How Bill Clinton Became a Neoliberal

Bill Clinton came to the presidency seeking to reinvent the New Deal for an era of deindustralization. Instead he consolidated the defeat of organized labor and hollowed out the welfare state.

Bill Clinton taking the oath of office, January 20, 1993. (Library of Congress via Wikimedia Commons)

Bill Clinton did not enter the White House a neoliberal; circumstances, however, forced him to become one.

In their new book, A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism, Nelson Lichtenstein and Judith Stein tell the story of Bill Clinton’s move from left- to neo-liberalism. In many ways, however, their book isn’t really about Clinton. At the start of his presidency, they show, Clinton hoped to manage capitalism to the benefit of ordinary people. He ended up a booster of deindustrialization and deregulation. His failures were, according to Lichtenstein and Stein, not his alone but those of postwar liberalism, which was fundamentally incapable of understanding capitalism or defending the small enclave of social democracy it had erected against economic slowdown and deindustrialization.

Stein, who passed away in 2017, was the author of two indispensable accounts of twentieth-century political economy, Running Steel, Running America: Race, Economic Policy, and the Decline of Liberalism (1998) and Pivotal Decade: How the United States Traded Factories for Finance in the Seventies (2011). Both explained the transformations of American domestic politics in the context of the country’s broader Cold War crusade against communism. It was, Stein argued persuasively, the decisions of US policymakers, driven by hubris and anti-communism, that created the conditions that made deindustrialization possible. In her words, “Europe and Japan prospered after World War II because American leaders decided that they would not retreat behind two oceans, as their predecessors had done after World War I.” But a world of fast-growing capitalism powered by manufacturing exports drove down costs and sped up the pace of deindustrialization in the United States, undermining the social compact on which the New Deal order was predicated.

Stein began working on A Fabulous Failure with the aim of trying to understand why the Clinton administration had not used the prosperity of the 1990s to make the economy more responsive to the needs of ordinary people. After her death, her agent approached Lichtenstein, a longtime colleague of Stein’s and scholarly interlocutor, and asked him to finish the project, an apt choice given the historian’s background. In The Retail Revolution: How Wal-Mart Created a Brave New World of Business, he, like Stein, sought to understand the transformations in American domestic political economy, but focused on how productive work was slowly being supplanted by companies who could control supply chains, like Wal-Mart.

A Fabulous Failure is a combination of these two stories, an account of how left-liberal policymakers failed to reckon both politically and intellectually with the new economic reality.

“Bill Clinton’s path to power,” Lichtenstein and Stein write, “was not driven by an ideology that can be securely labeled ‘neoliberal.’” At first glance, that claim might seem hard to support. After all, this was the president who implemented the North American Free Trade Agreement (NAFTA) and oversaw the imposition of work requirements onto welfare; who failed to shore up labor law against business assault; who championed the World Trade Organization; who dropped the ball on health care reform; who deregulated not only telecom but also the finance industry, leading more or less directly to the 2008 recession; who prioritized balanced budgets over social spending, privatized large swathes of government bureaucracy, and who claimed that “the era of big government is over,” ushering in a period of austerity and income inequality.

Nevertheless, Lichtenstein and Stein insist, Clinton was not a wolf in sheep’s clothing. The former president not only accepted but took incredibly seriously the intellectual bromides of the Third Way, according to which the old conflicts between labor and capital were a thing of the past. It would only take a brief glance at a graph of labor’s declining share of income since the 1970s to show that this analysis was wildly off.

Rather than vilifying or mocking Clinton, Lichtenstein and Stein seek to understand him. The result is a portrait of both a presidency and a moment in history that is more ambiguous, and far more interesting, than mere finger-pointing would allow. Clinton’s was a genuine attempt to provide a new basis for a reestablishment of the New Deal social contract, but it was a project undertaken without any serious analysis of the political or economic forces that had undermined the closest the United States had ever come to social democracy.

Bye America?

In 1984, when he was thirty-eight years old and the governor of Arkansas, Bill Clinton tried to protect the jobs of ninety workers employed at a small textile factory in the town of Brinkley. Between 1980 and 1985, more than 250 American garment factories had closed their doors as manufacturers in search of cheap labor fled to Central America and East Asia. One company sourcing much of its inventory from abroad and driving the globalization of supply chains was Wal-Mart, itself headquartered in Arkansas and a power broker in the state.

