Clinton’s Failure & the Politics of U.S. Decline

Robert Brenner

BOTH THE DEFEAT of Clinton’s mild industrial reform program, and the victory of the free market budget-balancing austerity program that took its place, are part and parcel of the rise in the U.S. of what I would call “the politics of decline.” The “politics of decline,” maturing over two decades or more, reflects the newly emergent contours of the American economy and the structure of social forces that the economy now supports.

The aim of this essay is to specify the basic elements of this politics and explain the socioeconomic and political transformation that lies behind it. In the initial installment (ATC 46) I argued that, on assuming the presidency, Bill Clinton made a mild but unmistakable attempt to reverse the long-term trend toward U.S. industrial decline by seeking to restrengthen the role of the state in the economy.

Clinton’s program was focused on the better provision of “public goods” — increased state investment, along with other policies like health care reform, to improve the labor force and the infrastructure. It also included a mild Keynesian stimulus to increase employment — along with (fairly trivial) social welfare spending increases to assuage core Democratic Party constituencies. But Clinton’s initiatives, despite their extremely limited scope and ambition, were defeated across the board — by the opposition of some of his own closest advisors, many leading congressional Democrats, and the whole Republican Party.

My argument was that, at one level, the explanation for Clinton’s failure is straightforward and well-documented even by the mass media: the opposition of powerful economic sectors. Above all, leading representatives of the finance industry succeeded in totally reversing the basic thrust of Clinton’s agenda. As a result, the raison d’etre of Clinton’s first administration, the basic goal of his spending and taxing policies taken as a whole, became simply balancing the budget.

The opposition of the insurance industry, as well as of the drug companies (not to mention the incoherence and costliness of the program itself), brought down Clinton’s health care plan. Organized medicine defeated Clinton’s rather small-scale program for giving all children in the U.S. free vaccinations. And so on.

Bringing the state back into the economy was, in other words, ruled out and, long before the November 1994 Republican congressional victories, the Clinton administration had assumed a steadily more rightward outlook, seeking to compensate its constituencies with demagogy — anti-crime, anti-welfare and anti-immigration — for what it could not provide materially. Meanwhile, the only major bills that Clinton succeeded in passing — above all NAFTA and GATT — represented the global program of the greatest multinationals and banks.

In a sense, this was all business as usual, with big business entirely in the saddle. The fact remains that Clinton’s resounding defeat reflects a structure of politics profoundly hostile even to pro-business state intervention in the economy to reverse industrial decline, not to mention to provide jobs. This, I would submit, requires explanation.

Over the past half century, U.S. productivity growth in manufacturing has been half that of its leading rivals, above all Japan and (increasingly) the rising East Asian manufacturing economies. In one after another manufacturing line, U.S. business has been obliged to cede ground or to retire from the field.

Indeed, in little more than a quarter century, manufacturing as a proportion of the private business economy has fallen spectacularly, from around 33% to under 20%, both in terms of output and employment. Meanwhile, between 1973 and 1993, productivity growth in the U.S. economy as a whole was significantly worse than in manufacturing, averaging a dismal 1% per annum, less than half that in the post-war quarter century 1948-1973.

Yet none of this appears to bother the powers-that-be within the U.S. political economy. Neither powerful business interests nor establishment political groups appear to have mobilized in support of Clinton’s program for rebuilding, or to have vocalized disappointment at its defeat. Speaking more generally, it is possible to find only a very few powerful forces within the American political arena interested in doing anything about the palpable decline in the quality of the labor force or the evident decay of infrastructure.

The smashing victory of the free market in Reagan-Bush-Clinton America — free trade internationally and deregulation and budget balancing domestically — makes it all too evident that virtually nobody who is anybody cares that the economy is increasingly dominated by low-productivity, low-value added, low-wage industries, let alone is interested in taking state action to revive manufacturing. It is reasonable to ask why.

1. Declining Rate of Profits: Slower Growing Economic Pie

The most fundamental factor shaping U.S. politics today, profoundly limiting any government initiative, is the continuing crisis of the international economy. The international economic crisis is an expression of the very major and so far irreversible decline in the rate of return on investment — especially in manufacturing — which engulfed all of the leading industrial economies including Japan and Germany as well as the United States, from the middle-late 1960s.

