Global Middle Class Initiative: Latest Articles

Democratizing Capital

Ron Tang — Thu, 20 Mar 2008 05:53:00 -0400

Below is a longer version of the article published in The Nation. For the version appearing in The Nation, please click here.

Historical analogies are never exact. Yet many of the choices we have before us today are similar to ones that an earlier generation of progressives faced as the 1932 election approached. As we do today, the progressives of the 20th century confronted a society beset by a huge gap between classes and an economy laid flat by the bursting of the speculative excesses of the previous decade. To be sure, our economy is nowhere near Depression levels of collapse. But the choices New Deal progressives eventually made over the course of their generation is worth revisiting because they provide us some sound first principles about the way to think about the economy and government today. Indeed, many of these principles are even more appropriate for today’s world.

A High-Wage Economy with a Broad Base of Middle Class Jobs

The first lesson to be learned from this earlier era is that a large middle class rests first and foremost on a productive economy that produces a broad base of jobs that pay middle-class wages. The New Dealers of the 20th century were not opposed to “rigging” the labor and financial markets to achieve this result, as evidenced by the measures they championed to protect working people and to make the financial markets work for them and their communities. In this regard, New Deal progressives believed, that the economy should exist to serve society, not the other way around, and that the government had a duty to shape the economy to meet society’s middle class aspirations. A high-wage, middle class society in turn would be good for the economy: living wages would not only ensure adequate demand for the economy, but in so doing spur new investment and productivity growth, creating an ever larger virtuous circle of rising living standards.

The belief of New Deal progressives in an economy that could create good middle class jobs stemmed in part from their sensitivity to the downside of a large social welfare state. Although Franklin Roosevelt and other progressives who followed him saw the need for universal social insurance programs, they did not like government handouts because they understood that Americans don’t want a welfare check, even if it comes in the forms of tax credits, or to be dependent on the government for their basic livelihood. They want to be middle class with a home, a good education, a good job, and money in the bank. The leading New Deal politicians and thinkers therefore resisted social welfare subsidies to individuals on the grounds that this created an unhealthy dependence on the state.

Moreover, even though they favored progressive taxation with top tax rates as high as 90 percent, New Dealers were skeptical of a society dependent upon the permanent redistribution of income. The New Deal was thus less about the redistribution of income and more about the redistribution of the capacity for economic growth and wealth creation. The principal goal of many New Deal programs was not to relieve the conditions of poverty -- although they did often do so -- but to build physical and human capital that would allow people to escape permanently from poverty.

Thus, over time they created a more equal society by emphasizing government programs that expanded education, spread property ownership, invested in America’s common physical and knowledge capital, and seeded the industries of the future that would create more middle class jobs. The New Deal thus sought to shape a high-growth, high-wage, and low subsidy society. It was not perfect in large part because it preceded the civil rights revolution and thus left out millions of African-Americans. But it did build the largest and most secure middle class America has ever known.

Today, we see the consequences of a much different way of thinking about the economy and society. Over the last two decades, we have been told, in effect, that globalization is an immutable force and that domestic society must bend to its demands, not vice versa. The best strategy, therefore, was not to shape globalization and technological change to work for our middle class ideals but to embrace the agenda of free trade, financial deregulation, and less progressive taxation that globalization required in order to maximize wealth and then to compensate the losers. But as it turned out, no amount of new social welfare measures could compensate for the loss of millions of good paying manufacturing jobs and no amount of education could make up for the fact that 7 out of 10 of the fastest growing job categories involve low-skill jobs that pay below the median wage. Thus, without any real debate, America’s political elites have chosen for us a highly stratified, low-wage society with great costs to our middle class way of life and to our productive economy.

Using Public Investment to Lay the Foundation of a Middle Class Economy

If the first principle calls for a high-wage economy with a broad base of middle class jobs, then the second principle relates to how to achieve a high-wage economy and at the same time more widely distribute the capital and skills for wealth creation. Many policies and programs went into creating the New Deal high-wage economy from supportive labor laws to full-employment policies. But the principal policy tool this earlier generation used was massive public investment and public building. The public investment programs they pursued not only created many new middle class jobs but laid the foundation for a more productive economy, which in turn produced even more good middle class jobs. Programs like the Tennessee Valley Authority in the 1930s and 40s were followed by even more extensive public investment programs in the post-war years. From 1950 to 1970, the government spent more than 3 percent of GDP on public infrastructure alone. It built everything from public highways to public schools, to public power systems and public parks. It spent nearly an equal sum on other public investment -- on education, training, and research and development, including major government research projects that led to the space age and the computer revolution.

Throughout the New Deal era, public investment was America’s way of industrial policy. It helped build our modern agriculture sector, our aerospace industry, and gave us our initial advantage over other countries in the computer and internet age. It was understood that public investment paid for itself many times over. The investment in the GI Bill alone generated returns of up to seven dollars for every dollar invested. And because it generated returns to the economy and society, New Dealers in the post-war period were not afraid to raise taxes or to borrow if needed in order to ensure adequate levels of public investment. And borrow they did even though the national debt was a much larger percentage of GDP than it is now.

Over the past two decades, however, we have made a much different choice. As concerns over the budget deficit have grown, and as tax-cutting mania has taken hold, we have cut back spending on public investment. Since 1980, we have devoted less then 2 percent of GDP on public infrastructure, and have allowed federal spending on basic research and development to decline as a percentage of GDP as well. As a result, a backlog of pubic investment spending needs -- clogged roads and ports, collapsing bridges and levies, uneven broadband access, an antiquated air traffic system, an undersized energy infrastructure -- has begun to cut into our economic growth and undermine our efficiency.

Decentralize Power and Capital

A third principle of middle-class America that the New Deal offers us relates to the dangers of the concentration of power and capital. Earlier progressive reformers distrusted great concentrations of wealth and power. Not only did such concentrations threaten democracy but they also warped the economy and distorted consumption and investment. Government therefore must be a strong countervailing force to big business and oligarchic power, and government itself must be organized in a way that it could not be captured by one economic group at the expense of another or the general public.