Seeing an opportunity, Bill Clinton called up the head of Wal-Mart’s stores and asked the company to buy some of its merchandise from Brinkley. By embracing the changing nature of both retail and production, Clinton hoped that he might save some people their jobs. Thus began Wal-Mart’s “Buy American” campaign, which Governor Clinton backed nationally. Clinton hosted conferences, urged other Southern governors to follow his lead, and encouraged local firms to produce for the retail giant. He called Buy American “an act of patriotism” that made “good economic sense in the long run.”

Sadly, it was not, and it didn’t. It was a confused, superficial policy (just like when thirty years later Donald Trump called for bringing jobs back to the United States) that failed to take seriously just how much downward pressure international competition put on workers’ wages, and that in a globalized world the only way to buy American was either to lower the conditions and pay of American workers to the level of their competitors, or subsidize the costs of production in ways that were hard to justify in a nation in which such funds could perhaps be better spent on health care and public services. When workers employed by the owner of the factory in Brinkley tried to unionize, the owner warned them that Wal-Mart would turn the factory into a chicken coop before it bought union-made goods. The head of the union asked Clinton to intervene on its behalf. The governor agreed to sit down with her but refused to do anything more. Wal-Mart wielded too much power in Arkansas, and the union too little, to justify taking labor’s side. The labor movement in Arkansas might have gotten him elected, but at the end of the day, he was not their man. Clinton’s impulse to help ordinary working people was genuine, but finding himself caught between a transforming industrial landscape and a powerful corporation, his instinct for survival won out against his good intentions. The result was failure.

The basic plot of the Buy American fiasco, according to Lichtenstein and Stein, was also the story of the Clinton presidency. Clinton, reacting to major changes in the structure of American capitalism, would begin with an intention to help ordinary working people. In pursuit of that end, he would reach out to capital in an effort to achieve a corporatist workaround that sought to make reform palatable to both big business and politicians through enlightened appeals to reason. But when push came to shove and Clinton was forced to choose between powerful private interests and substantially less powerful wage earners, political expedience would send Clinton into the arms of business.

In light of the astounding economic boom of the second half of the 1990s — 116 months of growth averaging 4 percent a year and unemployment falling below 4 percent — it is easy to forget that the period was also a moment of tectonic shifts and profound uncertainty in the history of capitalism. The end of the Cold War had doubled the global labor force available to manufacturers, creating an irresistible temptation for American employers to offshore US production. At the same time, the fall of the Soviet Union dealt a body blow to the idea that there might exist any alternative to capitalism. International competition threatened US economic hegemony, with Japan in particular looming as a major competitor. At home, the supremacy of the Fordist model of high wages and unionized workplaces was coming undone as major manufacturing sectors like the auto industry lost global market share. In its place, companies mastering distribution and supply chains rather than production, like Wal-Mart, were growing increasingly powerful, even as they replaced “good” union jobs with precarious, low-pay, benefit-poor, nonunionized employment. And the labor movement, at its weakest since the end of World War II, could not apply significant political pressure to influence its ostensible champions in government.

The economic nostrums of the postwar period appeared inadequate to explain this new reality. In their place arose an ideological framework meant to account for recent events that took markets — and capitalism — for granted. But, as Lichtenstein and Stein make clear, simply invoking the term “neoliberalism” doesn’t explain why these ideas made sense to left-liberals in Clinton’s administration such as Robert Reich, Joseph Stiglitz, Laura Tyson, and Ira Magaziner.

This cohort (including Clinton himself) was committed to a managed variety of capitalism, rather than the free market. Their models for sound economic governance were the corporatist states of Germany and Japan, nations that appeared to threaten US economic hegemony (especially Japan, which would loom large in the liberal imagination until financial disaster in East Asia popped that bubble) while also showing ways that capitalism could be shaped through central authority.

According to Lichtenstein and Stein, the new explanation that informed so much of the analysis of the Clinton administration, a “set of seductive illusions,” as they put it, had two basic tenets. First, that the only left-liberal electoral program capable of garnering support required fiscal discipline, balanced budgets, and reduced government spending. As Obamacare and the Inflation Reduction Act have since shown, not to mention the New Deal itself, this proved to be dead wrong. It also meant that Clinton’s administration worked incredibly hard to achieve what were at heart right-wing priorities, namely, austerity.

