How the Democrats Traded the New Deal for Neoliberalism

In 1992, Bill Clinton ran for president promising to “end welfare as we know it.” This rightward turn was part of a broader attempt by the Democrats to craft a “progressive neoliberalism” — whose “progressivism” included abandoning its working-class base.

President Bill Clinton Speaks during a press conference in the White House’s Rose Garden in Washington, DC, on May 13, 1994. (Ron Sachs / CNP / Getty Images)

The Democrats are in the midst of an existential crisis more profound than any since the Reagan Revolution. One explanation is that the party has failed to enhance working-class power as it did during the New Deal order. Since the 1990s especially, egalitarian redistribution and large-scale developmentalism have given way to the policy preferences of the donor class. For some, the problem is that the Democrats have lost their way after decades of playing defense against an increasingly radical Republican right. Despite promises of a new economic paradigm, an array of setbacks underscore that the Joe Biden administration lacks the resolve to meet this moment.

While accurate, this narrative nevertheless underplays the extent to which the neoliberal turn of the party of Franklin D. Roosevelt emerged organically out of the Democrats’ postwar professional-political networks. Rather than an accommodation to the Right, the Democrats’ neoliberal turn was an attempt to create a new social contract legitimized on meritocratic and pro-market principles, argues the historian Lily Geismer in Left Behind: The Democrats’ Failed Attempt to Solve Inequality.

Geismer, a professor of twentieth-century US history at Claremont McKenna College, is also the author of Don’t Blame Us: Suburban Liberals and the Transformation of the Democratic Party. In her first monograph, she sought to explain the ideological shift within the Democratic Party, using a case study of Massachusetts to show how urban minorities and industrial labor unions were gradually marginalized in favor of suburban professionals. Her latest effort advances the uncomfortable thesis that Democratic neoliberalism “was based on a genuine belief in the power of the market and private sector to achieve traditional liberal ideas of creating equality, individual choice, and help for people in need.”

Creating Left Neoliberalism

Geismer introduces Left Behind by tracing the Third Way’s roots to the 1970s, describing how specific, liberal ideas about growth were detached from the redistributive politics that undergirded the New Deal coalition. Beginning with the “Watergate Babies,” a new generation of Democratic leaders who extolled meritocracy, competition, and innovation was determined to reclaim and recast the political center. While dominated by Southerners such as Bill Clinton, Al Gore, Gillis Long, and Charles Robb, Geismer emphasizes that this emerging cohort spanned every region of the country, and included ostensibly more liberal voices from the Northeast such as Michael Dukakis and Paul Tsongas.

Clinton’s 1992 campaign, marked early on by his vow to “end welfare as we know it,” was not an abrupt deviation in Democratic politics, Geismer argues. Rather, it was the culmination of a strategy to center the “entrepreneurial, postindustrial economy” and “use the resources and techniques of the market to make government more efficient.”

Beyond an unwavering emphasis on growth over social justice, New Democrats sidelined the core constituencies — labor unions, black voters, and, increasingly, feminists and environmentalists — that the national party had cultivated since the mid-1930s. As they gelled around the prescriptions of the Democratic Leadership Council (DLC; a neoliberal think tank founded in 1985 with the goal of winning back suburban white voters who had defected to the GOP), New Democrats echoed right-wing attacks on welfare. They also “recoiled at the transactional politics” of Tip O’Neill, the Democratic congressional leader who personified the vestiges of New Deal liberalism. Resigned to the fate of traditional industries and unions, if not hostile to them, New Democrats perceived globalization as not only inevitable but desirable. The key to prosperity was more STEM education, less social spending, and fewer barriers to entrepreneurship.

The fixation on entrepreneurship, Geismer reveals, had globe-spanning origins. Through a fascinating discussion of the pioneers of microfinance and microenterprise, from ShoreBank in Chicago to Muhammad Yunus’s Grameen Bank in Bangladesh, Geismer shows how “socially responsible investing” first caught Clinton’s attention as governor of Arkansas. In the early postwar era, Arkansas had pursued a development strategy of “smokestack chasing,” but by the time Clinton entered office, the heyday of company towns was over.

Clinton’s embrace of public-private agencies as a mechanism for spurring growth was bolstered through his connections with these pioneers of for-profit development banking and the Winthrop Rockefeller Foundation, named after Arkansas’s first Republican governor since Reconstruction. Yunus’s maxim that credit “was the most basic right since it led to all other rights” spoke directly to New Democrats’ equation of empowerment with personal responsibility. It was a utopian conviction that influenced Clinton’s justification of workfare and programs to incentivize poor people to become thrifty entrepreneurs.

