation through controls waned.⁴⁸

Organized labor likewise solidified its opposition to price controls in the fall of 1973, despite some union leaders’ support for the second, labor-friendly freeze during the summer. Framing the context in strict class terms, AFL-CIO president George Meany argued that an acceptable controls program remained theoretically possible, even desirable, but only if it placed the cost burden on well-paid businesspeople by limiting profits and dividends; hardworking union members should not suffer through restricted wages. Since Meany could not imagine that the Republican president would ever institute such a program, a better approach would be no controls at all.⁴⁹

The issue ultimately came to a head in Congress in the winter and spring of 1974 in debates over whether to reauthorize Nixon’s price controls program. The original Economic Stabilization Act of 1970 provided only temporary authority, so the reauthorization debate presented organized business groups a tremendous opportunity to exercise their new commitment to pan-industrial mobilization and lobbying. In the final months of his doomed presidency, Nixon himself remained detached from domestic policymaking, utterly consumed by the Watergate scandal. In his absence, White House economic advisors meekly advocated a temporary reauthorization of the controls to allow them to wind the program down on their own timetable. Thus, after years of hedging their bets over inflation, organized business leaders at last prepared to use their institutional force to lobby Congress in the name of free enterprise.

In February, NAM president Douglas Kenna and Chamber of Commerce treasurer Charles Smith testified before the Senate, projecting interorganizational unity as well as statistical evidence of widespread opposition to the controls within the business community. The headache of compliance, submitting formal price-increase notifications, reassessing tax obligations, and submitting labor agreements for federal oversight—not to mention the ideological stigma of government-mandated prices—convinced approximately 95 percent of NAM member firms to favor “a prompt termination of controls.” The deep networks that these national institutions had forged between political elites and rank-and-file business owners provided the substantive grist for Smith and Kenna’s testimony, in which they unflinchingly dismantled the logic of price controls. Regaling the senators with stories about production delays, shortages, abrogation of contracts, and other inefficiencies, the two representatives of organized business deployed explicit examples from legislators’ own constituents to make the case for immediate termination.⁵⁰

The Business Roundtable likewise threw itself into the fray during the final battle against Nixon’s wage-price controls. For the young organization, the legislative battle marked a vital shift in focus away from big-business leaders’ historically close work with the executive branch. Sensing a real opportunity to shape the debate in Congress, the Roundtable sent a contingent of CEOs to Capitol Hill, including the chiefs of such powerhouses as Westinghouse Electric, B. F. Goodrich, and Continental Can. These executives testified not only on behalf of their own companies but also as members of the Roundtable, the united—and now very public—voice of large industrial corporations. While the NAM and the Chamber, whose members ranged from single-proprietorships to multinationals, argued that controls hurt companies of all sizes, the Roundtable executives explained that price controls hurt big businesses in particular by restricting capital accumulation. Firms of all sizes hoped to re invest their profits, they claimed, but such investment constituted the lifeblood of large multi-unit firms.⁵¹ Like Smith and Kenna, Roundtable CEOs cultivated broader networks to influence legislators. Leading up to the lobbying campaign, the group’s chairman, John Harper, exhorted his fellow CEOs “to express their views to Congress and the general public” because the appearance of “grassroots” support among large companies would prove far more influential than the testimony of a handful of powerful executives. “This needs to be done now and repeated frequently,” Harper insisted.⁵²

Organized business leaders worked hard to generate support for their lobbying efforts at all levels, but their efforts likely would have succeeded in any case. With only a tepid defense from the White House and firm opposition from organized labor, the best-funded and most powerful interest group in Washington, the wage-price program was doomed. Nonetheless, a slim majority of Americans still favored mandatory controls, and many liberals in Congress supported the program as a proxy for national economic planning. Other legislators simply wished, as one said, to “cast a vote against inflation” before running for reelection.⁵³ In the end, however, those gestures proved too little to save the program, and Congress allowed the Economic Stabilization Act to expire. Thus while the campaign against controls certainly did not pose the toughest challenge that employers’ associations and their lobbyists would face in the 1970s, it provided an essential training ground for later successes. As April turned to May in Richard Nixon’s final year as president, his authority to impose wage and price controls quietly evaporated, and business leaders claimed an important organizational victory.⁵⁴

THE UNFINISHED CAMPAIGN AGAINST INFLATION

Corporate leaders wasted no time congratulating themselves for the demise of the Economic Stabilization Program. Indeed, Wallace Bates, president of the Business Roundtable, declared that the young organization had been a “material factor” in educating Congress and the public about the economic distortions that controls had caused.⁵⁵ At the same time, no one assumed that the political battle was over, especially as a “catch-up” bout of inflation rocked the economy after the controls expired. Chamber of Commerce economist Carl Madden, for one, believed that direct price controls would surely “come back from time to time if we have these spurts of inflation.”⁵⁶ According to Roundtable co-chairman Roger Blough, even if the controls remained dead, inflation would remain, and high prices would continue to stoke public animus toward the business community. “Living in a control-less environment may sound inviting,” he said, “but … every corporation’s action will be subject to the severest sort of critical assessment from here on out.”⁵⁷

