CHAPTER 2
Busting the Myth
Making the Invisible Visible
Americans are largely unaware of the very government benefits they personally receive. This fact was highlighted in a 2008 study by Cornell University professor Suzanne Mettler. She began her study by asking respondents if they had “ever used a government social program or not,” and then later asked about a specific list of 19 programs.
The results of her study are telling. About 60 percent of those who benefited from home mortgage interest deduction and lifetime learning tax credits said they had never used a government social program, while 53 percent of those who received student loans claimed to have never used a government social program. Even more surprising, between 40 and 44 percent of those who had received Social Security, Pell Grants, unemployment insurance, Veterans Benefits, the GI Bill, or Medicare claimed to have never used a government social program.1
This blindness to society’s role in all our lives has profound impacts on our public debates. Sara Robinson, Senior Fellow with the Campaign for America’s Future, asks rhetorically about the Mettler study and the self-made myth this blindness supports:
Did Mr. Self-Made Man grow up in a VA or FHA-funded house? Attend a public school or college? Go to school on the GI Bill, Pell Grants, or student loans? Does he claim a mortgage interest tax deduction every year? Does he support his retired parents out of pocket, or does Social Security do it for him? Does his employer get government contracts or subsidies that make his paycheck possible? Does his business depend on a sound currency, enforceable contracts, or reliable transportation systems? …
Forget gratitude; these social contract deniers insist loudly that none of that ever happened. At all. They pay taxes; but they’ve never seen a cent returned to them for anything. And they write their “self-made” myths accordingly.2
This blindness to the governmental structures and programs that support us in our day-to-day lives is a broad, societal problem. It undercuts support for the very programs and policies that are essential to building a strong middle class.
When this blindness is extended to those at the very top of the economic ladder, however, it has an even more insidious and damaging effect on our public discourse and the policies that flow from it. Extravagant CEO salaries and vast inequalities of income and wealth, when viewed through this self-made lens, are simply the result of the hard work and the exceptional intelligence of those at the top. Similarly, progressive tax policies, for those who believe that wealth is entirely self-made, become akin to “punishing success.”
There are successful individuals who have forgotten the societal roots of their success or vigorously deny the role of social forces in their good fortune. They use inherited privilege or societal investment to get ahead yet work to eliminate opportunities for others.
There are people in America who won’t admit how much wealth and advantage they’ve had; they’ve been dealt a royal flush. These are the people who reap the most from government subsidies, yet when it comes time to spend money to give equal opportunity to the rest of society, they pull up the ladder. They lecture others about hard work, individual virtue, and meritocracy while personally harvesting the benefits of private inheritances and public subsidies.
Gwendolyn Parker is the author of Trespassing, a memoir about her own journey as an African-American woman in the halls of corporate privilege. She was troubled by George W. Bush’s self-characterization on the campaign trail that he was a successful businessman:
How can George W. Bush, born into a family whose wealth and power and privilege far outstrip my own, not similarly see the truth about his own life? I wouldn’t think less of Governor Bush if he just admitted that he’d been lucky, certainly very lucky, and left it at that. Few of us have led luckless lives, and there is neither merit nor shame in the truth.
But I worry about a presidential candidate who feels compelled to re-form luck and privilege into primarily the sweat of his own brow. I worry particularly about how many American lives he’ll need to misinterpret so that he can continue to tell the story he likes to tell about himself.3
If we are to have an honest debate about the important public policies of our day, we must clear away this self-made myth and view the world through a new frame. As Robinson argues, any real reform “must begin with explicitly making the invisible visible to the eyes of the public.… Nobody in America ever did it alone, for themselves. For the past 220 years, we’ve done it together, for each other. Bringing that interdependence back out into the light and putting it at the center of our politics shifts the entire dialogue.”4
Only when people see the societal contributions to individual success—contributions made possible through governmental action—as well as the role of privilege and luck can we have an honest and productive debate about the public policies of the day. In this chapter we examine the stories of high-wealth individuals and business leaders who are generally viewed by themselves or by society as self-made. In doing so we bust the self-made myth and make the invisible visible.
