Failing to Bring the State Back In

Robert Brenner

BILL CLINTON’S FIRST “Hundred Days” were to inaugurate his plan to “rebuild America.” In fact, they brought the obliteration of what was an extremely mild, but nonetheless unmistakable, attempt to reverse the Reagan-Bush free market road to industrial oblivion. Clinton wanted little more than to re-establish the state’s minimal responsibility for capitalist socioeconomic development, as defined by the nineteenth-century U.S. government and the New Deal. He sought to mildly stimulate demand at a time when the jobless recovery is running out of steam. He wanted to provide public investment on things like roads, bridges, education and vocational training at a time when the U.S. infrastructure and much of its labor force are in an advanced state of decay. The fact that Clinton experienced a humiliating and, for the foreseeable future, irreversible defeat when he attempted to pass through Congress the initial, highly limited, installment of this program, speaks volumes on the current state of the U.S. political economy and on the forces that dominate it.

Clinton’s Program

Bill Clinton’s presidential campaign was, probably intentionally, but in any case unavoidably, ambivalent and ambiguous.

He was, of course, the chosen representative of the Democratic Leadership Council, the DP faction whose raison d’etre was to shift the party (even further) to the right Clinton himself ran as a “New Democrat,” trumpeting his desire to break the party once and for all, from the “tax and spend liberals.” This aspect of his position was expressed in his commitments to enact a tax break for the middle class and “to end welfare as we know it” by putting welfare recipients to work.

At the same time, however, Clinton made the disastrous state of the economy, both the endless recession and declining U.S. competitiveness, the focus of his campaign. “It’s the economy, stupid” was dearly a vote-winning slogan, but it was not, and could not have been, merely that If he was to successfully portray Bush as a do-nothing president, content to see the economy go down the drain so long as his wealthy friends prospered, Clinton had to (at least say he would) do something.

In fact, Clinton did have a fairly well-defined agenda, reflecting his long-term association with moderate liberals like Robert Reich and Ira Magaziner, as well as such other “policy intellectuals” as Council of Economic Advisors Chairperson Andrea Tyson, who had for a number of years been thinking about ways to combat U.S. decline from a strongly pm-market, but not anti-state, perspective. The idea was that, in today’s economy, where capital mobility is the central fact of life, if a nation is to attract investment and achieve economic growth, it requires a highly-trained labor force, as well as an ultra-modern infrastructure. The government should therefore promote public investment on such technopanaceas as the laser “information superhighway,” and, more mundanely, a variety of policies designed to upgrade the U.S. labor force—worker retraining programs to insure job skill acquisition, a national service program to make possible broader access to higher education, German-type apprenticeship programs for highly-focused vocational education for high-school graduates, an expanded Head Start program, and so forth. In one version of this conception, sometimes enunciated by Clinton, a necessary enabling condition for making the long-term investment program work was a tougher bargaining stance with the United States’ trading partners, read greater protectionism.

In the latter stages of his campaign, Clinton’s program began to assume a certain populist aspect He continued to propose some sort of plan for universal health insurance. He trumpeted his national service program as a way to open up higher education to many more people. He also argued that government should reassume some responsibility for increasing employment. At times, he implied that he viewed NAFTA as a threat to U.S. jobs. And, on a pitifully few occasions, he even made tepid references to the need to rebuild the cities (although, almost always, from the standpoint of the self-interest of the white “middle class” in avoiding the high costs of crime and urban rebellion). This, too, had a certain logic. If he was to call for an enlarged role for the state in a political environment in which, thanks especially to Ross Perot, the need to face up to the budget deficit had acquired sanctified status, he had to show that there was a way to finance this and, equally important, build a political base of support for it.