The New Dealers were particularly concerned about the power of Wall Street and the financial community. They feared a national credit system that was dependent on Wall Street bankers, whose interests were not always aligned with the real economy needs of homeowners, farmers, and small and medium-size producers. They therefore sought to democratize capital by creating a myriad of credit institutions that would ensure that all regions and sectors of the economy had access to capital. They created a variety of federally subsidized credit programs to enable individuals to construct homes and start new businesses and to allow states and municipalities to build schools and to modernize their infrastructure. It was here that the New Deal was most creative -- combining a strong federal state with the local and regional decentralization of capital and the local and regional control of these programs and institutions.

As with other first principles of a middle-class America, we have seen a reversal of American priorities over the last two decades, as America’s big financial institutions have again asserted their influence over the economy and economic policy. The new power of Wall Street has been evident in its successful push for financial liberalization and de-regulation, in the emphasis accorded the budget deficit and concerns about inflation as opposed to full employment, and until recently in Washington’s preference for a strong dollar, which favors financiers over real producers. This triumph of Wall Street over Main Street has been responsible in part for the hollowing out of America’s tradable good sector and for the asset bubbles that have wreaked havoc with the economy. Indeed, one of the first things the New Deal would have us do is to re-regulate the financial system and to put the interests of the productive economy over that of Wall Street.

In all these respects, whether it be high wages, public investment, or the de-centralization of financial power, the New Deal succeeded because it changed the way the economy worked, and it did so by marrying progressive reforms with Americans’ preference for independence whether from government subsidy or big business paternalism. And this is and should be the real enduring lesson of the New Deal.

Undebated Challenges

Cecille Isidro — Mon, 19 Nov 2007 16:35:00 -0500

The most damaging part of the Bush foreign policy legacy is not the precipitous decline in American power and influence brought about by the disastrous Iraq occupation. It is the way the Administration’s "war on terror" and its neoimperial project in the Middle East have distorted our vision of the world.

They magnify out of all proportion what should at worst be minor threats to our national security and ignore much larger developments, such as the extraordinary economic rise of China and India, which are having a much more profound effect on the American way of life.

Just how distorted our vision of the world has become has been on constant display during the primary campaign leading up to the 2008 elections. The major candidates from both parties have followed a foreign policy narrative dominated by Iraq, Iran and Islamic extremism. Promising to see the Iraq War through to a successful conclusion, the Republicans want to extend Bush’s policies into a generational war against Islamic extremism, which they see as a new totalitarian threat. Democratic candidates have committed themselves to getting out of Iraq -- or at least vastly reducing America’s presence there -- and to fighting a smarter war against terrorism while restoring America’s global leadership. But they, too, seem intent on proving their toughness, even to the point of pursuing many of the same goals that led to the loss of America’s standing in the first place.

Neither party seems ready to deal with a radically changed world that in many ways moved on as we got sucked ever more deeply into Bush’s Iraq catastrophe. In this sense, the 2008 elections pose a larger challenge: to advance American goals and interests in this new world, it will not be enough merely to repudiate the worst features of Bush’s militarism. It will be necessary to rethink American priorities and the very meaning of what American foreign policy is about.

The Republican Narrative

It is clear that this rethinking will not come from the leading Republican candidates. The GOP narrative of a long war against Islamic extremism is purposely backward-looking, modeled on the earlier struggle against Soviet Communism during the cold war. Yet as Juan Cole suggests, the idea that Islamic extremism poses a threat commensurate with Soviet Communism is patently absurd. Six years after 9/11, it is clear that Al Qaeda does not have the organizational capacity or resources to pose a systematic danger to American lives or interests, and that common-sense counterterrorist measures -- better intelligence, more effective border control and internationally coordinated police work -- can dramatically reduce the risk of terrorist attack. It is also clear that Al Qaeda does not have the popular appeal in Muslim societies to constitute a threat to any significant government, despite the boost that Bush Administration policies may have given to Al Qaeda recruitment.

When leading Republican candidates talk about the Islamic threat, they do not just mean Al Qaeda. They also mean religious-based popular movements like Hezbollah as well as the clerical leadership of Iran. But it is here that the Republican narrative turns from the absurd to the tragic, greatly expanding the number of America’s enemies and ignoring the fact that Iran and its Shiite allies are bitterly opposed to Al Qaeda and could be useful partners in the fight to eliminate extremism. Whether Republicans conflate the two out of ignorance or because they believe that Islamic radicalism of any stripe poses a threat to US interests, or merely because they want to play on the public’s fears, it makes for bad policy, as the Bush Administration’s failed Middle East strategy demonstrates.

Like know-nothing nineteenth-century imperialists, the leading Republican candidates warn that Islamic radicals want to push the United States out of the Middle East. They have forgotten that in the twenty-first century a military presence abroad is no longer a reliable way to secure a great power’s interests and may only create the very threat it seeks to avoid. It is not a coincidence that the greatest amount of Islamic terrorism stems from resistance to foreign military occupation or that the governments that feel most vulnerable to Islamic jihadism are those that have had a close association with the United States, or on whose soil the United States has left the heaviest footprint. Indeed, the tragedy of the Republican position is that it would suck us even more deeply into a "clash of civilizations" with a fringe Islamic movement while isolating us from other parts of the world that are just as or more important to American interests.

The Democratic Narrative

The leading Democratic candidates understand many of the shortcomings of the Bush Administration’s approach to the world. They understand, for example, that America’s moral standing has been gravely damaged by Abu Ghraib, Guantánamo and by the Administration’s disregard for international law, as Oona Hathaway points out. Yet in many key respects they are trapped in the same post-9/11 view of the world.

The Democratic candidates say they want to fight a smarter war against terrorism, but in the end they are adopting policies that seem more designed to prove their toughness than prevent terrorist attacks. This is evident, as

William Hartung notes, in their calls for increasing the size of US ground forces and for retaining a military presence in Iraq and neighboring Arab countries, as well as in Afghanistan. Such a visible US presence would serve no useful military mission, but it would give Al Qaeda an ongoing cause to keep its movement alive.

The Democratic commitment to restoring America’s global leadership also raises questions. For one thing, it will be difficult to reclaim moral leadership as long as America is bogged down in increasingly unpopular counterinsurgency wars in Iraq and Afghanistan. For even the most enlightened counterinsurgency warfare will inevitably entail civilian casualties, which engender nationalist resistance.

This is not to mention the financial cost of ongoing wars in Iraq and Afghanistan (estimated to be well more than $1 trillion over the next decade), which would foreclose other foreign policy initiatives as well as new social investments at home.