As the winter of OPEC’s discontent made way for the inglorious summer of Nixon’s resignation, 1974 turned out to be the worst year for price stability since World War II; the 11 percent annual rate would only be surpassed during the second energy crisis of 1979 and 1980. In the months after the Economic Stabilization Program lapsed, printing presses at the NAM and the Chamber hummed furiously with new brochures, mailings, and reports as business leaders redoubled their public lobbying about the causes of inflation and the perils of controls. Publications like “Wage and Price Controls: A Failure in History, Theory, and Practice” and “Inflation Losers: You, Your Family, Your Country” spread business’s message broadly by highlighting two essential points. First, inflation resulted exclusively from excessive government spending and labor power; and second, mandatory controls only made it worse. Through tremendous public outreach, organized business groups sought actively to capitalize on their organizational strength and maintain a coherent public front.⁵⁸

Corporate lobbying groups also fought the specter of a return to price controls by remaining vigilant with government officials, a task facilitated somewhat by Nixon’s resignation and Gerald Ford’s ascension to the White House on August 9, 1974. In one of his first acts in office, the new president convened a conference of economists to propose solutions to the perplexing inflation problem. While some of the economists at the conference urged monetarist solutions, following Milton Friedman’s suggestion to rigidly target the money supply, and others invoked the “old time religion” of reducing government spending and budget deficits, nearly all the participants rejected the possibility of a return to controls. Although business leaders could take comfort that the first part of their message remained dominant, many voiced continued frustration that policy debates did not adequately appreciate the role of labor power. Shortly after the conference, Roundtable chairman John Harper complained to Alan Greenspan, chairman of Ford’s CEA: “We think it a disservice for anyone to infer that the new labor increases this year have been reasonable.” Highlighting fiscal and monetary policy was fine and good, but if the economists with Ford’s ear failed to implicate labor, Harper claimed, they implicitly left too much blame on business, and the country risked a repeat of 1971.⁵⁹

Compared with Nixon, however, Ford’s dedication to the entrenched problems of inflation struck many business leaders as a breath of fresh air. Even before the Watergate scandal swamped Nixon’s presidency, many corporate executives had grown weary of his ambivalent attitude toward big business and his willingness to accept liberal economic policies in hopes of rallying political support. Gerald Ford, on the other hand, shared none of Nixon’s personal insecurities about elite eastern corporate leaders and actively reached out to the increasingly organized representatives of the business community in Washington. Indeed, Ford’s embrace of business prompted heated criticism, typified by a Herblock cartoon in the Washington Post that showed corporate fat cats hoisting “Good Old Jerry”—the college football star who had nearly turned pro—onto their shoulders while the man on the street opined: “He seems like such a nice guy, I wish he was on our side.” (See figure 4.3.) Even Ford’s “Whip Inflation Now” campaign, mocked bitterly for its big red WIN buttons and meaningless gestures of solidarity, reflected a spirit of voluntarism—not mandatory price restrictions—that sat well with many business leaders.

Ford inherited a presidency weakened by both Watergate and the steady increase in congressional influence over domestic policy. Any honeymoon the new president may have enjoyed when he famously promised an end to America’s “long national nightmare” evaporated when he issued a blanket pardon of Richard Nixon one month after taking office.⁶⁰ With the Republican Party in disrepute, many business leaders looked at the upcoming 1974 midterm elections with dread, fearing that the coming liberal onslaught would reinvigorate organized labor, bolster the drive for increased regulations and social spending, and otherwise enflame inflationary pressures in the economy. Playing defense, the Chamber of Commerce launched a substantial campaign for an “inflation-proof Congress” by promoting business-friendly candidates in federal, state, and local elections. Although the Chamber did not directly contribute money to campaigns, donating only $25,000 to the educational (i.e., noncampaigning) arm of the Business-Industry Political Action Committee (BIPAC), the group counted on its national networks of associations and firms to support candidates who were committed to spending cuts and a hard line toward labor. Already in the midst of a major revitalization effort, the Chamber used the inflation issue to mobilize support at its grassroots through a three-part kit with segments called “Test Your IQ (Inflation Quotient),” “Test Your Candidate’s IQ,” and “To Fight (or Not to Fight) Inflation: How Did Your Congressman Vote?”⁶¹

Figure 4.3. In 1975, Washington Post cartoonist Herblock joined many liberals in denouncing Republican president Gerald Ford’s close ties to corporate interests and business lobbyists. A 1975 Herblock Cartoon, © The Herb Block Foundation.

Such meager electioneering, however, proved utterly ineffective, and the Democratic Party surfed the mighty anti-incumbent wave to major victories. Although the Democrats had suffered a bruising humiliation with Nixon’s defeat of George McGovern in 1972 and had barely held onto their majority in the House of Representatives, the electoral success of “Watergate babies” in 1974 bolstered their ranks by 50 members in the House and brought their Senate majority to 60. Many of these freshmen representatives had campaigned as anti-Nixon liberal reformers and replaced moderate Republicans from the North, dramatically shifting the composition of the Democratic caucus away from its more conservative southern members.⁶² For many corporate leaders, the new shape of Congress reinforced the need to work with and influence incumbent legislators rather than hold out hope for a new crop of business-oriented “inflation-proof” politicians. The fact that many of the new Democrats represented suburban constituencies for whom consumer issues, especially prices, trumped traditional labor-liberal allegiances provided an important opening for business.