Clinton therefore began to lament the problems of mainstream working people and denounce the massive transfer of wealth in favor of the rich carried out by the Reagan-Bush administration. Charging that “The rich get the gold mine and the middle class gets the shaft,” he called for taxing the wealthy to pay not only for deficit reduction, but also for economic reconstruction. Meanwhile, he melded his “New Democrat” and new populist images in promising no tax increases on the “middle class” to pay for new programs.

It is par for the course for newly-elected presidents to junk most of their campaign commitments somewhere between Election Day and their inauguration. Clinton was hardly immune from this tendency. Before you could say “Alan Greenspan,” he had discovered that new estimates of the deficit (about which he had known since the previous summer) were far higher than he had counted on. So much for the middle-class tax cut. Soon his promise not to raise taxes on anyone but the wealthy to pay for new government programs also went the way of all flesh. He also abandoned his pledges to rescind the Executive Order that hounded gays and lesbians out of the military, to admit Haitian refugees, and so on.

What is notable, however, is that Clinton did make a serious attempt to begin to implement his program for reversing Reaganism-Bushism and re-establishing the role of the state in the economy. He advanced an extremely mild stimulus of $16 billion, including a $4 billion extension of unemployment benefits.

Moreover, as part of the budget, he offered an initial installment on his long-term plan to raise public investment on infrastructure, as well as education, and job training (“human capital”). This included increased expenditures for highway construction and other transportation improvements, for Head Start, for summer jobs coupled with a new tutoring program, for child vaccinations, and aid to the localities for such things as improving the water supply. Clinton presented this program in his state of the union address, as a first glimpse of his long-range plan for reversing decline.

Now it need hardly be pointed out that Clinton’s budget was entirely inadequate even to begin to deal with the country’s economic problems. The obvious difficulty with the so-called stimulus was that it was so minimal and framed within a larger deficit reduction program. If his budget was actually to reduce the debt, then spending cuts and tax increases would, by definition, more than compensate, in the short to medium run, for any increase in the deficit In fact, Clinton’s subsidy of demand ultimately amounted to a meager $12.7 billion increase in deficit spending for fiscal 1993; this pittance would be followed and canceled out by a deficit reduction of $38.9 billion in fiscal 1994.

As to those parts of the spending plan aimed at the decay of the infrastructure and decline of the labor force, Clinton himself would have been obliged to admit that they represented essentially tokens of intent But precisely for this reason, the package had great strategic and symbolic significance for Clinton’s presidency. Necessarily limited for both political and economic reasons, it was designed so as to win approval in order to establish momentum in the direction Clinton hoped to go.

Clinton presented his program with great fanfare. The stunning fact is that, within three months of Clinton’s triumphant state of the union address, a Democratic-controlled Congress, with the behind-the-scenes collaboration of Clinton’s closest advisors, had sabotaged, then shot down virtually every aspect of Clinton’s minimal program for bringing the state back in. Not only did the tiny stimulus 4o up in flames in the face of a Republican filibuster Within a few weeks after that, Clinton had been obliged to radically scale back, if not entirely give up on, virtually every aspect of his already self-limited program for state investment.

He radically reduced his spending proposals on public works, highways and the like. He cut back by two-thirds the already pitifully small $15 billion allocation for retraining those who had permanently lost jobs in shrinking industries.

Perhaps most telling, because it would have cost so little, Clinton had to cave in on his proposal to give all American children free vaccinations. Under the plan, the government would have bought and distributed childhood vaccines to private doctors and public clinics across the country, essentially monopolizing the purchase of those drugs. The policy could have secured major gains at a very low price. But Clinton was obliged to back away from it, agreeing to limit coverage to children from poor families or those without health insurance. What caused the change? Clearly, the current political establishment saw the plan as providing implicit endorsement to the idea that the free market should sometimes be limited in the interest of social responsibility and economic efficiency—and therefore as far too radical and dangerously precedent-setting.