As important, the Democrats seem to assume that the world so wants and needs American leadership that it is there for the taking. But as Anatol Lieven suggests, the overarching question facing American foreign policy is not how to restore leadership but how to adjust to an increasingly multipolar world that may be less open to any one power’s primacy.

Russia, China, India, South Korea, a host of South American countries and even the pro-American powers belonging to the European Union have all grown accustomed to a world in which the United States has been preoccupied with Iraq and in which they have had more freedom to shape the politics and economies of their regions. Much of the world has done just fine without active American leadership during this time and thus may not be as receptive to a reassertion of US leadership, as most of the Democratic candidates seem to suggest.

Indeed, the leading Democratic candidates have failed to grasp one of the central lessons of the Bush era: the world does not need strong US leadership so much as it needs constructive US participation as a great power. On global climate change, on AIDS in Africa, on engaging North Korea, to mention just a few issues, other powers and new coalitions of transnational NGOs and intergovernmental agencies -- as well as long-established ones such as the United Nations -- got there just as quickly as and in some cases before the United States, and they now have an ownership stake in these issues and well-developed views about how they should be solved. They would welcome the United States to the fold, but they would not cede all leadership to Washington.

A Progressive Narrative

For the leading Democratic candidates and their advisers, toughness and global leadership have become ends in themselves. But in today’s world these ends do not automatically equal a better world for American interests or make possible a more decent liberal society at home. That requires a strategic vision of how to work with others to build a world order that accommodates the voices of an increasingly pluralistic group of nations yet serves America’s core interests and values.

Today’s presidential candidates could do worse than look to the Rooseveltian vision that emerged in the latter days of World War II for inspiration. That original vision entailed working to preserve peace by sharing power in international institutions; the promotion of the universality of human rights and self-determination; and the spread of middle-class prosperity through Keynesian economics and the managed expansion of global commerce. (To this narrative, of course, one now must add global climate change and the stewardship of the planet’s ecology.) This vision of world order was ever mindful of the intimate link between America’s international policies and its goal of socioeconomic progress at home. Maintaining peace among the great powers and avoiding unnecessary wars, it was correctly believed, would allow us to keep our national security costs low, freeing resources to expand our social contract through greater social spending and public investment. Promoting middle-class prosperity abroad would reinforce prosperity at home while helping secure a lasting peace internationally.

If this remains the most promising progressive foreign policy narrative, then the most significant development of the past decade is not the appearance of radical Islamic fringe groups in the Middle East but the extraordinary economic rise of China and India and the integration of more than 2 billion people into the world economy. This development, together with the ongoing integration of the world’s markets for goods, services and capital and the global political awakening made possible by satellite TV and the Internet, touches upon virtually every aspect of a progressive world vision and America’s domestic society, influencing everything from the price of oil and food, to human rights and governance in Latin America and Africa, to the wages and living standards of American workers.

Yet these developments have commanded little attention in the foreign policy debate of this electoral season, except for a few alarmist concerns about the threat they pose to American primacy. But to Rooseveltian progressives, they define the two overarching challenges of foreign policy in the early twenty-first century. One challenge relates to the classic strategic dilemma of how to amend the international system to accommodate the interests of new rising powers without sacrificing progressive values or undermining socioeconomic progress at home. The other challenge involves how to extend the system of national governance and regulation around the world, creating an effective system of international governance without compromising popular sovereignty at home. In the early twentieth century, the leading powers failed this test, and the result was two devastating world wars and a world depression.

The good news is that none of the emerging powers seek to challenge the United States directly or have hegemonic ambitions of their own -- at least not now. But they do want a greater voice in world affairs and more influence in shaping their regional environments. Rather than seeing this desire as an obstacle to American leadership, candidates in the progressive tradition should welcome it as a way to share the burden of keeping order and to reduce the need for projecting military power in the world. They should support the building of what Roosevelt called a community of power, even though in some cases this will require the United States to give up its maximalist demands and accept compromises that seem to fall short of progressive standards. Whether we like it or not China, India and Russia will influence what happens with Iran and North Korea, so better to involve them in a solution than to ignore their interests.

Refashioning today’s international institutions -- especially but not only the United Nations -- to give these emerging powers a larger voice will of course take time. But in the short term, the next administration could pursue the development of regional concerts of power and new arms control measures to prevent destructive geopolitical competition and costly arms races. The successful negotiation, under the six-power framework talks, of a deal to cap North Korea’s nuclear weapons program illustrates the promise of such regional concerts.

The United States was able to reduce any future threat to American national security without having to expend military power or make major concessions. The successful six-power talks provide a framework for an ongoing regional concert to manage the eventual reunification of Korea and to avoid destructive rivalries among China, South Korea, Japan and Russia and to cap future military spending.

The withdrawal of American forces from Iraq would provide another opportunity to internationalize American policy and draw other powers into the management of regional stability, thus reducing the American burden.

Establishing the framework of a more inclusive regional security architecture -- one that would both accommodate Iran’s legitimate interests and stem its destabilizing tendencies -- would, as Trita Parsi suggests, allow the United States to lower America’s military profile in the Persian Gulf without sacrificing vital American interests.

The most likely cause of future conflict among great powers lies in competition over oil and other strategic resources. China’s and India’s rapid economic growth has dramatically increased the demand for strategic commodities, and great powers whose economic growth depends on the import of such materials tend to develop geopolitical strategies to ensure their access to these resources. Accordingly, China has adopted a new diplomatic activism in Africa and Latin America, making long-term supply agreements that lock up access to world commodities and challenge the fragile international consensus of not rewarding countries for human rights abuses.

Some argue that the United States needs to respond with its own geopolitical strategy to maintain control of the world’s oil and strategic commodity markets by reinforcing its military position in the Gulf and expanding it to parts of Africa. A better approach would be for the United States to reduce the importance of these resources by helping to lead a worldwide effort, including cooperative ventures with China, aimed at harnessing the resource efficiency revolution and developing clean-energy alternatives.

Together with championing new arms control measures to prevent the further expansion of China’s naval and space deployments, this would make more sense.

The more immediate and more serious challenge relates to the unusual merger of American corporate capitalism with China’s authoritarian political system. To some governments in the developing world, this has created an attractive option -- authoritarian capitalism -- what some have dubbed the "Beijing consensus." Emerging in the wake of the failure of the neoliberal Washington consensus, the seeming success of the Chinese model poses a threat to the advancement of human rights, as authoritarian governments seek to justify repression by pointing to China’s success or seek to expand commercial ties with China in the hope of shielding themselves from Western pressure.