BETTER LIVING THROUGH INDIRECT LOBBYING: COMMON SITUS AND LABOR LAW REFORM

The political and economic climate of the mid-1970s thus encouraged the dramatic rise of indirect, or grassroots, lobbying by employers’ associations. Although the NAM, the Chamber, and the Roundtable, as well as their well-heeled member corporations, retained Washington Representatives from trade associations and individual firms, they also found great success mobilizing “ordinary” constituents to influence fence-sitting legislators. By energizing local businesspeople about specific issues and providing them with prepackaged information, form letters, and talking points, Washington-based groups combined their longstanding desire to “tell business’s story” with the pressing need to shape votes in Congress.

The politics of inflation and business’s ongoing campaign to keep the focus on organized labor created a vital laboratory for indirect lobbying. Among its earliest successes was the campaign against a labor practice known as common situs picketing, which arose on construction sites where subcontractors employed workers from multiple unions simultaneously. Although current law permitted workers to strike only over a grievance with their actual employer, pro-labor legislators pushed a reform to allow solidarity strikes, increasing pressure on management to respond to strikers’ demands. The ensuing legislative battle not only accomplished an important goal for business leaders but also renewed enthusiasm and cohesion among a wide range of firms, trade associations, and employers’ groups.

Common situs picketing exemplified the type of policy that enraged business-oriented conservatives and corporate leaders, who believed it would tip the scales of collective bargaining decisively against business and toward labor. “In our opinion,” Roundtable chairman John Harper wrote, “the adverse impact of common situs picketing on the construction industry, as well as on industrial companies which use contractors in their plants, would seriously affect the cost, quality, and completion of industrial facilities.”⁶³ Such arguments fell on deaf ears in the Democratic majority in Congress, which passed a bill permitting the practice in the fall of 1975. At first, President Ford looked for some excuse to support the measure, recognizing his party’s persistent weakness with working-class voters. According to Under Secretary of Commerce James A. Baker, conservatives in his administration ultimately convinced him that the legislation would “strike hardest at small business and nonunion craftsmen and contractors, particularly minorities.” More important, Ford knew he faced a powerful political threat from former California governor Ronald Reagan, then preparing a primary election battle for the Republican nomination. Since Reagan, an avowed conservative, looked likely to tap into antilabor and pro-business sentiment, Baker warned Ford that “failure to veto will be political suicide as far as the nomination is concerned.” In January 1976, Gerald Ford issued the first veto of his brief administration, killing the common situs bill.⁶⁴

Early the next year, however, after Democrat Jimmy Carter ousted Ford from the White House, pro-labor legislators again began to push a common situs bill through Congress. Knowing that they could not rely on a presidential veto, a cohort of employers’ groups led by the Roundtable, the NAM, and the Chamber organized a substantial indirect lobbying campaign to stop the measure in the House instead. Coordinating with several contractors’ associations, they mobilized support from construction company owners and local civic groups, all of whom peppered their representatives with a coordinated message denouncing the bill.⁶⁵

Through its Construction Committee, a holdover from Roger Blough’s CUAIR, the Business Roundtable mobilized its “local user groups” around the claim that the law “would increase work stoppages in an already strikeprone industry, and would significantly increase construction costs.”⁶⁶ The bill’s sponsor, Representative Frank Thomas (D-NJ), expected the bill to pass the House by seven or eight votes but expressed surprise at the “massive” lobbying against it. In late March, 88 Democrats, largely from the South, joined 129 Republicans to defeat the measure (14 Republicans and 119 Democrats voted for it).⁶⁷ By coincidence, the news of the bill’s failure broke just as the NAM opened its annual meeting at the Hilton hotel in Washington, prompting loud cheers from the attendees. Seizing an opportunity to play the politics of inflation, the NAM’s president, former U.S. Steel executive Heath Larry, told a journalist that the bill’s demise “ought to be a great deal of satisfaction to the public at large” because it would have dramatically increased inflation. The public should not support measures that would encourage strikes, Larry added, because “[p]icket lines are threats, not freedom of speech, and they’ve always been.”⁶⁸

As it turned out, the common situs fight merely provided a prelude to a much more substantial battle between organized business and organized labor. Late in 1977, the AFL-CIO judged that, with Democrats in control of Congress and the presidency, the time was propitious to push comprehensive labor law reform. The bill labor wanted would restore some of the losses it had sustained in the Taft-Hartley Act of 1947 by increasing penalties on employers who committed unfair labor practices, granting unions greater access to employment sites for organizing, and enlarging the NLRB.⁶⁹ Speaking for the business community, the Chamber of Commerce argued that the bill was “designed to make it easier for unions to organize nonunion workers.” Labor’s demands, the Chamber continued, were “inflationary” and “would have a substantial impact on small business, would expand the federal bureaucracy, and would tilt the basic labor law in favor of organized labor.”⁷⁰

