Coming: Global Political Recalibration

6.4.08

With his job approval at a record low and his party having just lost three special congressional elections in supposedly safe seats, President George W. Bush can take solace in one almost entirely overlooked fact: He is not alone.

Like Bush, the UK’s Prime Minister Gordon Brown is down in the polls and losing local elections.  France’s Nicolas Sarkozy has endured the fastest drop in presidential public opinion positioning on record, equaled only by Jacque Chirac in 1997.  The German Christian Democrat-Social Democrat coalition is fraying, and Chancellor Angela Merkel’s CDU looks likely to suffer severely in September’s state elections.  Italy has just tossed out the Romano Prodi government for the return of Silvio Berlusconi.  Support for Japan’s Prime Minister Yasuo Fukuda has plummeted.  Australians recently gave the boot to John Howard’s long-serving government.

Meanwhile, one of America’s leading political analysts, Michael Barone, argues that many more states are in play in the 2008 presidential campaign than in the last several elections, suggesting a realigning of political coalitions.  Something similar may be in the works in other countries, too, a prospect noted by former U.S. Ambassador to the European Union, Alfred Kingon in a recent interview. Kingon asks, do these common political shifts share a common source? 

America’s uniquely long electoral history provides a clue.  For in the last 200 years America has experienced five major reshufflings, similar to what may be happening today – with the ballot box victories of Andrew Jackson, Abraham Lincoln, William McKinley, Franklin Roosevelt and Ronald Reagan.  Three followed the Civil War and resolution of fundamental issues of governance that shaped the country’s politics until then.  These three were – and the current one almost certainly is – ultimately driven by shifts of the nation’s place in the world economy. 

Whether to stay on the gold standard was the central issue in the 1896 election that brought William McKinley to power.  McKinley’s victory confirmed that US economic policy’s highest priority would remain — as it had been since the end of the Civil War — industrial diversification.  Protecting the link to London’s capital markets — that is, staying on gold so long as the UK remained on it — was essential to that policy, ensuring that rising US industries could attract ample investment funds without paying currency or country risk premiums. 

With the First World War, the U.S. shifted from a consumer of capital to the world’s major supplier.  Europe’s devastated economies needed U.S. investment to recover fully, and the U.S. needed a vibrant Europe as a trading and financial partner.  Because of its by then enormous comparative size, the U.S. found itself at the international economy’s pivot point. Through the 1920s, American officials searched for a means of restoring Europe’s economic strength within the policy framework established in the 1890s.  Not until the onset of the Great Depression and the election of Franklin Roosevelt did America abandon that framework.  And not until after the even more devastating World War II were all the elements in place that made possible the rebuilding of Europe and twenty years of vigorous growth here.

By the late 1960s, Europe’s economy was in balance with the U.S.  The Roosevelt and post-Roosevelt policies had run their course.  The stagflation of the late 1970s reflected their exhaustion.  Ronald Reagan’s election inaugurated a new policy package, oriented toward the new situation.  This package produced more domestically generated investment, more outside capital drawn into the country and a more prominent global role for the U.S. as an export market.  The result was more than two decades of global economic growth and broadly shared rising incomes.

But with the economic emergence of China and the Asian Tigers, post-Soviet Eastern Europe and now Russia itself, and Latin powerhouses, notably Brazil, we face a new world and with it a need to revise the Reagan-era framework.  However it is ultimately articulated, designing this new framework underpins all economic debate in the current presidential campaign.  Democrats want to return to tax, trade, spending and regulatory policies reminiscent of the 1940s and 50s.  Republicans want to adjust the policies of Reagan, though at present, it appears, they are not sure how.

The same global transformation working on the United States is pressing on the entire industrial world.  We should embrace, not resist, this turn of history.  Who does not want developing countries fully to develop, with poverty and its misery reduced or eliminated?  But a global rebalancing requires recalibration of all policy frameworks – not just in America but throughout the developed democracies.  These new frameworks may be born quickly or – more likely if American political history is a guide – will gestate for a decade or more.  But they are coming, and nearly all democratic political systems are struggling to bring them forth.