Between 1966-1973, the rate of return on fixed capital investments in manufacturing fell by 25% in the leading six capitalist economies, and by 35% in the United States. By the early-mid 1980s, it had fallen by a further 33% in the leading six and by a further 40% in the United States. And there has been no recovery since.

The very reduced rate of return on investment in fixed capital, especially in manufacturing, has discouraged investment in new plant and equipment, which takes years to pay returns, in favor of the allocation of funds to buying and selling, speculation, and consumption. The much reduced growth of investment has naturally brought the much reduced growth of output and also of productivity (output per person).

In turn, slower growth of output and productivity, combined with reduced profitability, has resulted in the decline of wages and of job growth, leading to rising unemployment. The very slow growth of the economic pie over a very long period has also made any increase in public spending difficult, for that would require increased taxation.

Given especially the low rates of return that have long obtained, increased taxation on business would likely have further undercut investment — exacerbating problems of growth, employment and wages. This is true most obviously for social spending to raise workers’ living standards (unemployment insurance, etc.) — which represents a direct transfer from capital to labor–but even for increases in state investment in infrastructure, education, job training, etc.

Though such expenditures would ultimately aid capital accumulation, they could do so only in the long run; in the short run, like any other spending increase that has to be paid for from taxation, they would tend to exacerbate the profit squeeze. Clinton’s plan for big public investment to fight U.S. manufacturing decline thus ran head-on into the profitability crisis. There could be no clearer manifestation of the inherent bias of the political system in favor of capital and its profits built into the capitalist social-property system.

2. Growth of Debt and the Policy Double-bind

As a consequence of reduced profitability and the slowed growth of investment, the economy throughout the long downturn has been plagued not only by generally slower growth, but by much increased instability, deeper recessions and weaker recoveries. This is because a much greater proportion of capitals have been barely making it and have therefore been more vulnerable to the shocks that have resulted, for example, from cyclical downturns or from particular events like oil crises or stock market drops.

The response to increased instability has everywhere been a major increase in indebtedness, both public and private, and especially so in the U.S. The buildup of debt began in 1973-1979 when, all across the capitalist world, governments engaged in large-scale deficit spending, especially to counteract the first serious recession of the postwar period (1974-1975).

But the turning point came with the deep recession of 1979-1982, which was deliberately set off by the Carter administration, under treasury secretary Volcker, in order to bring down inflation. This recession threatened to send the world economy into depression: The U.S. unemployment rate hit 12% and there were the most bankruptcies since the 1930s.

Ronald Reagan responded to the recession with huge tax cuts and huge increases in military spending, incurring record budget deficits, i.e. record increases in public debt. He thus became the biggest Keynesian ever, as the U.S. implicitly took responsibility for world stability by increasing demand through massive debt creation.

Reagan’s variant of Keynesian deficit spending was motivated in the first instance by the need to stabilize the economy, but it also had major political goals. The step-up in military spending was designed to destroy the Soviet economy by requiring the Soviet Union to make similar increases in military expenditure; the reduction in taxes was aimed to transfer money from the poor to the rich.

Most relevantly to the concerns of this essay, increasing the deficit to such a huge extent had the indirect goal — as we know from the explicit testimony of Reagan’s leading advisor David Stockman — of making much more difficult further government spending, especially on things like social welfare.

In fact, Reagan succeeded beyond all expectations. The Soviet Union collapsed; income distribution moved in favor of the rich to the greatest extent in more than half a century. Meanwhile, the massive debt creation of the 1980s, in the context of continuing low profitability, had a dual outcome for the economy. It provided the indispensable aggregate demand to prevent depression. But at the same time it became excruciatingly difficult to increase public spending for any purpose.

In particular, the Reagan policy left subsequent U.S. administrations in a difficult double bind. Without increased stimulus through further debt creation to stoke demand, there continued to be inadequate investment to create jobs and drive up wages. But if the government did significantly increase the deficit in order to stimulate the economy, there was, in the context of low profitability and reduced incentive to invest, a real likelihood of accelerating inflation.

When Clinton entered office, the economy was mired in the fourth, and in certain ways the worst, recession since the start of the long downturn. Nevertheless, Clinton was unable to pass through Congress his plans either to begin (in a small way) to fund his long-term public investment program or to expand mildly deficit spending.

