Some scholars have cautioned against a Western bias in prematurely predicting instability in countries whose governments do not gain democratic legitimacy. In China, according to some experts, legitimacy can be and is derived from other sources besides the partic.i.p.atory nature of their system. Since Confucian times, legitimacy has been gained in the eyes of the governed when the policies implemented are successful and when the persons placed in positions of power are seen to have earned their power in a form of meritocracy and demonstrate sufficient wisdom to seem well chosen.

IT IS PRECISELY these sources of legitimacy that are now most at risk in the United States. The sharp decline of public trust in government at all levels-and public trust in most all large inst.i.tutions-is based in large measure on the perception that they are all failing to produce successful policies and outcomes. The previous prominence of reason-based decision making in the U.S. democratic system was its greatest source of strength. The ability of the United States, with only 5 percent of the world's people, to lead the world for as long as it has is due in no small measure to the creativity, boldness, and effectiveness of its decision making in the past.

Ironically, the economic growth in China since the reforms of Deng Xiaoping, launched in 1978, were brought about not only by his embrace of a Chinese form of capitalism but also by his intellectual victory within the Chinese Central Committee in advocating reason-based a.n.a.lysis as the justification for abandoning stale communist economic dogma-and his political skill in portraying this dramatic shift as simply a reaffirmation of Maoist doctrine. In a speech to the All-Army Conference in the year his reforms were begun, Deng said, "Isn't it true that seeking truth from facts, proceeding from reality and integrating theory with practice form the fundamental principle of Mao Zedong Thought?"

One reason for the rise of the United States over its first two centuries to the preeminent position among nations was that American democracy demonstrated a genius for "seeking truth from facts." Over time, it produced better decisions and policies to promote its national interests than the government of any other nation. The robust debate that takes place when democratic inst.i.tutions are healthy and functioning well results in more creative and visionary initiatives than any other system of government has proven capable of producing.

Unfortunately, however, the U.S. no longer has a well-functioning self-government. To use a phrase common in the computer software industry, American democracy has been hacked. The United States Congress, the avatar of the democratically elected national legislatures in the modern world, is now incapable of pa.s.sing laws without permission from the corporate lobbies and other special interests that control their campaign finances.

THE LONG REACH OF CORPORATIONS.

It is now common for lawyers representing corporate lobbies to sit in the actual drafting sessions where legislation is written, and to provide the precise language for new laws intended to remove obstacles to their corporate business plans-usually by weakening provisions of existing laws and regulations intended to protect the public interest against doc.u.mented excesses and abuses. Many U.S. state legislatures often now routinely rubber-stamp laws that have been written in their entirety by corporate lobbies.

Having served as an elected official in the federal government for the last quarter of the twentieth century, and having observed it closely before that period and since, I have felt a sense of shock and dismay at how quickly the integrity and efficacy of American democracy has nearly collapsed. There have been other periods in American history when wealth and corporate power have dominated the operations of government, but there are reasons for concern that this may be more than a cyclical phenomenon-particularly recent court decisions that inst.i.tutionalize the dominance and control of wealth and corporate power.

This crippling of democracy comes at a time of sweeping and tumultuous change in the world system, when the need for U.S. advocacy of democratic principles and human values has never been greater. The crucial decisions facing the world are unlikely to be made well, or at all, without bold and creative U.S. leadership. It is therefore especially important to restore the integrity of U.S. democracy. But in order to do so, it is necessary to accurately diagnose how it went so badly off track. The shift of power from democracy to markets and corporations has a long history.

In general, political freedom and economic freedom have reinforced one another. The new paradigm born in the era of the printing press was based on the principle that individuals had dignity, and when armed with the free flow of information could best chart their own destinies in both the political and economic realms by aggregating their collective wisdom through regular elections of representatives, and through the "invisible hand" of supply and demand.

Throughout history, capitalism has been more conducive to higher levels of political and religious freedom than any other way of organizing economic activity. But internal tensions in the compound ideology of democratic capitalism have always been present and frequently difficult to reconcile. Just as America's founders feared concentrated political power, many of them also worried about the impact on democracy of too much concentrated economic power-particularly in the form of corporations.

The longest running corporation was created in Sweden in 1347, though the legal form did not become common until the seventeenth century, when the Netherlands and the United Kingdom allowed a proliferation of corporate charters, especially for the exploitation of trade to and from their new overseas colonies. After a series of spectacular frauds and other abuses, including the South Sea Company scandal (which gave birth to the economic concept of a "bubble"), England banned corporations in 1720. (The prohibition was not lifted until 1825 when the Industrial Revolution required the capitalization of railway companies and other new firms to exploit emerging technologies.) The American revolutionaries were keenly aware of this history and originally chartered corporations mostly for civic and charitable purposes, and only for limited periods of time. Business corporations came later, in response to the need to raise capital for industrialization.

Referring to the English experience, Thomas Jefferson wrote in a letter to U.S. Senator George Logan of Pennsylvania in 1816, "I hope we shall take warning from the example and crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."

Between 1781 and 1790 the number of corporations expanded by an order of magnitude, from 33 to 328. Then in 1811, New York State enacted the first of many statutes that allowed the proliferation of corporations without specific and narrow limitations imposed by government.

So long as the vast majority of Americans lived and worked on farms, corporations remained relatively small and their impact on the conditions of labor and the quality of life was relatively limited. But during the Civil War, corporate power increased considerably with the mobilization of Northern industry, huge government procurement contracts, and the building of the railroads. In the years following the war, the corporate role in American life grew quickly, and the efforts by corporations to take control of the decisions in Congress and state legislatures grew as well.

The tainted election of 1876 (deadlocked on election night by disputed electoral votes in the state of Florida) was, according to historians, settled in secret negotiations in which corporate wealth and power played the decisive role, setting the stage for a period of corrupt deal making that eventually led the new president, Rutherford B. Hayes, to complain that "this is a government of the people, by the people and for the people no longer. It is a government of corporations, by corporations, and for corporations."

