What is extraordinary is that only months after Pat Buchanan shocked the political establishment by prying open the Pandora's box of slow growth, wage stagnation, globalization, and increasing inequality, the lid is back on again. All the Republicans want to talk about is cutting taxes and government. Clinton downplays questions of wage stagnation in favor of breathless encomia to the (cyclical) strength of the economy. And billionaire Ross Perot's "Reform Party" campaigns at public expense for even bigger budget cuts. The whole spectrum of policy debate is right back where it was before Buchanan's rebellion.
How to account for this miraculous inversion? Surely not by attributing it to the voters' will. The disdain that millions of them feel for all three candidates is apparent, as is their palpable frustration with the political system's continuing refusal to confront the economic uncertainties facing most Americans.
A much more compelling explanation is the power of money, or more precisely, what I call the "investment" theory of political parties. This view holds that in countries like the United States, where most voters are unorganized, desperately pressed for both time and money, and minimally informed or interested in politics, a political party's real market is defined by major political investors, who generally have good and clear reasons for giving money to control the state. Accordingly, in analyzing an election, the place to begin is with a systematic study of blocs of large investors. This requires a clear break with the usual media fixation on gross spending totals -- however stunning -- in favor of more subtle efforts to identify and dissect coalitions in politically significant terms. Like my other efforts to trace the workings of the "golden rule" in American elections, this essay relies extensively on my own analysis of Federal Election Commission data covering "early money" (i.e., all of 1995 and early 1996) in this year's presidential election.
Backdrop: The 1994 GOP landslide
The 1996 Clinton campaign was constructed almost entirely from the wreckage of the 1994 debacle, when the Democrats lost control of both houses of Congress for the first time in four decades. The road to comprehending 1996, therefore, begins by retracing the path to the 1994 disaster.
Polls taken shortly before the 1994 off-year elections suggested that as many as half of all voters were unable to name a single achievement of the Clinton administration. Even worse, the administration faced a dual squeeze on its supply of campaign financing.
On the one hand, the long-running battle over health care, regulatory skirmishes over the environment, and talk of raising the minimum wage were prompting anxious businesses to send enormous streams of money to the GOP. For example, tabulations for the 1993-94 election cycle published by the FEC (which omit the vast amounts of money paid for "issue-oriented" advertising by pharmaceuticals, insurers, and medical instrument companies) indicate that total spending in congressional races amounted to the record-breaking sum of $725 million, "with increased activity by Republican candidates...entirely responsible for the growth." Spending by the national political parties, which the FEC tallies separately, was equally astronomical, amounting to more than $385.5 million -- well above the $304 million reported in the 1989-90 off-year election cycle -- again, with a heavy GOP tilt.
On the other hand, while the administration's opponents anted up at a breakneck pace, some of Clinton's most important allies were closing their checkbooks. Wall Street, which in 1992 -- as in many other presidential elections -- had provided a plenary share of funds for the Democratic candidate, was now abandoning the party. After more than half a century, the tectonic plates of American political life were shifting.
This process (which is only in its initial stages, and might still reverse itself) has long-term roots. But two new developments brought matters to a head in early 1994. The first was the administration's running battle to roll back the Japanese trade surplus and open Japanese markets to American producers. Exasperated by what they regarded as Japanese stonewalling, the Clinton economic team began trying to "talk down the dollar" (i.e., talk up the yen) in February 1994. The idea, which was immensely appealing to American producers of automobiles, semiconductors, telecommunications, and other tradable goods, was to make Japanese wares so expensive in the U.S. market that Japan would have to open up out of sheer self-preservation.
This strategy, however, implied a sharp drop, at least for a time, in the international value of the dollar. In New York financial circles, notions of this sort are pure poison. No matter how clever and intricate arguments from pure economic theory may occasionally be, international financial centers are generally unwilling to risk sustained declines in their currencies. Too many asset holders and traders start shifting out, with the perceived risk of the currency's irrevocable decline rising sharply the longer such episodes continue and the more frequent they become.
That the administration's shift caught much of Wall Street off-guard added fuel to the fire. Some houses that had bet the wrong way briefly endured spectacular losses and sold out of bonds they had bought on credit. After central banks around the world began raising interest rates (or, as in the case of the Bundesbank, signaled an unwillingness to continue lowering them), havoc spread to many other bond markets.
The second factor in Wall Street's estrangement from the Clinton administration grew out of the search for scapegoats that followed the turmoil in world financial markets. With some encouragement from rival financial concerns and from international and domestic regulatory authorities, congressional Democrats briefly held hearings into so-called hedge funds (off-shore vehicles for wealthy investors, which frequently augment their own very considerable resources by borrowing). While this effort, like the push to talk down the dollar, was soon abandoned, the damage was done. Importuned to open their wallets by Democratic National Committee (DNC) officials, Wall Street's Masters of the Universe nearly all refused. Some even walked out of earlier six-figure pledges. The immediate result was a sharp drop in the pace of DNC soft money receipts at precisely the moment they should have been rising.
