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ARTICLES.^ THE POLITICAL ECONOMY

Wliy MondaleTurned RightTHOMAS FERGUSON AND JOEL ROGERS

with only six weeks left before the election,Walter Mondale's campaign is reeling. Ahostile press portrays him as indecisive, bor-ing and hopelessly tied to corrupt "special

interests." His running mate, in the words of a Republicanwag, is being "devoured by accountants and bishops." Andwhile his advisers thrash about, trying one campaign tacticafter another, Mondale keeps sinking in the polls. As theylook to November, something close to despair grips Demo-cratic Party regulars.

Given Reagan's incumbency, Mondale's road to theWhite House never figured to be smooth. Still, a year or soago. Democratic prospects were by no means as bleak asthey are now. Reagan seemed vulnerable on a host of issues:fairness, war and peace, the environment, civil rights,Lebanon and Central America among them. There was alsoexcited talk of huge voter registration drives, organized bythe Democrats, which promised to recruit millions of anti-Reagan voters to the party. There were, in short, reasons tohope that the Democrats could go on the offensive in 1984,broaden their base and out-democratize Ronald Reagan.

Now that it is clear—barring a miracle reminiscent less ofTruman than of Lazarus—that those hopes are to be brutal-ly dashed, it is time to ask how the present catastrophe oc-curred. Why is Mondale mounting such a feeble and dispir-ited campaign? Why, after some hopeful signs at the SanFrancisco convention, did the Democrats de-emphasize theissues of jobs, inequality and nuclear war, and choose thesuicidal strategy of campaigning on a lowered deficit, in-creased taxes and still higher military spending? And why,once it became obvious the strategy was not working, didWalter Mondale continue to pursue it?

To many journalists and pollsters, the answers to thosequestions are obvious. Mondale is doing so poorly, they say,because Reagan is doing so well, and Reagan does well be-cause he is the Great Communicator, an electoral MusicMan, who instinctively inspires trust and defuses hostility in

Thomas Ferguson is associate professor of government atthe University of Texas, Austin. Joel Rogers is assistant pro-fessor of political science at Rutgers University. They arewriting Right Turn: The 1984 Election and the Future ofAmerican Politics, to be published next year by Hill &

, Wang. Their column, "The Political Economy, " appearsregularly in The Nation. Research for this column was as-sisted by the Project for Investigative Reporting on Moneyand Politics.

the masses. Other analysts go further. Reagan, they suggest,has a remarkable talent for unlocking the repressed psycheof the American working class. Because workers identifydeeply with religion, militarism and Olympic gymnasts, theyidentify as well with the President's appeal to these funda-mental expressions of national character. No matter howoften he hurts them or treats them like children, workerscannot break with Ronald Reagan because that would re-quire their breaking with themselves.

The Reagan camp has done everything to encourage suchroseate views. In the last few months the President has ap-peared at more religious shrines than the Virgin Mary andhas provided breakfast for more Olympic champions thanWheaties. He has wrapped his campaign in the flag andscored it with country music. And as he closes in onGeneralissimo Francisco Franco's world record for thegreatest number of indirect endorsements by Catholicbishops, Reagan is clearly making headway among thoseAmericans who believe we must suffer in this world if we areto party in the next.

But most workers do not believe such things, and even ifthey did, no Republican siren of the working class wouldneed to be evoked to explain a sweeping Reagan victoryin November. Let us suppose that voter turnout rises slightlyfrom its dismal 1980 level: say, to 55 percent of the eligibleelectorate from 52.7 percent. Assume, too, (hat Reaganbeats Mondale by a landslide: say, by taking 58 percentof the two-party vote. Given the infamous class skew ofAmerican electoral participation—the fact that the 45 per-cent of the eligible electorate not participating is sure to bepredominantly poor and working class—such a victory

314 The Nation. October 6, 1984

would prove little about Reagan's appeal to less affluentvoters. Within the increasingly hourglass shape of Americanincome distribution (more unequal now than at any timesince World War II), Reagan could achieve it with close tothree-quarters of his support coming from rich and upper-middl^-class voters. Their reasons for voting for his re-election are obvious. Whether or not they approve ofReagan's stand on abortion and the Equal Rights Amend-ment, millions of affluent men and women have profitedenormously from his first Administration and wish to profitfrom a second.

But there is more to the story. Most—though, as will benoted below, by no neans all—of the American businesscommunity is also massing behind Reagan. Grateful forhis gigantic cuts in taxes and social spending, huge increasesin military outlays, sustained attacks on labor and gutting ofenvironmental law, business is filling G.O.P. coffers at arecord pace. Money talks, and while it is considered rude tosuggest that American political culture is for sale, simul-taneous prime-time half-hour advertisements on the threemajor networks, such as the ones the Republicans have run,strain the limits of politesse.

