Is economic populism on the rise in the Democratic Party?

Populism

Fanfare for the common man

Nov 23rd 2006 WASHINGTON, DC
From The Economist

AS THE embers of this month's mid-term elections are raked over, a new conventional wisdom is emerging in Washington, DC. The outcome was not just about Iraq, corruption and voters' frustration with George Bush. It also marked the return of a phenomenon that has long hovered offstage in American politics: economic populism.

Frustrated by stagnant wages and rising health costs and fearful that their jobs will be sent to China, anxious voters, particularly in the industrial heartland, sent a new brand of Democrat to Congress: one who may believe in God and guns but who is wary of big business and even more dubious about free trade. The rise of these “Lou Dobbs Democrats” (a reference to a globophobic blowhard on CNN) could spell significant changes in American economic policy.

The new populists are certainly noisy. In an article entitled “Class Struggle” in the Wall Street Journal, Jim Webb, the incoming Democratic senator from Virginia, recently railed against “incestuous corporate boards” and the “hubris” of America's elites. Congress has wobbled on trade even before the newcomers actually arrive in January. A supposedly uncontroversial bill to approve permanent normal trading relations with Vietnam failed to gain enough votes for passage before Mr Bush's trip to Hanoi last week. And even the Democratic Party's centrist presidential hopefuls are joining the fray. Barack Obama, for instance, formally jumped on the Wal-Mart-bashing bandwagon last week (see article).

So is America headed for a bout of protectionist class warfare? History might suggest not. After all, recent politicians have often flirted with populist themes of the sort William Jennings Bryan (pictured above) once promoted, from Ross Perot's rants against the “giant sucking sound” of jobs lost to Mexico in 1992 to John Kerry's attacks on “Benedict Arnold” firms in 2004, without much actually happening.

Yet this year seems different. Not only are the new Democratic lawmakers distinctly more protectionist than the politicians they replaced, but their trade-scepticism was important to voters. An analysis of voters in 50 competitive districts by Stanley Greenberg, a pollster, showed that Republicans' support of trade was one of the main factors that put off swing voters. Almost 70% of voters want the government to “protect jobs and ensure that trade is fair” rather than promote free trade.

Go beyond the protectionism, however, and Americans are less convinced by populist politics. In Mr Greenberg's polls voters preferred limited government and low taxes over a government that creates conditions “so that many can prosper, not just a few”. Douglas Schoen, another Democratic pollster, finds scant support for economic redistribution. Even amongst poorer Americans, large majorities prefer policies that boost economic growth to those that redistribute wealth.

This combination of scepticism about trade without any great enthusiasm for class warfare is awkward for the party's internal politics. Left-wing Democrats have long bashed both trade and business, while the Clintonite centrists have embraced both. The contours of Democratic populism will depend on how both factions now react.

The spotlight is on Congress, where the party's left is likely to shout loudest, but achieve less. Oil and drug companies will be hauled in front of congressional committees. But laws will probably focus less on bashing businesses Democrats don't like than boosting ones they do. The talk may be about a windfall tax on oil companies, but the action will be on boosting subsidies for alternative fuels. The focus on tax policy, too, will be more on helping the middle class than punishing the wealthy. Though many Democrats want to roll back Mr Bush's tax cuts for the rich, the party's energy, at least initially, will be on fixing the alternative minimum tax.

On trade, the congressional leadership is less rabid than many of the new arrivals. Charles Rangel, the top trade man in the House, supported the Vietnam deal. He also wants to extend a package of expiring trade laws, including a textile provision that helps Haiti and other preferences for the poorest countries. He may get those done. But the new protectionists, and their union paymasters, will stymie much else. Free-trade agreements with Colombia and Peru (see article) will go nowhere unless Mr Bush agrees to renegotiate their labour and environmental components.

In the short term America's populist mood may bring little more than a stalemate on trade. Look ahead, however, and the risks multiply. For one thing, the economy is slowing. The White House this week reduced its growth forecast for 2007 to 2.9%, and that may prove optimistic. The jostling for the Democratic presidential nomination could well coincide with sluggish growth, increasing the appeal both of business-bashing and protectionism.

There are plenty of ideas to counter this, mostly clustered around assuaging American workers' financial insecurity. Jacob Hacker, a political scientist at Yale University, argues that Americans' incomes have grown more volatile (see chart) while the country's social contract has frayed, particularly as firms retreat from providing pension and health benefits.

Virtually every centrist Democratic policy-wonk now brandishes ideas about how to rebuild America's social contract as a prerequisite for shoring up support for globalisation. One goal is more protection against sudden income loss, whether by revamping the system of unemployment benefits or introducing broader wage insurance—in effect a government subsidy for those who are forced into lower-paying jobs. A second pillar focuses on making health insurance more portable as well expanding the number of people covered. Democratic wonks differ in the ambition of their ideas, but they all think their party needs to offer an alternative to Mr Bush's consumer-driven model of health care in 2008. Another set of proposals focuses on ways to encourage people to provide for their old age. Around half of Americans in their late 50s have virtually no retirement savings.

Many of these centrist ideas have promise even if some, such as wage insurance, sound better in theory than in practice. But this agenda, however ill formed, is clearly preferable to protectionism and Wal-Mart bashing. The big uncertainty for the Democratic Party is whether the centrist platform can be built in time, and whether the presidential candidates have the sense to stand on it.

Graphic:
http://www.economist.com/world/na/displaystory.cfm?story_id=8326299