Comeback Kid II
Though virtually no one noticed, Bill Clinton began his long climb out of the crypt by breaking the hold the Republicans had tried to establish over two powerful constituencies: defense and oil.
A few weeks after the 1994 election, as pundits vied with one another to write off his chances for re-election, the president surprised everyone by declaring himself in favor of increased defense spending. With the United States already spending more on defense than the next six countries in the world combined, and polls showing that the public ranked military spending at the very bottom of its list of new spending priorities, this step made little sense in electoral terms. Brushing aside doubts expressed by the foreign policy establishment and the military, the administration also loudly advertised its devotion to rapid NATO expansion -- an issue of burning interest to defense contractors, whose increasingly vital export business cannot hope to flourish in countries where links to former Soviet military suppliers remain strong.
Leapfrogging over congressional Republicans, who had begun to tout the former Soviet Republic of Georgia as a vital U.S. interest, the administration also threw its weight behind American multinationals involved in the titanic struggle now raging for control of Transcaucasian oil. While constrained by its strong commitment to the Yeltsin regime, the Clinton team moved on several fronts at once. The United States intensified its already close relationship with Turkey, which potentially holds a key position in the region. Clinton also personally telephoned the president of Azerbaijan to win support for a pipeline leading down through Georgia and, eventually, through Turkey, instead of one running only through Russian-controlled territory. American diplomats also backed Chevron in its struggle over a mammoth oil concession in Kazakhstan.
By mid-1995, this "multinational pork barrel" strategy was bringing some real advantages to the president. Though he continued to languish in the polls, Clinton and his advisers had taken an initiative away from Gingrich and the GOP in a way that paid off in a modest number of campaign contributions and applause -- at first grudging, but more recently, much warmer -- from foreign policy elites.
Foreign policy efforts like these, however, hardly sufficed to secure Clinton's re-election. Two additional steps were required. First, the president needed to amass a much larger war chest to scare off potential Democratic challengers and to pay for an advertising blitz as the general election approached. Second, Clinton needed some way to highlight his differences with the Republicans without frightening off potential campaign investors.
In 1995, reconciling these two contradictory imperatives was an even taller order than usual. As one Democratic strategist confessed to the Philadelphia Inquirer in August 1995, "Lately we've been cowed into the position of not sticking up for working people, because we've been looking increasingly to wealthy interests in order to fund our campaigns. You end up spending time with wealthy people who say, 'Let's not make this a class thing.'"
Mickey Mouse To The Rescue
After the president called off the automobile war with Japan in 1995, his economic team regularly proclaimed that the United States would welcome a stronger dollar. But my survey of early campaign contributions to Clinton's re-election campaign indicates that neither this belated profession of faith, nor even the Mexican bailout, sufficed to bring Wall Street around. Wall Street contributions were only modestly above the generally low average (20 percent) contributed by business as a whole (see sidebar).
Industries the White House was courting, notably oil and defense, took up some of the slack. More money also came from trial lawyers, particularly as Clinton made up his mind to veto legislation curbing lawsuits. A small amount arrived from unions. (Note that union contributions are likely to bulk considerably larger in this year's congressional campaigns, and that the AFL-CIO is also waging a sizable national campaign focusing on "issues" nominally unconnected to the election.)
In the end, however, the best-kept secret of the 1996 election is that, more than any other single bloc, it was the telecommunications sector that rescued Bill Clinton. In my sample of large firms, this staggeringly profitable sector (which I treat as distinct from both the computer and software industries) stands out in its support for Clinton: Forty-six percent of the firms in my sample contributed to the president's re-election campaign through either individual contributions from top executives or soft money to the Democratic Party.
This is a level matched by no other comparably large industry. And the amounts given by individual companies are sometimes remarkable. Over the course of 1995, for example, Miramax, a Disney subsidiary, contributed more than $250,000 in soft money to the Democrats, while several Disney executives also made personal donations to the Clinton campaign.
The reason why isn't complicated. For years, Hollywood, network and cable television, book publishers, news concerns, radio stations, computer and software makers, and phone companies had all been making vast sums of money as separate entities. By 1993, however, changes in technology and regulatory practice were bringing these industries together at an explosive pace, and almost everyone wanted legal rights to get into everyone else's business.
The initial charge for what became the Telecommunications Act of 1996 was led mostly by congressional Republicans, on behalf of the regional Bells and a few other companies responsible for local telephone service (see "Channel Surfer," Mother Jones, September/October). After the cable companies won a promise of rate deregulation, they, too, mostly fell in behind the proposed legislation.
But these early, largely Republican, versions of the bill alarmed many producers of "content" -- Hollywood, the major networks, and media companies whose core businesses include generating programs and gathering news. These content producers were acutely sensitive to the possibility that the Bells and cable companies, which already had lines to local customers in place, might end up dominating the channels leading to their customers. Like the long-distance companies, such as Sprint and AT&T, they were also apprehensive that the regional Bells would only grudgingly open up their systems to rivals, and would use the huge cash flows from their regulated "captive" local phone customers to subsidize their new business ventures.
