Populism Returning: “Focus on Distribution with Higher Taxes”

As the Democratic Party secured control of the U.S. Congress in the November 7 mid-term election, the framework of the party’s economic policy is changing from Rubinomics to populism.

The core of Rubinomics, named after Robert Rubin, the co-chairman of Citigroup and former treasury secretary during the Clinton years, is to expand market liberalism and actively support freer trade in the economy.

However, the New York Times, the Wall Street Journal, and the Economist now report in series that populism is gaining force in which stronger government intervention and a freer trade policy need to be re-considered within the Democratic Party after the mid-term election.

Democratic Party Returning to the Past –

Even before the launch of the Clinton administration, the basic party line of the Democratic Party had traditionally been “pro-labor unions and anti-business,” but after its inauguration, this formula became invalid.

With Mr. Rubin, the former chairman of Goldman Sachs, appointed as the treasury secretary, President Clinton carried out somewhat different policies from the previous years’. They included a complete revision of the reckless welfare policy, signing of the North American Free Trade Agreement (NAFTA), and reduction of fiscal deficit. Much opposition came from labor unions as well as Democratic Party convention supporters, but Rubinomics has served as the driving force of the long-term economic boom with a high growth rate and a low unemployment rate since the 1990s.

However after the off-year election, the Democratic Party has started another force gaining momentum. In the article titled, “Class Strife” recently published in the Wall Street Journal, Senator-elect Jim Webb (of Virginia) strongly criticized corporate managers’ huge annual salaries, saying, “The income gap between the haves and the have-nots is increasing, turning American society into a ‘class society.’”

Congressman Charles Rangel, the incoming chairman of the House Ways and Means Committee, is raising his voice whenever possible, saying, “Benefits of economic growth have to be equally distributed to general workers.”

Rubinomics does not disregard the poor class, but supporters of Rubinomics prefer measures through the social security net. By contrast, populists demand stronger government regulations such as higher taxes for the high income earners and higher minimum wages to resolve the wealth disparities.

Background and Influence of “Changes in the Framework” -

The overall mood in the Democratic Party changed because while the U.S. economy enjoyed a long-term boom, the income distribution structure, in fact, greatly worsened. The real income of the top one percent of the income earners from 1990 to 2004 soared by 57 percent. However the real income of the mid and-lower income class, or the remaining 90 percent, merely increased by two percent.

Another reason why populists voice their opinions is that the full support of labor unions in the mid-term election helped the Democratic Party’s landslide victory. The American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), the largest labor union organization within the U.S., contributed to the landslide victory of the Democratic Party by leading a massive vote encouragement campaign in battlegrounds such as Ohio. As such, the voice of labor unions could not be disregarded by the Democratic Party.

True populists gained power within the Democratic Party, but there remain some limits to influencing major economic policies in the U.S. Being a major party, its share is not an absolute majority, so legislating a bill is not easy without cooperation with the Republican Party. The president can even exercise a veto on the bill passed by the Congress.

Therefore, most analysts say that the biggest target in populism would have to be a trade policy. In fact, Congress hinted its opposition toward freer trade by suspending the legislation of Vietnam-related trade bills. In addition, the leadership of the Democratic Party requested the administration to re-negotiate an FTA with Peru and Columbia which was already agreed upon in the government level. These protectionist trade policies clearly reflected the voice of the AFL-CIO.

What Happens to a Korea-U.S. FTA? –

In conclusion, it’s not a rosy picture. The AFL-CIO, which gained a larger share in the Democratic Party thanks to the election results, has already waged an anti-FTA protest during the third Korea-U.S. FTA negotiations held in Seattle along with Korean labor organizations. Against this backdrop, even if government-level negotiations are settled earlier as expected for a Korea-U.S. FTA, many obstacles need to be cleared to have it ratified it in the Congress.

kong@donga.com