As the Industrial Revolution began to reshape America, industrial accidents became commonplace. Between 1888 and 1908, 700,000 American workers were killed in industrial accidents-approximately 100 every day. In addition to providing brutal working conditions, employers also held wages as low as possible. Efforts by employees to obtain relief from these abuses by organizing strikes and seeking the pa.s.sage of protective legislation provoked a fierce reaction from corporate owners. Private police forces brutalized those attempting to organize labor unions and lawyers and lobbyists flooded the U.S. Capitol and state legislatures.

When corporations began hiring lobbyists to influence the writing of laws, the initial reaction was one of disgust. In 1853, the U.S. Supreme Court voided and made unenforceable a contingency contract involving lobbying-in part because those providing the money did so in secret. The justices concluded that such lobbying was harmful to public policy because it "tends to corrupt or contaminate, by improper influences, the integrity of our ... political inst.i.tutions" and "sully the purity or mislead the judgments of those to whom the high trust of legislation is confided" with "undue influences" that have "all the injurious effects of a direct fraud on the public."

Twenty years later, the U.S. Supreme Court addressed the question once again, invalidating contingency contracts for lobbyists with these words: "If any of the great corporations of the country were to hire adventurers who make market of themselves in this way, to procure the pa.s.sage of a general law with a view to the promotion of their private interests, the moral sense of every right-minded man would instinctively denounce the employer and employed as steeped in corruption, and the employment as infamous. If the instances were numerous, open and tolerated, they would be regarded as measuring the decay of the public morals and the degeneracy of the times." The state of Georgia's new const.i.tution explicitly banned the lobbying of legislators.

Nevertheless, the "promotion of private interests" in legislation grew by leaps and bounds as larger and larger fortunes were made during the heyday of the Industrial Revolution-and as the impact of general laws on corporate opportunities grew. During the Robber Baron era of the 1880s and 1890s, according to the definitive history by Matthew Josephson, "The halls of legislation were transformed into a mart where the price of votes was haggled over, and laws, made to order, were bought and sold."

It was during this corrupt era that the U.S. Supreme Court first designated corporations as "persons" ent.i.tled to some of the protections of the Fourteenth Amendment in an 1886 decision (Santa Clara County v. Southern Pacific Railroad Company). The decision itself, in favor of the Southern Pacific, did not actually address the subject of corporate "personhood," but language that some historians believe was written by Justice Stephen Field was added in the "headnotes" of the case by the court reporter, who was the former president of a railway company. The chief justice had signaled before hearing the oral arguments that "the court does not wish to hear argument on the question of whether ... the Fourteenth Amendment ... applies to these corporations. We are all of the opinion that it does." (This backhanded precedent for the doctrine of corporate personhood was relied upon by conservative Supreme Courts in the late twentieth century for extensions of "individual rights" to corporations-and in the Citizens United decision in 2010.) This pivotal case has an interesting connection to the first nerve endings of the worldwide communications networks that later became the Global Mind. The brother of Justice Field, Cyrus Field, laid the first transoceanic telegraph cable in 1858. A third Field brother, David (whose large campaign contributions to Abraham Lincoln had resulted in Stephen's appointment to the Supreme Court), happened to be in Paris with his family during the Paris Commune in 1871, and used the telegraph cable to send news of the riots, disorder, and subsequent ma.s.sacre back to the United States in real time. It was the first time in history that an overseas news event was followed in the United States, as it unfolded, on a daily basis.

Though the Paris Commune had complex causes (including the bitter emotions surrounding the French defeat in the Franco-Prussian War that month and the struggle between republicans and monarchists), it became the first symbolic clash between communism and capitalism. Karl Marx had published Das Kapital just four years earlier and wrote The Civil War in France during the two months of the Commune, saying that it would be "forever celebrated as the glorious harbinger of a new society." A half century later, at Lenin's funeral, his body was wrapped in a torn and tattered red and white flag that had been flown by Parisians during the two months of the Commune.

But as much as the Paris Commune inspired communists, it terrified elites in the United States, among them Justice Field, who was obsessively following the daily reports from his brother and journalists in Paris. The Paris Commune received more press coverage-almost all of it hostile-than any other story that year besides government corruption. The fear provoked by the Commune was magnified by labor unrest in the U.S., particularly by many who had arrived since the 1830s from the poorer countries of Europe in search of a better life but had been victimized by the unregulated abuses in low-wage industrial jobs. Two years later, the U.S. was plunged into a depression by the bankruptcy of financier and railroad entrepreneur Jay Cooke. Wages fell even lower and unemployment climbed even higher. The New York Times warned, "There is a 'dangerous cla.s.s' in New York, quite as much as in Paris, and they want only the opportunity or the incentive to spread abroad the anarchy and ruin of the French Commune."

According to historians, Justice Field was so radicalized by the Commune and what he feared were its implications for U.S. cla.s.s warfare that he decided to make it his mission to strengthen corporations. His strategy was to use the new Fourteenth Amendment, which had been designed to confer the const.i.tutional rights of persons on the freed slaves, as a vehicle for extending the rights of persons to corporations instead.

By the last decade of the nineteenth century, concentrated corporate power had attained such a shocking degree of control over American democracy that it triggered a populist reaction. When the Industrial Revolution resulted in the ma.s.s migration of Americans from farms to cities, and public concern grew over excesses and abuses such as child labor, long working hours, low wages, dangerous work environments, and unsafe food and medicines, reformers worked within the democracy sphere to demand new government policies and protections in the marketplace.

The Progressive movement at the turn of the twentieth century began implementing new laws to rein in corporate power, including the first broad ant.i.trust law, the Sherman Act of 1898, though the Supreme Court sharply limited its const.i.tutionality, as it limited the application and enforcement of virtually all Progressive legislation. In 1901, after the pro-corporate president William McKinley was a.s.sa.s.sinated only six months into his term, Theodore Roosevelt unexpectedly became president, and the following year launched an extraordinary a.s.sault on monopolies and abuses of overbearing corporate power.