Second, practically the entire political class of the 1990s had come to believe in the arrival of a “new economy,” one where the old rules of capitalism no longer applied. The combination of globalization and technological transformation brought about by the internet and the so-called information revolution, or so went this line of thinking, meant the inevitable abolition of the American blue-collar worker. While early in his presidency Clinton was committed to enacting some kind of industrial policy, it remained mired in the realm of incentives for capital, rather than out-and-out state planning. For example, Reich, Clinton’s labor secretary, saw the loss of manufacturing employment as inevitable. The US economy, he held, would instead be characterized by high-wage, high-tech, high-skill employment. “The fundamental line running through today’s workforce,” he claimed, speaking a truism of the era, “is based on education and skills.” In this new world, it did not make sense to defend old manufacturing jobs or even unions. “The jury,” said Reich, “is still out on whether the traditional union is necessary for the new workplace.” Globalization, he argued, incentivized capital and labor to work together. Along those lines, it fell to government to help workers upskill (“learn to code” in today’s terms).

The growing income gap, Reich held, was in reality “a skills gap.” Clinton’s support for NAFTA — arguably his biggest blunder, one that alienated much of the Democratic base — might have been a ploy to shore up his right flank, but it also maintained a certain plausibility as a “reasonable” measure as part of his broader story about the importance of upskilling to prepare for a future without American manufacturing.

These ideas were, simply, incorrect. Or in the words of Lichtenstein and Stein, “the Clintonites got both the politics and the economics wrong.” The economy was not nearly as “new” as it was made out to be, with capitalism remaining, stubbornly, capitalism, along with its class antagonisms. The new jobs created by the Clinton boom of the mid-1990s were not high-tech, high-skill employment but rather service-sector jobs at Wal-Mart. And the political capital Clinton spent in winning balanced budgets and fiscal surplus alienated much of the working-class, so much so that the 1994 midterms — which, post-NAFTA, ran like a chasm through his presidency — witnessed the first year that the South elected more Republicans than Democrats to both the House and the Senate. The defection of Southern white voters from the Democratic Party was never made good. One might talk of Nixon’s Southern strategy, but it was Clinton who truly lost the South for the Democratic Party.

But rather than testifying to Clinton’s duplicity, Lichtenstein and Stein show, his adherence to these ideas should instead serve as an indication as to just how fluid, even revolutionary, the 1990s appeared to center-left thinkers at the time. Unable to imagine an alternative to capitalism at this, its most triumphant hour, this matrix of ideas allowed Clinton and his allies to find a way, at least theoretically, to manage the market. Their failure to do so was a testament not only to the uncertainty of the moment, but also the weakness of their analysis — the price they paid for presiding over a party without a left-wing intellectual outlook capable of providing a structural analysis of capitalism.

Reform From Above

According to Lichtenstein and Stein, Clinton’s failure to bring about major social reform stemmed from the absence of a deep base of popular activism and energy behind his program. Franklin D. Roosevelt, Barack Obama, and even Joe Biden could rely on a surge of popular left energy in the streets to back their attempts at reform (even if they also, at times, squandered it). Clinton, on the other hand, worked from a position of relative weakness. Not only was the labor movement in retreat, but Clinton himself kept it at arm’s length. Lichtenstein and Stein chalk up his coolness toward labor as a product of his formation in the 1960s. Like many young people of the New Left, Clinton was inspired by the civil rights movement and disdainful of organized labor, ignoring the many places where the two tendencies overlapped, including in his own home state of Arkansas.

As president, hemmed in by ideological blinkers and lacking the support of a truly grassroots movement, Clinton tried to finesse the problem of reform. This led to perhaps his most spectacular failure, one so big that Lichtenstein and Stein require two chapters to discuss it: the implosion of health care reform. It was a serious piece of legislation. While not a single-payer system, still the Health Security Act of 1993 proposed price controls. That made the plan a more radical act of social provisioning than that championed by Obama fifteen years later. But in his strategy to get the bill passed by relying on the support of employers and the insurance industry, Clinton’s plan became complex and unwieldy. Without a popular movement behind it, the proposal instead floated on a cloud of technocratic cleverness. It wasn’t enough, and when the Chamber of Commerce and the National Association of Manufacturers finally came out against the bill, there was nothing left to hold it up. Health care reform was stillborn.

Nor did it help that Clinton made a crucial concession to financial capital in his Treasury Department. This came in the form of Treasury officials Robert Rubin and Larry Summers. Just as compromising, Alan Greenspan at the Federal Reserve basically threatened Clinton with higher interest rates if he failed to exercise fiscal discipline, another example of how the democratically unaccountable central bank has the power to influence domestic policy of all kinds. As Clinton failed to achieve his corporatist ambitions, Rubin and Summers gained increasing authority in the White House.

