Historian Nelson Lichtenstein’s new book details the price we have paid for free trade, deregulation and failed health care reform.
By Kelly Candaele, Capital & Main
This story is produced by the award-winning journalism nonprofit Capital & Main and co-published here with permission.
Bill Clinton’s presidency kicked off an economic boom with nearly 10 years of continuous growth and unemployment fell to below four percent. But his continuing deregulation of the financial sector and the North American Free Trade Agreement also fueled today’s severe inequality and de-industrialization, a new book argues. Clinton’s economic policy options were restricted by what historian Nelson Lichtenstein calls the “deep structures” of American and global capitalism.
Clinton claimed that during his two terms as president he created a “bridge to the 21st century.” In the book he co-authored with Judith Stein, A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism, Lichtenstein dives deep into the politics of the era to describe how that bridge was built. Lichtenstein also analyzes how the “barely hidden fractures” of that structure became massive economic and political fissures not long after Clinton left office.
Lichtenstein, an award-winning labor historian, is a research professor in the Department of History at the University of California, Santa Barbara and a prolific commentator on issues confronting the labor movement in the United States. While Fabulous Failure is not a book of labor history, it argues that the decline of organized labor during the 1970s, ‘80s and ‘90s was attributable to corporate hostility and anemic Democratic Party support, which explains why Clinton’s policy initiatives did not result in structural changes to the economy or a more equitable society.
Co-author Stein did early research for and writing of the book before she died in 2017. At the request of her literary agent, Lichtenstein took over her project and then vastly expanded her research and thematic coverage to complete A Fabulous Failure. The book takes the ideas and arguments of Clinton and his advisers seriously, giving credit where due for Clinton’s successes while avoiding easy retrospective criticism.
Lichtenstein spoke to us from his home in Santa Barbara, California.
This interview has been edited for brevity and clarity.
Question: You wrote a book about Walter Reuther, the legendary leader of the United Auto Workers union. There was a dramatic strike against General Motors Co. in 1945-46, which lasted 113 days. Provide some historical context to the current UAW strike against General Motors.
Nelson Lichtenstein: Insofar as the UAW is attempting to leverage a strike to do more than just raise wages but to shift the nature of the political economy, then the 1945-46 strike and the one today have something in common. In 1945-46, the UAW wanted wage increases without an increase in the price of cars. This was actually government policy, because the Office of Price Administration wanted to maintain price controls after the war, so the UAW was striking in support of President Harry Truman’s effort to prevent a postwar inflationary surge.
The UAW strike today, although not designed this way, is in support of [President Joe] Biden’s administration’s green transition, which is only going to work if these new battery plants built with government money have wages and unionization that are similar to what’s in the North. Otherwise, [former President Donald] Trump is right: You are eliminating high-paying jobs, and you’re creating lousy jobs. So both of these strikes were political strikes, with the UAW aligned with a kind of New Deal-ish industrial policy program.
You describe unions and labor in the 1970s and early 1980s as “traumatized” because of contract givebacks, the assault on unions and the Professional Air Traffic Controllers Organization strike, which was broken by President Ronald Reagan in 1981. Is the labor movement finally recovering from that trauma?
That was Federal Reserve [System board] Chairman Alan Greenspan’s word to describe the mentality of workers in the ‘80s and the ‘90s. From his point of view, this meant that there wasn’t going to be much wage pressure leading to inflation, so Greenspan argued that the Fed could maintain lower interest rates, which it did in the ‘90s. It’s pretty clear today — and it took a pandemic — that the era of the traumatized worker is over. In the 1990s, Clinton and some others around him, like [senior adviser] George Stephanopoulos, sort of wished for more vigorous pressure from the left and the labor movement. They felt that was missing when it came to politics and policy. Today, Biden is aware that this very popular UAW strike can be helpful to him and his policies in a general way.
You have written about a labor resurgence. The strikes by the UAW, the Hollywood unions, Kaiser-Permanente workers and UNITE HERE members are examples. And yet you have 360 or so Starbucks stores unionized without a single contract negotiated. Only one Amazon warehouse is organized. FedEx is a nonunion competitor to United Parcel Service. In the retail grocery business, Amazon’s Whole Foods unit and Trader Joe’s markets are not organized. So can legacy unions at legacy companies become more militant while the overall labor movement continues to decline?