As they had against the common situs bill, Washington-based employers’ groups and trade associations coordinated a massive lobbying blitz against the labor law reform bill, both in Congress and among the grassroots. According to Business Week, the CEO of Sears, Roebuck sent a personal appeal to retired Sears employees, explaining his belief that the labor bill “could push our country down the road to a labor- and government-controlled economy.” Reports by the Chamber of Commerce promised that, if passed, the bill would bolster union membership by millions.⁷¹ In the halls of Congress, business lobbyists skillfully tracked down potential allies to support a Senate filibuster. As an aide to one such target, Florida Democratic senator Lawton Chiles, recalled: “I don’t think they missed a single possible opponent of that bill in our state.”⁷² Yet message counted as much as medium. The legislation, business lobbyists insisted, threatened not just large employers but small business owners and, most important, consumers, who would bear the higher prices caused by excessive labor power.

The political fight over labor law reform after years of high inflation and economic instability was a high-water mark for organized business as well as a turning point in industrial labor relations. Indeed, as many scholars have noted, the acrimony and ill will that the fight generated between union and business leaders—many of whom had worked constructively, if combatively, for years—never dissipated. The executive council of the AFL-CIO called the business offensive “a conspiracy of convenience between corporations, trade associations, and extreme right wing groups.” Indeed, many industrial leaders recognized that the cost of deteriorating labor-management relations could potentially outpace the gains of defeating the bill. The Roundtable’s Policy Committee voted to join other business groups in opposing the law, but only by a vote of 19 to 11; many of the largest and most heavily unionized members, like GE and U.S. Steel, worried that their opposition would simply antagonize their own workforce. But other corporations, particularly retailers and those in low-skill industries like textiles, led the charge to prevent labor law reform, and the Roundtable’s leadership gave the group’s combined clout to the lobbying effort.⁷³

In the spring of 1978, conservatives led by firebrand senators Orrin Hatch (R-UT) and Jesse Helms (R-NC) led a filibuster against labor law reform, boasting significant support from the organized business community. After nineteen days and six failed efforts to invoke cloture, the bill’s proponents finally gave in. Business Week hailed business’s “new lobbying weapon [that] combines the power of new coalitions in Washington with grassroots organizations that reach into virtually every congressman’s home district.” Labor’s supporters also expressed shock, calling the “unprecedentedly broad coalition of business groups” that brought down the bill a “catastrophe for American labor.” The next month, UAW president Douglas Fraser publicly resigned from a high-profile labor-management committee, chaired by former labor secretary John Dunlop, which sought to foster dialogue between union leaders and major industrial CEOs, including Roundtable members Reginald Jones (General Electric) and Irving Shapiro (DuPont). “The leaders of industry, commerce and finance in the United States have broken and discarded the fragile, unwritten compact previously existing during a past period of growth and progress,” Fraser bitterly explained. For their part, however, corporate leaders could only see the defeat of labor law reform as a victory. By expanding the political debate on labor beyond simple negotiations between workers and managers to include broader economic implications, business groups had aroused enthusiasm among their members and greater public support for their position. By arming their professional lobbyists with that constituent voice, they achieved results in Congress, reaffirming the potential of the pro-business grassroots, or what Chamber president Richard Lesher called “the only lobbying that counts.”⁷⁴

LOBBYING CONGRESS: THE END OF ECONOMIC PLANNING

Business’s newfound institutional cohesion, catalyzed by the contentious politics of inflation, paved the way not only for increasingly effective forms of indirect lobbying but also for greater influence with policymakers. Indeed, the shifting balance of political power after the Democratic Party’s gains in 1974 and 1976 forced executives and employers’ associations to craft coalitions directly with policymakers whose first instincts did not always match business’s priorities. With a Democrat again in the White House and more liberals in Congress, many conservative corporate leaders feared a return to liberals’ traditional focus on unemployment and economic growth rather than a robust campaign against inflation. The continued tension between those apparently antithetical policy goals manifested in the prolonged struggle over a piece of labor-liberal legislation designed to guarantee employment for all Americans: the Humphrey-Hawkins Act.

In 1974, as the economy spiraled deeper into recession, liberal senator Hubert Humphrey (D-MN) and Congressman Augustus Hawkins (D-CA) proposed the “Equal Opportunity and Full Employment Act,” which, in form and spirit, mirrored a 1946 plan to craft a national economic planning system. The legislation called for the government to achieve “full employment” (usually calculated at 3 percent unemployment) through fiscal and monetary policies, including the direct creation of government jobs. The 1946 Employment Act had in fact become law, but only after a coalition of business leaders and antilabor conservatives from both parties watered down its language and enforcement provisions.⁷⁵ Thirty years later, Humphrey and Hawkins hoped that the Democratic Party, finally shed of its conservative southern constituency, could use its post-Watergate strength to pass a more robust labor-oriented full employment bill. The original versions of their legislation instructed the government to provide “equal opportunities for useful and rewarding employment” to all Americans and proposed a “Job Guarantee Office,” responsible to the president, to set “such policies and programs as may be needed to attain and maintain genuine full employment.”⁷⁶