It also poses a threat to the middle-class social contracts of developed economies, which have been a cornerstone of the capitalist peace for the past sixty years, and to the development of similar middle-class contracts in other emerging economies, which will be important to future peace and prosperity. The entry of China and India (and the former USSR) into the global economy has had the effect of more than doubling the world’s potential labor force. This has put downward pressure on wages in both the developed and developing worlds -- eroding the middle classes in the advanced industrialized countries and slowing the growth of the middle class in developing economies.

Because of the size of China and India, their rapid integration into the world economy has also had the effect of crowding out economic opportunities for other developing countries, as reflected by the fact that China has attracted the lion’s share of the world’s direct investment.

China’s economic success has to some degree come at the expense of jobs and economic growth in Mexico and Central America, which in turn has resulted in more immigration of low-wage laborers to the United States.

This pattern of economic integration has resulted in growing disparities of wealth and income in both the United States and the emerging powers. Already one sees the effects -- in the growing disquiet in parts of the American heartland, in the rise of religious radicalism in the Middle East and in the populist backlash in Latin America. Should economic growth and job creation falter in China and India, we will see growing instability there as well, perhaps in the form of resurgent nationalism.

That is why the next administration must put jobs and middle-class prosperity at the center of American foreign policy, as Afshin Molavi suggests. And that is why it will have to find a way to encourage change in China away from authoritarian capitalism to a system that allows Chinese workers to enjoy much more rapid improvement in their living standard. That means replacing the widely discredited Washington consensus with what might be called a Rooseveltian consensus, which would aim to raise wages and living standards as well as create robust safety nets in these increasingly productive economies. Indeed, the most important foreign policy initiative the next administration could take would be to use its trading relationship with China to encourage it to develop a comprehensive social welfare system, allowing Chinese workers to save less and consume more. Such an initiative is not just necessary to reduce the US trade imbalance but to save the world economy, which is beginning to choke on excessive Chinese savings.

The success of a progressive foreign policy depends on establishing the right priorities. These include capping military expenditures in East Asia, turning America’s withdrawal from Iraq into a new regional security order in the Persian Gulf, promoting a worldwide resource-efficiency revolution, elevating human rights to their proper place in international diplomacy and emphasizing a new Rooseveltian growth consensus. All these goals reinforce one another. And they would enable the United States to prosper, even as its power relative to that of other nations recedes.

A Goldilocks World Economy?

Cecille Isidro — Wed, 31 Jan 2007 09:22:00 -0500

Over the past decade and half, two developments in the world economy have come together to create conditions for what could be a new era of faster economic growth and rising prosperity. One development involves the integration of China, India and the former Soviet Union into the global economy. The inclusion of these three populous regions into the global economy has created what economists call positive supply-side shocks, resulting in surpluses in labor, capital, and productive capacity. The most obvious impact of China, India, and the former Soviet Union has been on the world's labor market. Their entry into the world economy has, in effect, doubled the global labor force in the course of a decade, raising the return on capital and dampening wages and inflation. Capital has also become plentiful because of the high-saving propensities of China and other Asian economies. In fact, Asia is producing more savings than the world can absorb. This glut of world savings, together with the increasing globalization of financial markets, has predictably driven down the cost of capital and has helped keep interest rates low worldwide.

The other development relates to the technological advancements and other changes associated with the new economy, which have substantially increased U.S. and world productivity growth. American productivity growth has risen to the pre-1973 levels that were responsible for the rapid improvements in American living standards, jumping from an average of 1.53 percent for the period 1973-95, to 2.6 percent in the period from 1996 to 2005. World productivity has shown a similarly impressive increase. This productivity acceleration is the product of three over-lapping revolutions: a technological revolution in data processing and communications; a related revolution in the production and distribution model made possible by globalization and these new techonologies; and an efficiency revolution in materials and energy.

The full text of this article can be downloaded below in PDF form.

Our Allies In Iran

Cecille Isidro — Thu, 03 Nov 2005 00:00:00 -0500

When Iran's new president, Mahmoud Ahmadinejad, called last week for Israel to be "wiped off the map," he raised fears not only abroad but also at home, particularly among Iran's sizeable, democratically minded middle class. The new president's confrontational tone threatens to deepen the isolation of Iran's democrats, pushing them further behind his long shadow. Western powers have a dual challenge: to find a way to engage this population even as they struggle to address the new president's inflammatory rhetoric.

By the time Mr. Ahmadinejad was elected in June, a sustained assault by hard-liners had left Iranian democrats disoriented and leaderless, their dissidents jailed, newspapers closed and reformist political figures popularly discredited.

But democratic aspirations should not be written off as a passing fad that died with the failure of the reform movement and the replacement of a reformist president, Mohammad Khatami, with a hard-liner, Mr. Ahmadinejad. The historic roots of reform run deep in Iran, and support for democratic change remains widespread.

Iran's modern middle class, which is increasingly urbanized, wired and globally connected, provides particularly fertile soil for these aspirations. The Stanford University scholar Abbas Milani has described Iran's middle class as a "Trojan horse within the Islamic republic, supporting liberal values, democratic tolerance and civic responsibility." And so long as that class grows, so too will the pressure for democratic change.

If Mr. Ahmadinejad's foreign policy results in further global economic isolation or military intervention, however, the situation for Iran's democracy-minded middle class could deteriorate. Foreign hostility will furnish additional pretexts for the regime to frighten its people and crack down on dissent. Particularly if the European Union decides to participate in a tougher sanctions regime, liberal-minded Iranians will lose contact with the foreign investors, educators, tourists and businessmen who link them to the outside world.

Now more than ever, middle-class and other democracy-minded Iranians need to preserve and expand their network of institutions independent from the government--institutions in which they can take refuge from the rapacious hardliners who seek to control all aspects of Iranian life. That network should include a strong private sector; a rich array of nongovernmental organizations dealing with issues like poverty, women's rights and youth unemployment; and social, intellectual and cultural associations that communicate with counterparts abroad.