Meanwhile, symptomatic of the overall trend, a Clinton administration that had initially expressed some uncertainty about NAFTA has by now pretty much confirmed its commitment to free trade. As NAFTA’s main raison d’etre is to facilitate the further flight of investment, elements in Clinton’s camp who had wanted to move the administration in the direction of greater state subsidy and protection of U.S. manufacturing naturally had hoped to defeat, weaken, or at least delay it But they were in no way a match for a structure of power in Washington profoundly in the grip of free enterprise ideology and interests.

Once the administration had been obliged to relinquish its (pitifully minimal) attempt to change the direction of the U.S. economy, it had little reason to fight for those populist planks of the program that had originally been adopted largely to accrue political support for the overall plan. Soon a tax on energy, initially to be levied on the producers, had been transformed into a gasoline tax on the consumers. The plan to raise the minimum wage was put on hold. And so on and so forth.

Now, had Clinton carried oüfa1tofthese-reversals on his own, quietly and gradually, there would have been nothing very remarkable about them. Hardly anyone today expects politicians to keep their promises, if they ever did. But this is not what happened. In fact, Clinton had framed these policies in the form of legislation proposed to Congress, as part of a strategy that defined, and, in his view, distinguished, his administration. Yet, he was forced to give up on them, virtually one by one, in full public view. Indeed, in his effort to win support for his general line, Clinton endowed these measures with more practical significance than they actually possessed. Their defeat was therefore all the more devastating.

The disastrous consequences for Clinton’s political future are fairly evident. It is not only that his ratings today are lower than those of any previous president at this stage in his term. More to the point, he has pretty much corroded the basis of his own popular support As the L.A. Times recently commented, “Clinton’s short term economic stimulus plan has been defeated, and his long-term agenda for increasing government investment in such things as public works, job training and national service has benefitted … [V]irtuaIly all that is left of Clinton’s original vision for change is a grim determination to chop the deficit.”

But it is hard to think of any program less politically attractive than the deficit reduction demand that Clinton has adopted. Only the most dogmatic of economists believes that what will in the end be a rather limited reduction in the growth of the size of the national debt will turn the economy around. Indeed, during his campaign, Clinton himself, had again and again argued over and against both Paul Tsongas and Ross Perot—that deficit reduction by itself would be totally insufficient to solve the economic problem. A significant stimulus of demand and, especially, a major increase in public investment, he asserted, were indispensable.

There is, today, strong reason to believe, that, far from reviving the economy by bringing down interest rates, Clinton’s budget balancing reductions in spending and increases in taxes will make for a reduction in aggregate demand sufficient to turn today’s “jobless recovery” into a clear-cut recession (or worse). If the economy does not improve quite a bit, moreover, the weakness of growth, by reducing government revenue and bringing about automatic increases in expenditures (on things like unemployment insurance) will even wipe out Clinton’s deficit reductions.

In the absence of a strong upturn of the economy—less likely after than before the budget—all Clinton will have been able to offer his constituency is tax increases and spending cuts.
This is not exactly the most compelling basis on which to build a campaign for reelection. Some in Clinton’s administration appear to believe, now that the budget question has been dealt with, that it will be possible, in the not too distant future to revive Clinton’s public investment program. But this is extremely naive.
In the first place, in an effort to make the most politically out of the defeat of his program, Clinton has begun to take up the claim of his former opponents that deficit reduction in itself will make for growth. In so doing, he makes decreases in the debt the yardstick for judging his administration’s success and thereby renders further spending more difficult At the same time, he implicitly validates the underlying message that government spending (except, of course, for the military) is by its very nature wasteful and counterproductive. Moreover, under rules of the budget plan, all discretionary spending is frozen for the next five years. This means that Clinton can fund new initiatives only by proposing greater cuts in existing programs. To accomplish this will be extremely difficult, and is bound to further limit what Clinton can do.