Roosevelt established the Bureau of Corporations inside his new Department of Commerce and Labor. He launched an ant.i.trust suit to break up J. P. Morgan's Northern Securities Corporation, which included 112 corporations worth a combined $571 billion (in 2012 dollars), at the beginning of the twentieth century, and was worth "twice the total a.s.sessed value of all property in thirteen states in the southern United States." This was followed by forty more ant.i.trust suits. A seemingly inexhaustible source of presidential energy, Roosevelt also pa.s.sed the Pure Food and Drug Act and protected more than 230 million acres of land, including the Grand Canyon, the Muir Woods, and the Tonga.s.s forest reserve-all while building the Panama Ca.n.a.l and winning the n.o.bel Peace Prize for resolving the Russo-j.a.panese War.

Roosevelt made a fateful decision at the beginning of his presidency not to run for a second full term in 1908, noting that he had served almost the full eight years that George Washington had established as the "wise custom" by serving only two terms. When Roosevelt's handpicked successor, William Howard Taft, abandoned many of TR's reforms, the march of corporate power resumed. In response, Roosevelt began to organize his Bull Moose Party campaign to replace Taft as president in the election of 1912.

In October of 1910, Roosevelt said, "Exactly as the special interests of cotton and slavery threatened our political integrity before the Civil War, so now the great special business interests too often control and corrupt the men and methods of government for their own profit." Eighteen months later, in the midst of the campaign, he said that his party was engaged in a struggle for its soul: The Republican party is now facing a great crisis. It is to decide whether it will be, as in the days of Lincoln, the party of the plain people, the party of progress, the party of social and industrial justice; or whether it will be the party of privilege and of special interests, the heir to those who were Lincoln's most bitter opponents, the party that represents the great interests within and without Wall Street which desire through their control over the servants of the public to be kept immune from punishment when they do wrong and to be given privileges to which they are not ent.i.tled.

After Roosevelt lost that campaign to Woodrow Wilson (Taft came in third), he continued to speak out forcefully in favor of Progressive reforms and a rollback of corporate power. He said that the most important test of the country remained "the struggle of free men to gain and hold the right of self-government as against the special interests, who twist the methods of free government into machinery for defeating the popular will." He proposed that the U.S. "prohibit the use of corporate funds directly or indirectly for political purposes," and in speech after speech, argued that the Const.i.tution "does not give the right of suffrage to any corporation." Thanks in part to his vigorous advocacy, the Progressive movement gained strength, pa.s.sing a const.i.tutional amendment to reverse the Supreme Court's prohibition against an income tax, enacting an inheritance tax, and enacting numerous regulations to rein in corporate abuses.

The many Progressive reforms continued during Woodrow Wilson's presidency, but the pendulum shifted back toward corporate dominance of democracy during the Warren Harding administration-remembered for its corruption, including the Teapot Dome scandal in which oil company executives secretly bribed Harding administration officials for access to oil on public lands.

Following three pro-corporate Republican presidents, President Franklin Roosevelt launched the second wave of reform when he took office in 1933 in the midst of the suffering caused by the Great Depression that was triggered by the stock market crash of 1929. The New Deal expanded federal power in the marketplace to a formidable scale and scope. But once again the conservative Supreme Court stopped many of the Progressive initiatives, declaring them unconst.i.tutional. Theodore Roosevelt had declared the justices "a menace to the welfare of the nation" and FDR essentially did the same. But he went further, proposing a court-packing plan to add to the number of justices on the court in an effort to dilute the power of the pro-business majority.

Historians differ on whether Roosevelt's threat was the cause or not, but a few months later the Supreme Court reversed course and began approving the const.i.tutionality of most New Deal proposals. To this day, some right-wing legal advocates refer to the court's switch as a "betrayal." In the twenty-first century, right-wing judicial activists are trying to return court rulings to the philosophy that existed prior to the New Deal.

In spite of FDR's initiatives, the U.S. found it difficult to escape hard times, and slipped back into depression in 1938. Then, when America mobilized to respond to the totalitarian threat from n.a.z.i Germany and Imperial j.a.pan, the Depression finally ended. After the U.S. emerged victorious, its remarkable economic expansion continued for more than three decades. By then, the consensus in favor of an expanded role for the federal government in addressing national problems was supported by a majority of voters across the political spectrum.

In the turbulent decade of the 1960s, however, the seeds of a corporate-led counterreform movement were planted. After the a.s.sa.s.sination of President John F. Kennedy in the fall of 1963, a variety of social reform movements swept the nation-driven in part by the restless energy and idealism of the huge postwar baby boom generation just entering young adulthood. The civil rights movement, the women's movement, the first gay rights demonstrations, the consumer rights movement, Lyndon Johnson's War on Poverty, and the escalating protests against the continuation of the ill-considered proxy war against communism in Southeast Asia all combined to produce a fearful reaction by corporate interests and conservative ideologues.

Just as the Paris Commune had radicalized Justice Stephen Field 100 years earlier, the social movements in the U.S. during the 1960s also awakened a fear of disorder, radicalized a generation of right-wing market fundamentalists, and instilled a sense of mission in soon-to-be Supreme Court Justice Lewis Powell. Powell, a Richmond lawyer then best known for representing the tobacco industry after the surgeon general's 1964 linkage of cigarettes to lung cancer, wrote a lengthy and historic 1971 memorandum for the U.S. Chamber of Commerce in which he presented a comprehensive plan for a sustained and ma.s.sively funded long-term effort to change the nature of the U.S. Congress, state legislatures, and the judiciary in order to tilt the balance in favor of corporate interests. Powell was appointed to the Supreme Court by President Nixon two months later-though his plan for the Chamber of Commerce was not disclosed publicly until long after his confirmation hearings. A former president of the American College of Trial Lawyers, Powell was widely respected, even by his ideological opponents. But his aggressive expansion of corporate rights was the most consequential development during his tenure on the court.

