Two years ago, I argued that America was suffering from political decay. The country’s constitutional system of checks and balances, combined with partisan polarization and the rise of well-financed interest groups, had combined to yield “vetocracy,” a situation in which it was easier to stop government from doing things than it was to use government to promote the common good. On the surface, the 2016 presidential election seems to be bearing out this analysis. The Republican Party, which lost control of its nominating process to Donald Trump, is riven with deep internal contradictions. On the Democratic side, Hillary Clinton faced strong competition from Bernie Sanders. A large number of voters on both sides of the spectrum have risen up against what they see as a corrupt, self-dealing establishment, turning to radical outsiders in the hopes of a purifying cleanse.
The real story of the 2016 presidential election is that after several decades, American democracy is finally responding to the rise of inequality and the economic stagnation experienced by most of the population. Social class is now back at the heart of American politics, trumping other cleavages — race, ethnicity, geography, gender, sexual orientation — that had dominated discussion in recent elections.
Although it’s good to know that the US political system is less ossified and less in thrall to moneyed elites than many assumed, the nostrums being hawked by the populist crusaders are nearly entirely unhelpful, and if embraced, they would stifle growth, exacerbate malaise and make the situation worse rather. So, the time has come for the elites to devise more workable solutions to the problems they can no longer deny or ignore.
The social basis of populism
In recent years, incomes have been stagnating for most US citizens, generating rising inequality across the American society. What is new in this political cycle is that attention has started to turn from the excesses of the oligarchy to the straitened circumstances of those left behind.
Back in the 1980s, there was a broad national conversation about the emergence of an African-American underclass — a mass of underemployed and under-skilled people whose poverty seemed self-replicating because it led to broken families that were unable to transmit the kinds of social norms and behaviours required to compete in the job market. Today, the white working class is in virtually the same position as the black underclass was back then.
This increasingly bleak reality, however, scarcely registered with American elites — not least because over the same period, they themselves were doing quite well. People with at least a college education have seen their fortunes rise over the decades. Rates of divorce and single-parent families have decreased among this group, neighbourhood crime has fallen steadily, cities have been reclaimed for young urbanites, and technologies such as the Internet and social media have powered social trust and new forms of community engagement.
The failure of politics
Given the enormity of the social shift that has occurred, the real question is not why the United States has populism in 2016 but why the explosion did not occur much earlier. And there has indeed been a problem of representation in American institutions: neither political party has served the declining group well.
In recent decades, the Republican Party has been an uneasy coalition of business elites and social conservatives, the former providing money, and the latter primary votes. The business elites have been principled advocates of economic liberalism: free markets, free trade, and open immigration. It was Republicans who provided the votes to pass trade legislation such as the North American Free Trade Agreement (NAFTA) and the recent “fast track” trade promotion authority. Republicans pushed for the dismantling of the Depression-era system of bank regulation that laid the groundwork for the subprime meltdown and the resulting financial crisis of 2008. And they have been ideologically committed to cutting taxes on wealthy Americans, undermining the power of labour unions, and reducing social services that stood to benefit the less well-off.
It is undeniable that the pro-market shift promoted by Republican elites in recent decades has exerted downward pressure on working-class incomes, both by exposing workers to more ruthless technological and global competition and by paring back various protections and social benefits. It should not be surprising, therefore, that the biggest and most emotional fight this year is the one taking place within the Republican Party, as its working-class base expresses a clear preference for more nationalist economic policies.
The Democrats have traditionally seen themselves as champions of the common man and can still count on a shrinking base of trade union members to help get out the vote. But they have also failed this constituency. Since the rise of Bill Clinton’s “third way,” elites in the Democratic Party have embraced the post-Reagan consensus on the benefits of free trade and immigration. They were complicit in the dismantling of bank regulation in the 1990s and have tried to buy off, rather than support, the labour movement over its objections to trade agreements.
But the more important problem with the Democrats is that the party has embraced identity politics as its core value. However, the one group it has completely lost touch with is the same white working class that was the bedrock of Roosevelt’s New Deal coalition. The white working class began voting Republican in the 1980s over cultural issues such as patriotism, gun rights, abortion and religion. Clinton won back enough of them in the 1990s to be elected twice, but since then, they have been a more reliable constituency for the Republican Party, despite the fact that elite Republican economic policies are at odds with their economic interests.
The end of an era?
Trump’s policy pronouncements are confused and contradictory. But the common theme that has made him attractive is an economic nationalist agenda designed to protect and restore the jobs of American workers. This explains both his opposition to immigration and his condemnation of American companies that move plants abroad to save on labour costs. He has criticized not only China for its currency manipulation but also friendly countries such as Japan and South Korea for undermining the United States’ manufacturing base. And, of course, he is dead set against further trade liberalization, such as the Trans-Pacific Partnership in Asia and the Transatlantic Trade and Investment Partnership with Europe.
All this sounds like total heresy to anyone who has a knowhow of trade theory, where models from the Ricardian one of comparative advantage to the Heckscher-Ohlin factor endowment theory tell that free trade is a win-win for trading partners, increasing all countries’ aggregate incomes. And indeed, global output has exploded over the past two generations, as world trade and investment have been liberalized under the broad framework of the General Agreement on Tariffs and Trade (GATT) and then the World Trade Organization (WTO), increasing fourfold between 1970 and 2008. Globalization has lifted hundreds of millions of people out of poverty in countries such as China and India and has generated unfathomable amounts of wealth in the United States.
