Despite riding into office on a wave of support from the business community, President Obama’s relationship with the private sector has been mixed to date. Recently, the administration spent several months calling for a corporate-tax overhaul only to release a February budget outline that proposed tax increases for businesses and high earners.
Weeks later General Electric CEO Jeffrey Immelt was appointed to lead the President’s Council on Jobs and Competitiveness. When the news broke shortly thereafter that General Electric paid no federal taxes in 2010, Obama said he was “bothered” by companies that take advantage of tax loopholes. Searching for a Commerce Secretary more appealing to his base, Obama selected former Edison International CEO John Bryson. Bryson checked off all the necessary boxes: successful businessman; strong environmentalist; and a green tech champion.
Despite (or perhaps because of) Bryson meeting this stringent criteria the business community responded with a collective: “Who?” After this zigzag messaging, the private sector has no doubt been left scratching its collective head and wondering where it stands in the eyes of the Administration. It appears Obama’s feelings towards business depend greatly on which day you are asking.
It is evident that Obama and his communications staff haven’t mastered the language of business. Additionally, they have yet to clearly articulate the role that the private sector plays in a centre-left economy. This challenge has repeatedly plagued Democrats because they have yet to realise the reason they can’t articulate a coherent message about the role of business in their economic agenda is because they lack an economic agenda in the first place.
No doubt the Democratic Party roots for GDP growth. But should that growth be an end or a means to something greater? And what is the proper role of government in generating that growth? Unfortunately, the Democrats have left these questions unanswered.
It didn’t used to be this way. Following the Great Depression, Democratic presidents oversaw a 40-year economic boom of shared prosperity. Whether it was the New Deal or New Frontier, Democrats painted a vision of economic security through active government. Then came the 1980 election, and suddenly government was no longer the solution to our economic woes but instead the problem. Free markets became the solution to everything, and feckless Democratic efforts to fight back failed to resonate.
Even Bill Clinton’s carefully crafted populist-but-not-too-populist slogan “putting people first” was quickly forgotten. Democrats did manage to regain their mojo in 2008 when the American people entrusted them to pick up the pieces of the discredited Bush administration. Obama enjoyed a nine-point margin over John McCain among voters citing the economy as their top concern. However, the years since have shown that trust can easily evaporate in the midst of a prolonged recession. In the 2010 midterms, the economy was again the single most important issue but this time Republicans enjoyed a nine-point advantage. The 2012 election will once again hinge on the economy, and the Democratic Party doesn’t appear to be any closer towards articulating its own agenda. Where did they go wrong?
Reason #1: No political infrastructure. Today the Republican Party is synonymous with supply-side economics, but it’s important to note that this marriage did not occur until the 1980s. In the years preceding the Reagan administration, many Republicans were Keynesians. Reagan’s rise catalyzed a clash between the old guard and the new. George H.W. Bush may have won a battle by deriding Reagan’s policies as “voodoo economics” but supply-siders won the war. The Reagan administration filled its ranks with veterans of supply-side think tanks such as the American Enterprise Institute and Heritage Foundation.
The think tank exodus opened the door for a new generation of conservative policy analysts to take their place. Republican administrations continue to pull heavily from AEI and Heritage creating an endless army of wonks who deliver supply-side position papers to Republican policymakers. The left was slow to duplicate this effort and now progressive political infrastructure pales in comparison. Contrast the revenues of the largest think tanks on both sides of the ideological spectrum. In 2008, the conservative Heritage Foundation took in $63M in revenue, while the liberal centre for American Progress collected just $29M. This fundraising advantage allows Heritage to circulate its message more broadly than its progressive competitor.
Joining Heritage as advocates of supply-side theory are groups like Americans for Prosperity, and the Club for Growth. No single progressive group could credibly be considered a counterweight. The paperback marketplace is equally as lopsided. Log on to Amazon and you’ll find a litany of books outlining a conservative economic blueprint, each one based on supply-side theory. While books decrying the Bush administration’s failures and the 2008 crisis abound, published progressive economic agendas are scant. Republicans have brilliantly flooded the market with their ideas and framed the debate in the process.