Unfortunately, United States sanctions now prevent any American person or group from financially supporting, say, a microfinance bank, a program to train future political leaders or even an education initiative for rural women in Iran. That is a mistake. Elsewhere in the Middle East, the United States has programs that provide exactly these kinds of grants, in the name of democratization.

The United States should ease such sanctions in order to match its rhetorical commitment to Iranian democracy with meaningful action. The European Union should also step up its support for democratic activists and its commitment to the protection of human rights in Iran. Meanwhile, development institutions like the World Bank should invest in Iran's emerging private sector, which is not affiliated with the country's business mafias or the government-linked foundations that control about a quarter of the country's wealth.

Critics may protest that bolstering Iran's economy through such middle-class development will prolong the Islamic regime. But that's unlikely, if history is any guide. Certainly two decades of economic growth, during which the middle class swelled and political and economic ties to the United States were tight, failed to preserve the regime of Shah Mohammed Reza Pahlavi.

But the authoritarian theocracy that followed was not the aspiration of middle-class Iranian revolutionaries, who lost the post-revolution power struggle to supporters of Ayatollah Ruhollah Khomeini. Ayatollah Khomeini, like Mr. Ahmadinejad, was a master at combining economic populism with religious fervor in appealing to the poor and dispossessed.

Today poverty, not prosperity, again propels Iran toward extremist politics. Mr. Ahmadinejad's election--however flawed--did not reflect a popular desire for a harder-line foreign policy or for a rush to obtain nuclear weapons. Rather, it emerged from a persistent sense of low-grade economic pain, resentment of the ruling elites' corruption and frustration with widening income gaps. Most Iranians concern themselves far more with the price of meat and onions than with the Arab-Israeli peace process or uranium enrichment.

In portraying himself as an outsider, a 'man of the people' and an anti-corruption crusader with a bag full of economic promises, Mr. Ahmadinejad tapped into these sentiments. His second-round opponent, Akbar Hashemi Rafsanjani, proved to be the perfect foil: a multimillionaire mullah widely derided for his personal corruption and family business ties.

Tellingly, the leading reformist candidate, Mustafa Moin, placed fifth after campaigning almost exclusively on human rights and democratic freedoms. Today many reformists recognize that their movement had lost touch with the economic preoccupations of ordinary people. Stagnant wages, double digit inflation and high unemployment proved more than passingly distracting to Iranians who might otherwise have continued agitating for change.

Before the revolution, American officials often urged the dictatorial shah to share power with the emerging middle class. The shah chose to ignore that advice, and Americans eventually stopped offering it. Now is the time to dust off such thinking and pursue a policy that targets economic support to our natural allies in Iran's economic center. Only a strong and stable middle class can ensure that Iran's inevitable winds of change do more than knock down a few trees--or produce another populist demagogue.

Reconnecting to the World

Cecille Isidro — Wed, 29 Jun 2005 03:00:00 -0400

For the sake of party unity, many Democrats last year put aside their differences with John Kerry's foreign policy positions, in particular his tortured support for the war in Iraq. Situating the party as close to the Bush agenda as possible without actually embracing it, it was argued, was a reasonable price to pay for taking back the White House. The gambit -- of being long on national security and the "war on terror" and short on the economy and jobs -- failed, however, to persuade working-class and suburban voters in places like Ohio and Missouri, reinforcing the public view that the Democrats have no mind of their own on issues of great national and international importance.

Unchastened, the neoliberal wing of the party wants the Democrats to repeat this gambit by toughening their rhetoric and committing yet more resources to the fight against what they describe as Islamic jihadism. In a New Republic essay late last year, Peter Beinart called on Democrats to rediscover their "fighting faith" and to commit themselves to a new generational struggle against "Islamic fascism." More recently, Blueprint magazine, the house organ of the Democratic Leadership Council, published a statement on national security, signed by leading Democrats, urging the party to "make winning the war against Islamic jihadism the party's first priority." The group's agenda -- prosecuting the global "war on terror," democratizing the Middle East and increasing the military's ground forces -- is echoed by likely Democratic presidential candidates, including Senators Joe Biden and Hillary Clinton.

These exhortations are particularly troubling because they come at a time when the Administration itself is being forced to rethink significant parts of its post-9/11 foreign policy and just when much of the nation has reopened its mind to a larger set of international concerns. Rather than seizing the moment to point us in a more constructive direction, much of the Democratic leadership is reinforcing a foreign policy agenda that has divided us from the world, inserted us more deeply into an Islamic civil war and drained us politically and economically, all the while distracting us from many of the real challenges to our security and well-being. The party -- indeed, the nation -- deserves a better alternative.

The Neoliberal Narrative

If the muscular neoliberal narrative sounds familiar, it is because it is modeled on an earlier triumphant struggle -- the one waged against the Soviet Union. As seen in these terms, the world is now threatened by Islamic jihadism, whose determined proponents threaten to overrun the entire Muslim region and sow terror in the United States. Islamic jihadism, we are told, is first and foremost a product of the lack of freedom in much of the Islamic world. Thus the United States must commit itself not just to a global "war on terror" but to a new mission to democratize and liberalize the greater Middle East. This mission, we are informed, must take priority over other urgent public challenges. Sound market economics will take care of much of the rest.

After reading the statement published in Blueprint, one might reasonably conclude that car bombs are going off daily in Washington, New York and Los Angeles and that governments across the Middle East are in danger of falling to jihadist insurgents. But John Kerry, for all his other failings as a presidential candidate, was correct when he intimated to a New York Times reporter that while it may not be possible to eliminate terrorism entirely, it could be reduced to a nuisance. Indeed, the experience of other countries, many of them more vulnerable to terrorist attack, would support that view.

At worst, Islamic jihadism is a regional problem -- in Europe, the Middle East and parts of Africa and Southeast Asia. But as Gilles Kepel and other experts on Islamism have argued, even in the case of the Middle East, bin Laden-inspired groups have been remarkably unsuccessful in shaking any government (except for Afghanistan in the 1990s) or in galvanizing the Muslim masses into action. And they would have been even less successful had it not been for counterproductive American actions, especially the war in Iraq. It is not a coincidence that the governments that feel most vulnerable to Islamic jihadism are those that have had a close association with the United States, or on whose soil the United States has left the heaviest footprint.