Justice Powell wrote decisions creating the novel concept of "corporate speech," which he found to be protected by the First Amendment. This doctrine was then used by the court to invalidate numerous laws that were intended to restrain corporate power when it interfered with the public interest. In 1978, for example, Powell wrote the opinion in a 54 decision that for the first time struck down state laws prohibiting corporate money in an election (a citizens referendum in Ma.s.sachusetts) on the grounds that the law violated the free speech of "corporate persons." Thirty-two years later, the U.S. Supreme Court relied on Powell's opinion to allow wealthy individual donors to contribute unlimited amounts to campaigns secretly, and further expanded the 1886 Southern Pacific precedent declaring corporations to be persons.

While it is true that corporations are made up of individuals, the absurdity of the legal theory that corporations are "persons"-as defined in the Const.i.tution-is evident from a comparison between the essential nature and motives of corporations compared to those of flesh-and-blood human beings. Most corporations are legally chartered by the state with an ironclad mandate to focus narrowly on the financial interests of their shareholders. They are theoretically immortal and often have access to vast wealth. Twenty-five U.S.-based multinational corporations have revenues larger than many of the world's nation-states. More than half (53) of the 100 largest economies on Earth are now corporations. ExxonMobil, one of the largest corporations in the world, measured by revenue and profits, has a larger economic impact than the nation of Norway.

Individuals are capable of decisions that reflect factors other than their narrow financial self-interest; they are capable of feeling concern about the future their children and grandchildren will inherit-not just the money they will leave them in their wills; America's founders decided as individuals, for example, to pledge "our Lives, our Fortunes, and our Sacred Honor" to a cause deemed far greater than money. Corporate "persons," on the other hand, now often seem to have little regard for how they can help the country in which they are based; they are only concerned about how that country can help them make more money.

At an oil industry gathering in Washington, D.C., an executive from another company asked the then CEO of Exxon, Lee Raymond, to consider building additional refinery capacity inside the United States "for security" against possible shortages of gasoline. According to those present, Raymond replied, "I'm not a U.S. company and I don't make decisions based on what's good for the U.S." Raymond's statement recalls the warning by Thomas Jefferson in 1809, barely a month after leaving the White House, when he wrote to John Jay about "the selfish spirit of commerce, which knows no country, and feels no pa.s.sion or principle but that of gain."

With the emergence of Earth Inc., multinational corporations have also acquired the ability to play nation-states off against one another, locating facilities in jurisdictions with lower wages and less onerous restrictions on their freedom to operate as they wish. The late chairman of the libertarian Cato Inst.i.tute, William Niskanen, said, "corporations have become sufficiently powerful to pose a threat to governments," adding that this is "particularly the case with respect to multinational corporations, who will have much less dependence upon the positions of particular governments, much less loyalty in that sense." In 2001, President George W. Bush was asked by the prime minister of India, Manmohan Singh, to influence ExxonMobil's pending decision on allowing India's state-owned oil company to partic.i.p.ate in a joint venture including the oil company and the government of Russia. Bush replied, "n.o.body tells those guys what to do."

Those who advocate expanding the market sector at the expense of democratic authority believe that governments should rarely have the power to tell corporations "what to do." For the last forty years, pursuant to the Powell Plan, corporations and conservative ideologues have not only focused on the selection of Supreme Court justices favorable to their cause and sought to influence Court opinions, they have also pursued a determined effort to influence the writing of laws and the formation of policies to expand corporate power. They dramatically increased corporate advertising aimed at conditioning public opinion. They significantly expanded the number of lobbyists hired to pursue their interests in Washington, D.C., and state capitals. And they significantly increased their campaign contributions to candidates who pledged to support their agenda.

In only a decade, the number of corporate political action committees exploded from less than 90 to 1,500. The number of corporations with registered corporate lobbyists increased from 175 to 2,500. Since then, the number has continued to increase dramatically; recorded expenditures by lobbyists increased from $100 million in 1975 to $3.5 billion per year in 2010. (The U.S. Chamber of Commerce continues to top the list of lobbying expenditures, with more than $100 million per year-more than all lobbyist expenditures combined when the Powell Plan was first conceived.) One measure of how quickly att.i.tudes toward lobbying have changed in the political culture of Washington was that in the 1970s, only 3 percent of retiring members of Congress gained employment as lobbyists; now, more than 50 percent of retiring senators and more than 40 percent of retiring House members become lobbyists.

Corporate coffers were far from the only source of funding for efforts consistent with the Powell Plan. Several wealthy conservative individuals and foundations were also radicalized by the 1960s, which Powell had described as "ideological warfare against the enterprise system and the values of Western society." When he called for an organized, well-funded response by "business to this ma.s.sive a.s.sault upon its fundamental economics, upon its philosophy, upon its right to manage its own affairs, and indeed upon its integrity," many conservative business leaders rose to answer Powell's charge.

John M. Olin, for example, reacted to the armed takeover by militant black students of a campus building at Cornell University, his alma mater, by refocusing his wealthy foundation to support right-wing think tanks and a variety of right-wing efforts to change the character of American government. He embarked on a plan to not only spend the annual income from his foundation's endowment but to spend down the entire princ.i.p.al as quickly as possible in order to have maximum impact. Numerous other right-wing foundations also financed efforts consistent with the Powell Plan, including the Lynde and Harry Bradley Foundation and the Adolph Coors Foundation.

Perhaps the most effective part of the heavily funded conservative strategy has been their focus on populating the federal courts-particularly the U.S. Supreme Court-with ideological allies. The Powell Plan had noted specifically, "Under our const.i.tutional system, especially with an activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change.... This is a vast area of opportunity for the Chamber ... if, in turn, business is willing to provide the funds."

