Before the century turned, a group of writers associated with National Review developed a theory of the “investor class” to help explain the steady trek of American workers to the Right. Since the early 1980s, more than two million Americans have become shareholders each year, creating history’s first mass class of capital-owning wage earners. The number of stockowners increased from 42 million in 1983 to 92 million in 2004.
It was our thesis that this increase in shareholding had consequences measurable across a broad range of opinions and behaviors, including political behavior. As the wealth of American workers became dual-sourced–dependent both on wages and on the valuation of financial assets–this new class of worker-capitalists attempted to maximize their efficiency in their new vocation as owners of capital. As their sources of information on markets improved, they became more Republican on questions of politics, and more market-oriented on questions of policy.
Our analysis of these trends had consequences for the conservative movement. We embraced the policies that embody what is now called the “ownership society”–health-savings accounts, expanded IRAs, and personal retirement accounts, to name a few–as a means to the ends of limited government, individual freedom, and economic growth.
Today, a disciple of “investor class” theory occupies the White House. But the concept is attacked by some conservatives.
In the course of a profile of New York attorney general Eliot Spitzer, The Weekly Standard’s Matthew Continetti launched an extended diatribe against “the theory of the investor class,” which he described as “long on assertion and supposition but short on evidence.”
Continetti doesn’t quite understand the theory he is criticizing. The theory is not that stockownership will make everyone rich and therefore Republican. From my first paper on the subject through today, I (and like-minded theorists) have argued that capital ownership acted as an independent variable causing marginal shifts toward conservatism. So, for example, the theory does not hold that all single, low-income women who become investors will become Republicans too. It holds that they will be several points more likely to vote Republican than single, low-income women who do not hold financial assets–and that if stock-owning increases among single, low-income women, so will Republican proclivities among this group. The theory applies to other demographic groups as well. High-income married men trend Republican–but high-income married men without portfolios are less Republican than those who have them.
Continetti contends that investor-class theory is becoming statistically irrelevant. “[I]f 80 or 90 percent of Americans own stocks and bonds,” he writes, “‘investors’ will no longer be a class at all–unless it’s the class of all voters in both parties.”
It was precisely to explore this possibility that I did a 2001 study for the Dean Witter Foundation. What I found was that conservative trends in “investor class” behavior increased dynamically over time. The average worker entering stockownership through mutual fund shares in a 401(k) plan did not become Republican overnight–but he trended that way as his plan matured. For instance, a 6-point Democrat advantage among workers in 401(k) plans for less than 5 years became an 8-point Republican advantage among workers who had been in such plans more than 10 years. Both free-market opinion and Republican partisanship increased statistically with time-in-market, portfolio size, and the workers’ own self-identification as an investor.
This dynamic is the key to understanding the role that the investor class played in the 2004 election. In 2000, a Rasmussen survey found Bush beating Gore among investors 51-45 percent. In 2004, the American Shareholders Association post-election poll showed a 53-46 percent Bush-Kerry advantage. Continetti cites these numbers to show that investors aren’t becoming more Republican and that the theory is therefore bunk.
Now, it is true that one can find numerous demographic categories in which the Republican advantage is greater than six or seven percent. But none of these categories is growing by 2 million voters per year while retaining–indeed, expanding–that level of advantage.
According to the American Shareholders Association, 7.4 million more investors voted in 2004 than in 2000. The Bush-Kerry split among investors was 53-46 percent; among non-investors, 46-53 percent. Thus the investor class gave Bush about 500,000 more votes in 2004 than it gave him in 2000. In other words, changes in the investor-class account for about one million votes in the president’s 2.5-million majority of the popular vote. (In all likelihood, based on my previous research, what happened was that people who had started investing in the late 1990s became more Republican over the last four years. Given the demographic patterns of the expansion of stock ownership, the 7.4 million new investor-voters are probably more Democratic than investors as a whole. But they too are likely to grow more Republican as more time passes.)”
Continetti contends that the new worker capitalists are likely to turn against Republicans, and against free markets. He cites Spitzer’s efforts to construct an investor-class theory of the Left, based on regulation of markets, and social insurance against negative returns. But one must ask: When will this occur? The first Bush term was conducted during a brutal bear market punctuated by major corporate scandals. Yet the investor class continued to grow, and continued to vote Republican.
Investor-class theorists such as Ramesh Ponnuru, Lawrence Kudlow, and me predicted the robustness of investor sentiment, based on the day-by-day activities in which shareholding workers engaged as they monitored, evaluated, reallocated, and expanded their portfolios. These new investors are voting with the Right not because they have been tricked, but because conservative policy is rational to their interests as owners of capital.
Today, roughly 42 percent of the voting-age population owns stocks or mutual funds. If Congress enacts a reform of Social Security including personal retirement accounts, that percentage will likely double. Capital ownership will become almost universal. Without the expansion of capital ownership, we would not be discussing private accounts for health care, education, and retirement security. With a continuation of that expansion, these dreams and others may yet be realized.
–Richard Nadler is the president of Americas Majority, a not-for-profit dedicated to expanding the electoral base of conservative politics.