Even in the region, Islamic jihadism may not be the most serious problem today. That worry goes to the growing sectarian conflict between the Sunni and Shiite communities that the Iraq War has helped provoke. The Sunni-Shiite divide runs directly through the region's oil-producing belt, and a Sunni-Shiite-Kurdish war in Iraq could draw in all the area's major powers, including Egypt, Jordan and Saudi Arabia. This, more than religious extremists, occupies the minds of many people in these three countries as well as in Turkey, Syria and Iran.

But even assuming that Islamic jihadism is a regional threat, this does not mean that a muscular American response would be the most appropriate one. Rather, if Washington were serious about damping down Islamic jihadism it would reduce America's heavy footprint in the region, not increase it; make a more serious attempt to address the legitimate grievances that arouse the passions of many in the Muslim world, especially Israel's occupation of the West Bank, not try to fudge them over; and internationalize American policy, not make it more difficult for other leading nations to be engaged. It would also help create the conditions for economic growth and development, not put new obstacles in the way by arousing more religious tensions and divisions.

The region, of course, does need democratic and economic reform, and Arabs are frustrated by Washington's support for authoritarian governments. But this does not mean that the lack of democracy is the principal cause -- or that an American push for democratization is the principal cure -- of terrorism and Islamic jihadism. In an exhaustive study, political scientist Robert Pape has concluded -- correctly, in my view -- that occupation is the single biggest cause of suicidal terrorism worldwide. And as Afshin Molavi of the New America Foundation has documented, what the people of the region want most is jobs and economic opportunity -- understandably so, since unemployment runs as high as 25 percent in many Arab countries and even higher among the two-thirds of the population under 35.

Absent further heavy-handed American intervention, there is good reason to believe that bin Ladenism will eventually burn itself out, just as Western radical movements did in the 1970s and as the Iranian revolution did in the 1980s. Given the hunger for jobs and economic opportunity, bin Ladenism will eventually be seen for what it is -- a futile attempt to deal with the modern world. Fascism and Communism were so dangerous because they could actually deliver the goods of modernization and jobs -- at least for a period of time. This suggests the need for a prudent counterterrorist strategy combined with patient multilateral encouragement of political and economic reform aimed at building liberal state institutions, protecting human rights and creating jobs. Encouraging elections is desirable too, but only if we are willing to live with the results -- which many neoliberals may not be prepared to do, given their intense dislike for Hezbollah and Hamas, two groups that are most likely to benefit from elections in Lebanon and Palestine, respectively.

The biggest problem with the neoliberal agenda is not just that it may be wrong but that it may be dangerously so. Breaking apart old orders always unleashes forces that we do not understand and cannot control. The notion that we can dial up just the right amount and just the right brand of democracy is nanve at best. It is the same mentality that has helped unleash the current forces of chaos in Iraq. And if Iraq is any guide, the neoliberal project would put the United States in the middle of the chaos and conflict that is likely to result, without a strategy for knowing how to control what it has set in motion. It is understandable that the major European governments want little or nothing to do with this venture, and that the rising powers of East Asia want to keep Washington's "war on terror" as far away from them as possible while they concentrate on growing rich and strong.

Without any real allies or any reasonable chance of success, the United States would dramatically increase its military costs with an extended US crusade. But there is no reason to believe that additional ground forces, as some leading Democrats propose, would be any more effective than the ones already in Iraq, or for that matter any less destabilizing than the ones we had to pull out of Saudi Arabia just a few years ago or out of Lebanon in 1984.

In the 1920s Britain too got caught up -- and bogged down -- in imperial adventures in the Middle East, weakening itself and ignoring rumblings in Europe and Asia and worrying problems in a globalized economy. Similarly, the neoliberal agenda today would distract us from much more fundamental concerns, whether they be our own economic weaknesses or the challenges posed by the further integration of China and India into the world economy. It nanvely assumes that the American people will be content to finance an even larger Iraq War while they lose jobs to China and India. And it assumes that foreigners will continue to lend us enormous sums even if we remain mired in a Middle East war running up billions of dollars in debts.

Crowding Out Liberalism at Home

Eight months after American forces entered Iraq, New York Times columnist Thomas Friedman urged liberals to get on board what he called "the most important liberal, revolutionary U.S. democracy-building project since the Marshall plan." In exhorting liberals to support occupation and nation-building in Iraq, Friedman perhaps unwittingly revealed the emptiness of the neoliberal hawk worldview: Liberalism from this point forward would be defined not by new programs to strengthen America at home but by noble activism abroad. The neoliberal agenda, in fact, has stood the traditional relationship between foreign policy and domestic society on its head. Traditionally, the overarching purpose of American foreign policy has been to shape a world order favorable to the American democratic way of life. But now our foreign policy ambitions are to define our domestic society, not vice versa.

Thus in the view of many neoliberals, it is perfectly reasonable to spend more than $200 billion and to send young men and women to die in Iraq but unthinkable for budgetary reasons to commit even a smaller sum to rural or urban redevelopment at home. In foreign policy, neoliberals are guided by a triumphalist can-do spirit; on domestic policy they display an uncharacteristic modesty: In their view, it is possible for the United States to re-engineer centuries of political culture in the Middle East and navigate the difficult shoals of Shiite, Sunni and Kurdish political currents in Iraq but not at all feasible to change the gang culture in East LA or to end poverty in America.

This same set of misplaced priorities is also evident in the area of international economic policy. In the 1990s the Clinton Administration embarked on a revolutionary agenda to liberalize the world's financial and trading system, an effort that continued until the world financial crisis of 1997-98. As seen by the Clintonites, it was thinkable to change decades of economic practice in East Asia in a few short years, but not at all thinkable to design economic policies that would insure rising wages and economic security in both developed and emerging economies. Globalization, we were told, was a natural and immutable force, and domestic society must bend to the demands of globalization, not vice versa.

Put together, this mix of neoliberal activism abroad and inaction at home has created a very unhealthy Democratic Party agenda, offering rank-and-file Democrats fantasies about American greatness and nobility while forcing them to accept ever more economic insecurity and lower wages. But what if middle-class prosperity -- jobs, rising wages, economic security -- is intimately connected to global stability, as Franklin Roosevelt and John Maynard Keynes believed? Then what happens to the great liberal project globally? It gets overrun by rising disaffection at home and greater extremism abroad -- which is exactly what is beginning to occur today.