Subsequently, corporate interests became particularly active and persistent in lobbying to place judges on the bench who would be responsive to conservative legal theories that diminish individual rights, constrict the sphere of democracy, and elevate the rights and freedom of action for corporations. They have also established conservative law schools to train an entire generation of counterreformist advocates, and a network of legal foundations to influence the course of American jurisprudence. Two U.S. Supreme Court justices have even taken corporate-funded vacations at resorts where they were treated to legal instruction in seminars organized by wealthy corporate interests.

Meanwhile, the highly organized and well-funded counterreform movement also created and funded think tanks charged with producing research and policy initiatives designed to further corporate interests. In addition, they financed the creation of political movements at the local, state, and national level. By the 1980s and 1990s, this movement launched fierce battles to place opponents of robust government policies in state legislatures, in Congress, and in the White House. Ronald Reagan's defeat of Jimmy Carter was their first watershed victory, and the takeover of Congress in the mid-1990s solidified their ability to bring most Progressive reform to a halt.

In part, the policies of FDR-which had been, in the main, supported by presidents and Congresses of both parties for several decades-were victims of their own success. As tens of millions were lifted into the middle cla.s.s, many lost their enthusiasm for continued government interventions, in part because they began to resist the levels of taxation necessary to support a more robust government role in the economy. Labor unions, one of the few organized forces supporting continued reform, lost members as more jobs migrated from manufacturing into services, and as outsourcing and robosourcing hollowed out the U.S. middle cla.s.s. The nature and sources of America's economic strength have changed over the last several decades as manufacturing has declined. America's branch of Earth Inc. can't be driven solely by wages-investment is of course critical-but the tilt is important, and too little noted.

Slowly at first, but then with increasing momentum, the prevailing ideology of the United States-democratic capitalism-has shifted profoundly on its axis. During the decades of conflict with communism, the internal cohesion between the democratic and capitalist spheres was particularly strong. But when communism disappeared as an ideological compet.i.tor and democratic capitalism became the ideology of choice throughout most of the world, the internal tensions between the democratic sphere and the capitalist sphere reappeared. As economic globalization accelerated, the imperatives of business were relentlessly pursued by multinational corporations. With triumphalist fervor and the enormous resources made available for a sustained implementation of the Powell Plan, corporate and right-wing forces set about diminishing the role of government in American society and enhancing the power of corporations.

Market fundamentalists began to advocate the reallocation of decision-making power from democratic processes to market mechanisms. There were proposals to privatize-and corporatize-schools, prisons, public hospitals, highways, bridges, airports, water and power utilities, police, fire, and emergency services, some military operations, and other basic functions that had been performed by democratically elected governments.

By contrast, virtually any proposal that required the exertion of governmental authority-even if it was proposed, debated, designed, and decided in a free democratic process-was often described as a dangerous and despicable step toward totalitarianism. Advocates of policies shaped within the democratic sphere and implemented through the instruments of self-government sometimes found themselves accused of being agents of the discredited ideology that had been triumphantly defeated during the long struggle with communism. The very notion that something called the public interest even existed was derided and attacked as a dangerous concept.

By then, the encroachment of big money into the democratic process had convinced many Democrats as well as almost all Republicans to adopt the new ideology that supported the contraction of the democratic sphere and the expansion of the market sphere. It was during this same transition period that television supplanted newspapers as the princ.i.p.al source of information for the majority of voters, and the role of money in political campaigns increased, giving corporate and other special interest donors an even more unhealthy degree of power over the deliberations of the United States Congress and state legislatures.

When the decisions of the United States result not from democratic debate but are instead determined by powerful special interests, the results can be devastating to the interests of the American people. Underfunded and poorly designed U.S. social policies have produced a relative decline in the conditions of life. Compared to the other nineteen advanced industrial democracies in the Organisation for Economic Co-operation and Development (OECD), the United States has the highest inequality of incomes and the highest poverty rate; the lowest "material well-being of children" according to the United Nations' index, the highest child poverty rate and the highest infant mortality rate; the biggest prison population and the highest homicide rate; the biggest expenditures on health care and the largest percentage of its citizens unable to afford health care.

At the same time, the success by corporate interests in reducing regulatory oversight created new risks for the U.S. economy. For example, the deregulation of the financial services industry, which accompanied the ma.s.sive increase in flows of trade and investment throughout the world, led directly to the credit crisis of 2007, which caused the Great Recession (which some economists are now calling "the Second Great Contraction" or "the Lesser Depression").

The international consequences of that spectacular market failure dramatically undermined global confidence in U.S. leadership of economic policy and marked the end of an extraordinary period of U.S. dominance. Nations had generally accepted the so-called Washington Consensus as the best formula for putting their economies on sound footing and building the capacity for sustainable growth. Although most of the policy recommendations contained in the consensus were broadly seen as reflecting sound economic common sense, they tended to expand the market sphere in domestic economies as they removed barriers to global trade and investment flows.

Two other factors combined with the 200708 economic crisis to undermine the leadership of the United States: first, the rise of China's economy, which did not follow the prescriptions of the Washington Consensus even though its success was driven by the uniquely Chinese form of capitalism; second, the catastrophic invasion of Iraq-for reasons that were later proven to be false and dishonest.

Within the United States, it is a measure of how distorted the "conversation of democracy" has become that in the aftermath of the economic catastrophe, the most significant "populist" reaction in the U.S. political system was not a progressive demand for protective regulations to prevent a recurrence of what had just happened, but instead a right-wing faux-populist demand by the Tea Party for less government regulation. This movement was financed and hijacked by corporate and right-wing lobbyists who took advantage of the sense of grievance and steered it toward support of an agenda that promoted corporate interests and further diminished the ability of the government to rein in abuses. Extreme partisanship by congressional Tea Party Republicans almost produced a default of the U.S. government in 2011, and threatened to again at the end of 2012.