I’ve been telling every reporter that calls me that very same thing. Unlike other moments in American history when we’ve had a resurgence of labor, the labor law is so bad and management remains intransigent, so massive organizing is very difficult. So we have to think about this in the biggest terms. With the UAW, are they going to be able to organize Tesla? Ford and GM say, “Wait a second, we can’t give you all this money because we have to compete with nonunion Tesla, which has half the labor costs.”
It’s been 40 years, and the nonunion auto plants like Toyota have not been organized [in the U.S.]. Fifty years ago, unionized Northern textile firms said, “We’ll give you a wage increase, but you will have to organize the South. If you can’t do that, then we’re going to take a hard line.” That’s how management thinks.
There was a robust intellectual and policy group that surrounded Clinton before and during his presidency. Some were his longtime friends. Robert Reich, Laura Tyson, Ira Magaziner, Lester Thurow were economists or policy innovators who were trying to get a grasp on the shifting economy and direct it toward progressive ends. Describe that worldview and its effect.
Clinton was at home among those people in the 1970s who were thinking about how to revive the American economy in an era of stagflation and what was called “deindustrialization” — massive firm shutdowns. The main thing he wanted to do in Arkansas when he entered politics was to economically develop this poor Southern state: to offer more than cheap labor employed in branch plant manufacturing that might be here today and gone during the next recession.
He went all over the world looking for models. He was looking at other ways to organize a capitalist economy in the post-Cold War world, whether it was having a more regulated economy or different tax system or industrial policy. This failed in the early years of his administration, but it was a contest. The famous phrase that campaign strategist James Carville put in the campaign office — “The economy, stupid” — meant, keep your eyes focused on the revitalization of industry, and stay away from the culture war issues, which Pat Buchanan and George H.W. Bush were pushing. Focus on the revitalization of the working class. Balancing the budget was not prominent in his first presidential campaign.
There’s a lot of complex economics in your book: the importance of bond interest rates, the regulation of derivatives trading, the nuances of trade policy. Why is this important?
Treasury Secretary Robert Rubin, who came out of Goldman Sachs, was very important and in many ways an attractive figure. He wasn’t like a capitalist with a top hat running around slashing food stamps. He was in some ways in favor of a modest welfare state and supported civil rights initiatives as well. But his main idea was that if we balance the budget, then this phenomenon called “crowding out,” where public debt crowds out private debt, would not occur, and interest rates would decline. He argued that by lowering interest rates we would get a trillion dollars of reinvestment from the private sector rather than a much smaller amount that might be part of a direct budget fiscal stimulus. There was a lot of reinvestment due to falling interest rates. But where did it go? It was not channeled or planned but went into speculation, stock buybacks and so on. He thought the mobility of capital and free trade were essential to how a fluid and non corrupt capitalist economy would work. That idea won out in the debates of 1993 and after, mostly because there was no mobilized labor movement or ideological firepower in opposition, which exists today to bolster Biden.
You write that the Clinton health care reform proposal had “shallow roots.” What lessons can be learned from that failure?
The catchphrase advocated by the Clintons, “managed competition,” was not an idea that had been around. What had been around was single-payer. Clinton’s people said we are going to create these purchasing alliances where groups of companies under federal supervision will purchase insurance collectively, along with a mandate for companies to provide insurance for their employees, and that will therefore reduce the price of insurance. It turns out that was not going to work. Robert Reischauer, head of the Congressional Budget Office, went before Congress and said, “This plan is a pig in a poke, and what we need is the exercise of sovereign power of the federal government to basically set prices.”
When you looked under the hood of what the Clinton plan was, it was not single-payer nationally but single-payer in large metropolitan regions. It failed because they were not attuned to key elements of the business community.
The Affordable Care Act, also called Obamacare, passed during President Barack Obama’s administration. What was different?
They learned a lot from the Clinton attempt in that they made sure the business community was on their side. And with the expansion of Medicaid, which is single-payer for the bottom half of the working class, that government program has proven itself enormously successful and far larger in that more people signed up. Clinton’s plan had a mandate on companies like Walmart and Pizza Hut and others in the low-wage sector, which said, “You must offer insurance.” Obama said that’s too divisive; we’ll just put a tax on rich people, which did not directly hit those low-wage employers. Congress passed Obamacare with one of the most progressive tax increases in American history, and hardly anyone knows about it.