The Twenty-Year Crisis

In his New Republic essay, Peter Beinart argues that the Democratic Party faces a choice similar to the one it made in 1947-48, when Harry Truman and other party leaders took a tough and uncompromising posture toward Soviet Communism. But we can learn more from the twenty-year crisis from 1919 to 1939, whose conditions bear an eerie resemblance to the challenges today. Then as now, the world's dominant power had been weakened by war and imperial adventures in Iraq and by the erosion of the competitive base of its economy, and as a result was becoming too weak to stabilize the system. Then as now, there were rising powers that could not be easily accommodated in the world economy and the international order. Then as now, several decades of globalization had created a world economy of finance and trade that had outstripped the ability of national economies to effectively manage it, while the rapid expansion of new producers had created excess capacity and inadequate consumption, which put downward pressure on profit margins and led to frequent financial manias and crises. Then as now, widespread unemployment, together with feelings of humiliation at the hands of one's perceived enemies, created a fertile ground for radical utopian ideologies -- in that period in Germany, today in much of the Arab world. Then as now, a high-sounded idealism became the substitute for wise statecraft and cooperation.

Today we have the benefit of the lessons that Roosevelt, Keynes and others drew from this experience. We also have the legacy of many of the policies and institutions they eventually created to manage a world of multiple great powers and a globalizing world economy (even if those institutions and policies are badly in need of reform and updating). For ideological reasons, the Republicans under George W. Bush have turned their back on these lessons and institutions. But so has the neoliberal wing of the Democratic Party. Yet these lessons have far more relevance to the problems of today than does a new crusade, and far more to offer as a guide to a progressive and internationalist foreign policy. What are those lessons?

First, an international system with multiple powers cannot rest on the power of one dominant power alone. The world is too big, too complex, too diverse and too disorderly. Roosevelt therefore favored a community of power -- a handful of great powers that would together assume the burdens of order-keeping and managing the world economy.

Second, such a community must include as many powers as possible without paralyzing the system, even if they do not fully share America's liberal democratic credentials. The last time the world deprived two major industrial countries, Germany and Japan, of what they considered their rightful place in the sun, the result was World War II. Today, the United States has to help find a place not only for China and India but also for other emerging powers, including regional powers like Iran.

Third, a multipolar system cannot depend on the good intentions of the great powers alone. It must rest on a broader legitimacy than power. Roosevelt and his advisers therefore sought to create international institutions, like the United Nations and the World Bank, that would help insure cooperation and bestow legitimacy on the leading powers. Multipolarity needed to be accompanied by multilateralism or a form of international governance based on the rule of law.

Fourth, peace and international stability depend as much on economic prosperity as on collective security. Collective security without collective economic cooperation is virtually impossible to maintain. Moreover, economic development has to go hand in hand with democratization. In postwar Europe, for example, US officials developed an approach that included economic reconstruction (the Marshall Plan), collective security (NATO) and the institutionalization of democratic politics.

Finally, the world economy has to be managed and it has to be based on principles of ample demand, full employment and a stable international financial system. The great conclusion of the postwar world was that international peace and prosperity depended upon making the world economy safe for the social welfare state and full employment, whether it was American-style Keynesianism or European-style social democracy.

The lessons that Roosevelt and other progressives drew from the twenty-year crisis suggests a role for the United States much different from the one being pursued by the Bush Administration and proposed by the neoliberals: less one of warrior and preacher/proselytizer and more one of architect and builder, less one of imperial cop and more one of community leader or board chairperson.

A Neo-Progressive Strategy

In the early days of the post-cold war world, advisers to President Clinton spoke of being present at the creation, much as Acheson, Marshall and the other architects of the post-World War II order had been. But unlike Acheson and Marshall, they proved better at breaking down barriers than at creating new forms of governance; at unleashing the forces of global capitalism than at creating new social contracts needed to tame it; at asserting American power in old alliances than at building a more sustainable community of power; and at talking about democratization than at helping countries achieve it. The result was not a new American century but a weakened international system.

The Bush Administration that followed has destroyed much of what remained of that system while alienating a considerable part of the world in the process. As a result, the greatest threat to the security and well-being of the American people today stems from the further breakdown of that system and the absence of anything to take its place. The rise of religious extremism and terrorist networks in the Middle East is just one product of this breakdown. The economic insecurity of working people in much of the Western world is another. So too is the disorder and failed governance that afflict parts of the developing world and that threaten to spill over into the daily lives of Americans through the spread of pandemics and criminal networks and an increase in illegal immigration. The prospect of new nuclear-weapons states and the economic rise of China and India pose yet other challenges to the international order.

The overarching goal of a progressive foreign policy therefore must be to reconnect the United States to the world by working with others to build a more durable international system. The first element of such a policy must be to recognize that the world has outgrown American power, and that the maintenance of international peace and stability must be a shared goal and burden, not an American "right" or prerogative. If anything, the cost of the Iraq War and America's mounting international debt should put an end, once and for all, to the illusion that American power can sustain a unipolar world and that we can afford both our unipolar aspirations and a decent liberal society at home. We must therefore bring America's international pretensions back into line with our domestic needs and priorities. That means we should welcome and indeed encourage a multipolar world as the best way to share the burden of international order-keeping.

The principal cold war-era institutions of collective security -- NATO, the Organization for Security and Cooperation in Europe, the US-Japan Security Treaty -- have limited utility in dealing with the international security problems of the early twenty-first century. And the UN Security Council, although necessary for the authorization of military force and for giving legitimacy to nation-building efforts, is often too unwieldy to deal with the security problems associated with the management of regional threats. Our goal, therefore, should be to develop regional concerts of power for preventing regional arms races and for managing potentially dangerous conflicts. The European Union, Japan, Russia, China and India must by necessity be our main partners in this effort, but we must harness the efforts of smaller nations as well.

The most pressing challenges in this regard relate to the Middle East and to the suspected nuclear ambitions of Iran and North Korea, and thus the need for new security arrangements in the Persian Gulf and East Asia. Ironically, in the cases of Iran and North Korea, the Bush Administration has pointed the way by blessing the EU's efforts to negotiate with Iran and by relying on the six-power framework to deal with North Korea. What has been missing in each case has been active American engagement and the kind of security guarantees needed to make Iran and North Korea feel more secure and to give them a greater stake in a larger regional community.