Reason #2: A party divided cannot stand. Much like the war within the Republican Party that occurred in the early 1980s, the Democratic Party finds itself at an economic crossroads. Much of this feud boils down to disagreement over the role of labour unions. Private sector union membership is at its lowest rate in 70 years, having shrunk to 7.1 million in 2011 from a peak of 21 million in 1979. Despite union membership trending downward, labour continues to be a major source of financial support for the Democratic Party. As unions have waned in membership, so too has their standing in the eyes of the general public.
In 2010 the favour ability ratings for unions plummeted to their lowest level in a quarter century with only 45% of Americans expressing a positive view. But Democrats remain dependent on labour funds and their voter mobilization to win elections, and cannot abandon their long-time ally. In the midst of the Reagan Revolution, centrist groups like the Democratic Leadership Council were formed to break labour’s fundraising stranglehold. The DLC helped create the New Democrat Coalition within the United States Congress to support a moderate, pro-business agenda. New Democrats typically hailed from affluent suburban districts where constituents are socially liberal but more market-friendly. In response, liberal elected officials formed the Congressional Progressive Caucus.
It would be an understatement to say that the two factions don’t much care for each other. When Democrats were creating the Wall Street reform legislation that was to become known as Dodd-Frank, New Democrats ran afoul of Speaker Pelosi by forcing her to scale back an unemployment benefits extension over an objection to the measure’s tax on venture capitalists. Progressive Democrats also became enraged when New Dems insisted that the Obama stimulus package be reduced in size and include more tax cuts. While the GOP supply-siders defeated their Keynesian foes, there doesn’t yet appear to be a clear winner on the left. For now Progressive Dems seem to have gotten the last laugh as in January 2009 at the end of the 110th Congress there were 59 self-proclaimed New Democrats. Today, following the 2010 election, there are only 40. Meanwhile the Progressive Caucus has over 80 members.
Reason #3: Economic populism is dead. Prior to the 1990s, the lines delineating the lower, middle and upper classes were distinct. The Democrats exploited these divisions by pitting the working class against “economic royalists.” The Democratic Party’s populism was so effective it allowed them to retain elected office in the South long after the party had moved left on Civil Rights. But as the Information Age dawned on the American economy the lines separating the classes blurred. Between 1965 and 1990, stock ownership in the United States doubled.
It doubled again in the brief period between 1990 and 1997 and middle-class Americans moved towards market-oriented policies as a result. recognising this shift, the Democratic Party maneuvered its messaging away from populist appeals towards those advocating for the “broad middle class.” The verbiage was intentionally vague. According to a 2008 Pew Research poll, half of Americans identify themselves as middle class. The same poll showed that 33% of Americans with family incomes of $150,000 or more say they are middle class while 41% of families with incomes of less than $20,000 also claim to be middle class. Articulating an agenda that spoke both to a family making $20,000 and one earning $150,000 proved incredibly difficult as the business friendly policies of the Clinton Administration coupled with an unprecedented economic boom still weren’t enough for the Democrats to keep the White House in 2000. Campaign financing has also played a role in the Democrats’ shift away from populism.
In 1994, the 10 top-giving industries tracked by the centre for Responsive Politics helped fund the Republican takeover of Congress. In 2006 the fundraising advantage shifted back to the Democrats whose coffers became flush with corporate cash from those very same industries that had previously backed the GOP. To retain power the party became dependent on these companies and had to tone down their populist rhetoric. Obama went on television to decry “fat cat bankers” but quickly retreated when Wall Street balked at this characterization. (Four of the top twelve bundlers to Obama’s 2008 campaign were financial service organisations) Outraged businesspeople who had backed Obama threw their significant clout behind the GOP and helped deliver the House.
Following the midterm shellacking, Senate Majority Leader Harry Reid asked New York Senator Charles Schumer to take over messaging and policy-shaping operations for Senate Democrats. That includes crafting an economic agenda in advance of the 2012 election. Senator Schumer certainly has his work cut out for him, as a recent Rasmussen poll shows more Americans trust Republicans (46%) than Democrats (42%) on the all important issue of the economy.
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