How the Democrats Learned to Stop Worrying and Love the Free Market

In the 1990s, the New Democrats trusted corporations to do the right thing. The results were disastrous.

President Bill Clinton laughs after delivering remarks on welfare reform during the first full cabinet meeting of his second term, April 10, 1997. (STEPHEN JAFFE/AFP via Getty Images)

In April 1907, Public School 67 in Manhattan held a ceremony for the graduates of its industrial evening school. Three hundred and twenty-three men and women, most of them black, received certificates in trades such as millinery, dressmaking, and mechanical drawing. Thirty-six of those students with a perfect attendance record were honored with a supper reception after the ceremony, held in a model apartment suite where the school offered instruction in “domestic science” to the women.

The group that organized the ceremony, the Committee for Improving the Industrial Condition of Negroes in New York, hoped to establish a second industrial school in Brooklyn. Such programs would help black workers secure permanent employment, the magazine Charities and the Commons predicted: industrial education and certification would also “increase the confidence of the general public” in the efficiency of black workers, in defiance of racial and class stereotypes.

Almost ninety years later, in August 1996, President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), eliminating “welfare as we know it.” A black woman named Lillie Harden stood by his side in the Rose Garden. Harden was a single mother from Little Rock, Arkansas, who had enrolled in the state’s welfare-to-work program as a cook at a Best Western. Clinton had often invoked Harden’s story as evidence of the material and psychological benefits of stable employment in lieu of government aid. (By 1996, Harden had a new job at the deli counter of a supermarket.)

As Lily Geismer argues in her new book, Left Behind: The Democrats’ Failed Attempt to Solve Inequality, Harden served as an archetype of the “deserving poor,” a contrast both to Ronald Reagan’s infamous “welfare queen” caricature and Clinton’s own racialized representations of criminal offenders. Like those of the black graduates of Public School 67, her achievements represented the possibility of individual triumph over racism and poverty.

For both certain Progressive Era reformers and the New Democrats, the idea of the deserving poor served not only as a rejoinder to negative stereotypes of poor people but also as a means of understanding and addressing inequality. Outraged by the conditions of immiseration that workers experienced, many Progressives nevertheless believed that corporations could advance the common good: if made to recognize the moral and actual value of treating hardworking employees humanely, employers would cease the practices of discrimination and exploitation that caused them harm.

These reformers had to resolve the tension between their observations of the widespread suffering caused by industrial capitalism and their faith in its ultimate capacity to bring about human flourishing. Some of the poor, they reasoned, suffered as a result of vice or idleness. Others did abstain from immoral temptations, but their continued suffering was an aberration — the result of poor luck, unhappy circumstance, or exceptional corporate greed.

With training and effort, these deserving subjects could transcend poverty. Even as they fought to eliminate the worst abuses of corporations, reformers also tried to make workers better suited to corporations’ needs by imparting the values of an industrial work ethic and thrifty spending.

While Progressives typically saw the aberration of poverty as the evil of capitalism’s excess, Geismer argues that the New Democrats saw it as evidence that capitalism had not spread far enough. Little Rock, Arkansas, was, in their formulation, one of the places “left behind” by globalization, its poor, aid-dependent residents unable to take advantage of a booming market’s opportunities for prosperity.

But if they understood its problems somewhat differently, reformers at the beginning and end of the twentieth century shared an agenda for capitalism’s improvement. Like the founders of industrial training schools, the New Democrats believed that they could persuade investors and employers to uplift the poor, if only the poor first uplifted themselves through education and thrift. Meager substitutes for large-scale redistribution, these programs of individual empowerment made inequality worse rather than better.

Welfare as We Know It

Historians of US politics have often traced the arc of the twentieth century as the “rise and fall of the New Deal order.” During the Progressive Era, that narrative goes, reformers lacking a consistent political base made slow progress, mostly on the state level, toward the regulation of business and the support of the poor. It took the crisis of the Great Depression to unite a coalition of rural farmers and urban industrial workers behind the Democratic Party, which would move beyond incremental reform to build a new industrial relations system and create a comprehensive social safety net.

To be sure, historians have long seen the New Deal order as both fragile and flawed. The welfare state that Depression-era Democrats created is often characterized as “two-track”: with an upper track of generous, mostly invisible benefits (such as housing and health care) conferred through the private sector, sometimes through the labor movement, and a lower track of direct but stingy and stigmatized government support.

That divide enabled many of the recipients of upper-track benefits — namely, white heterosexual men and their dependents — to see their own prosperity as the product of their own effort. When deindustrialization, inflation, and outsourcing eroded the material security of the workers that federal policy deemed deserving, many of them were ready to embrace a Republican Party that denounced supposedly freeloading “welfare queens.”