This failure to increase spending undoubtedly dampened the recovery, but those behind Clinton’s defeat — especially the financiers — had (in their own terms) serious grounds for worry that, had Clinton’s public investment and stimulus programs passed, interest rates would have risen as a reflection of justified fears that price increases would accelerate.

3. Political Fruits of Manufacturing Decline: What Does Capital Want?

Low profitability, exacerbated by high levels of public (and private) debt, would have made it difficult to increase government spending, no matter how much pressure favoring this had existed. The striking fact is, however, that demands from within the economic or political establishment for a broad-based state program to help revive an ailing manufacturing sector have been notably absent.

Why, in view of the long-term problems of U.S. productivity, was there not more support for Clinton’s program? At the most general level, the answer lies within the evolution of the world economy over the postwar period and its effects on investment prospects in the United States.

Throughout the postwar epoch, what might be called the international structure of industrial profit — ability — the locations of the highest rates of return in given industrial lines — has, in general, led investment way from the manufacturing sector in the United States. Speaking very generally, the best returns have increasingly been made on investments either irrelevant to, or actually counterposed to, the needs of manufacturing production in the U.S. territory.

The results have been two-fold and mutually reinforcing. First, there has been, as emphasized, a profound decline of the U.S. manufacturing sector. Second, as a result precisely of this decline, there has been a steady increase in the power of capitalist sectors that have little or no interest in seeing the state help pay for the revival of manufacturing in the U.S., and thus no incentive to shoulder part of its costs.

This is not the place for an extended analysis of U.S. manufacturing decline.* But the industrial structure of international profitability, as it has emerged over the past two or three decades, can be schematically outlined in the following way.

Advanced manufacturing. Although the U.S. economy still has an advantage in many industries within this category and continues to be a big player on a world scale, it has had to face very much stepped-up international competition. Japanese producers have, of course, provided the most serious challenge in these lines (although they have been joined in recent years, to a surprising extent, by East Asian manufacturers).

Manufacturers in Japan, as well as their Asian counterparts in Korea, Taiwan and Singapore, are increasingly competitive because they enjoy major advantages in consequence of the advanced forms of economic organization that prevail in these places, forms which closely interlink the state, the great manufacturing exporters, and the banks.

In Japan, and through much of East Asia, the state has played an enormous role in the developmental process, insuring a flow of funds into one after another modern industrial line that would never have been forthcoming had the economy been left solely in the hands of the free market.

The state has provided massive direct aid to industry in the form of subsidies and loans. It has seen to it that domestic manufacturing, virtually across the board, receives protection both from foreign imports and potential foreign investors in the home market for as long as needed. It has stood behind its great corporations, virtually guaranteeing them against business failure.

In addition, the Japanese state (along with its counterparts in the Asian “newly industrializing countries,” or NICs) has aided its leading corporations to diversify into new lines, helping them to organize cooperative arrangements to develop and market innovations. Finally, it has made the most massive expenditures on the public goods upon which manufacturing depends, providing a level of infrastructure development and, above all, education for its labor force that the U.S. in recent decades cannot come close to matching.

The modernizing efforts of the Japanese and the Asian NIC states have been very much buttressed by the close connections of the banks with manufacturers and the organization of manufacturing firms holding one another’s stocks in great horizontal networks (keiretsu). The intimate involvement of the great banks with the leading manufacturing corporations, through stock ownership and lending, has allowed manufacturers to finance their activities to an unusually large degree on the basis of loans compared to equity and enabled them to secure long-term financing at interest rates that have been the envy of their overseas competitors.

The organization of manufacturers in keiretsu, which contain firms representing a broad range of manufacturing lines, has allowed manufacturers to spread their risks and, perhaps most important, given them the ability to easily reallocate their investments into the most profitable lines and quickly to enter promising new industries.

Meanwhile, especially in Japan, the form of workers’ organization that emerged from the great postwar repression of the labor movement has allowed firms to orient their labor forces to an extraordinary extent to increasing competitiveness. Most important perhaps, unions are organized on a firm by firm (single firm) basis. Rather than taking workers out of competition with one another, the basic function of a union, “enterprise unionism” renders them entirely dependent upon the profitability, thus the competitiveness, of their own firms.