Humphrey-Hawkins won strong support from the AFL-CIO, other labor groups, and liberal activists. Business leaders, however, decried the plan as “a political gimmick.” In a series of articles commissioned by the Business Roundtable, business economist Ross Wilhelm of the University of Michigan articulated business’s central argument against the full employment bill: artificially reducing unemployment, either through expansive fiscal and monetary policy or, as a last resort, through “phony, dead-end jobs” that paid “prevailing union wage rates,” would necessarily increase inflation. “The inflationary wage requirements built into the Humphrey-Hawkins Bill would compound the inflation problem and would bring back double-digit inflation,” Wilhelm argued.⁷⁷

Between 1974 and 1978, business organizations lobbied hard against the bill, sending executives to pay personal calls to senators, promoting packaged editorials like Wilhelm’s, and mobilizing letter-writing campaigns. Despite years of indirect lobbying, however, the measure remained quite popular in the Democratic-controlled Congress. In May 1978, Bethlehem Steel CEO Lewis Foy, who chaired the Roundtable’s National Planning and Employment task force, exhorted his fellow CEOs to direct their attention to the Senate Banking Committee. Although business groups had long made the defeat of Humphrey-Hawkins a top priority, Foy claimed, most committee members had heard very little opposition to the bill, receiving few letters and practically no personal visits.⁷⁸ Although the Roundtable, the NAM, the Chamber, and other business organizations clearly and vociferously opposed the bill, their message had not sunk in with policymakers—a sign that their newfound lobbying prowess was far from omnipotent.

Many corporate leaders remained hopeful that they could defeat Humphrey-Hawkins, as they had with common situs picketing and the labor law reform bill. Others, however, recognized that the labor-liberal alliance’s political strength and the general popularity of raising employment during an economic downturn gave the legislation an air of inevitability. Nonetheless, in the summer of 1978, corporate lobbyists successfully marshaled a skilled political coalition in Congress to thoroughly defang the legislation from within. Taking advantage of labor’s institutional weakness after its high-profile loss on labor law reform, corporate lobbyists and congressional conservatives, especially Orrin Hatch, managed to remove nearly all enforcement power from the bill. In an eerie echo of 1946, the final version of the law, which Carter signed with some fanfare in the fall of 1978, bore little resemblance to the original. In tellingly vague language, the act asserted “the responsibility of the Federal Government to use all practicable programs and policies to promote full employment, production and real income, balanced growth, adequate productivity growth, proper attention to national priorities, and reasonable price stability.” Although liberal legislators could boast that they had voted for full employment, the bill that had originally promised to inaugurate a full-scale system of national economic planning changed practically nothing. (Its one major effect was to prohibit sex, racial, and religious discrimination in government programs—a notable milestone but unrelated to combating unemployment.) In fact, the bill’s language actually reinforced the conservative business position on the importance of fighting inflation, a policy goal that appeared to contravene robust job creation and economic stimulus.⁷⁹ In the end, business lobbyists succeeded by playing the politics of inflation in the debate over unemployment and compelling key congressional allies to view policy choices in terms of that classic trade-off.

LOBBYING CARTER: THE FINAL DEATH OF PRICE CONTROLS

Building on their success against labor and Humphrey-Hawkins, organized business lobbyists continued their string of policy victories by derailing any liberal hopes of reinstituting wage and price controls to combat inflation. After peaking in double digits in 1974—as a result of the OPEC embargo, food shortages, and the end of Nixon’s controls—the national inflation rate declined during the recession of 1974–75 and remained around 6 percent for the next two years. Although prices rose more slowly, the ever-higher cost of living and 7 percent unemployment during the Ford years created severe economic strain, and signs of decreasing productivity made future inflation appear likely.⁸⁰ By January 1978, the inflation rate stood at 6 percent per year—high by the standards of the early 1960s but quite low compared to several years earlier. In his State of the Union Address that month, Jimmy Carter made clear his deep concern about inflation and, to the delight of conservatives, his conviction that the blame fell squarely on government deficit spending. Yet while he pledged fiscal restraint and a balanced budget, he also called for widespread collaboration in the fight against inflation, asking “government, business, labor, and other groups” to voluntarily hold down their wages and prices.⁸¹

Prominent corporate leaders approved.⁸² DuPont CEO Irving Shapiro, who had succeeded Charles McCoy in 1974 and taken over as Business Roundtable chairman from John Harper in 1976, declared himself “impressed with [the president’s] recognition that many of our problems must be solved by the private sector; that government cannot solve them.” Carter’s openness to business’s perspective on inflation no doubt pleased Shapiro, a proud Democrat who supported Carter in 1976 and sought to build bridges between Democratic politicians and elite corporate leaders. Although he worried that the president’s “plan to establish a voluntary anti-inflation effort raises the spectre of wage-price guidelines,” Shapiro remained “reassured by the President’s stated dislike of controls.”⁸³

