Determinants of Presidential Economic Policies: the Case of Clintonomics


Bill Clinton promised during his 1992 presidential campaign to “rebuild America” through an “industrial policy” that included substantial investment in strengthening both physical and human infrastructure: roads, bridges, health, education and vocational training. But soon after his inauguration, the President began gradually to modify his promised “bold economic agenda” and, essentially, to advocate a moderate Republican austerity agenda keen to balancing the budget, ending “big government,” and reforming the welfare system. Why?

Some observers attribute this policy adaptation to the usual departures of elected officials from their campaign promises. Others relate it to a failure of nerve, character, or principle. There are also those who blame the dominant conservative forces in the Congress.

Without discounting the contributory effects of these factors, this study will argue that Clinton’s economic policies (like those of other Presidents before him) are determined by the more fundamental, though often submerged, “laws of motion of capitalist development,” to borrow a phrase from Karl Marx. I will seek to identify such laws in the context of the Marxian theory of the long waves of capitalist development.

To this end, I will, first, define the theoretical framework of my study in the context (or in terms) of the Marxian concept with regard to the long waves of soico-economic developments under capitalism (Part I). I will then briefly look at the three long waves of economic contraction that have occurred in the United States since the mid-19th century, and the restructuring efforts by business and government leaders to reverse these long contractionary swings (Part II). In Part III, I will analyze President Clinton’s economic policies in the context of the theory and experiences discussed in Parts I and II. In the Fourth and final Part, I will set forth the major conclusions of this study, as well as suggest from these conclusions policy or political implications for the left, and for labor.



An essential characteristic of capitalism is that it grows in an erratic, contradictory, and cyclical pattern: periods of economic expansion are followed by those of contraction, and vice versa. Economists make a distinction between the “usual” business cycles, ranging from few to several years, and the longer industrial cycles of few or several decades known as long cycles or “Kondratieffs,” after the Russian statistician who systematically highlighted this historical rhythm. While the usual business cycles are generally precipitated by factors such as fluctuations in inventory investment (3-4-year cycles) or changes in fixed capital equipment (7-11-year cycles), long industrial cycles, also called the “long waves” of capitalist development, are shaped by long-term, economy-wide changes in the average rate of profit, and hence in the accumulation of industrial capital.

This explanation of the long waves in terms of the changes in the average aggregate rate of profit follows from the Marxian view of capitalist development, according to which the theory of the long waves is, in essence, the theory of capital accumulation or, more precisely, the theory of the changes in the long-term average aggregate rate of profit. There are alternative explanations of the long swings which discount the role of the rate of profit and capital accumulation in favor of price and money movements, or purely technological innovations. They do not therefore sufficiently explain the role of major economic indicators that contribute to the determination of the long swings (Mandel 1980; Maddison 1977).

The Marxian theory of the long waves is, in our opinion, superior to alternative theories not only because it better reflects the role of economic factors but, more importantly, because it also reflects non-economic factors; that is, political and institutional measures that government and business leaders employ during long waves of economic contraction in order to restore capitalist profitability. The long waves, according to this perspective, are therefore reflections of complex dialectical social, political, and economic trends and developments (Mandel 1980; Shaikh 1987; Van Duijn 1983). Due to its holistic approach, we adopt this perspective of socio-economic developments as the theoretical framework of our study as it integrally ties together the major tendencies of technical change, profit rate, capital accumulation, and class struggle under capitalism. The following thumb-nail sketch of the most well-known long waves of expansion and contraction provides some evidence of these complex, interconnected developments.

1. 1848-97 cycle: 1848-73 expansion, 1873-97 contraction.

2. 1897-1937 cycle: 1897-1929 expansion, 1929-37 contraction.

3. 1948-? cycle: 1948-73 expansion, 1973-? contraction.

Mainstream theories of the long waves attribute the alternating periods of boom and bust in the long industrial cycles to the metaphorical “invisible hand” of the market: both upturns and downturns are automatically brought about by the purely endogenous economic factors of the market mechanism. In the Marxian theory, by contrast, only the turn or transition from periods of expansion to periods of contraction can be explained by the inner laws of the accumulation of capital—specifically, by the law of the tendency of the average rate of profit to fall. The reverse is not true; that is, the turn from long waves of contraction to those of expansion cannot be explained by purely economic factorsPolitical and institutional changes, or “extraeconomic” factors, are usually necessary to bring about such upward transitions.