It is true that workers in the great export-oriented corporations generally cannot be fired; but the obverse side of “lifetime employment” is reward by seniority, which tends to tie workers to their firms. This makes it much more feasible for Japanese firms to invest in their workers’ education, without having to worry that they will take their acquired skills to another firm.

On the other hand, more than two thirds of the labor force remains non-unionized, with the result that the great corporations can make enormous savings by farming out much of their production to small suppliers who pay low wages and bear much of the brunt of business downturns.

It is obvious that, in quite a few of the highest-tech lines, U.S. manufacturers remain formidable, capitalizing on historic U.S. leadership in pure and applied science and technology. The fact remains that the politico-institutional forms through which manufacturing is organized in Japan, as well as in other parts of East Asia — but not in the United States — have made for an enormous international shift in industrial power over a remarkably short space of time, with enormous consequences for the U.S. political economy.

“Medium” “mature” manufacturing. The evolution of technique has meant that capital equipment across much of manufacturing has become not only ever more sophisticated, but requires increasingly less skill to operate effectively. To the extent that decreasing skill is needed in any manufacturing line, to that extent the U.S. loses out, because it cannot match the low wages of semi-skilled labor in developing countries.

Classic cases are steel or shipbuilding: Here the ability to mobilize investment for capital-intensive, but low-skilled manufacturing has been the trump card of the Asian NICs. They have seized U.S. markets in one after another manufacturing line, and have left virtually no room for an American comeback. To the extent that U.S. MNC manufacturers are attempting to compete in lines such as these, they are tending to take their production abroad.

Low skill manufacturing. Obviously, as a rule, U.S. manufacturers cannot compete in such lines (footwear, apparel, etc.). Indeed, places like Korea and Taiwan themselves have had to cede much of such production to rising competitors able to super-exploit workers as in China, Malaysia, and Thailand.

It should not be ignored that, in many parts of the country, especially in places like Los Angeles and New York, where there are concentrations of undocumented workers, there has been a rebirth of nineteenth century style sweatshop labor. Still, this hardly counts as manufacturing revival. Nor are the small owners that compose this sector likely to be much of a force on the national political scene.

The long-term potential. It should not be implied that all economic trends are going against U.S. manufacturing. Above all, U.S. producers have shown an extraordinary ability, compared to their counterparts in places like Japan and Germany, to keep wages from rising. Whereas U.S. manufacturers have allowed real hourly wages to rise by a scant 2% (in total!) over the sixteen years (1977-1993), their counterparts in Japan and Germany have had to accept real wage increases of 40% and 54%, respectively, in this period.

Finally, the very fact that so much of the U.S. manufacturing sector has evaporated in recent years undoubtedly means that the manufacturers remaining are that much more competitive. The vaunted wave of “downsizing” of firms, and of the sector as a whole, has surely left many firms “lean and mean.” The fact remains that whatever the competitive strength of the manufacturing that remains,* the sector as a whole has massively shrunk in size and weight — and the political implications are substantial.

Political Power and Industrial Structure

As a consequence of the structure of international profitability and the consequent decline of manufacturing, there has been, over a very long term, a major shift in the structure of power. It should come as a surprise to no one that U.S. multinationals and banks hold a preponderant position within U.S. capital.

This has, of course, been a fact of life for a long time. What has changed, however, is the declining interest of the multinationals, the banks, or any sector of the U.S. economy in domestic manufacturing. With their enormous financial and technical resources, leading US corporations an scour the world for the best investment opportunities — direct investment in cheap-labor manufacturing overseas, lending to third world developers, or providing financial services both at home and abroad.

U.S. capital’s central political priorities, therefore, now more than ever are about making the world fit for the freest flow of goods and services. It is no accident that NAFTA and GATT were at the top of the agenda of both capital and the politicians.

There can be no doubt that the internationalization of the economy, backed up by policies of free trade and free investment, has hurt important sectors of domestic manufacturing. The fact, moreover, that voices opposing NAFTA and GATT from within the domestic economy were so weak reflects, to an important degree, the declining power of U.S. manufacturers.

