How the Powell Memorandum changed capitalism — and what we can learn from it today
Fifty years ago, an American lawyer called Lewis Powell Jr. wrote a memo for the US Chamber of Commerce that deserves to be better remembered than it is. It was to become the blueprint for a “hostile takeover” of US economic and political life by a wealthy, conservative elite.
Fifty years on, the threats to America’s “free enterprise system” that worried Powell — high taxes, government regulation and a powerful labour movement — have been well and truly defanged. In no small part, this is a result of the way that the strategy Powell set out in his 1971 memo was operationalised by its most influential reader: Charles Koch, CEO (then and now) of Koch Industries, America’s largest privately-owned company.
Over the intervening decades, Koch (along with a handful of other hyper-wealthy Americans) has funded and organised a campaign to (in the words of one historian) ‘save capitalism from democracy — permanently.’ That campaign, as Powell recommended, has been waged on multiple fronts: in academia, the media, politics and the judiciary. Its success has relied on a near-perfect alignment of ideology and self-interest — and a ruthless persistence on Koch’s part.
Whatever you think of Koch’s agenda, it’s hard not to admire his effectiveness — and, by extension, the effectiveness of the strategy Powell articulated 50 years ago. So how might we apply something of the Koch-Powell approach to the rather different set of threats that are pertinent today?
The first thing Powell’s memo does is expound the nature of the threat. Today, the biggest threat to the ability to accumulate, preserve and pass on wealth (which, ultimately, is what both Powell and Koch were interested in) stems from the unsustainability of our economic model. As the economist Partha Dasgupta puts it, ‘we have degraded the biosphere to the point where the demands we make of its goods and services far exceed its ability to meet them on a sustainable basis.’
A year after Powell wrote his memo, the Club of Rome published its groundbreaking Limits to Growth study — the first comprehensive attempt to model the implications of biophysical limits for the global economy. Its message was stark: ‘the basic behaviour mode of the world system is exponential growth of population and capital, followed by collapse.’ A recent study that tested the original MIT team’s assumptions against real-world data suggests we are on track for collapse around 2040.
The impact of such an outcome would be devastating for the wealthy and non-wealthy alike. As one character in Kim Stanley Robinson’s 2020 novel, The Ministry for the Future, says:
“You can short civilization if you want. Not a bad bet really. But no one to pay you if you win. Whereas if you go long on civilization, and civilization (therefore) survives, you win big. So the smart move is to go long.”
The real threat: short-termism
Ecological limits are not, in themselves, the threat we need to worry about. It’s the inability of our economic and political systems to act in a way that is consistent with them that is the problem. That inability is down to the way that short-termism is hardwired into financial, economic and governmental decision making today.
Outcomes in 2040 — however predictable — simply aren’t a material factor in most decisions about how to allocate public and private resources or how to regulate financial and economic activities today. Short-termism is taught in business schools, written into laws and regulations, embedded in the tools and models used to allocate capital, and hardwired into incentives at every level of the financial system.
Having successfully identified the threat — in this case, endemic short-termism across our financial, economic and political systems — the next step is to develop a strategy for nullifying it. Just as Powell advocated intervening across multiple domains concurrently, we need a multi-pronged approach to instilling greater long-termism into our systems.
Some interventions will be about transforming the “core” of our current systems — rewriting rules and realigning incentives to extend the default time horizons of economic and political actors. For example:
- Ending quarterly earnings guidance at publicly listed companies.
- Ensuring CEOs have “skin in the game” beyond their tenure by paying them (partly) in shares that they cannot sell until a set number of years have passed.
- Using the tax system to “nudge” investors to hold onto shares for longer periods, rather than engage in speculative trading (eg., through a financial transactions tax).
- Changing limited liability laws to make shareholders and company directors at least partially liable for longer-term environmental damage.
- Amending the fiduciary duties of investors and the legal mandates of financial regulators to integrate sustainability issues that affect both financial and non-financial outcomes in the long run.
At the same time, we need to foster experimentation at the “edge” to develop viable alternatives to how finance, business and politics are practiced today. This is where projects like EIT Climate-KIC’s Long-Termism Deep Demonstration come in. The deep demonstration focuses on five areas of action:
- Exploring new types of governance and rule-setting to redesign institutional structures.
- Empowering individuals in decision making through data transparency and capability building.
- Harnessing the power of collective movements to democratise rulemaking.
- Working with social and cultural narratives through exploring alternative concepts of time.
- Redefining notions of value using frontier technological prototypes.
[Full disclosure: Volans has received funding from EIT Climate-KIC as part of the Long-Termism Deep Demonstration and this article draws on ideas developed as part of that work.]
What kind of economy are we aiming for?
If the guiding principles of the economic paradigm that got us into this mess are efficiency and extraction, then the guiding principles of the new paradigm that’s needed are resilience and regeneration.
Resilience is a necessary priority because the cumulative damage already done to natural and social systems means we are guaranteed a bumpy ride for decades to come. Even in what’s now a best-case scenario where global warming is limited to 1.5°C above pre-industrial levels, we will have to cope with rising sea levels and an increase in both the frequency and severity of extreme weather events. To avoid these facts of 21st century life crippling economies, destroying wealth and causing untold suffering, investments are needed in areas such as:
- Drought-proofing food production — eg., by developing strains of staple crops that are more resilient to drought, using satellite data to better monitor and manage water levels, and developing lab-grown alternatives.
- Developing urban infrastructures better able to withstand extremes of weather — eg., “sponge cities” to prevent flooding.
- Building diversity and redundancy into supply chains to make them less vulnerable to shocks.
- Investing in preparedness for “predictable surprises”, such as pandemics, heatwaves and cyber attacks.
Ultimately, though, resilience and adaptation will not be enough on their own. To avoid a world of permanently escalating threats to wealth and welfare, we need to replenish our stocks of natural and social capital. That means investing in practices that are regenerative — harnessing the extraordinary power of natural ecosystems to heal themselves, and replenish what has been depleted, if given the chance to do so. Examples of regenerative investment priorities include:
- Shifting agricultural production to regenerative practices that enhance soil health, thereby sequestering carbon, increasing water retention and improving the nutritional value of food.
- Creating and maintaining marine protected areas to allow below-water biodiversity to recover, to increase stocks of “blue carbon”, and to protect coastal cities from flooding.
- Promoting rewilding of degraded land and the creation of wildlife corridors.
- Investing in urban (re-)development projects that make cities more liveable, socially inclusive and culturally vibrant.
Some investments in resilience and regeneration will deliver a positive rate of return, while others are unlikely to in the near term. Likewise for investments in stretching the time horizons for financial, economic and political decision making. As Powell and Koch well understood, strategic philanthropy is a critical tool if your goal is to mitigate systemic risks.
The next transformation of capitalism
Ultimately, the story of the Powell Memo and its impact should be a source of inspiration. We know that capitalism can be deliberately rewired because it’s happened before. And we know what it took. To quote Powell:
‘Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action.’
Now all we need is a volunteer to play the role of Charles Koch in the next transformation of capitalism.
For anyone interested in in the history of how Koch, Powell and co transformed US capitalism over the last 50 years, I highly recommend getting your hands on a copy of one or more of the following books:
- Evil Geniuses by Kurt Andersen
- Democracy in Chains by Nancy MacLean
- Kochland by Christopher Leonard
- Dark Money by Jane Mayer