While the G.O.P. gushes television spots, the press isworking overtime for the President. Only Balzac could dojustice to its efforts this year. Except for a few grimaces athis blowing-up-the-Russians joke and a flurry of editorialson his proposed merging of church and state, the press hasbeen very kind to Ronald Reagan. While it labels Mondalethe candidate of special interests and baits Ferraro about herfamily finances, it remains austerely silent on the G.O.P.'sCroesean war chest and declines comment on the phalanx ofbusiness figures marching behind the President. In editorialcolumns, James Reston and others chide Mondale for his(rare) invocations of class differences between the parties.In its news "analysis," The New York Times quotes atlength from American Enterprise Institute representativeson the dangers attending any Democratic move to the left.

Meanwhile, the Reagan campaign takes full advantage ofthe powers of incumbency. Hurting in the Farm Belt, the Presi-dent announces vast grain sales to the Soviet Union. Vulner-able on the unemployment issue, he engineers a politicalbusiness cycle so great that by itself it practically guarantees hisre-election. The press that detailed Jimmy Carter's pork-barrelcampaigning in 1980 passes over these political maneuvers.

But if no occult force or new psychoanalytic principle isneeded to explain Reagan's electoral strength, one still needsto account for Mondale's lemminglike campaign.

A complete explanation would require a medium-sizebook. One would have to examine what various businessleaders, economists and the mass media have and have notbeen saying about the deficit and its relation to interest<|ndexchange rates, taxes and government spending. One wouldalso have to analyze how disputes in the business communi-ty over trade, military spending, monetary policy and rela-tions with Europe and Latin America have alternately at-tracted or repelled different blocs of business to or from theDemocrats since Reagan took office.

Nevertheless, the biggest pieces of the puzzle are in

place, and they can be offered for inspection.By Election Day 1980, Ronald Reagan had almost wall-to-

wall backing from the American business community. Butsome longtime Democratic Party stalwarts withheld sup-port. Their ranks included many former Democratic Ad-ministration figures with strong ties to multinationalbusiness, real estate magnates for whom the phrase "public-private partnership" has a unique meaning, investmentbankers concerned that too large a military buildup wouldmean higher deficits (and thus, perhaps, inflation) and afew other specially situated business figures.

After the election, these dissenters began searching for analternative to Reaganism. They subsidized new Democraticthink tanks, such as the Center for National Policy; activistassociations, such as Democrats for the 8O's; and more in-formal policy discussion groups. Helped along with theirfunds, older Democratically oriented think tanks, such asthe Brookings Institution, reorganized and took on newstaff (often moving rightward in the process). Led in publicby new Democratic National Committee chair CharlesManatt, a California banker and attorney. Democratic busi-ness elites also opened discussions with the leaders of or-ganized laboi Coming ̂ t a time when much of big businesswas abandouiiig its longstanding policy of co-opting laborin favor of a policy of outright attack, their initiativepresented union officisils with a rare chance to conduct busi-ness the old-fashioned way, and the A.F.L.-C.l.O. leader-ship jumped at the opportunity.

The ensuing discussions brought few surprises. Virtuallyall the Democratic business leaders favored further increasesin the military budget, though at a lower rate than Reaganwas proposing, and free trade. While most leaders of or-ganized labor were enthusiastic about increasing militaryspending, the trade question was divisive. Under attack byReagan and deluged by a tidal wave of imports, the laborchiefs—along with a few businessmen, such as Chrysler'sLee Iacocca, clearly attracted to the idea of government bail-outs—wanted the government to play a more active role inshoring up basic industry through protectionist measuresand targeted investment. Deep into the Reagan recession, afairly obvious compromise emerged. The business Demo-crats accepted a plan calling for a small fund for industryassistance and a weak coordinating board for investment. Inthe fine print, where all hoped it would stay, they also ac-cepted protection for a few industries with large unions.Labor leaders, in turn, tiptoed away from their earlier prac-tice of staging noisy Solidarity Day demonstrations attack-ing big business and demanding full employment.

Almost everyone expected either Mondale or EdwardKennedy to carry the banner for this modest industrialpolicy in the 1984 campaign. But by the time Kennedy with-drew and Mondale stepped forward, worsening trade prob-lems, the turnaround in the domestic economy and theReagan Administration's spectacular success in debilitatinglabor had wrecked the basis of the accord.

With the economy recovering, many businesses lost in-terest in industrial policy altogether. Coincidentally, soaringU.S. interest rates had raised the dollar's value abroad and

October 6, 1984 The Nation. 315

drastically swelled the volume of U.S. imports. In uncom-petitive business sectors, this sharpened corporate demandsfor trade protection and, to force exchange rates down,easier money. In competitive sectors, however, it raised thecosts of the limited trade protection Democratic businessleaders were advocating.