Donald Trump: FHA Housing, Imminent Domain, and Bank Bailouts
Donald Trump is the president of The Trump Organization, a business magnate, and a reality-television personality on The Apprentice.
Donald Trump is viewed by some as one of the shrewdest American business tycoons of his generation. In March 2011 Forbes estimated his net worth to be $2.7 billion, with a $60 million salary.5 Many praise and analyze his “success” as if it were self-made, and they fail to attribute the proper credit to others in society where it is deserved. Despite what Trump may espouse, his success would have been in no way possible without his father, the general public, and the US government. Unfortunately, Trump decided to forget or selectively ignore these truths while forming his political philosophy, a sentiment made particularly clear during his brief bid for the 2012 Republican presidential nomination.
Trump was born in New York City in 1946, the son of real estate tycoon Fred Trump. Fred Trump’s business success not only provided Donald Trump with a posh youth of private schools and economic security but eventually blessed him with an inheritance worth an estimated $40 million to $200 million.6 It is critical to note, however, that his father’s success, which granted Donald Trump such a great advantage, was enabled and buffered by governmental financing programs. In 1934, while struggling during the Great Depression, financing from the Federal Housing Administration (FHA) allowed Fred Trump to revive his business and begin building a multitude of homes in Brooklyn, selling at $6,000 apiece. Furthermore, throughout World War II, Fred Trump constructed FHA-backed housing for US naval personnel near major shipyards along the East Coast.7
In 1974 Donald Trump became president of his father’s organization. During the 15 years following his ascension, he expanded and innovated the corporation, buying and branding buildings, golf courses, hotels, casinos, and other recreational facilities. In 1980 he established The Trump Organization to oversee all of his real estate operations.8
Trump eventually found himself in serious financial trouble. In 1990, due to excessive leveraging, The Trump Organization revealed that it was $5 billion in debt ($8.8 billion by some estimates), with $1 billion personally guaranteed by Trump himself. The survival of the company was made possible only by a bailout pact agreed upon in August of that same year by some 70 banks, allowing Trump to defer on nearly $1 billion in debt, as well as to take out second and third mortgages on almost all of his properties.9 If it were not for the collective effort of all banks and parties involved in that 1990 deal, Trump’s business would have gone bankrupt and failed.
In 1995 Trump took Trump Hotels & Casino Resorts Inc. public and received a substantial financial boost from society and the Securities and Exchange Commission (SEC) regulations that enable the market to function. He initially sold 10 million shares at $14 per share and then in 1996 sold 13.25 million shares at $32.50 a share.10 This initial public offering granted Trump’s company a stability and legitimacy that would have been impossible without millions of people around the world trusting his organization and investing with the hope of shared success.
Despite the clear societal and governmental assistance described above, Trump continues to be outspoken in his criticism of government. In his book The America We Deserve, Trump explains that “the greatest threat to the American Dream is the idea that dreamers need close government scrutiny and control. Job one for us is to make sure the public sector does a limited job, and no more.”11 This quote proves to be particularly ironic when considering Trump’s feelings about eminent domain laws. He was quoted as saying, “I happen to agree with it 100 percent” when speaking of the 2005 Supreme Court decision on Kolo v. New London, which affirmed the government’s ability to transfer land from one private owner to another for the purpose of economic development in the area.12 In fact, Trump attempted to take advantage of eminent domain laws on multiple occasions, once even demanding that an elderly widow give up her home so that he could build a limousine parking lot.13
Perhaps more disturbing than his hypocritical condemnation of the government is his failure to acknowledge anyone’s contributions, save his own, in the creation of his success. At the 2011 Conservative Political Action Conference, Trump made clear his feelings on the creation of his wealth: “Over the years I’ve participated in many battles and have really almost come out very, very victorious every single time. I’ve beaten many people and companies, and I’ve won many wars. I have fairly but intelligently earned many billions of dollars, which in a sense was both a scorecard and acknowledgment of my abilities.”14 Furthermore, Trump apparently sees no benefit in supporting taxes to maintain institutions such as the Securities and Exchange Commission to regulate the stock market, in which he publicly trades his company, or the court system, which actively protects his property rights: “We are the highest taxed nation—I would tax foreign countries that are ripping off the US and lower taxes for Americans.”15
From the moment of his birth, Trump was set up for success. The large inheritance left to him by his father, coupled with the contributions and the protections of society and the US government made his ascension to the Forbes 400 list almost inevitable. Nevertheless, Trump fails to recognize this phenomenon and continues to express his belief that he did it alone.