While Carter claimed to put inflation front and center in 1978, he struggled to avoid a hard choice between two traditional inflation-fighting strategies. The first, favored by many business leaders and other economic conservatives, was to “engineer a recession” to bring prices down. The second was mandatory wage and price controls, still a popular fallback option among many liberals. Rather than choose the rock or the hard place, Carter charted a politically safer (but economically dubious) middle by invoking the creed of “voluntarism” and shared sacrifice—not only by firms but also by workers and consumers. He repeated his calls for firms to hold down prices but also asked all Americans to tighten their belts and restrain their spending habits. To the chagrin of traditional Democratic constituencies, Carter promised “specific governmental actions … to tighten budgets, rationalize government regulations, reorganize the bureaucracy and increase productive investment.”⁸⁴

But neither Carter’s jawboning nor his pledge to trim the governmental fat did much to curb inflation. Resolving to put some teeth into his request for voluntary price and wage vigilance but rejecting mandatory controls, Carter instead announced a formal system of voluntary wage and price standards, or guidelines, on October 24, 1978. To head the new program, the president tapped liberal Keynesian economist Alfred Kahn, best known to the public for overseeing airline deregulation as chairman of the Civil Aeronautics Board.⁸⁵ Kahn became Carter’s new “inflation czar” and led the Council on Wage and Price Stability (COWPS), a holdover from the Ford administration that set voluntary standards, adjudicated petitions for exemptions, and pursued various strategies to encourage compliance.

COWPS called on labor organizations to demand pay raises of no more than 7 percent per year, allowing them to keep up with inflation but not put upward pressure on it. Moreover, as Kahn explained to the Chamber of Commerce, President Carter asked “every business to hold down any price increase to one-half percent below the rate of increase during the 24 months from the beginning of 1976 to the end of 1977.” A firm that had increased its prices by an average of 6 percent during those two years, for example, would be limited to a 5.5 percent increase in 1979. As a loophole, the program allowed another route to compliance for firms that experienced huge cost increases. According to Kahn, “if your costs are going up rapidly, you may pass them on through price increases even if that puts you over your price increase limit. But if you pass on costs, you are not supposed to increase the amount of your profit by more than 0.5 percent, except as the volume of your sales goes up.”⁸⁶

While these standards were officially “voluntary,” COWPS had considerable leverage to urge business and labor to respect them. For workers, the administration used a carrot: if inflation rose above 7 percent, workers whose unions had respected the ceiling would receive an offsetting tax credit. For business, a stick: in order to sign federal contracts worth more than $5 million, companies would have to prove that they were complying with the price standards.⁸⁷ Such a system meant that for firms that did significant business with the government, very little about the plan was truly “voluntary.”

Although price controls, even “voluntary” ones, violated sacred tenets of free-market economics, Carter’s willingness to blame government for inflation won his plan support from some prominent business leaders. After delivering a keynote address to the Business Council in December 1978, for example, the president received a vote of confidence from an unlikely source: the group’s chairman, North Carolinian John deButts, CEO of AT&T and a founding member of both the March Group and the Business Roundtable. Departing from the council’s tradition of policy neutrality, deButts interrupted the president’s question-and-answer session to offer his two cents. “I happen to believe that the President is sincere and will succeed in his efforts” to reduce government spending and regulation, deButts told his fellow executives on the council. “I believe that it is incumbent upon us in the business community … to find a way to comply with the standards established by our President.”⁸⁸

Similarly, if not so emphatically, the chairman of the NAM also urged his far larger membership to comply with the voluntary price standards. Herbert Markley, the president of ball-bearing manufacturer Timken Com pany from Canton, Ohio, further urged NAM members to write the president personally (“if you can conscientiously do so”) to state their intentions to comply.⁸⁹ Embracing the spirit of the “New NAM,” Markley rejected the organization’s historic role as obstructionist and antistatist and argued that business stood to gain politically by working constructively with the government. Such a shift in tone prompted a fierce backlash from many NAM members, however. One manufacturer accused Markley of trying to “appease” the president by conceding ground on the inflation debate. “I know and certainly you must know that inflation will be stopped only when the government spends no more money than it takes in,” the member angrily wrote. Despite such blowback, the NAM’s leaders worked hard to build bridges with the administration in the late 1970s, even inviting Alfred Kahn to deliver a luncheon address at the group’s spring conference in Washington in March 1979.⁹⁰

Carter’s modest success generating support from business leaders owed largely to his personal appeals. A month after announcing the price standards, he wrote directly to business leaders and pledged to do everything in his power to fight inflation by reducing government spending in return for their promise to comply with the price guidelines.⁹¹ The president also pitched his program by using social and political networks in Washington to target important corporate leaders even more directly. In late 1978, White House staffers convened the first of several meetings with what they called the “Group of Nine”—the country’s most powerful business and trade associations. Meeting first in Vice President Walter Mondale’s office (where Carter dropped by) and later in the Business Roundtable’s Washington headquarters, the group included the heaviest hitters of organized business in the late 1970s: GM’s Thomas Murphy and GE’s Reginald Jones from the Business Roundtable, Donald Seibert from J. C. Penney (who headed the National Retail Merchants Association as well as the Roundtable’s inflation task force), AT&T’s John deButts from the Business Council (as well as the Roundtable), NAM chairman Herbert Markley, and Richard Lesher from the Chamber, as well as representatives of the National Federation of Independent Business, the New York Stock Exchange, the American Bankers Association, and the American Retail Federation.⁹²