The significance of this backstory, Geismer shows, is that it illustrates the matrix of philanthropies, for-profit development banking, and corporate-friendly public officials that would shape Third Way governance in the 1990s. To distinguish their philosophy from Reagan’s “trickle-down” theory of growth, New Democrats repeatedly emphasized how government should catalyze “opportunity” and apply, as one strategist wrote, its “immense leverage to structure the market so that millions of businesses and individuals have incentives” to combine growth with inclusion.

From the New Democrats’ perspective, market inclusion and market expansion were mutually constitutive: ensuring both was a logical extension of mid-century liberals’ aim to remove discrimination in business and lending practices. As Clinton later put it when promoting the National Homeownership Strategy, his administration’s purpose was to “target new markets [and] underserved populations” and “tear down the barriers of discrimination wherever they were found.” Demonstrating that the Democratic Party could tackle “dependency” and economic marginalization in a manner that was consistent with free markets, meanwhile, would assuage the fears of white moderates that the party had accommodated too many demands of minorities and other liberal groups.

The developmental programs that captured Clinton’s imagination thus had a disciplinary logic: overreliance on for-profit entities would inevitably create new winners and losers amid a shrinking safety net. Yet New Democrats were willing to countenance this new social contract. Promises to expand ownership and unleash urban purchasing power were at odds with the fact that, by design, Third Way governance could only reinforce the trend of uneven development and disinvestment that had troubled the country since the late 1970s.

Expanding Opportunities

Across Geismer’s documentation of the Clinton administration’s market-based development programs and reforms, she clarifies how delegating public administration to the private sector, as well as groups that were formally nonprofit but generously funded by elites, was a form of privatization in the United States, particularly in the areas of local development, education, and regulations on corporate labor practices.

A few, lesser-known examples illuminate the extent to which applying business logic to government — and actively encouraging governance via the private and nonprofit sectors — consolidated the Democratic Party’s departure from New Deal liberalism. At the urging of Robert Rubin, the director of the National Economic Council who subsequently served as Clinton’s treasury secretary, the White House rejected at the outset of Clinton’s first term both a large-scale stimulus program to reverse years of urban neglect and an overt industrial policy to foster new manufacturing jobs. Instead, it set up a competition to award block grants to deserving “empowerment zones” — a concept borrowed from Republican Jack Kemp.

Alongside development programs that drew from Clinton’s experience as governor, empowerment zones were part of the administration’s twin goals to attract private investment to struggling municipalities and introduce competition to the public sector. As with welfare reform and urban renewal programs that pathologized public housing, the administration’s rationale was to instill poor communities with the values of personal responsibility. Simultaneously, it was eager to demonstrate public-private partnerships could stimulate grassroots initiatives and facilitate, as Geismer writes, “unlikely coalitions” between community groups, influential business interests, and local government.

The administration unreservedly applied these same ideas to education policy. Despite the protests of teachers’ unions that charter schools would worsen inequality, the White House embraced the arguments of Silicon Valley’s tech entrepreneurs and venture capitalists that charter schools should compete with underperforming (and chronically underfunded) public schools. Within a formally nonprofit arena, a crop of new foundations — NewSchools Venture Funds, for example, along with “behemoths” established by Eli Broad, Bill and Melinda Gates, and the Walton Family — partly privatized one of the most elemental public goods in US society.

Geismer writes that what amounted to a stealthy outsourcing of investment in education was draped in the language of improving accountability, even as the philanthropies themselves were not accountable to other civil society groups or the state. As Geismer suggests, the charter school movement enmeshed the party with its new donor class, amplifying a pattern in which wealthy elites secured tax write-offs through philanthropic endeavors.

Perhaps the most stunning break with New Deal liberalism concerned the administration’s approach to labor relations and corporate power. In addition to endorsing trade policies that accelerated the loss of manufacturing jobs, the administration sanctioned the spread of voluntary “self-regulation” in industry, a notion that flew in the face of decades of painstakingly won labor and antitrust law. Revelations of terrible abuses in the global supply chains of famous American brands as well as the resurgence of domestic sweatshops prompted the Clinton administration to advise firms to “self-monitor their sub-contractors” and launch the voluntarist Apparel Industry Partnership and Fair Labor Association.