H. Ross Perot Sr.: Medicare, Medicaid, and the Right Connections
H. Ross Perot Sr. founded Electronic Data Systems, was twice a presidential candidate, and as of 2011 was among the 100 wealthiest people in the United States.
H. Ross Perot Sr. is best known as a candidate for president. In his 1992 campaign, he ran as an independent, using $65.4 million of his own money, and won 19 percent of the vote.16 He then started the Reform Party, under whose banner he ran again for president in 1996.17 Though his political moment may have passed, he remains an economic powerhouse in America to this day. As of this writing, the 81-year-old Perot is one of the 100 richest individuals in the United States, with an estimated net worth of $3.4 billion.18
Perot was born in Texarkana, Texas, in June 1930. He attended public and private schools and Texarkana Junior College. Perot is largely regarded as a self-made billionaire. Even the profile on Forbes.com lists the source of his wealth as “computer services, real estate, self-made [emphasis added].”19 His father, Gabriel Elias Perot, however, was a successful cotton broker in an area where cotton was king. Perot credited his father with giving him exposure to business. Although the Perots struggled during the Great Depression, the family owned a spacious home, attended a private country club, and sent Ross Perot and his sister to a private Christian grammar school.20
It was already clear at a young age that Ross Perot was highly disciplined, competitive, and hardworking. As a teenager he embarked on a number of jobs and entrepreneurial ventures. He entered the US Naval Academy in 1949 and was considered a natural leader among his peers.21
Perot left the US Navy and moved to Dallas, Texas, where he took a sales job at International Business Machines (IBM). By all accounts Perot was a quick learner and showed a great deal of initiative and innovation. While he was working with one IBM client, Texas Blue Cross, Perot identified a niche for a future business. He thought that IBM put too much focus on selling computers and not enough effort into helping clients use the machinery. “I realized that people did not want computers, they wanted the results that came from computers.”22
In 1962 Perot founded Electronic Data Systems (EDS), a oneman data-processing company that went on to employ more than 70,000 people. But in its early days, EDS owned no computers and rented office space from Texas Blue Cross. The company struggled to make a profit in its early years. In 1964 it had earnings of $400,000 but made only $4,100 in profit.23 But EDS was a company that was in the right place at the right time.
In July 1965 the US Congress passed legislation establishing the Medicare and Medicaid programs. A cornerstone of Lyndon Johnson’s Great Society initiative, these insurance programs would entitle 30 million US citizens to health benefits.24 This would in turn create an enormous volume of paperwork and an acute need for data-processing systems.
EDS moved into this enormous market, using its inside connection with Texas Blue Cross, the agency that would administer the federal program in Texas. Texas Blue Cross gave EDS its computer data business without any competitive bid. In its 1968 contract with Texas Blue Cross, EDS was paid $250,000 to develop a computer program to process Medicare claims. While government funds paid for research and development (R&D) of the system, EDS retained ownership of the program. Essentially, the R&D costs for EDS’s main product were paid for with tax dollars.25
Gerald Posner, in his biography of Perot, called him the “Welfare Billionaire”:26 “The EDS program, developed with the help of Texas Blue Cross and paid for by federal funds, was the same one that Perot kept reselling at a significant profit to other states.… The issue was of no small consequence, because between 1966 and 1971 … the federal government paid EDS $36 million (the company had only $400,000 in revenues in 1964). Its closest competitor during the same time, Applied Systems Development Corporation, received just $275,000.”27
The EDS Medicare contract was a windfall. There is no question that the early relationship with Texas Blue Cross helped build the company and enabled it to catch a veritable wave of opportunities.