The sudden growth of the Tea Party was also due in significant measure to its promotion by Fox News, which under the ownership of Rupert Murdoch and the leadership of a former media strategist for Richard Nixon-Roger Ailes-has exceeded the wildest dreams of the Powell Plan's emphasis on changing the nature of American television. Powell had proposed that "The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance." He called for the creation of "opportunity for supporters of the American system" within the television medium.

The inability of American democracy to make difficult decisions is now threatening the nation's economic future-and with it the ability of the world system to find a pathway forward toward a sustainable future. The exceptionally bitter partisan divide in the United States is nominally between the two major political parties. However, the nature of both Democrats and Republicans has evolved in ways that sharpen the differences between them. On the surface, it appears that Republicans have moved to the right and purged their party of moderates and extinguished the species of liberal Republicans that used to be a significant minority within the party. Democrats, according to this surface a.n.a.lysis, have moved to the left and have largely pushed out moderates and the conservative Democrats who used to play a prominent role in the party.

Beneath the surface, however, the changes are far more complex. Both political parties have become so dependent on business lobbies for the large sums of money they must have to purchase television advertis.e.m.e.nts in order to be reelected that special interest legislation pushed by the industries most active in purchasing influence-financial services, carbon-based energy companies, pharmaceutical companies, and others-can count on large bipartisan majorities. The historic shift of the internal boundary between the overlapping capitalist and democratic spheres that make up America's reigning ideology, democratic capitalism, has resulted in increased support within both parties for measures that constrain the role of government.

This shift has now moved so far to the right that it is not unusual for Democrats to propose ideas that originated with Republicans a few years ago, only to have them summarily rejected as "socialist." The resulting impa.s.se threatens the future of hugely popular ent.i.tlement programs, including Social Security and Medicare, and is heightening partisan divisions on questions considered basic and nonnegotiable on both sides. The tensions have grown more impa.s.sioned and bitter than at any point in American history since the decades leading up to the Civil War.

"Market fundamentalism" has acquired, in the eyes of its critics, a quasi-religious fervor reminiscent of the zeal that many Marxists displayed before communism failed-although those to whom the label applies feel that liberals and progressives pursue the ideology of "statism" with a single-minded devotion. U.S. self-government is now almost completely dysfunctional, incapable of making important decisions necessary to reclaim control of its destiny.

James Madison, one of the most articulate of America's extraordinary founders, warned in his Federalist No. 10 about the "propensity of mankind to fall into mutual animosities" and cl.u.s.ter into opposing groups, parties, or factions: The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circ.u.mstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders ambitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human pa.s.sions, have, in turn, divided mankind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to co-operate for their common good.

Madison noted that this tendency in human nature is so strong that even "the most frivolous and fanciful distinctions have been sufficient to kindle their unfriendly pa.s.sions and excite their most violent conflicts." But he went on to highlight the "most common and durable source of factions" as "the various and unequal distribution of property." The inequality in the distribution of wealth, property, and income in the United States is now larger than at any time since 1929. The outbreak of the Occupy movement has been driven by the dawning awareness of the majority of Americans that the operations of democratic capitalism in its current form are producing unfair and intolerable results. But the weakened state of democratic decision making in the U.S., and the enhanced control over American democracy by the forces of wealth and corporate power, have paralyzed the ability of the country to make rational decisions in favor of policies that would remedy these problems.

These two trends, unfortunately, reinforce one another. The more control over democratic decision making by powerful wealthy interests, the more they are able to ensure that decisions on policy enhance their wealth and power. This cla.s.sic positive feedback loop makes inequality steadily worse, even as it makes democratic solutions for inequality less accessible.

The issue of inequality has become a political, ideological, and psychological fault line. Neuroscientists and psychologists have deepened the understanding of political scientists about the true nature of the "left-right" or "liberal-conservative" divide in the politics of every country. Research shows conclusively that these differences are also "sown in the nature of man," and that in every society there is a basic temperamental divide between those who are relatively more tolerant and others who are relatively less tolerant of inequality.

The same divide separates those for whom it is relatively more or relatively less important to care for the weak and victimized, maintain respect for authority-particularly when disorder is threatening-prioritize loyalty to one's group or nation, demonstrate patriotism, and honor the sanct.i.ty of symbols and objects that represent group values. Both groups value liberty and fairness but think about them differently. Recent research indicates that these temperamental differences may be, in part, genetically based, but perhaps more importantly, the differences are reinforced by social feedback loops.

The issue of inequality also lies on the ideological fault line between democracy and capitalism. For those who prioritize capitalism, inequality is seen as an obvious and necessary condition for the incentivization of productive activity. If some receive outsized rewards in the marketplace, that is a beneficial outcome not only for those so rewarded but for the capitalist system as a whole, because it demonstrates to others what can happen if they too become more productive.

For those who prioritize democracy, the tolerance of persistent inequality is far more likely to stimulate demands for change in the underlying policies that consistently produce unequal outcomes. Inheritance taxes have become a flashpoint in American politics. Why, ask liberals, is there a social value in failing to redistribute some portion of great fortunes when a wealthy person dies? Yet for conservatives, the ability to pa.s.s on great wealth at death is just another part of the incentive to earn great wealth in the first place. And they view the imposition of what they call a "death tax" (a label coined by a conservative strategist who conducted deep research on what language would most trigger feelings of outrage) as an encroachment upon their freedom. In my own view, it is absurd to eliminate inheritance taxes; they should be raised instead. The extreme concentration of wealth is destructive to economic vitality and to the health of democracy.

Any legislative effort to address inequality with measures that require funding through taxes of any sort has also come to mark the political fault line dividing the United States into two opposing factions. The corporate-led counterreform movement that began in the 1970s adopted as one of its key tenets a cynical strategy known as "starve the beast"; while proclaiming the importance of "balancing the budget" and "reducing deficits," the movement pushed ma.s.sive tax cuts as the initial step in a plan to use the resulting funding gap as an excuse to force sharp reductions in the role of government. This was part and parcel of the larger effort to diminish the democracy sphere and enhance the market sphere.