Does this mean that manufacturers have simply had to grin and bear it? Only in part. The owners of the great U.S. old-line manufacturing corporations, to a very great extent, have seen the handwriting on the wall. Rather than fight — which would mean continuing investment in competition-intensive, low-profit lines — they have sought to diversify, quietly shifting investment funds into more promising lines, notably financial services.

As a result, they have had little interest in government plans to revive U.S. manufacturing through industrial policy or public investment, nor have they wished to oppose the general move to ever freer trade. What these corporations have needed from the government is temporary trade protection for their specific industries, while they downsize their holdings . . . and they have pretty much received just that.

While trumpeting the principle of free trade, the U.S. political establishment has seen to it that, in practice, the government has provided, on an industry-by-industry basis, all sorts of quite major limitations on foreign imports — formal and informal quotas on imports in auto, steel, textiles and other industries, for the greater part of two decades.

Under this protective umbrella many leading manufacturing corporations have been able to have their cake and eat it too, securing their profits through protection, while recycling those profits to other lines. Why should they support Clinton’s program?

Finally, and rather paradoxically, precisely because manufacturing has shrunk to such a degree, it may well be that a greater part of the U.S. economy than before is today insulated from international competition. Most of manufacturing was, and is, composed of tradeables; but the sectors that have replaced it, most especially the burgeoning service sector, is not.

The upshot is that, outside manufacturing, U.S. producers actually face a fairly promising situation, especially as a result of the growing availability of inexpensive labor. What they need and want from government is pretty straightforward — cheap labor, lower social spending and lower taxes — more, that is, of what they’ve already been getting. What possible reason would they have to support Clinton’s plans for the state’s intrusion into the economy, let alone the higher taxes to subsidize industrial renewal that this would entail?

Who Killed Clinton’s Program?

In this light it may be more surprising that Clinton even attempted a program for industrial renewal than that he failed to get it accepted. Both Mondale and Dukakis, Clinton’s predecessors as presidential candidates, disavowed any sort of industrial policy and made no plans for even the sort of minimal public investment program put forward by Clinton.

The reason why should now be obvious. Not only were the profitability decline and the fiscal crisis of the state powerful discouraging factors. To succeed, they would have had to go up against the internationalist sectors that dominate U.S. capital, with precious little in the way of countervailing support. It would not be mistaken, then, to say that the finance industry killed Clinton’s plan to bring the state back in. But it would be more illuminating to point out that no one showed up at the funeral.

4. A Union Movement in Decay

The only organized political base with a strong interest in a program for industrial revival in the U.S. would have been the union movement. Organized labor was no doubt all too eager to support Clinton’s program, but had little to offer by way of political clout. After all, for close to two decades, it has proved itself decreasingly willing or able even to carry out its basic defensive function, providing virtually no resistance to the ever-rising wave of corporate demands for concessions.

By 1994 only about 12% of private sector workers were organized into unions. Strikes had precipitously declined. The unsurprising upshot was that U.S. workers — to a significantly greater extent than their counterparts elsewhere in the advanced industrial world, who were also under attack — saw their wages reduced, their living standards undermined.

In part, of course, the forces making for the weakening of the unions were beyond the unions’ control. In this respect, the rapid decline of U.S. manufacturing was particularly critical, for it is no secret that the heart of labor’s strength throughout the twentieth century has been in the factories.

Manufacturing decay hit the unions in two ways. There were fewer workers to organize. Equally important, those that remained found themselves in manufacturing firms facing severe international competition and under enormous pressure to hitch their fate to that of “their” companies. It goes without saying that under these conditions, the challenge to labor was unprecedented: nothing less than the international organization of working people.

The fact remains that the response of the bureaucratized union movement has, in crucial respects, made matters much worse. Not only has it largely failed even to attempt to organize the huge part of the economy outside manufacturing that remains unorganized (and largely immune from foreign competition). In manufacturing, its main strategy has been, in effect, to cooperate with capital in the interest of improved competitiveness.

At the level of the firm, unions virtually down the line have supported labor-management cooperation to improve productivity. But this in effect has identified union members with the competitive struggle of their own companies, against competing companies and their workers.

At the national level unions have fought against NAFTA and GATT, but essentially under the banner of protectionism. But this has, once again, placed workers in effect on the side of their companies against “foreign” companies and their workers. The outcome could hardly have been worse for the unions, not to mention their members, in both their immediate relations with the employers and the broader political arena.

