Decisive Moments

Some predict Clinton will return to his liberal roots. But everything about the past four years -- from Wall Street's blessing to the election returns -- reinforces his conservative turn. Here's a preview of battles to come.

Bill Clinton was once a populist who appealed to voters by promising to protect them from a rapidly advancing global economy. He talked about investing heavily in education and training, so that more middle-class Americans could get decent-paying jobs. He promised to make the rules of international trade fair, so that labor exploitation in foreign nations wouldn't undermine the well-being of U.S. workers. And he vowed to shore up pensions and health security to ease the burden on families trying to cope with a job market in constant flux. Recession, Clinton said, was just a temporary symptom of a larger problem -- the long-term trend toward economic insecurity for most Americans.

Yet a funny thing happened on the way to the White House. For many reasons, including bond market pressure to balance the budget and corporate pressure to pursue a business-friendly growth strategy, Clinton lost faith in his own plans for renewal. By the summer of 1996, the grandest promise Clinton could muster was an education tax credit -- a worthy measure, for sure, but nothing that inspired the political imagination like his 1992 platform of "putting people first."

Some speculate that having won a second term, Clinton will return to his liberal roots. But everything about the past four years -- from Wall Street's blessing to the Election Day returns -- has validated Clinton's most conservative impulses. On the one hand, you can't argue with success: The economy appears robust, living standards are up, and Clinton handily won his second term. On the other hand, if the growth in wages is just part of the economic cycle -- as outgoing Secretary of Labor Robert Reich and others suspect it may be -- Americans have reason to worry, since the underlying forces dragging down the country's living standards would still be at work. At this point, says Reich, "it's hard to tell whether [the upswing is] a consequence of the expansion or a structural change."In the coming months, Clinton will again be faced with debates about global trade and whether to invest in worker education and retraining. The president will have to make a choice: whether to "put people first" -- get tough in looming trade talks with China and Chile, while making the kind of public investments he promised Americans four years ago -- or stay the course he set once he was comfortably ensconced in the White House. Here's what's at stake:

Tricks of Trade

While trade pretty much vanished from the public's radar screen after the passage of the North American Free Trade Agreement in 1993, the issue has remained high on the administration's foreign policy and economic agenda. Without great fanfare (at least outside the business and labor communities), Clinton is positioning the United States as the cornerstone of three vast new international trading zones -- one each spanning the Pacific, the Americas, and the Atlantic. A State Department official calls the plan "one of the biggest legacies of the first term," which may actually border on understatement.

Chile, which is seeking inclusion in NAFTA, will probably produce an early skirmish in Clinton's second term. Some labor leaders see Chile as an opportunity to reopen the debate on NAFTA and free trade generally. A major concern about free trade is not so much job loss to countries with cheaper labor, but a fundamental shift in the balance between capital and labor. The mere threat of moving operations overseas has diminished the ability of workers in this country to bargain with employers for higher wages and benefits. "It used to be that [moving a plant overseas] was just one of several items mentioned during contract negotiations," says Mark Anderson, a trade expert at the AFL-CIO. "Now it's right at the top of the list -- the first thing companies bring up when it's time to go over a new contract."

To its credit, the Clinton administration has done more to make labor rights an integral part of trade agreements than any administration before it. George Bush's original NAFTA terms included no provisions for labor standards whatsoever; Clinton insisted that Mexico and Canada ratify side agreements that, while not all that effective, at least set a precedent for future agreements. "We felt that the side agreements gave us the right to discuss these issues with Mexico," says Laura D'Andrea Tyson, outgoing head of Clinton's National Economic Council. "Our view was that it was a real accomplishment."

But opposition to the side agreements from powerful interests -- chief among them the multinational corporations that profit the most from lax free trade policies -- means progress on labor standards is inherently slower and less sweeping than progress on opening new markets. "The administration is much more dedicated to getting trade agreements than labor standards," according to one Labor Department official.

Hitting China's Great Trade Wall

China represents the quintessential challenge of the global economy: a hostile trading partner determined to expand its economy by limiting access to its own market, undercutting Western labor standards (e.g., turning a blind eye to child and prison labor), and building up massive trade surpluses with the United States. How will the Clinton administration react? Will it insist on fair terms for trade and adherence to global labor standards? Or will it bow to the pressure of the U.S. multinationals that do business in China?

Thus far, the administration's relaxed trade posture has allowed nominally American corporations to exploit China's cheap labor to make large profits. Although the Clinton administration raised a fuss about the piracy of American software and music in China, the United States has backed off confronting the Chinese, in part out of national security concerns. (An economically stable China, the argument goes, is a nonaggressive China; of course, that proposition overlooks the strategic value of economic power.)