The Group of Nine meetings revealed a broad spectrum of opinions and reactions to Carter’s plan. As he had during the Business Council meeting, deButts strongly urged firms to comply but reiterated that the council did not take formal policy positions. Markley also reaffirmed his support and said he soon expected an “avalanche” of supportive letters. The Roundtable leaders demurred somewhat; Jones claimed many businesspeople did not believe the program was “voluntary” because of the sanctions the administration threatened against noncompliant firms. Similarly, Seibert argued that retail stores worried that consumers would unfairly blame a store for any price increase, even one that was in line with the guidelines.⁹³

Although the leaders of the NAM and the Roundtable generally treated the voluntary standards as regrettable but unavoidable, the Chamber of Commerce offered no such conciliatory tone. Represented at the meetings by its full-time president, Richard Lesher, as well as its short-term chairman, Shearon Harris, president of the Carolina Power and Light utility company, the Chamber “more or less stalled on the issue,” according to a White House staffer. Accosting Carter’s standards as vague and fearfully predicting that compliant firms could be sued for price-fixing under antitrust laws, Harris and Lesher refused to follow their counterparts at the NAM and encourage their members to comply. Instead, Harris took a more aggressive approach, proposing a litany of twenty-eight actions for the federal government to undertake to fight inflation all by itself, including reducing the regulatory burden, encouraging exports, lowering taxes on firms, and decreasing labor’s bargaining power.⁹⁴ For his part, Lesher berated Alfred Kahn for proposing that the federal government publicize the names of noncompliant companies and encourage consumers to boycott them, accusing the inflation czar of antibusiness bias. Although Kahn promptly clarified that the government would simply urge Americans to be “prudent buyers,” the Chamber remained steadfastly opposed.⁹⁵

Such diverse responses, from deButts’s enthusiasm to Lesher’s defiance, typified the persistent challenges business leaders faced as they worked to unify around any proposed remedy for inflation. Echoing the contentious experiences of Phase II controls in 1972, the heads of mobilized business groups wrestled with competing imperatives: their fear of inflation and their hostility to heavy-handed government interference in markets. The White House staff members who had so hopefully convened the Group of Nine soon understood that the business leaders all expressed severe reluctance to embrace the president’s anti-inflation program. In short order, the Carter administration realized that it would be unable to tap these business groups’ indirect lobbying prowess to shore up national support for voluntary guidelines.⁹⁶

Indeed, business’s collective patience with Carter and the price standards ran thin very quickly. In 1979, another oil shock rocked global economies as the Iranian Revolution unsettled the political order in that country and disrupted petroleum supplies. Inflation rose rapidly even as the COWPS price- and wage-setting standards grew more complicated and, in the minds of many business leaders, onerous. That fall, the president of the National Association of Realtors told Kahn that the program had failed to “remain ‘simple, voluntary and largely self-enforcing.’ The standards have become increasingly detailed and complex, considerable effort has been made to induce compliance, and a cumbersome reporting and exception approval system has been created.”⁹⁷ Many of the business leaders who had defended the voluntary guidelines program a year earlier now called for its complete abolition. For example, the NAM’s full-time president, Heath Larry, whom Commerce Secretary Juanita Kreps had singled out for his cooperation in late 1978, had grown far less positive about price standards by the fall of 1979.⁹⁸ Roundtable chairman Thomas Murphy of General Motors warned that despite the administration’s professed opposition to mandatory controls, he worried about “the establishment of pay and price advisory committees which might be interpreted as a step in that direction.”⁹⁹ Finally, in the summer of 1980, as Jimmy Carter’s political fortunes waned, the Roundtable came out against wage and price guidelines entirely, telling Carter that they “distorted public understanding of the causes of inflation” and that gaining public support for hard but necessary policy choices would only be hampered “if the misconception is allowed to persist that voluntary wage and price restraint can substitute for them.”¹⁰⁰

As business leaders finally stopped hedging their bets and came out in force against Carter’s middle path on inflation, a growing segment of the broader public joined them. By the end of the 1970s, the nation’s decade-long battle with price instability had taken its toll on the political class; while opinion polls suggested that a razor-thin majority of Americans might still be open to wage and price standards, no political will existed to pursue them.¹⁰¹ Although the voluntary guidelines program limped on until the end of Carter’s term and Kahn maintained his post at COWPS until 1980, the administration’s anti-inflation emphasis shifted dramatically at the end of 1979 when the new Federal Reserve chairman, Paul Volcker, launched a radical monetarist policy. Between 1979 and 1982, the Fed’s aggressive program of targeting the money supply successfully wrung inflation out of the economy by sparking a massive economic recession, exactly the scenario Johnson, Nixon, Ford, and Carter had struggled to avoid.¹⁰²

If Richard Nixon’s experiment in wage and price controls was tragedy, Jimmy Carter’s was farce. Both presidents tried to construct policies to appease their traditional political opponents while frustrating their allies: Nixon by appealing to middle-class consumers and unions despite business’s objections to controls; Carter by watering down his policy options in an effort to stay in business’s good graces. Neither succeeded, but Nixon managed to avoid paying the political price, mostly because he succumbed instead to the self-inflicted wound of Watergate. Carter, on the other hand, lost his presidency largely on the weakness of his economic stewardship. Yet the two anti-inflation policy episodes that bookended the 1970s proved pivotal for organized business groups. In both 1971 and 1978, corporate leaders had to face down the inherent contradictions between their fear of inflation and their opposition to government involvement in the economy. In both cases, business leaders initially gave the president the benefit of the doubt but ultimately turned on him as the effort to exert government control over prices limped into meaninglessness.