What is most troubling to advocates of American democracy is that the radically elevated role of money in politics has given the forces representing wealth and corporate power sufficient strength to advance their agenda even when a sizable majority of the American people oppose it. In effect, those who zealously advocate the expansion of the role of markets while demanding a constriction of the ability of people in democracies to enact policies that address the abuses and disruptive risks that often accompany unrestrained market activity are posing a threat to the internal logic of the nation-state itself.

America's middle cla.s.s has been hollowed out by, among other causes, the emergence of Earth Inc., the increasing proportion of retired Americans, and advances in the availability of expensive health care technologies. The result is a fast growing financial crisis that is threatening the ability of the United States to provide world leadership. U.S. government indebtedness compared to GDP is threatening to spiral out of control. According to a study by the nonpartisan Congressional Budget Office, the U.S. debt-to-GDP ratio is 70 percent in 2013, and already exceeds GDP if money the government owes to itself is added to the debt.

Although a highly publicized credit downgrade by the bond rating firm Standard & Poor's in 2011 had no perceptible effect on the demand for U.S. bonds, experts have warned that a sudden loss of confidence in the dollar and in the viability of U.S. finances cannot be ruled out in the coming decade. Partly due to the weakness of the euro and a lack of trust in the Chinese yuan, or renminbi (RMB), the U.S. dollar remains the world's reserve currency. For those and other reasons, the United States is still able to borrow from the rest of the world at extremely low interest rates-as of this writing at less than 2 percent for ten-year bonds.

Yet the looming financial troubles are potentially large enough to provoke a sudden loss of confidence in the future of the dollar, and a sudden increase in the interest rates the U.S. government would be required to pay to holders of its debt. Even a one percentage point rise over projected increases in the interest rates paid on the debt would add approximately $1 trillion to interest payments over the next decade.

The strength of any nation's economy is, of course, crucial for the exertion of power in multiple ways. It undergirds the ability to finance weapons and armies, and to use foreign aid and trade concessions to build necessary alliances. It enables the building of superior infrastructures and the provision of public goods such as education, job training, public safety, pensions, enforceability of contracts, quality of the legal system, health care, and environmental protection. It also allows for the creation of a superior capacity for research and development, now crucial to gain access to the fruits of the accelerating scientific and technological revolution.

More broadly, the ability of any nation to wield power on a sustained basis-whether military, economic, political, or moral-depends upon multiple additional factors, including: * Its ability to form intelligent policies and implement them effectively in a timely manner, which usually requires reason-based, transparent decision making and the forging of a domestic consensus in support of policies-particularly if they require a long-term commitment. The Marshall Plan, for example, would not have been possible without bipartisan support in the Congress and the willingness of the American people to commit significant resources to a visionary plan that required decades to implement.

* The cohesion of its society, which generally requires the perception of fairness in the distribution of incomes and net worth, and a social contract within which real needs are satisfactorily met and governmental power is derived from the genuine consent of the governed. The maintenance of cohesion also requires alertness to and sustained respect for the differing experiences and perspectives of minorities, and a full understanding of the benefits from the absorption of immigrants.

* The protection of property rights, the enforcement of contracts, and opportunities to invest money without an unreasonable risk of losing wealth.

* The development and enforcement of sustainable fiscal and monetary policies and bank regulations that minimize the risk of market disruptions and do not accentuate swings in the business cycle. Economic success also requires investments in infrastructure, research and development, and appropriate ant.i.trust enforcement.

* The development of its human capital with adequate investments in education and job training, health care and mental health care, and nutrition and child care. The Information Revolution has enhanced the importance of investments in human capital, even as it requires a regular updating of appropriate strategies.

* The protection, conservation, and stewardship of natural capital with environmental protection and energy efficiency. The global climate crisis requires extensive planning for adaptation to the big changes coming, and much greater attention to the need for rapid reductions in global warming pollution.

The United States is now failing to satisfy many of these criteria. But it is not the only nation-state that is in danger of dissipating its ability to make sound decisions about the future. The larger and more significant change in the balance of power throughout the world is the relative decline in the effective power of nation-states generally. In the words of Harvard professor Joseph Nye, "the diffusion of power away from government is one of this century's great political shifts."

NATION-STATES IN TRANSITION.

One of the princ.i.p.al reasons for the steady decline in the effective power of nation-states has been a rise in the power of multinational corporations. The redistribution of economic power and initiative to multinational corporations operating in many national jurisdictions simultaneously (even while exerting increased influence over the domestic policies of the nations in which they are based) has significantly diminished the role of nation-states.

With their ability to outsource and robosource their labor inputs, many corporations no longer have the same incentive to support improvements in national education systems and other measures that would enhance labor productivity in their home nations. And with the astonishing increase in trade and investment flows, multinational corporations are playing a far more significant role than ever before. Some political scientists have a.s.serted that the influence of corporations on modern governance is now almost a.n.a.logous to the influence of the medieval church during the era of feudalism.

The integration of the global economy has shifted power profoundly toward markets. The ma.s.sive flows of capital over digital networks in Earth Inc. have made some national economies highly vulnerable to the sudden outflow of "hot money" if and when global markets reach a negative judgment about the viability of their fiscal and monetary policies. International banks and bond rating firms have become more significant players in national debates about taxing and spending. Greece is only the best known of many examples of countries no longer able to make decisions for themselves. It must first get permission from the European Union, which supports it, and international banks, which hold its debt.

The historic decline in the power, influence, and prospects for the Eurozone countries (those European nations that have joined in a monetary union) stems in large measure from a widely recognized fatal flaw in the decision by those European nations entering the monetary union to gamble that they could delay tight integration of their fiscal policies (without which a single currency is ultimately not viable) until the political momentum toward unity made that difficult step possible.

