Remembering Eisenhower’s Farewell Address 50 Years Later

While today is a national holiday in the United States, in remembrance of Dr. Martin Luther King Jr., it is also the 50th anniversary of former US President Dwight D. Eisenhower’s famous farewell presidential address. Ike’s speech warned about the undemocratic tendencies that the nexus of big government and corporate power creates, specifically addressing the military-industrial complex. In the wake of the financial crisis and the bailouts it has spawned, it bears noting what former President Eisenhower said. You can catch a video of the speech in my September 2009 post Eisenhower on the Military Industrial Complex. But let’s turn to the former President’s granddaughter who yesterday wrote an Op-Ed in the Washington Post on this subject.

She writes:

Of course, the speech will forever be remembered for Eisenhower’s concerns about a rising "military-industrial complex," which he described as "a permanent armaments industry of vast proportions" with the potential to acquire – whether sought or unsought – "unwarranted influence" in the halls of government…

However, at this time of increased concerns over our fiscal deficit and the national debt, Eisenhower’s farewell words and legacy take on added significance.

Throughout his presidency, Eisenhower continually connected the country’s security to its economic strength, underscoring that our fiscal health and our military might are equal pillars of our national defense. This meant that a responsible government would have to make hard choices. The question Eisenhower continued to pose about defense spending was clear and practical: How much is enough?

Given the interpretation of the new monetary consensus I laid out yesterday, this is something that concerns me. As I have said in the past, I am not concerned about reducing deficits per se; rather, I am concerned about what the deficits represent in an age of crony capitalism.

Let me use MCI, the telecommunications company, as an example of how the US has developed over the past 30-odd years. In the 1970s and 1980s, the company MCI grew up in a renewed age of anti-trust and de-regulation. AT&T was a private, government-sanctioned monopoly which at the time was seen to be abusing its monopoly position. MCI was a young upstart keen on pushing that view in order to gain a foothold in the dynamic telecoms market. Wikipedia begins its entry on MCI Communications this way:

MCI Communications Corp. was an American telecommunications company that was instrumental in legal and regulatory changes that led to the breakup of the AT&T monopoly of American telephony and ushered in the competitive long distance telephone industry. It was headquartered in Washington, DC.

The key here is that MCI was headquartered in Washington D.C. For those of you who don’t know D.C., as recently as 25 years ago, it was a backwater town, a large overgrown southern American town as my mother likes to call it. After the riots after Martin Luther King Jr.’s assassination and the white flight which followed, there was almost no shopping in downtown DC. The shops either shut down or moved to the suburbs. Most shops that remained in downtown catered to government workers who never worked on weekends. So those shops were closed all day on Saturdays and Sundays.

DC is an artificial place that was conjured up whole-cloth by early American policy makers as a federal district, a government town. And it has remained so since. It didn’t exist before it was dreamed up by America’s founders. It is not like other capital cities in Europe with long histories, Paris, London or Madrid, for example. Think of it like Brasilia, another artificial capital city. America’s banking industry is in New York. The fashion industry is in NY, LA and Miami. The film industry is in Los Angeles. The Insurance Industry is in Hartford and San Francisco. The government industry is in Washington, DC. DC is about government and nothing else. Now this may sound harsh, but it is not meant as a put down, just a statement of fact as I know the city well. Washington DC is a beautiful city and so is the surrounding area.

The point with MCI is that it was headquartered in Washington DC for one reason and one reason only: lobbying government. MCI was successful in its efforts and grew over time. During the 1980s, the company grew exponentially thanks to junk bonds and de-regulation. You might see de-regulation as a positive; and it is in many regards. De-regulation is the logical extension of the anti-trust movements that broke up Ma Bell and took on IBM in the US and ended in the privatisation of British Steel, BT, and many other nationalised British companies.

But, if you know Washington DC, you can see another side to de-regulation. Recently, when I went to Rosslyn, a small little town just outside of DC across the river from Georgetown, I marvelled at how many defense contractors and the like were lining the street there. Forget about K Street, try North Lynn Street, Arlington, VA! There has been explosive growth in the DC metropolitan area in the past quarter century. The area is truly expansive, with the consolidated Baltimore-Washington DC metro area being one giant sprawl of over 8 million people. Where it was an extraordinary rarity to see a DeLorean, Porsche or Bentley in the early 1980s in Washington DC, today you will often see many Porsches, Ferraris, and Lamborghinis daily as you might in Beverly Hills. DC has three counties amongst the richest 15  in the nation: Fairfax, Montgomery, and Howard County. The shopping area straddling DC and Montgomery County known as Friendship Heights has transformed into a Rodeo Drive replete with the Ermengildo Zegna, Tiffany’s, Saks, and Bloomingdales you would expect to find. Bethesda, now the seventh most expensive residential property market in the country, has a tony restaurant and shopping area, Bethesda Row, commensurate with the upscale lifestyle of the wealthy denizens of Chevy Chase and Bethesda. The fabric and yarn and second hand bookstores that used to occupy Bethesda Row are now gone or in strip malls further out in Montgomery County. And let’s not forget K Street, a non-descript office-lined street between Georgetown and the White House. It is now the epicentre of lobbyists plying their craft of influence-peddling. To me, this is de-regulation as crony capitalism.

In the mid-1990s, MCI announced that it was to be acquired by the re-born British Telecom, the former monopoly operator turned international predator. But that cosy deal was undone when WorldCom, the Internet-age upstart trumped BT’s bid and carried the day.  Of course MCI WorldCom (later just WorldCom) was one of the most spectacular frauds of the Internet bubble, only matched in infamy by Enron.

I know that MCI is a curiously obscure example to use when talking about "the acquisition of unwarranted influence, whether sought or unsought" aka crony capitalism. But, the company’s history demonstrates the journey in Washington from breaking up monopolies in the 1970s and 1980s to junk bond financing in the 1980s, de-regulation in the 1980s and 1990s, to fraud and collapse in the past decade of Internet, housing and credit bubbles.

Let me ask the question I asked yesterday, one more time: Is it even possible to have effective policy geared to sustaining demand when government capture by corporate interests is the order of the day?  If you look at the data points I have put forward here you would say no. So, when I read Susan Eisenhower’s Op-Ed, that’s where my thinking is.  Deficits are an ex-post accounting identity. They don’t mean anything except as a proper accounting of past government spending and taxation. But, deficits do represent something altogether worse in an age of crony capitalism.

Source: 50 years later, we’re still ignoring Ike’s warning – Susan Eisenhower, WaPo

  1. SladeHarris009 says

    Excellent post. Regulatory capture is mostly spoken of in the context of the financial industry, with good reason; but I think Wall Street’s influence is rivaled by Defense, Inc. I too live in DC and marvel at the ubiquity of defense contractors in the area.

  2. SladeHarris009 says

    Excellent post. Regulatory capture is mostly spoken of in the context of the financial industry, with good reason; but I think Wall Street’s influence is rivaled by Defense, Inc. I too live in DC and marvel at the ubiquity of defense contractors in the area.

  3. Whale says

    Great post.
    It would have been good to have used The Carlyle Group as your example. The Iron Triangle is definately in play.

  4. Whale says

    Great post.
    It would have been good to have used The Carlyle Group as your example. The Iron Triangle is definately in play.

Comments are closed.

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