They advised Clinton to prioritize balancing the budget over stimulus spending. “I have a jobs program,” Clinton told Rubin, “and my jobs program is deficit reduction.” The results were bleak. Polling would show that workers in 1996 were more concerned about being laid off than they had been in 1991, despite the Clinton economic “boom.” Lichtenstein and Stein make the refreshing argument that even this decade of stupendous economic growth was itself a kind of failure; much of the new wealth floated to the top of society, obscuring a period of labor weakness and capital flight. Subsequently, the United States became a good place for the wealthy to house their cash, but not to be a working person.

As Clinton sank deeper into scandal (failures of an entirely different order that Lichtenstein and Stein acknowledge but don’t waste time discussing in detail), Rubin and Summers gained the moral authority to push for completely unrestricted global capital flow, leading to a great deal of instability. Clinton had wanted a Bretton Woods II but could not marshal the political allies to achieve it, his “progressive instincts,” in the words of Lichtenstein and Stein, giving way “to a neoliberalism backstopped by all the ideological and organizational firepower mobilized on behalf of the US Treasury and its allies.” And it would be Rubin and Summers who, proper handmaidens to the finance industry, called for the deregulation of derivatives, with disastrous consequences come 2008.

Smoothing History’s Way

A question hangs over A Fabulous Failure: How much could the Clinton administration have bucked the forces then sweeping the planet toward globalization and neoliberal hegemony? Surely, Bill Clinton was an imperfect vehicle to advance a pro–working class agenda, but in this telling, he seems perpetually boxed in, trapped by both the post–Cold War celebration of the market and also the inertia of global capitalism. Some failures were easily avoidable, NAFTA first among them. Likewise, Clinton need not have signed legislation deregulating finance and telecom — although that move was broadly endorsed across the political spectrum, in no small part because of inflated claims about the “new economy.” Then there were Clinton’s personal failures: his aloofness from the labor movement, his willingness to throw allies under the bus to ensure his own political survival, and his own individual weaknesses that sunk his administration in scandal.

But as Lichtenstein and Stein demonstrate, those failures were less decisive than those of liberalism itself in the last quarter of the twentieth century. It remains unclear what Bill Clinton could have done to make globalization work for ordinary people, especially given the rhetorical and intellectual ascendence of an ideology of market fundamentalism. Globalization and the weakening of the labor movement had scrambled the old calculus; the New Deal order could no longer provide satisfying explanations or templates for the future. It would have taken a leader with great vision and a principled commitment to labor, a class warrior even, to do better. Such people existed, but they had no base within the Democratic Party, nor did they have any organ with which they could cobble together election-winning coalitions. Instead, the United States was bequeathed a leader who, rather than stand athwart history, chose to smooth its way.

To get an idea of the Clinton White House’s sense of historic inevitability, consider what Hillary Clinton told to a group lobbying in 1993 for single-payer health care. “You make a very convincing case that single-payer would be a good reform,” she said, speaking to them in the West Wing, “but is there any force on the face of the earth that would counter the money the insurance industry would spend to defeat it?” The forces that in the past had allowed for a meaningful expansion of the welfare state had indeed been immense: the Great Depression, the industrial labor movement, the civil rights movement. Rather than hope to revive this kind of popular energy, the Clinton administration instead saw it as a thing of the past. The future, they thought, would be made through technical savvy, not struggle. Given the realities of the 1990s, that view made some sense. It was, unfortunately, dead wrong.

In demonstrating both the internal and external limits on the Clinton administration’s ability to strengthen the welfare state, Lichtenstein and Stein have not only provided a singularly useful analysis of global capitalism at the end of the twentieth century — they have also shown how popular movements are crucial in realizing meaningful social change. In their absence, reform from above can quickly become a rollback of social provisions. Bill Clinton, at least in his first term, wanted to find a way both to renew the welfare state and to manage American capitalism in the midst of churn and uncertainty. There, he failed. He could not navigate the crosscurrents of the moment. And in dissecting the passion play that was the Clinton administration, A Fabulous Failure provides an immensely usable history. Because the problems with which Clinton struggled — how to create growth and redistribute it in the context of a world characterized by strong economic competition — remain with us. As Lichtenstein and Stein demonstrate, to overcome that dilemma will require strengthening the power of labor and the creation of a more just global international order in which the prosperity of one nation does not come at the cost of another.