Perhaps one of the greatest ironies of the recent presidential election is this: It was Bill Clinton who planted the seeds of Hillary’s defeat. Without question, the most consequential action of Bill Clinton’s presidency was his decision to break with the tradition of the Democratic Party and back the Republican push, begun under President Reagan, to win passage of the North American Free Trade Agreement.
For years, the Democrats in Congress had presented a united front in opposition to such agreements. Their opposition was based on “protectionism,” or, in other words, on a desire to protect American jobs and the middle class from the race to the bottom that the neoliberal free trade regime would inevitably create.
Yet while Democrats had previously turned to the heartland for their economic insights, Clinton turned to Wall Street and elite academics as he sought to remake the Democratic Party to be more accommodating to big business and the professional class.
In so doing, Clinton further eroded the power of a union movement that was already reeling from the union-busting policies of the Reagan administration. By allowing American companies to shift production over the border and then import their products back into the U.S. tariff-free, NAFTA began hollowing out communities all across the manufacturing belt, from Pennsylvania to Wisconsin. With capital, but not labor, free to jump borders, the bargaining power of workers collapsed. Wages and the middle class soon followed.
All of this was unsurprising. Indeed, the implications of agreements like NAFTA and the similar deals that followed closely in its wake, are predicted in classical economics. Adam Smith would have viewed political leaders who signed such agreements as utterly reckless. He well understood the need for countries to protect their domestic industries.
Trade, in the classical sense, is meant to create a win-win, where both countries build wealth by expanding markets for excess domestic production. Italy might trade excess olive oil for woolen fabrics from England, for example. Both countries benefitted from the expanding market, without imperiling domestic producers.
Agreements like NAFTA, GATT, and the World Trade Organization aren’t really about trade in the classical sense. They were really intended to open the floodgates for foreign outsourcing, effectively allowing U.S. manufacturers to shift their domestic production across the border, or overseas, to take advantage of cheaper labor costs in less developed nations.
Any economist, or anyone with common sense, would recognize the implications of such policies— namely that anyone whose job was at risk of outsourcing no longer had any leverage over their employer. Unions lost their bargaining power and rather than holding out for higher pay and benefits, most trade unions have been forced to resort to givebacks. This was actually what many supporters of “free trade” wanted to see.
Many companies never even bothered to ask their employees for wage concessions. They just closed factories, sent their workers pink slips, and shifted their jobs elsewhere. An already struggling union movement went into a tailspin.
While Democrats offered lip service about retraining for the jobs of the future, most of these workers never had a chance to find better employment. For most, the economic escalator only pointed down.
The U.S. could have mitigated much of the damage through smarter tax and fiscal policy. While average workers were crushed by these deals, such agreements did enormously pad the profits of U.S. corporations. In the past, profits had opened the door to higher wages for workers. But under the new free outsourcing regime enacted in the 1990s, the wealth shifted increasingly upwards as top executives converted the savings from the shedding of their American workforce into lavish paydays for themselves. For those at the very top, the escalator headed for the stratosphere.
Policymakers in Washington should have foreseen the political earthquake this disparity would inevitably trigger. They could have headed it off by boosting tax rates on high incomes, and using that wealth to invest in education, infrastructure and new innovation, all of which would have provided new opportunity for the middle and working classes. Instead, many Democrats and virtually all Republicans were content to feed off the crumbs tossed their way by an economic elite that increasingly dictated the ways of Washington. They were content to ignore the economic plight and social decay of middle America and focus, instead, on tax cuts for the plutocrats.
For those left behind, the anger had plenty of time to fester, and it was fanned by conspiracy theories and latent racial resentments, that took only a demagogue like Donald Trump to bring to full boil. It’s the same stew that fueled Brexit and is boosting the fortunes of white nationalists all across Europe.
You might think that the political sea change would put the plutocrats on the defensive, but at least with Trump, it was just bait and switch. Look for Trump to tout his handful of Carrier-like interventions for the media attention, while the actual policies that have crushed the middle class kick into overdrive. More tax cuts for the rich. Deregulation for industry. More hostility to unions. And the gutting of what remains of the social safety net. The downward escalator will soon be picking up speed.
And, at least at this point, it doesn’t look like the Democrats will put up much opposition. With Wall Street-friendly Sen. Chuck Schumer and San Francisco’s zombie-like Nancy Pelosi at the helm, it’s bound to be more of the same Clintonesque policies. Indeed, on Face the Nation earlier this month, Pelosi said Americans are perfectly content with her party’s policies, and that Democrats don’t need a new direction. This from a party leader who has presided over one of the most dramatic collapses of a political party—from the local to the federal level—in a century. It’s clear the rot has taken deep hold within key elements of the Democratic Party.
And President Obama didn’t help matters by continuously touting the Trans-Pacific Partnership right up until the election. He kept reminding those who have lost out from free trade that the Democrats had abandoned them.
It’s no surprise that it was the Rust Belt that flipped first. They’ve weathered the worst of NAFTA and its offspring. It was Bill Clinton who sowed those seeds. And it was Hillary who reaped the bitter harvest.