In what follows we will take the theory and evidence of long waves as a given, and simply draw the conclusion that, after long waves of expansion, relatively advanced capitalist economies experience long waves of decline and contraction which can be overcome only through “successful” political and institutional restructuring. U. S. capitalism has experienced three such major economic crises since the mid-19th century: those of the 1873-97, 1929-37, and 1973-? years. A brief account of the restructuring strategies that the U. S. policy makers adopted to overcome these crises—especially those adopted since the late 1970s—will help understand President Clinton’s economic policies.



(a) The First Great Depression (1873-97). The long economic hardship that began in the early 1870s and lasted through the late 1890s was bound to create social tension. The resulting reactions of protest occurred both among the working class and the urban poor as well as the farming population. While labor protests were largely sporadic, they were nonetheless threatening to capitalist interests as they were at times quite radical. The farmers’ protest activities developed into a more systematic and well-organized movement as it constituted the backbone of the Populist movement and the People’s party. This boded ill for the interests of big business and industrial giants; and the pillars of U.S. capitalism felt threatened:

Business interests rallied as if in a fire emergency. They concluded that agrarian and urban interests must be split….Beginning with the congressional elections of 1894, the wealthy mobilized their support behind the Republican party, pouring millions into their campaigns. They concentrated on building an electoral alliance with industrial wage earners, seeking to forestall their potential coalition with populist farmers in the West….The strategy worked….The populists lost, soon to disappear from political arena, and a new and powerful electoral coalition guided by big business had triumphed. (Hays 1957: 46; Bowles/Gordon/Weisskopf 1990: 21-22).

Building on this newly gained political strength, big business moved swiftly on several fronts to implement further political and institutional changes in order to bring about economic recovery. On the labor front, it combined ruse with sheer force: on the one hand, big business promised tariffs to protect “American jobs”; on the other, its leaders called out federal troops and private militias to crush unions. Simultaneously, business and government leaders sought to end the so-called “cut-throat” competition of the 19th century by removing political, legal, and institutional barriers from the way of industrial and business combinations and consolidations. This paved the way for the gigantic wave of mergers and takeovers around the turn of the century, so much so that between 1898 and 1903 about one-third of total industrial assets belonged to large corporations (Ibid.: 22).

Extensive internal political and institutional restructuring, combined with the opening of markets abroad, helped to end the protracted economic crisis that had begun in the early 1870s and to usher in a new long wave of economic expansion that lasted until the late 1920s.

(b) The Second Great Depression (1929-37). The economic crash of 1929 and the ensuing long depression resulted from a complex set of factors inherent to the contradictory developments of the capitalist system. A discussion of those factors is beyond the scope and the focus of this study. Whatever its causes, the fact is that the depression made living conditions for the overwhelming majority of people extremely difficult.

Once again, as during the great depression of 1873-97, economic distress precipitated popular rebellion–large numbers of the discontented frequently took to the streets in the early 1930s. And, once again, business and government leaders clearly understood the gravity of the situation and the need for reform to fend off revolution:

The fact that people acted as they did, in violation of law and order, was itself a revolutionary act. People suddenly heard there was a Communist Party. It was insignificant before then….F.D.R. was very significant in understanding how best to lead this sort of situation….The industrialists who had some understanding recognized this right away. He could not have done what he did without the support of important elements of the wealthy class (as cited in Terkel 1970: 268-69).

Two principles lay at the core of this big business-government consensus. The first was that Adam Smith’s “invisible hand” was no longer capable of salvaging the market; the government’s visible hand was needed to fix the economy. The second principle was that government intervention must be limited to stimulative and distributive measures, and that the management of industries and businesses should be left to the private sector. Facilitating and maintaining a certain level of purchasing power in the market was considered crucial to what came to be known as the New Deal. While this would provide relief to the economically hard-pressed, and thus reduce social tension, it would also stimulate the economy and promise stable growth and a rise in profitability.

Thus, instituting extensive political and institutional restructuring, business and government leaders managed, once again, to turn a long wave of economic depression into a long wave of economic expansion, which lasted until the early 1970s.

(c) The Latest Long Wave Of Economic Contraction (1973-?). The long post-World War II U. S. economic expansion ran out of steam by the late 1960s and early 1970s. Blaming the ensuing problems of inflation and stagnation on the “run away” Keynesianism, proponents of an unrestrained market mechanism quickly moved to institute the so-called supply-side measures of economic revival, which included: (a) using tax policy to shift income away from labor and the vast majority and toward capital and the wealthy; (b) promoting deregulation of business and a relaxation of environmental, health, and safety standards; (c) attempting to balance the federal budget and implement a tight monetary and fiscal policy that would restrain growth in order to avoid a labor shortage that might fuel wage increases and inflation; and (d) seeking to tear down the so-called social “safety net” of unemployment compensation, public education and public health benefits, housing subsidies, food stamps, and similar welfare programs.