In “winning” his budget, Clinton has thus virtually ruled out implementing his basic program of bringing the state back in to revive the U.S. social economy. The evident lesson? The U.S. political establishment is unwilling to countenance the smallest weakening of free market principles and most minimal restrengthening of the state, even in the face of the evident decay of the U.S. economy. Clinton’s vision of public responsibility for the economy was extremely limited. It justified the role of the state in the economy on principles acceptable to the nineteenth century, confining government intervention to the realm of “public goods”—things like roads and schools that even most mainstream economists believe are more effectively done by the state than the market. This is tame stuff in a world where Japan and Germany—and now the economies of East Asia—have for decades been improving the competitiveness of their manufacturing at the expense of U.S.-based producers on the basis of highly developed systems of state intervention. But it was obviously too much for the powers that be. The question is why?

At a superficial level, the answer is painfully obvious. In virtually every case, specific, powerful capitalist interests openly used their influence with powerful politicians to stop policies they didn’t like.

The oil interests, through their client Senate finance committee power David L. Boren (as well as Texas-based Secretary of the Treasury Lloyd Bentsen), stopped the idea of a big, money-raising energy tax cold in its tracks. The pharmaceutical interests cut down the universal vaccination plan. As Clinton’s aides and Hillary Clinton herself admitted, the American Medical Association and the drug companies succeeded in labelling the Canadian-style single-payer national health insurance plan as “socialistic” and thereby cut short any serious consideration of it this opened the way to the so-called “managed competition” plan, which will most likely both increase costs and reduce benefits to the average working person.

Most fundamentally, the huge and today virtually hegemonic finance “industry” saw to it that everything else was subordinated to deficit reduction. For them, every reduction in the rate of inflation represents an increase in profitability and debt reduction is the direct way to begin to control prices. Their chosen representatives were none other than the President’s chief economic advisor Robert Rubin, reigning at Goldman Sachs, as well once again as Treasury Secretary Bentsen. Both of these were among Clinton’s first, regime-defining appointments and were clearly chosen to make clear to Wall Street the new regime’s intentions. For their part, Wall Street rewarded Clinton with a significant reduction in the long-term interest rate even before he formally took office, signaling both their recognition of the service provided by the new president and where ultimate power would lie in his administration.

No part of this muckraking account will come as news to casual readers of the national press, which reported all of it with a thoroughness that bespeaks only how out in the open it all was. The nonchalance and lack of comment with which the daily papers revealed the way in which big capitalist interests directly control U.S. policy-making—the fact that this was not really thought to be big news to anyone—is indeed itself indicative of the stranglehold of such interests on the political process. But the fact that those with most power today were unwilling to support even the exceedingly minimal policies advanced by Clinton for rebuilding U.S. industry poses a fundamental problem.

The implication of the ease with which these particular capitalist interests won the day is that there are virtually no powerful forces left within the U.S. political economy concerned to stop the decay of U.S. manufacturing. An industrial economy that emerged from World War H with some 60% of the world’s manufacturing capacity, though still containing many pockets of strength, has now experienced a half century of virtually unmitigated decline. This is evidenced most definitively and dramatically in the fact that U.S. firms have, for now close to a quarter of a century, been unable to compete on the world market, except by imposing on their workers a slow but steady absolute decline of hourly wages, now amounting to 15-20% over the period. The story of the disasters of one after another of the country’s leading manufacturers—from the steel companies to GM and Chrysler to IBM—regularly make the headlines. But it is evident that they have made little or no impression on those who determine the country’s political direction, and the question is why?

Clinton’s inability to take even the small first steps toward a program for rebuilding reflects a structure of politics profoundly hostile to state intervention in the economy to reverse manufacturing decline. This is not to say that Clinton cannot be held responsible for his own failure. What it does mean is that U.S. economic and political development over the past quarter century or more has precipitated a balance of forces that would have to be fundamentally altered in order even to begin to politically confront the processes of industrial decay. How this balance of forces emerged and the prospects for transforming it will be the subject of the second part of this essay.

[Part II will be in the next issue.j

September-October 1993, ATC 46