These commissions, however, epitomized business-friendly corporatism and the New Democrats’ aversion to beefing up labor regulations. Grossly underfunded since the Jimmy Carter era, an overwhelmed Labor Department sought expedient action that emphasized “corporate responsibility”; other members of the administration, such as Robert Rubin and commerce secretary Ron Brown, strongly advised against language and measures that could in any way rattle major firms and global markets. The reliance on trade associations to police industry practices in place of vigorous government oversight weakened the labor movement and continued to expose vulnerable immigrant workers to exploitation and hazardous conditions.

The blessing the administration granted to self-regulation reinforced the dividing line of accountability in American society that a trio of laws — the 1994 crime bill, welfare reform, and the 1996 immigration act — would crystallize. While some corporations found it worthwhile to promote their brands on the basis of ethical consumerism, others such as Nike tried to whitewash the occasional damning news report with philanthropic grants and defensive arguments that echoed those defenses of globalization put forward by economists like Paul Krugman and Jeffrey Sachs. Without stronger domestic and international labor laws and environmental protections, it was up to businesses to determine what counted as ethical and how transparent they wanted to be about it.

Throughout Left Behind there are many other unnerving implications for the New Democrats’ role in perpetuating inequality, from the rise of mass incarceration to the ways asset inflation, deregulated finance, and Big Tech gave birth to a gig economy of piece-rate wages. At its worst, the Clinton administration approached impoverished communities with a civilizing mission redolent of older theories of capitalist improvement.

As Geismer notes in a striking passage on Clinton’s “New Markets Tour,” his team brought a coterie of executives to what they called “pockets of poverty” — the “left behind” places that, with the right private incentives, could at last be integrated into the modern economy. On one of the stops along this tour, an executive who was seated next to Jesse Jackson remarked as both men watched Clinton give a speech at the Pine Ridge Reservation that “I’ve always just seen Indian reservations. . . . Now, I see two supermarkets. I see a car dealership. I see 7,000 people wearing clothes. I see a market.”

Yet party leaders seemed utterly confident they were extending substantial opportunities to those who had been excluded from prosperity and development. The euphoria of the late ’90s boom virtually extinguished any concerns the Democratic establishment may have harbored over the social risks of a deindustrializing and financialized economy. But the trade shocks would come, and the places left behind — whether in Appalachia, East Saint Louis, or Michigan — would multiply, especially in the wake of the subprime mortgage crisis and the Great Recession.

The Victory of the Third Way

By the new millennium, corporate influence over the Democrats dwarfed that of organized labor. With each endeavor to reinvent government, Clinton burnished the party’s image with affluent liberals and moderates — an approach that held hostage the multiracial, working-class constituencies the party had forged between the New Deal and Great Society. As the Republican Party shifted in toto to the hard right, labor unions, minorities, and progressives were forced to work with a party that had not merely curtailed its ambitions for reform but accelerated the rise of global governance by multinational corporations, transnational financial institutions, and billionaire philanthropists.

The patterns of deindustrialization and declining union power from the late 1970s onward, meanwhile, had led party activists to become too consumed with winning back the presidency. In many respects, New Democrats and their Barack Obama–era successors were able to take grassroots support, from fundraising to voter outreach, for granted.

For the broad liberal-left, these conditions led to co-optation, mostly fractured resistance, and a certain myopia about the political stakes of the 1990s. On this point, the trajectory of civil rights activist and two-time presidential candidate Jesse Jackson is instructive. As Geismer attests, Jackson was the strongest Democratic voice for a multiracial left populism in the period between 1980 and 2000 and a fierce critic of the DLC’s priorities. Even so, she writes, Clinton and Wall Street magnates eventually won Jackson over to Third Way ideas and inspired him to promote a new iteration of black capitalism through his “Wall Street Project,” which energetically pursued investment in black entrepreneurship and greater representation of black professionals at major firms.

Jackson’s acquiescence offers a window to consider how Democratic elites throughout history have alternately accommodated or neutralized the demands of social movements. As ever, the United States’ two-party system makes it difficult to envision challenges to neoliberalism that do not rely, in some form, on the Democrats. The task, as political scientist Daniel Scholzman has argued, is that the Left must figure out, once more, how to anchor the party in a vision to “transform American life” and “see over the horizon.”