Understandably, there are reservations about a policy of engagement with Iran and North Korea in that it would require us to overlook some unpleasant features of both regimes. The way out of this dilemma is to think of engagement as part of a larger multilateral process of establishing a new security order involving great-power cooperation in each region. In East Asia the eventual reunification of Korea must be at the core of a regional security order that further cements cooperation and forecloses new geopolitical rivalries among China, South Korea, Japan and Russia. And in the Persian Gulf the peaceful evolution of Iran is central to a new security order for containing the conflict in Iraq and for developing the oil and gas resources of the region.

With regard to the Middle East in general, we must extract ourselves from what could escalate into what many Arabs see as a civilizational war with the Islamic world. This, however, does not mean disengaging, but rather repositioning the United States to be less of an overbearing dominant power. Our strategy toward Islamic jihadism ought to consist of lowering America's profile in the region and patiently containing bin Ladenism as it slowly loses its allure by being denied the foreign imperial enemy it needs in order to succeed. And the best way to lower our profile, without sacrificing any legitimate American interests, is to internationalize as much as possible US policy toward the Middle East -- to reduce America's dominant, in-your-face presence in the region by withdrawing forces from Iraq and by sharing responsibility with the three other members of the "Quartet," the EU, Russia and the UN.

We should encourage the EU to take more responsibility for promoting democratization and economic development in the region around the European Rim, from the Maghreb to the Levant. We should also recommit ourselves to the Quartet and through it support an international conference for a comprehensive settlement of the Israeli-Arab conflict and the establishment of a Palestinian state. By delaying discussion of the final status of such a state, we are only encouraging the most radical elements in the West Bank, Gaza and the region.

The establishment of regional security concerts must be accompanied by other great-power efforts to manage conflicts and reduce security risks. Chief among these must be a stronger effort to put all fissionable materials under international control, strengthen international safeguards against biological warfare and create a greater UN capacity for state-building. Together with America's traditional role as the guarantor of the world's sea lanes, these would constitute the principal security pillar of American foreign policy.

As the progressives who lived through the 1919-39 crisis understood, collective security is difficult to maintain without collective economic cooperation aimed at expanding middle-class prosperity. And in many respects, the foundations of collective economic management are even weaker than those for collective security. So it is here that the United States must put its greatest emphasis in the decade ahead. The lack of middle-class jobs and economic dignity is what links the growing disquiet in Ohio to the backlash against Turkish immigrants in Europe to the rise of religious radicalism in the Middle East to the appeal of Hugo Chavez in Latin America -- not to mention the threat of rising nationalism in China, should economic growth and job creation falter there. That is why we have to put jobs and prosperity at the center of American foreign policy.

The problem is that we are building a world economy that is too small, too risky and too dependent on American consumption to accommodate both the aspiring middle classes of the developing world and the existing middle classes of the developed world. We are doing so because we are relying on a nineteenth-century economic philosophy that ignores the lessons of the twenty-year crisis. As in the decades before the Great Depression, rising productivity gains made possible by the spread of industrialization and technology and the opening up of new production centers and labor markets have created a glut of capacity, savings and labor. The entry of China and India into the global economy has had the effect of more than doubling the world's potential labor force. This has put downward pressure on wages in both the developed and developing worlds. This in turn has caused a fall in global aggregate demand in relation to global supply, creating a classic 1930s-style Keynesian problem relieved only by America's debt-led consumption, which is unsustainable [see William Greider, "Debtor Nation," May 10, 2004, and "Elite Protectionists," April 11].

The good news is that these developments have set the stage for a new golden age of rising prosperity -- but only if we shift our economic thinking from the neoliberal, export-oriented nostrums of the 1980s and '90s to the Keynesian ideas of the 1940s and '50s. Indeed, the solution to our economic problems as well as our foreign policy dilemma is to translate those productivity gains into rising wages and living standards in the newly industrialized and developing worlds -- so that working men and women there can consume more of what they produce and so that the world economy can grow in a more balanced way.

For this reason, we must make full employment and ample demand the guiding principle of international economic policy, much as Roosevelt's policies did in the 1940s. We must become the champion of an international labor organization and a world labor movement that supports the establishment of unions in low-wage economies and fights Victorian-era working conditions in the world's factories. We must support public investment projects funded by international financial institutions to soak up excess labor and to give the unemployed in places like Egypt and Morocco a sense of economic opportunity. We need to put our weight behind the equivalent of New Deal programs like the TVA and the Civilian Conservation Corps and expand the efforts of specialized UN agencies like the World Health Organization to bring basic healthcare, education, housing and clean energy within the reach of billions of people and to relieve poverty in Africa and South Asia. We should also reorient the missions of the IMF and World Bank to support full employment and channel excess savings to public and social investment projects in the developing world. In short, we need to create institutions at the global level to do what the New Deal did for our national economy in the last century.

Our goal should be a New International Deal to build a global middle class and to eliminate global poverty. Rather than encourage emerging economies to develop through the export of manufactured goods and their component parts, we should champion what might be called middle-class-oriented development aimed at increasing domestic consumption -- helping emerging economies to grow by expanding home ownership, investing in public infrastructure and creating more small and medium-size businesses, much as we did in the last century. This kind of middle-class development would have the beneficial effect of facilitating democratic reform in emerging economies while relieving the United States of the burden of serving as the locomotive of the world economy.

Competing Visions

Dedicating our foreign policy to a rapid rise of a global middle class and to a new international "community of power" would do far more for our security and future prosperity than a prolonged, openly declared war against Islamic jihadism. It would also help make us relevant again to the lives of millions of people -- from Latin America to Africa to the Middle East to the Pacific -- in a way that an agenda of fighting Islamic jihadism does not. That, together with a renewed respect for the international rule of law and a commitment to act as a good neighbor in fighting poverty and protecting the environment, would go a long way toward restoring America's standing in the world -- not as a unipolar power but as a constructive leader of a diverse but increasingly interconnected world.

In the end, it comes down to a question of vision as well as of national interest. Many neoliberal Democrats would like the United States to be the second coming of imperial Britain, doing what Britain could not do in the 1920s and '30s. But as we are learning in Iraq, and as we did in Vietnam, the American people have no appetite for long, contested occupations of foreign lands. Nor do they have an appetite for a long, unending religious conflict in the Middle East. What they long for are not misguided heroic crusades but the respect of other nations and better lives for themselves and the many other people who share this planet.