But that could change. China policy -- especially the perennial issue of whether to renew China's most favored nation (MFN) status and thus retain the flow of Chinese-made goods into the lucrative U.S. market -- has become a rallying point for human rights advocates, unreconstructed Cold Warriors, environmentalists, and, more recently, the labor movement. These groups would like to make MFN renewal conditional on China's progress on political liberty, toxic waste, and workers' rights. Of course, the U.S. multinationals that have operations in China and sell products there strongly oppose such measures, and they've added a new twist: The companies -- and the Chinese government -- are pushing to make China's MFN status permanent, ridding themselves of this contentious issue once and for all.

While the debate over China's MFN status will probably grab most of the trade headlines, China's requested admission into the World Trade Organization, the still-fledgling organization through which international rules of commerce are set, may be a more significant issue. The question here is not whether China should be allowed to join but under what status. China would like to be treated as a "developing nation" -- this would allow it to continue limiting access to its market and let it skirt international labor standards. The Clinton administration has indicated it will support China's WTO bid, although it remains to be seen how generous the terms will be -- and therein lies the great litmus test.

Greg Mastel, vice president of the Washington, D.C.-based Economic Strategy Institute, a centrist trade policy organization, says he is optimistic about the possibility of an outcome that is more favorable to U.S. workers, but notes that so far "the debate has been dominated by the companies that have business in China."

Putting People First

Clinton has claimed that helping American citizens cope with the forces transforming the global economy would be the defining mission of his presidency, and his advisers agree that it will be the focus of his second term. Citing the proposals unveiled on the 1996 campaign trail, Bruce Reed, assistant to the president for policy planning, predicts a flurry of small, targeted legislative proposals this year, designed to encourage the education and training of workers while shoring up pensions and other work benefits.

"All of this will help," says Robert Reich, but he adds that they're going to have to find more money. Nor will education alone be enough. "Fifty percent of the solution lies in substantial improvements in education and training for the bottom half of our workforce, including major improvements in preschool and childcare," Reich says. "The other half has to do with stronger unions, a higher minimum wage and Earned Income Tax Credit, plus a reknitting of the social compact between management and labor."

Reich sang this populist tune throughout the first term, but he was stymied by others in the administration, especially Treasury Secretary (and former investment banker) Robert Rubin, who has been the most influential administration adviser on economic policy. Rubin and his allies think programs like Reich's would be too expensive, and higher deficits might lead the Federal Reserve to increase interest rates. Rubin also worries about antagonizing business leaders, whose cooperation he believes essential for continued economic growth.

To Rubin's credit, the Federal Reserve has kept interest rates low and U.S.-based corporations are doing quite well, just as he predicted. Moreover, data from 1994 and 1995 show that the decade-long decline in median family income has stopped. Laura D'Andrea Tyson says the nation may finally have "turned the corner," pointing to increases in hourly compensation. Although Tyson is the first to concede that there's a long way to go before recovering all the ground lost since the 1970s, she also argues that the economy is generating the kind of well-paying, secure jobs that Clinton talked about in 1992.

However, the job creation data are questionable, and in late 1996 some disappointing economic statistics suggested that the recent good news about living standards may be just a fleeting respite. Raising the minimum wage -- as Clinton did -- will help, but widespread economic anxiety could easily return, strengthening the case for bolder action.

The Gore Factor

There is, of course, one big mystery factor when it comes to the politics of Clinton's second term -- the role of Vice President Al Gore, who on the day after the 1996 election began his own unofficial campaign for the nomination in 2000.

Gore's politics don't differ much from Clinton's. He is a fiscal conservative whose influence played a key role in all of the major flash points of the first term: balancing the budget, NAFTA, and welfare reform. He also maintains close ties to the Democratic Leadership Council (DLC), the organization of conservative Democrats that has pushed Clinton to the center. But in order to seek the Democratic presidential nomination, Gore will also need support from the labor movement -- support he'll have to win away from his rival, House Minority Leader Richard Gephardt.

The plot began to play out last summer: Gore, despite his connection to the DLC, bent over backward to court labor leaders with special meetings at the Democratic National Convention in Chicago.

While organized labor didn't deliver a Democratic Congress on Election Day, labor did play a role in Clinton's easy win -- which is why it may still pry some favors from the White House in Clinton's second term.

Yet this is modest consolation, at best. Lobbies for industry and professional groups still outspend and outinfluence the unions. On balance, Reich says, "the political process is not feeling the pressure, and if it's not feeling the pressure, nothing is going to happen."

Jonathan Cohn is the executive editor of The American Prospect magazine.