The Violent Crime Control and Law Enforcement Act of 1994, often called the crime bill, expanded the construction of prisons and allowed states to fold in drug and property offenses into the three strikes provision of the bill. It was vilified by much of the left. But you point out that the Congressional Black Caucus voted 26-12 in favor of it, and even independent Sen. Bernie Sanders of Vermont supported it.
The mass incarceration that followed from the crime bill became a huge issue in 2015 and 2016, when Hillary Clinton ran for president. One of the major indictments of the Clinton presidency was that his administration did provide $30 billion in his crime bill, including billions to build prisons, later seen as one of the key building blocks of mass incarceration — which it was. But at that time in 1994, when Democrats controlled Congress, it was not viewed in a controversial fashion. It was the Republicans who didn’t like it because, remarkably, it had a ban on assault weapons.
Some liberals voted for it because there was money in it to fund programs for violence against women, and the Black caucus — two thirds of it — was for it because of crime in African American neighborhoods. It wasn’t that controversial at the moment but became very controversial later. At the time, Biden [who was a senator and sponsor of the bill] said that the bill proved that Democrats were not “soft on crime.”
We are again facing a potential government shutdown. It’s argued that Clinton won the battle with House Speaker Newt Gingrich over shutting down the government in 1995. You write that he turned that victory into a “profound ideological defeat” when he proclaimed in his 1996 State of the Union address that the “era of big government is over.”
It turns out that this was one of the most remembered phrases of any State of the Union speech in American history. Another aspect of the Clinton administration was his determination to outsource a huge proportion of government services — this “reinventing government” idea — which many of the more conservative Democrats championed. During his second term, he was weaker and tilted to the right as many of his more liberal aides had left the White House during the second term.
What are the “hard structures” of American capitalism that limited Clinton’s freedom to move politically and economically while at the same time placing real pressure on key sectors of the economy?
With the end of the Cold War, you essentially have the doubling of the availability of unemployed and low-wage workers, which are available to capitalists in the North Atlantic to make use of. This imposes a huge downward wage pressure on American workers and American firms. The only way to counter that is through some form of managed trade, initially favored by many Clinton advisers. The impact of trade is always targeted to specific locales or factories or industries.
And then you have the absolute mobility of capital worldwide, which deprives individual nations of the capacity to plan their own economies. When capital is constrained, you have some ability to reanimate industries and control your own economy. So you have Alan Greenspan gleeful at the Federal Reserve that workers are traumatized, because it eases inflationary pressures.
What shifts in economic thinking have occurred since Clinton and Obama, at least on the progressive or Democratic side?
Obama was in many ways the continuation of Clinton. When it came to appointing key members of his economic Cabinet, he went right to Wall Street and to Robert Rubin and his acolytes. He got advice after the crisis of 2008 to have a modest stimulus, not a large one, which meant that the recovery of 2008-09 was much slower than under Biden.
Biden is an example about how you can learn from the past. When he was running for president, he appointed as advisers people who were in favor of a large stimulus who weren’t worried about deficits and didn’t want a long, slow, painful recovery from the pandemic. And he got it. When it comes to industrial policy, the Clinton people were afraid of the charge that they were “picking winners and losers.” Biden says, “Yes, we’re picking winners” in the economy, and we’re going to have a transition to electric vehicles and build silicon chip plants. These are winners, and we’re going to pick them.
Political philosopher Michael Walzer argues in his recent book, The Struggle for a Decent Politics, that people on the left need liberals, and liberals need the left. Liberals need a robust left to embolden their ideas, and the left needs liberals to avoid fanaticism and self-righteousness. Do you agree?
I’ve edited a book on the Port Huron Statement, the famous New Left manifesto of 1962. It was in my mind a fruitful merging of leftist and liberal themes in that period. It was not an ultra-left manifesto. Clinton and others close to him came out of the ‘60s but were more moderately left and focused on practical policy. But you need a left to give liberalism heft. Liberalism needs energy; it needs troops on the ground. Today we have a more vigorous left, and it’s one reason that Biden has had the verve to put forward some very bold programs.
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