The combined business-government efforts to revive corporate profitability is having most of the desired effects: labor costs have fallen and productivity, profitability and investment are rising. After almost a decade of aggressive policies of economic downsizing and institutional restructuring, U.S. corporations regained most of their competitive edge by the late 1980s and early 1990s. For example, Monthly Labor Review reports that from 1986 to 1993 unit labor costs of U.S. manufacturers fell almost 14% against those of its thirteen major competitors (as cited by Malloy 1995: 29). In a similar study, titled “American Economy Back on Top,” the New York Times reported that in the early 1980s labor hours per metric ton of U.S.-produced steel was approximately 30% greater than German and Japanese steel; by 1993, U.S. labor hours were 10% lower (February 27, 1994). In 1990, for example, U.S. overall manufacturing productivity exceeded that of Japan by 17% and Germany by 21% (McKinsey Global Institute 1993); the productivity gap has since further widened (Business Week, October 9, 1995: 140).

Evidence also shows that manufacturers’ gain in productivity, combined with stagnant or falling wages until recently, has resulted in a considerable rise in total profits and investment: “Business spending on new equipment, financed by strong profits, has climbed to a record 8% of national output. in 1995, the manufacturing capacity of the nation’s factories rose by 4.3%, the biggest increase in 25 years” (Business Week, March 11, 1996: 56).

Whether or not this increased productivity and profitability are translated into a sustained rise in the aggregate rate of profit , sufficient for long-term investment and accumulation, hence for the dawn of a new long wave of economic expansion, still remains an open question. One thing is clear, however: signs of the U.S. economy’s recovery, as reflected in improvements in its productivity and profitability, are more than those of a mere business cycle. This would indicate, once again, that U.S. capitalism has survived the challenge of another long economic crisis—in this case the one that began in the early 1970s.


There are those who argue that President Clinton never had an economic agenda, and that his initial talk of a “bold industrial policy” was simply part of the usual election-year promises of candidates. A closer look at his original economic agenda, however, reveals otherwise. Attempts at reversing the U. S. economic decline in the 1970s brought forth not only the conservative supply-side solutions; it also led, among other things, to the formulation of another type of supply-side economics, which can be called the liberal supply-side economics—better known as post-Keynesian economics. While the main objective of liberal supply-siders, like that of their conservative opponents, is productivity enhancement, their policy prescriptions to achieve this goal are different. Government can and must play a significant guiding role in this paradigm, much more than the traditional Keynesian paradigm of demand management policies. Direct government investment in infrastructure-building is particularly important in this view, as this would enhance productivity and economic growth. Increased expenditures on education, job training, and research and development are strongly encouraged, as such expenditures will be more than compensated by a better educated labor force and accelerated technological change. In contrast with the traditional Keynesian emphasis on domestic demand management in the face of overproduction, post-Keynesians emphasize the importance of foreign markets or exports for this purpose—hence, their emphasis on the importance of international competitiveness and managed trade.

President Clinton’s initial ideas of an “industrial policy” were inspired by this philosophy of liberal supply-side economics. Aside from his frequent campaign pronouncements, this is more formally spelled out in a number of documents that President Clinton and Vice-President Gore released, both during the 1992 presidential campaign and soon after their victory, on the importance of technology to the Unites States’ economic development, and on the need for an industrial policy based on business-government-labor cooperation. For example, their 1993 Technology for America’s Economic Growth projects (a) a strategic shift in technological priorities from defense to the private sector; (b) the creation of various forms of government-industry partnerships and of inter-industry arrangements; (c) increases in tax allowances and in research credits to industry; (d) extensive infrastructural developments, including far-reaching transformations with regard to human capital concerning education, training, and health programs.

Obviously, this is a holistic socio-economic policy that involves much more than a purely technological approach to the country’s problems. It is equally obvious by now that, in practice, this policy has been gradually abandoned in favor of a moderate Republican austerity policy that aims at balancing the budget, reducing government, and “reforming” the welfare system. The question is why?