By turning to labor-management cooperation at the workplace and protectionism in national politics, unions have succeeded in calling into question the very point of unionism. By legitimizing class collaboration, they have not only effectively portrayed labor-employer, not to mention class, conflict within industry as superfluous; in so doing they have opened up their own members to the influence of right-wing political ideas.

5. The Shift to the Right within Sections of the Working Class

The inability of working people to resist capital’s demands for concessions, or to maintain even well-established social programs like unemployment benefits — especially in the context of the propagation of collaborationist and national-protectionist ideas by the unions themselves — has opened up sections among the better off among them to right wing politics.

Unable to defend their position by taking more from capital, significant sections of the working class, in their sentiments and voting patterns and political allegiances as citizens, have sought to protect themselves, implicitly or explicitly, at the expense of weaker, less well-off sections. Concretely, they have attempted to secure reductions in their taxes, financed by means of tax cuts in social spending on programs that benefit the poor — welfare being the most prominent.

They have also been open to seeking to protect their jobs by supporting attacks on affirmative action and immigration. Adopting such strategies, which put them consciously or unconsciously into de facto alliance with capital against the poor, to a large extent women and people of color, has opened them up to the logic of right-wing ideas.

People adopt ideologies which help them to understand the world in a way that allows them to act in it and on it. People will not adopt a world view, no matter how attractive, if there appears to be no way to put it into practice. Alternatively, they will tend to embrace those ideas that can make sense of what they are actually doing.

The fact that sections within the working class have been taking actions and adopting attitudes that involve attacks on people of color, women and immigrants has thus served to increase the appeal of the racist, sexist and national chauvinist ideas that portray these targets as “criminals,” “welfare cheaters” or “wetbacks.” This of course very much enhances the attractiveness, already there on material grounds, of the right.

One should not exaggerate how far this trend has gone to this point. Working people, in their majority, are not as yet ready to forthrightly deny their support for the disadvantaged or for a more egalitarian society. The problem is that, in the absence of oppositional movements that could offer the hope of resisting the demands of capital, the attractiveness of the option of implicitly allying with it will grow ever stronger.


The economic trends generating the politics of decline make it difficult for any traditional politics or politician to succeed. This makes for an ugly political world, as the ongoing crisis brings down living standards provided by the private sector and makes public spending difficult, on social programs or anything else. Decline of manufacturing means an ever more widespread low wage economy, and the general insecurity that goes with it. The situation is made worse by a terribly weak labor movement, making the low-wage option more feasible.

Clinton won election precisely by putting forward a program that was supposed to begin to deal with the economy, reviving manufacturing so as to provide more good jobs, etc. He subsequently more or less sealed his own doom by adopting budget balancing as his major goal. This left him no basis for a material appeal to a mass electorate, especially once he had failed with his health care reform.

The Republicans won in November, 1994 because Clinton had been such a failure and because they were able to attribute this, however implausibly, to “liberalism” and the “liberal state.” But they are as unable to deliver real gains to people as was Clinton. In particular, they cannot provide their promised middle-class tax cut any better than can Clinton.

What can be expected from both parties is therefore pretty straightforward. They will prioritize attracting those better-off workers who hold the key to electoral victory by providing them crumbs at the expense of the poor. But, because both parties’ overriding goal is to help capital through austerity and budget balancing and because there is so little left to take from the poor, this strategy is nearing its limits.

In the near future, the only funds left to cut — aside of course from the military budget — will be middle-class entitlements, social security and Medicare, and these of course are incredibly politically explosive.

Neither party is therefore secure because neither has a program that can win consistent popular support. Political instability and openings to new political forces will be the order of the day. But since no pro-capitalist forces, inside or outside the establishment, have anything to offer working people, a further tilt toward he politics of demagogy is inevitable.

From Bill Clinton, as well as his many opponents, we can expect more racism — via “fights against crime” and attempts to roll back affirmative action — more sexist and anti-gay assaults under the guise of “supporting the family,” and more anti-immigrant fervor.

The overwhelming point to re-emphasize is that, in this age of crisis and decline, the attacks on the poor, minorities, and the rights of workers have only just begun.

ATC 56, May-June 1995