In 1965, the first year of EDS’s government contracts, revenues were $865,000 and profits were $26,487. By 1968 EDS had revenues of $7.5 million, with profits of $2.4 million.28 While EDS’s pretax profits were only 1 percent in 1964, they grew to 40 percent between 1966 and 1971. Government analysts estimated that in its Texas Medicare work, profit margins were more than 100 percent.29 By 1971 EDS received $20.7 million of the $23.2 million paid to all Medicare subcontractors, or 90 percent of the market share.30
On September 12, 1968, the company went public. While the overwhelming majority of the company’s business was tied to the Medicare program, the initial public-offering (IPO) prospectus represented the company as a diversified and well-rounded business. In the ensuing IPO buying frenzy, Perot’s personal 10 million shares became worth $230 million overnight. At their peak in 1970, EDS shares traded at $162.50, putting Perot’s personal net worth at more than $1.5 billion.31 In 1984 Perot sold EDS to General Motors for $2.55 billion. Initially, Perot retained a large ownership interest in the company and a board seat at General Motors, but in 1986 GM bought out Perot’s remaining stock for $700 million.32
Once established as one of the wealthiest men in the United States, Perot was easily able to stay on top. In 1988 he founded another information technology company, Perot Systems,33 which he later sold to Dell for $3.9 billion in 2009, pocketing approximately $380 million for himself.34
The rise of Perot can no doubt be attributed in part to his many strong personal qualities. But looking at this simple biography, it is hard not to also see the contribution of other forces. These included fortunate timing, a virtual monopoly on a growing sector of government subcontracting, and public tax dollars subsidizing private research and development.
Koch Brothers: Money, Power, and Public Subsidies
David and Charles Koch are co-owners of Koch Industries, the second-largest privately held company in the United States, and major bankrollers of the Tea Party movement.
Money begets money, power accumulates, and the two elements tend to reinforce each other. The billionaire Koch brothers, who are behind much of the conservative intellectual and political ascendancy of the past 30 years, are among those lucky Americans who have enjoyed this self-perpetuating accumulation of influence. Like many of the super-wealthy, they preach a model of self-help in sharp variance with their own experience. But what makes them different from most of their hyper-affluent contemporaries is the aggressive way they’ve used their money and power to shape public policies that fit their self-serving ideology.
As with most family fortunes, the Koch brothers’ money can be ascribed to many sources beyond their talents and hard work. Start with $300 million—as Charles and David Koch did when their father, the founder of what would become Koch Industries, died in 1967.42 Before that, of course, the sons benefited from an upbringing that featured large homes, overseas travel, and the finest education at private schools, including the Massachusetts Institute of Technology, their father’s alma mater.43
Despite spending hundreds of millions of dollars over the years demonizing government and promoting pure free-market capitalism, the Koch brothers have been unashamed recipients of corporate welfare. They graze cattle and harvest timber on public lands, reaping the profits while paying minuscule fees.44 They use the government’s power of eminent domain to obtain routes for their thousands of miles of gas and oil pipelines.45 They even take advantage of direct government subsidies to produce ethanol.46
This last bit of public largesse is especially ironic, since ethanol subsidies are the kind of government spending that is a perennial target of the Cato Institute, a libertarian think tank backed by Charles Koch since its founding in 1977. Cato was the first of scores of such conservative institutes, advocacy groups, and campaigns the Koch brothers would bankroll over the years: well-known political actors like the Heritage Foundation and the Tea Party and lesser-known academic departments that quietly turn out conservative scholarship and conservative graduates year after year.47
In addition to bankrolling the intellectual underpinnings of conservatism, the Koch brothers also attempt to change public policy more directly by contributing millions of dollars to political candidates and committees. The vast majority goes to the GOP, including a number of successful state-level Republican candidates in 2010 who, once in office, set about cutting corporate taxes, weakening public services, and reducing the rights of public employees.48