The budget deficit, expected to mount dramatically over< the next several years, also spread general alarm. Although

%some powerful businesses—notably, weapons producers,for whom the deficit appears as an entry in the sales column,and labor-intensive manufacturers, who hoped to drivedown wages by completely removing the social safety net—stood to gain by postponing action on the deficit until afterthe 1984 election, not everyone could afford to wait. Partic-ular concern emanated from investment banking and insur-ance companies, whose prosperity depends on investor con-fidence in long-term bonds. Permanently growing deficitserode such confidence, because investors fear that the gov-ernment will accede to pressures to pay off the debt, with in-flationary consequences, by merely printing money.

Not surprisingly, leading investment bankers were soonoverrepresented among the ranks of major contributors toDemocratic organizations. Federal Election Commissionrecords show that groups like Democrats for the 8O's re-ceived substantial funds from partners and other executivesat such houses as Lehman Brothers Kuhn Loeb; Goldman,Sachs; Brown Brothers Harriman; Lazard Freres andPrudential-Bache. (Indeed, executives from Prudential haveput so much money into Democratic organizations in thepast couple years that the Democrats might consider chang-ing their symbol from the donkey to the Rock of Gibraltar.)

At the same time, the position of organized labor and thepoor was becoming increasingly desperate. In America'shighly decentralized business community, this naturally ledmany Democratic business elites to conclude that industrialpolicy concessions to labor were unnecessary and ought tobe bypassed. In the primaries, accordingly, John Glenn andlater, with much greater success, Gary Hart, launched cam-paigns to do just that, and .\mericans were treated to thesight of Democrats running openly against labor and, a bitmore equivocally, against the poor. As the campaign woreon, Mondale himself turned more conservative on labor andsocial issues. But with Glenn, Hart and Mondale all advo-cating increases in the military budget and cuts in domesticspending, an opportunity opened on the left for a candidacy

•̂ that offered fewer guns and more butter. Assisted by contri-butions from people—such as former U.S. Ambassador toSaudi Arabia James Akins—who have, perhaps, not alwayschampioned the cause of the domestic poor and oppressed,this was one of the several spaces Jesse Jackson's campaignsometimes sought to fill.

In the end, of course, the new Democratic Party rulesdesigned to advantage early front-runners worked as theywere supposed to. Walter Mondale, the candidate originallyfavored by the A.F.L.-C.I.O. and most Democratic busi-ness elites, squeaked through to gain the nomination. Butthe price was high. Almost every group in the party came torecognize how violently its interests clashed with those of the

others. More immediately, a virtual first mortgage on theMondale candidacy was taken out by investment bankers,insurance company executives and other business elites forwhom a cut in the deficit and further increases in militaryspending constitute the preferred political program.

These essentially conservative groups now make up theelite core of the Mondale campaign. Their interests explainMondale's rightward drift on social policy and his obsessiveconcern with cutting the deficit. They, along with their alliesamong Democratic multinationalists, the cold warriorsof the Coalition for a Democratic Majority and theA.F.L.-C.I.O. leadership, are responsible for his "centrist"views on military spending. Joined daily by recruits from theright, such as James Schlesinger—yet another consultant toan investment house (Shearson Lehman/American Ex-press), a man whose views on military power differ onlyslightly from those of Ronald Reagan, whom he aided in1976 against Gerald Ford—they are the reason why votersare increasingly faced not with a choice but only with an-other echo in the 1984 election. •

^ LESSONS OF THE MEXICAN BAILOUT

Rescue MissionsImpossiblePENNY LERNOUX

Bogotd, Colombia~~W ^ ver since a rescue effort led by the International

• J ' Monetary Fund and the Federal Reserve SystemW] j saved Mexico, and the West's banking system,

_ M ^ f r o m financial collapse in 1982, U.S. bankers haveinsisted that "crisis management" can cope with the ThirdWorld's $768 billion foreign debt. The Mexican bailout isfrequently cited by bankers as an example of how quickfixes can help a developing country recover its economicequilibrium.

Actually, Mexico remains in serious straits, with ah on-going recession, unprecedented unemployment and an in-come distribution that the World Bank claims is worse thanEl Salvador's. Nor is there any guarantee that Mexico willpay back the loans from U.S. banks. As for the Mexicanrescue operation itself, it underscores the need to find long-term solutions to the debt problems that cripple so manyThird World nations.

Contrary to the bankers' self-congratulatory claims, thebailout was plagued by misunderstandings, personality con-flicts and stupidity in Washington, which nearly ruined thegame. The heretofore undisclosed background to the Mexi-can bailout has been laid out in revealing detail by columnistJoseph Kraft in The Mexican Rescue, a pamphlet publishedby the New York City-based Group of Thirty, which is con-cerned with international economic and monetary affairs.

Penny Lernoux is The Nation's Latin America correspond-ent. Her latest book is In Banks We Trust (Doubleday).