Recently released doc.u.ments confirm that when the Eurozone was founded, there was widespread awareness, particularly in Germany, that Southern European countries were not even close to the fiscal conditions that would have reduced the risk of monetary integration. Yet then chancellor Helmut Kohl and other European leaders decided that the benefits of European unity were worth the gamble that cohesion could be maintained until there was sufficient Europe-wide support for tighter fiscal unity. When the financial crisis of 200708 exposed the fatal flaw, the global credit markets essentially called Europe's bet.

Broadly speaking, Europe now faces two options. First, it can acknowledge the failure of the Eurozone experiment and sharply contract the number of nations that remain in the Eurozone alongside Germany and France-the core of Europe's economy. This option is unattractive for several reasons: there are no legal procedures for the withdrawal of a country from the Eurozone; the transition from the euro back to a national currency-for a country like Greece, for example-promises to be exceptionally painful and expensive; and Germany would find itself once again threatened with compet.i.tive devaluations-in nations like Italy, for example-whenever the strength of the German economy significantly outpaced that of its neighbors.

The second option is to move quickly and boldly forward to a fiscal unification of the Eurozone, notwithstanding the disparities in the strength and productivity of Germany's economy compared to the nations of Southern Europe. However, the only way to maintain anything remotely approaching parity in living standards in a fiscally unified Europe would be for Germany to make transfer payments (essentially budget subsidies) to the weaker European countries for at least a generation. Yet even though this might be a long-term economic bargain for Germany, the relatively more prosperous taxpayers of the former West Germany have shouldered the burden of subsidies to those in the relatively weaker former East Germany for the two decades since reunification-at an estimated cost of $2.17 trillion-and as a result their appet.i.te for taking on this new burden is quite low.

The inability of Europe's leaders to establish the needed fiscal integration and move more quickly toward a unified Europe has created a significant political and economic crisis that threatens to undo one of the most important U.S. successes in the aftermath of World War II. The weakening of political cohesion and economic dynamism in Western Europe (along with the long-running political paralysis and economic slowdown in j.a.pan) have also contributed to the new difficulties faced by the United States in providing world leadership.

As with the compound ideology of democratic capitalism, the political concept of a nation-state is also made up of two ideas that overlap one another. The idea of a nation is based on the common ident.i.ty of the people who live in a national territory; whether or not they share the same language (often the vast majority do), they usually share the same feeling that they are members of a national community. The state, by contrast, is an administrative, legal, and political ent.i.ty that provides the infrastructure, security, and judicial basis for life within the state. When both of these concepts overlap, the result is the kind of nation that we commonly think of as the princ.i.p.al form by which global civilization is organized.

There is a rich historical debate about the origins of nation-states. The first large "states" emerged around 5,400 years ago when the Agricultural Revolution first produced large food surpluses in areas endowed with plant varieties that were especially suitable for cultivation: the Nile River Valley in Egypt, the Yellow River Valley in China, the Indus River Valley in India, the Tigris and Euphrates river valleys, and the Fertile Crescent (and in nearby Crete). These states also appeared in several other areas of the world, including Mexico, the Andes, and Hawaii.

The marriage of state and nation occurred much later. In a very real sense, modern nation-states were created as an outgrowth of the Print Revolution. Throughout most of human history, it was not the dominant form of organization. Empires, city-states, confederations, and tribes all coexisted in large areas of the Earth for millennia. Although there are a few examples of nation-states that existed prior to the Print Revolution, the rise of the modern nation-state as the dominant form of political organization occurred when the spread of printed books and pamphlets in a shared form of national languages stimulated the emergence of common national ident.i.ties.

Prior to the Print Revolution, languages such as French, Spanish, English, and German, among others, featured a multiplicity of dialects and forms that were so distinctive that speakers of one form often had difficulty communicating with speakers of other forms. After the Print Revolution gained momentum, however, the economic imperatives of ma.s.s mechanical reproduction of texts provided a powerful push toward a common dialect of each tongue that was then adopted as a common language within each national territory. The emergence of group ident.i.ties in regions where the majority of people spoke, read, and wrote in the same language created the conditions that led to the emergence of modern nation-states.

The Reformation and the Counter-Reformation unleashed pa.s.sions that combined with these new national ident.i.ties to trigger a long series of b.l.o.o.d.y wars that finally culminated in the Treaty of Westphalia in 1648-the treaty that formalized the construction of a new order in Europe based on the primacy of nation-states, and the principle of noninterference by any nation-state in the affairs of another.

Soon thereafter, the dissemination of news-printed in national languages and presented within a distinctively national frame of reference-further strengthened national ident.i.ties. Over time, the wider availability of civic knowledge also led to the emergence of representative democracy and elected national legislatures. When the people of nations gained political authority over the making of laws and policies, the functions of the state were married to those of the nation.

During the Industrial Revolution, the introduction of transportation networks such as railroads and highways further expanded the political role of nation-states, and further consolidated national ident.i.ties. At the same time, the nature and scale of industrial technologies expanded potential points of conflict between the operations of the market and the political prerogatives of the state.

The internal cohesion of modern nation-states was also strengthened by the introduction of national curricula in schools that not only reinforced the adoption of a common national dialect but also spread a common understanding of national histories and cultures-usually in ways that emphasized the most positive stories or myths in each nation's history, while often neglecting to include narratives that might diminish feelings of nationalism. (For example, j.a.panese textbooks that minimize its invasion and occupation of China and Korea have regularly become sources of tension in Northeast Asia.) Transnational global technologies such as the Internet and satellite television networks are exercising influence in spheres that used to be dominated primarily by the power of nation-states. Many regional satellite television networks dispense with national frames of reference in presenting news. And the Internet, in particular, is complicating many of the strategies formerly relied upon by nation-states to build and maintain national cohesion. Just as the printing press drew adherence to single versions of national languages and solidified national ident.i.ties, the Internet is making available the knowledge of every country to the people of every other country. Google Translate, the largest of many machine translation services, now operates in sixty-four different languages and provides translations from one language to another for more doc.u.ments, articles, and books in one day than all of the human translators in the world provide in a full year.