Koch-funded critics of the Obama administration often denounce its policies as “socialist”; David Koch himself has described President Obama as a “hardcore socialist.”49 But the Koch brothers have no problem doing business with a real socialist when there is profit to be made: since 1998 they have been partners in a fertilizer factory with a state-run firm in Hugo Chavez’s Venezuela, enjoying millions of dollars in socialist government subsidies every year.50
The Koch brothers’ partnership with Chavez is really not surprising, given that their father’s empire got its start in partnership with the world’s most infamous communist, Joseph Stalin. Fred Koch—inventor of an improved method of deriving gasoline from oil—spent the 1930s growing rich in the Soviet Union while helping launch the Russian petroleum industry and fulfill Stalin’s first Five-Year Plan.51
In 1991 David Koch was the only first-class passenger to survive a plane crash; during recovery he was diagnosed with prostate cancer.52 He undoubtedly used his resources to ensure the best care and recovery possible from both misfortunes, as anyone would. But his experience was likely very different from that of someone who was dependent on the private health insurance industry to pay for medical treatment, or who was uninsured (President Obama recalls visiting his mother in the hospital during her final days fighting cancer and finding her on the phone arguing with her insurance company). And yet David Koch and his brother Charles financed, through their various front groups, an intense opposition to federal health-care reform that will enable millions of the uninsured to obtain coverage and curb the worst abuses of the health insurance industry. In other words, they fought reform that will, in essence, bring the health-care experiences of average Americans closer to what the Koch brothers are able to buy.
David Koch also sat on a government cancer advisory council even as the private advocacy groups he and his brother support lobbied against having formaldehyde—a profitable Koch Industries product—declared a carcinogen.53
In 2008 the two brothers were each individually included on a “Top 50” American charitable givers list compiled by Businessweek. The magazine described elder brother Charles’s $246 million in philanthropy that year as targeting “libertarian causes, giving money for academic and public policy research and social welfare around strict conservative ideals.”54
Younger brother David spreads his munificence with fewer obvious political aims, including among the beneficiaries educational and medical research (especially on prostate cancer). The Manhattan resident has also become a patron of the arts, serving on the board of the Metropolitan Museum of Art and paying to build the theater at Lincoln Center in which both the New York City Ballet and the Metropolitan Opera perform.55
Like many upper-income people, the Koch brothers disregard many sources of their great fortune—not only inherited wealth and direct public subsidies but the shared blessings of civilization, from public roads and public research to police and patents. The Kochs go further, though, in also disregarding the moderation called for in wielding the influence that flows from great personal wealth. They benefit from government generosity, both in the United States and abroad, then spend a portion of that money advocating for the elimination of public programs on which the working poor and the middle class depend. They oppose all campaign spending limits, allowing their huge expenditures to drown out the voices of ordinary Americans. They are perhaps a cautionary tale of how the intertwining vines of money and power, left unchecked, can threaten the very society from which they grow.
Summary: Cleaning the Slate
As we can see in these few examples, even some of the staunchest advocates of the self-made myth and the anti-government narrative it supports are themselves the beneficiaries of taxpayer-supported public investments, courts, and the legal framework made possible through governmental action. In many cases they are also the recipients of vast inheritances as well.
It’s clear that these individuals cannot claim to have done it on their own. And there is no evidence that they rejected governmental support when it benefited them. Even Ayn Rand herself, despite a lifetime of railing against government, took Social Security payments and Medicare benefits under the name Ann O’Connor (her husband was Frank O’Connor).56
In making the invisible visible, these stories help shatter the self-made myth and the anti-government narrative it supports. With the myths and the hypocrisy brushed aside, recognized for what they are, we can now begin to build a new framework of individual and business success: the built-together reality.