Geismer, a historian at Claremont McKenna College, agrees with aspects of this narrative, but thinks it fails to fully explain the political outcomes of the last half century.

After all, if the Republican Party emerged from the 1970s so thoroughly victorious, how have the Democrats managed to secure the presidency for nearly half of the past forty years? And if the Democrats merely co-opted the Republicans’ free-market values, then what have the parties been fighting about so bitterly in Congress and the media for all this time?

Geismer’s first book, Don’t Blame Us: Suburban Liberals and the Transformation of the Democratic Party, argues that liberal knowledge workers in places such as the Route 128 suburbs of Boston did not merely cop to conservative, free-market ideology or turn away from economic issues entirely. Instead, they advocated for a combination of “equal opportunity” and individualist meritocracy, a formula they believed would ensure electoral success.

Turning from the grassroots to the Democratic elite, Geismer finds a similar pattern of thinking among the party’s intellectual and political leaders in her new book. Al From, one of the founders of the agenda-setting Democratic Leadership Council (DLC), began his career investigating the implementation of Lyndon Johnson’s War on Poverty in the Deep South. While Johnson pledged to extend the New Deal’s reach to poor black Americans, black communities often had to wrest control over programs like Head Start from local, white power structures. Watching activists like Fannie Lou Hamer fight for the autonomy of aid recipients, From came to believe that a top-down, bureaucratic welfare state harmed marginalized groups.

Democratic Leadership Council cofounder Al From and Hillary Clinton the day after Election Day, 1992. (Wikimedia Commons)

This undoubtedly selective interpretation of the activists’ agenda — Hamer and others fought for greater government assistance, not less — led From to seek an alternative to direct cash assistance. Like his era’s conservatives, From saw the War on Poverty as a failure. But unlike them, he believed that the government still had a role to play in “empowering” the poor.

The DLC would ultimately find one alternative to welfare in the provision of microloans to the small businesses of the poor. Geismer traces the history of microlending in the United States to a little-known organization called ShoreBank, a commercial bank that sought to spur redevelopment in Chicago’s impoverished South Shore neighborhood. Like From, the founders of ShoreBank became disillusioned with top-down anti-poverty programs, and they found some success in funding “ma-and-pa rehabbers” to improve South Shore’s dilapidated housing stock.

The organization, along with simultaneous efforts to finance women’s informal enterprises in the Global South, captured the imagination of Bill Clinton, who became the DLC’s champion. As Governor of Arkansas and then as president of the United States, Clinton promoted microlending and a broader array of programs designed to encourage entrepreneurialism as an alternative to welfare.

But outside of the South Shore, microlenders struggled to find willing lenders. The nation’s poorest residents usually lacked the means to start a business even with up-front capital, and many who tried weren’t successful. Microlending’s rare successes made compelling human-interest stories for the press, but it hardly met the broad needs of the welfare recipients whose direct aid Clinton simultaneously slashed.

Shortly after the Rose Garden signing, Harden suffered a stroke, lost her job, and found herself unable to pay for her prescription drugs. She gave a damning assessment of Clinton’s dismantlement of welfare to a journalist a few years later: “It didn’t pay off in the end.”

Do the Right Thing

Many experts now agree that welfare reform increased hardship for the nation’s poorest earners. One sociologist who once characterized PRWORA as “one of the greatest successes of contemporary social policy” recently told the Washington Post, “I was wrong.” And it was clear, from the beginning, that microlending fell short of boosters’ promises: Arkansas’s Good Faith Fund struggled to stay out of the red until it shifted its focus to the owners of established businesses seeking loans of more than $25,000.

Clinton and the DLC could disregard such worrisome signs, it seems, because material outcomes were only part of the point. Just as much as they wanted to increase former welfare recipients’ incomes, Geismer explains, the New Democrats aimed to transform their psyches.

Contending that “a shortage of confidence . . . is just as debilitating as a shortage of cash,” Clinton believed microlending would make the poor think like opportunity-seeking entrepreneurs. In turn, the newly market-savvy poor would attract the interest of employers and investors eager to discover “untapped markets.” Like the graduates of Public School 67’s industrial training program, the recipients of microloans would demonstrate their worthiness to the arbiters of economic fortune.

Of course, microlending itself was only one aspect of Clinton’s broad agenda for economic reform. But the second half of Geismer’s book documents how the Clinton administration adapted its logic to other policy areas, including housing, education, and labor. In each instance, Geismer shows that the administration cut back on or eliminated programs that offered direct assistance to the poor, instead “empowering” former aid recipients to seek out opportunities in private markets.