THE TRIUMPH OF THE POLITICS OF INFLATION

The experience of stagflation in the 1970s fundamentally reshaped American politics at a critical moment in recent history. Aggregate price levels first approached worrisome levels in the late 1960s, the result of Johnson’s guns-and-butter policies and monetary mismanagement by the Federal Reserve, but inflation exploded to crisis level in the wake of the 1973 OPEC oil embargo. The second oil shock, in 1979, revived the crisis, which only abated after the severe recession of the early Reagan administration wrung inflationary impulses out of the economy and international oil prices fell. During the roughly fifteen years in which inflation topped the list of America’s economic woes, however, an essential realignment unfolded in national politics. Organized business groups, which began that period full of sound and fury but not signifying much, established themselves as formidable lobbyists on a host of economic issues and deftly navigated the treacherous politics of inflation. That experience galvanized business leaders to engage more actively and assertively in national politics, take their long-simmering antagonism to organized labor to the frontlines of debate, and formulate an increasingly effective counterattack against traditional liberal governance.

Of course, the crisis of inflation did not plague the United States alone but afflicted industrial economies the world over. From Europe to Asia to Latin America, the oil shocks and turmoil in international exchange markets spawned vicious cycles of higher prices and lower productivity, as well as political turmoil and regime changes.¹⁰³ But different political systems respond to common pressures in idiosyncratic ways, and the American business community’s response to the challenges of inflation unfolded in the unique context of the American political system. The contrast with West Germany, fast becoming a primary industrial rival for manufacturers in the United States, offers a compelling lesson. Postwar German economic policymaking reflected the country’s long corporatist tradition, which extended back to Bismarck in the 1870s and urged constant and institutionalized cooperation among business and labor organizations. Indeed, the West German constitution of 1949 formally enshrined corporatist principles by guaranteeing legal protection for both employers’ associations and labor unions; in practice, wage contracts negotiated by leading associations, such as the employers’ group Gesamtmetall and the union IG Metall, provided models for other industries to follow. Although the oil shocks of the mid-1970s presented West German policymakers with the same hard choices that their American counterparts faced, the crisis manifested in different ways politically. Institutionalized corporatism tended to promote industrial cooperation rather than confrontation; indeed, in 1978, precisely as American industrial re lations dissolved in the heated lobbying over labor law reform, Social Democrat Helmut Schmidt achieved a measure of common ground (and a multibillion Deutschmark economic stimulus program) between business and labor groups.¹⁰⁴

But in the United States, efforts at industrial cooperation fared poorly. The Nixon administration’s mandatory wage-price controls bureaucracy certainly represented an attempt to centralize fundamental aspects of industrial production, including wage rates and production schedules. For a time, the controls even managed to stem the scourge of price inflation, but business leaders supported the program only as long as their priorities remained administrators’ top priority. Once Nixon, bowing to public pressure and his own disinclination toward the business establishment, placed a higher premium on wages and consumers than on profits, the increasingly unified business community turned against the controls and invoked classically conservative notions of free markets to condemn top-down economic controls as a matter of principle. In so doing, business leaders helped cement their standing with more ideologically libertarian members of the burgeoning conservative political establishment, many of whom came to view corporate leaders not as self-interested hacks but as intellectual and political partners in their campaign against liberal economic policies.

Moreover, as inflation continued to wreak havoc in the aftermath of the controls experiment, business lobbyists successfully exploited the political cleavages the crisis exposed. In their campaigns against labor law reform and full employment, organized business groups deliberately framed their policy preferences to capitalize on the growing animus toward the federal government. The politics of inflation permitted corporate lobbyists to link bureaucracy, labor power, and deficit spending to the growing sense of cultural detachment and malaise, for which President Jimmy Carter served as a potent symbol.

The contentious politics of inflation thus catalyzed business’s political mobilization and the organization of a coherent pan-business lobby. Successes against common situs picketing and labor law reform drew directly from business leaders’ renewed focus in the aftermath of the Nixon controls; their rejection of Carter’s weak tea compromise solidified their role as dominant players in national politics. Ultimately this process drove a major wedge between representatives of industry and representatives of labor, doing irreparable damage to any hope for renewed goodwill or mutual collaboration. Corporate lobbyists learned to frame old arguments in new and modern ways by forging common cause with both lawmakers and, as the next chapter explores, an increasingly anxious, cynical, and politicized national constituency: the American consumer.