With campaign contributions pouring in from all sides, the Clinton administration finally tilted in favor of Hollywood, the networks, and the newspapers. In part thanks to White House efforts, the final bill was much kinder to the content providers, though virtually all the companies won some outcome important to them, and the Bells and GTE were widely regarded -- perhaps prematurely -- as having come off best of all.
The Clinton administration has recently proposed another bill that appeals to content providers. This legislation would vastly tighten enforcement of copyrights on the Internet as well as over the air, and would sharply cut back traditional "fair use" rights. The bill could also make owners of online systems responsible for copyright abuses by network users. And, of course, for the content producers, but for no one else, the administration was willing to go to the wall -- the Great Wall -- and threaten sanctions on the Chinese if they did not stop pirating that sector's products (videotapes, CDs, etc.).
Standing Firm on the Budget
Within the Democratic Party, the Clinton strategy of winning through intimidation worked very well. With contributions racing far ahead of the president's standing in the polls, potential Democratic challengers first paused and assayed their wallets. Then they thought better of the whole idea.
Unlike Democratic challengers, however, the Republicans were never going to run out of money. What turned the tide toward the White House in the general election was a dual strategy. First the president broad-jumped to the right and endorsed the Republican goal of balancing the budget.
Then, brushing aside the gigantic cuts that his own budget plan entailed after the 1996 election, the president spotlighted areas where his budget priorities clashed with the GOP's: health, education, Medicare and Medicaid, the environment. This sudden willingness to stand "firm" was not motivated purely by moral principle: Reductions in Medicare and Medicaid involve not just patients, but the medical industrial complex, which was willing to fight (and help pay) to defend the programs. Fearful that the White House might fold completely, lobbyists for the National Education Association (whose organizational network probably matters more in presidential campaigns than its money) also warned the White House not to take its support for granted.
The Budget Squeeze
In committing themselves to balancing the budget by 2002, Clinton and the Republicans resemble the characters in children's cartoons who run far out over the edge of the cliff before they suddenly wake up and discover that they are trotting on air. Right after the election, however, the winner is going to have to stop running (in more than one sense) and deliver, or face massive bombardment from the media, financial markets, and any number of (often subsidized) economists. The Federal Reserve Board is also sure to intensify the pressure: In all probability, it will be nudging rates up anyway and will again be superbly positioned to offer the fool's bargain of restraint on rate rises in exchange for "meaningful" budget cuts.
What will the lucky White House winner do? Many optimistic progressives, and not a few pessimistic financial analysts, essentially assume that neither candidate would dare persist with his projected cuts. But in the last few years economic austerity packages unimag-inable a few decades ago have been implemented around the world -- in, for example, Canada, Britain, France, Sweden, and, most recently, Germany.
Signs are everywhere that the American climate may also be right for yet another triumph of the bond market. The publicity afforded Perot's calls for far deeper budget cuts, the budding campaign to privatize Social Security, and the Senate's all-but-unanimous confirmation of Alan Greenspan as chair of the Federal Reserve (Democratic Sen. Daniel Patrick Moynihan of New York even saluted him as a "national treasure") are three of the most obvious. So, I think, are the "indexed bonds" that the Treasury is now planning to issue. These bonds, indexed for inflation, are the debt market's equivalent of a constitutional amendment for a balanced budget: They relieve their holders of all inflation risk by transferring it to taxpayers, who are contractually obliged to make up any loss of purchasing power, no matter how huge. Once issued in substantial amounts, such securities hold future administrations hostage to rapid rises in tax liabilities, straitjacketing both monetary policy and expenditures.
But there are more telling indicators as well. Both the European Community's drive to introduce a common currency and the increasing cooperation among Asian central banks enhance possibilities for long-run substitution out of the dollar. Competition from other currencies will reinforce the Fed's emphasis on controlling inflation rather than ensuring job growth. Not accidentally, the next president is likely to have to make up his mind whether to sign a bill repealing language in the Humphrey-Hawkins amendment to the Federal Reserve Act that requires the Fed to report periodically on its success in combating unemployment. Such a repeal would essentially make price stability the only legal goal of the central bank.
Alas, there is nothing in either the GOP's or Clinton's economic proposals that seriously addresses the question of declining wages. In contrast to 1992, Clinton is hardly even talking about the problem. Dole, as all the world knows, didn't have a clue that the issue even existed as late as the New Hampshire primary. And as increasing numbers of elites are openly saying in the media, the conventional wisdom is that nothing much can really be done about the problem anyway.
This is an inherently unstable set of affairs, made to order for another round of divide-and-conquer after the election, as Congress and the president finally have to deal with the budget. If, as seems increasingly likely amid the turmoil in the Near East, the new tremors in Mexico, and the everlasting Balkan wars, one or more of the White House's many ventures in foreign stabilization ends up as a severe case of imperial overextension, all sorts of political pathologies are likely to flourish. In a money-driven political system that none of the major candidates shows any real interest in reforming, this is a recipe for real disaster.