Yet this consensus on the benefits of economic liberalization is not immune from criticism. Built into all the existing trade models is the conclusion that trade liberalization, while boosting aggregate income, will have potentially adverse distributional consequences. One recent study estimated that import competition from China was responsible for the loss of between two million and 2.4 million US jobs from 1999 to 2011.
The standard response from trade economists is to argue that the gains from trade are sufficient to more than adequately compensate the losers, ideally through job training that will equip them with new skills. And thus, every major piece of trade legislation has been accompanied by a host of worker-retraining measures as well as a phasing in of new rules to allow workers time to adjust.
In practice, however, this adjustment has often failed to materialize. The US government has run 47 uncoordinated federal job-retraining programmes, in addition to countless state-level ones. These have collectively failed to move large numbers of workers into higher-skilled positions. This is also a failure of concept because it is not clear what kind of training can transform a 55-year-old assembly-line worker into a computer programmer. Nor does standard trade theory take account of the political economy of investment. Capital has always had collective-action advantages over labour, because it is more concentrated and easier to coordinate. This was one of the early arguments in favour of trade unionism, which has been severely eroded in the United States since the 1980s. And capital’s advantages only increase with the high degree of capital mobility that has arisen in today’s globalized world. Labour has become more mobile as well, but it is far more constrained. The bargaining advantages of unions are quickly undermined by employers who can threaten to relocate not just to a right-to-work state but also to a completely different country.
The American political system will not be fixed unless popular anger is linked to good policies.
Labour-cost differentials between the US and many developing countries are so great that it is hard to imagine what sorts of policies could ultimately have protected the mass of low-skilled jobs. Perhaps not even Trump believes that shoes and shirts should still be made in America. Every industrialized nation in the world, including those that are much more committed to protecting their manufacturing bases, such as Germany and Japan, has seen a decline in the relative share of manufacturing over the past few decades. And even China itself is beginning to lose jobs to automation and to lower-cost producers in places such as Bangladesh and Vietnam.
And yet the experience of a country such as Germany suggests that the path followed by the United States was not inevitable. German business elites never sought to undermine the power of their trade unions; to this day, wages are set across the German economy through government-sponsored negotiations between employers and unions. As a result, German labour costs are about 25 percent higher than their American counterparts. And yet Germany remains the third-largest exporter in the world, and the share of manufacturing employment in Germany, although declining, has remained consistently higher than that in the United States. Unlike the French and the Italians, the Germans have not sought to protect existing jobs through a thicket of labour laws; under Chancellor Gerhard Schröder’s Agenda 2010 reforms, it became easier to lay off redundant workers. And yet the country has invested heavily in improving working-class skills through its apprenticeship programme and other active labour-market interventions. The Germans also sought to protect more of the country’s supply chain from endless outsourcing, connecting its fabled Mittelstand, that is, its small and medium-size businesses, to its large employers.
In the United States, in contrast, economists and public intellectuals portrayed the shift from a manufacturing economy to a post-industrial service-based one as inevitable, even something to be welcomed and hastened. Like the buggy whip makers of old, supposedly, manufacturing workers would retool themselves, becoming knowledge workers in a flexible, outsourced, part-time new economy, where their new skills would earn them higher wages. Despite occasional gestures, however, neither political party took the retooling agenda seriously, nor did they invest in social programmes designed to cushion the working class as it tried to adjust.
A way forward
Trump may have fastened onto something real in American society, but he is a singularly inappropriate instrument for taking advantage of the reform moment that this electoral upheaval represents. You cannot unwind 50 years of trade liberalization by imposing unilateral tariffs or filing criminal indictments against American multinationals that outsource jobs. At this point, the United States’ economy is so interconnected with that of the rest of the world that the dangers of a global retreat into protectionism are all too real. Trump’s proposals to abolish Obamacare would throw millions of working-class Americans off health insurance, and his proposed tax cuts would add more than $10 trillion to the deficit over the next decade while benefiting only the rich. The country does need strong leadership, but by an institutional reformer who can make government truly effective, not by a personalistic demagogue who is willing to flout established rules.
Nonetheless, if elites profess to be genuinely concerned about inequality and the declining working class, they need to rethink some of their long-standing positions on immigration, trade and investment. The intellectual challenge is to see whether it is possible to back away from globalization without cratering both the national and the global economy, with the goal of trading a little aggregate national income for greater domestic income equality.
Clearly, some changes are more workable than others, with immigration being at the top of the theoretically doable list. The idea that the government could deport 11 million people from the country, many of them with children who are US citizens, seems highly implausible. So, some form of amnesty appears inevitable. Doing this properly would require not a wall but something like a national biometric ID card, heavy investment in courts and police, and, above all, the political will to sanction employers who violate the rules. Moving to a much more restrictive policy on legal immigration would not be economically disastrous.
It is harder to see a way forward on trade and investment, other than not ratifying existing deals such as the Trans-Pacific Partnership. The world is increasingly populated with economic nationalists, and a course reversal by Washington could well trigger a tidal wave of reprisals.
“Populism” is the label that political elites attach to policies supported by ordinary citizens that they don’t like. There is, of course, no reason why democratic voters should always choose wisely, particularly in an age when globalization makes policy choices so complex. But elites don’t always choose correctly either, and their dismissal of the popular choice often masks the nakedness of their own positions. Popular mobilizations are neither inherently bad nor inherently good; they can do great things, as during the Progressive era and the New Deal, but also terrible ones, as in Europe during the 1930s. The American political system has, in fact, suffered from substantial decay, and it will not be fixed unless popular anger is linked to wise leadership and good policies. It is still not too late for this to emerge.
Excerpted from Francis Fukuyama’s
“American Political Decay or Renewal?