Like microlending, these policies often originated with sincere efforts to address the limitations of the mid-century liberal order. It might surprise some readers to learn, for instance, that one of the early promoters of charter schoolers was Albert Shanker, head of the American Federation of Teachers (AFT). Shanker, like other liberals in the 1970s, turned to school choice in the wake of the failure of court orders to fully desegregate schools. Shanker saw charters as an alternative to private vouchers that could facilitate integration while providing way for teachers to experiment with educational reform within the public system.

The AFT soon found, though, that charters undermined both desegregation efforts and teachers’ labor rights. The schools offered states a way to bypass collective bargaining agreements and divert funding from public schools at large (all without meaningfully improving outcomes for students). Despite securing some early concessions, the teachers’ union saw its ranks diminished and power weakened as the charter movement grew.

Meanwhile, the National Association for the Advancement of Colored People (NAACP) and other civil rights groups warned that charters showed little proof of meaningfully improving outcomes for students of color. In fact, far from advancing integration, charter schools are among the most segregated schools in the nation. But the Clinton administration was paying less attention to the AFT and the NAACP than to Silicon Valley philanthropists, who became the charter movement’s major boosters.

The case of charters is one of many instances in Left Behind when opposition seems easily bowled over by the power of the New Democrats’ elite coalition.

Geismer’s top-down focus tends to emphasize big-picture outcomes over the local implementation of policy, and future historical research may uncover more significant — and perhaps more successful — resistance to New Democrats’ policies on the local level. The New Deal order faced challenges from both the Left and the Right at every turn: there’s no reason to believe that there was any less struggle over the policies that succeeded it.

Still, it’s undeniable that the big picture was bleak. One of Geismer’s most damning accounts of the Clinton administration’s failures comes in a chapter on its response to human rights campaigns to eradicate sweatshop labor conditions in the garment industry. The Clinton administration, she finds, left the regulation of the industry to the industry itself, allowing domestic manufacturers to evade federal lawsuits by conducting their own investigations of subcontractors’ labor conditions. Meanwhile, the administration’s Apparel Industry Partnership established an international code of conduct that was both voluntary and unenforceable. Unsurprisingly, garment manufacturing conditions remain abysmal in the United States and abroad.

If it seems absurd to charge companies with their own regulation, that’s because it is. But it’s only a logical extension of the belief, central to the thinking of so many New Democrats, that the government can convince employers to act in the interest of the common good. Lacking means to legally enforce desired regulations, the Progressives often relied on what they called “moral suasion” to compel landlords to lower rents and employers to improve working conditions.

A hundred years before corporate social responsibility pledges, the National Consumers League created a label for garment manufacturers that set a minimum wage and established “humane conditions.” Reformers had to hope that exploitation was an aberration, that companies would choose to do what was right. They didn’t.

As historian Eileen Boris recounts in her 1994 book Home to Work: Motherhood and the Politics of Homework in the United States, the Consumers League eventually abandoned the label strategy, in part because the International Ladies’ Garment Workers’ Union (ILGWU) convinced its leaders that the voluntary labeling undermined workers’ effort to secure better standards through collective bargaining. Instead, the left-moving organization began pushing for federal minimum-wage legislation.

“Regulation of working conditions through organized persuasion was not enough,” its leaders stated.

The New Moralizers

The significance of Left Behind isn’t only its assignation of blame for today’s inequality, though the Clinton administration deserves plenty of it. It’s the account it gives of the New Democrats’ vision, which, if accurately understood, can also be contested.

Instead of viewing the twentieth century as an arc that rises from conservatism to liberalism and falls back to liberalism again, we can trace a continuous tension between liberals’ observations of widespread and structural poverty and their frequent insistence on morally evaluating and individually uplifting the poor. That moralizing tendency never fully disappeared: the New Deal’s two-track welfare system, after all, marked clear distinctions between the “deserving” and “undeserving” poor. The New Democrats’ agenda, Geismer shows us, was not only a response to conservative pressure or an abandonment of material concerns, but a new manifestation of that long-standing reformist vision.

Since the Progressive Era, this vision has led certain reformers to believe that if only the poor worked a little harder or spent a little less, corporations would respond in moral kind. Time and again, those reformers were proven wrong. But we can fight to move them, as early labor unions and radicals did, toward the fulfillment of their own ideals of a just world. We’ll need to convince them that persuasion, incentive, and empowerment alone don’t effect large-scale change, and that we all deserve more than this.