It is tempting to attribute this policy adaptation to “empty campaign promises,” to pressure from the “radical right” in the Congress, or to personal conviction or character—or the lack thereof. But such explanations, while not irrelevant, are not very helpful in understanding major national policy issues and political decisions. We gain more insights into these matters when we look for what seem to be the more fundamental reasons for Clinton’s policy adaptations, reasons that involve the long-term economic needs of U. S. capitalism, and the limits that such market-based constraints impose on presidential policy choices.

The Keynesian paradigm, and the post-War economic expansion that was taken as the success story of that paradigm, nearly eclipsed all other economic theories and policies until the early 1970s. Keynesian economics became so popular that not only Democratic but also Republican presidents declared themselves Keynesians, as Richard Nixon so acknowledged. Today it appears that, in a similar fashion, the success of the conservative supply-side restructuring policies since the 1980s in reversing the declining cycle of the 1970 have shaped, in broad outlines, the economic agenda of the White House, whether its occupant is a Republican or a Democrat. The fact that these supply-side austerity measures began under President Carter, coupled with the fact that President Clinton is essentially continuing the austerity policies of the Reagan-Bush era—albeit, in tempered fashion—are strong indications of the validity of this view. Just as in the 1950s and 1960s there was a consensus within the ruling class that Keynesian economic measures were what the U. S. capitalism needed, so there now exists a consensus among the majority of business-government leaders that supply-side austerity measures are what the U. S. capitalism needs today.

The limits imposed on presidential economic policies by long-term economic trends are nowadays further narrowed by the increasing pressure of international competition. Let us for a moment assume that Clinton succeeded in passing through the Congress his initial economic agenda: a vast stimulus package, a huge job program, and dramatic tax increases on the rich. Prices and interest rates would rise, the dollar would fall, and imports would jump up. Capital would flee, investment go down. “And Clinton, like Mitterand in the 1980s, could stop the decline only by adopting neoliberal policies” (Resnick 1993: 23). President Clinton learned this early in his administration “when he struggled to make budget cuts deep enough to appease the bond market” (The Economist, July 17, 1995: 80).

While it is true that President Clinton has been significantly constrained by long term market needs and by international competition, it does not follow that the policy adjustments he has made have been forced on him. More importantly, he has been seduced by the success of the conservative supply-side measures in bringing about economic recovery. The main objective of the President’s “industrial policy” was to raise productivity, profitability, and the competitiveness of U. S. corporations—all other elements of his policy were incidental to this major goal. Not surprisingly, then, the success of the conservative supply-side economics in improving the U. S. productivity, profitability, and competitiveness were welcomed by President Clinton as a blessing in disguise, or a case of “mission accomplished,” without his actually being part of the mission—although since becoming President, he has joined forces with and continued to act in accordance with this mission. The President has been pragmatic enough not to try to disturb the brilliant feat that the champions of big business had managed to accomplish: to reverse the contracting trend of the ’70s, after more than ten years of harrowing downsizing policies. Instead, he found it fitting to continue—albeit, in a moderate fashion—the inherited austerity policies that had brought about the recovery. In other words, the President’s policy adaptations have been guided, in large part, by the lure of economic recovery and the logic of market mechanism.



This brief survey of the politics of economic and institutional restructuring, designed to reverse long waves of economic contraction, shows how overall presidential economic policies are molded primarily by long-term economic trends, and by capitalist profitability needs within such trends. It shows, for example, how the need for Keynesian-type demand management policies in the face of the Big Depression of the 1930 created a liberal champion of economic reform out of the previously conservative politician Franklin D. Roosevelt. Likewise, it shows that President Clinton’s retreat from his original economic agenda cannot be explained by too-simple personality issues such as a failure of nerve, conviction, or ideas. The President’s reversal or adaptation of his first-stated goals is, rather, an indication of the existence of a scarcely articulated consensus within the ruling class, as reflected in actual national economic policies: that fiscal austerity measures, corporate downsizing, and other supply-side policies are what U. S. capitalism needs today. Such shifts in socio-economic policies and ideologies are ultimately, market-determined: they reflect the changing long-term needs of capitalist profitability.

Policy and/or political implications for labor and its allies are clear: they cannot rely on liberal or “progressive” politicians to secure their jobs and living conditions. The state and business leaders institute austerity and downsizing measures not because they are necessarily greedy, irrational or evil, but because the need for profitability and competitiveness require such measures. This means that economic security for many is impossible as long as such a fundamental social need is determined by market imperatives. It also means that, to influence economic policies and to take control of their lives into their hands, the working class and its allies need to utilize their own potential strength and develop their own strategies—strategies that would ultimately end the rule of capitalist profitability as the primary determinant of our jobs, our economic needs, and our lives.


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