Tuesday, January 11, 2011

Can Obama Repeat Clinton's Success?

Business Times - 12 Jan 2011
Can Obama repeat Clinton's success?
He faces heavy odds as global and national economic environment now is very different from the prosperous 1990s
AMERICAN business leaders and centrist Democratic Party figures have been applauding US President Barack Obama's appointment of banking executive William Daley as the new White House chief of staff and of economist Gene Sperling as the new director of National Economic Council.
Both Mr Daley, an executive at JPMorgan Chase, and Mr Sperling, an adviser to Treasury Secretary Timothy Geithner, had served in the administration of former president Bill Clinton, and are expected to assist the Obama administration in pursuing a more pro-business strategy aimed at accelerating the sluggish economic recovery, and in the process, help Mr Obama win re-election.
Hailed by critic
Indeed, the appointment of Mr Daley, a secretary of commerce under Mr Clinton who had been a central player in winning Congressional support for the North American Free Trade Agreement and other global trade liberalisation accords, has been hailed by one of the harshest critics of the Obama administration's economic policies.
'Bill Daley is a man of stature and extraordinary experience in government, business, trade negotiations and global affairs,' said Thomas Donohue, president of the US Chamber of Commerce, Washington's largest business lobby which helped provide financial support for Republican candidates during November's midterm Congressional election which led to the Democrats losing control of the House of Representatives.
'(Daley) is an accomplished manager and strong leader. We look forward to working with him to accelerate our recovery, grow the economy, create jobs and tackle America's global challenges,' Mr Donohue stressed, reflecting what is being seen in Washington as an effort to mend the strained relationship between Corporate America and the Democratic White House.
Indeed, Mr Obama is scheduled to address the US Chamber of Commerce next month.
Key figures
Mr Obama has insisted since entering into office that he was not a Big Government Democrat and was certainly no 'socialist', a label used by Republicans to bash his economic policies. In fact, Mr Obama had selected two former Clinton administration and Wall Street-friendly figures, Tim Geithner and Lawrence Summers, to fill the two top economic positions in his administration and spent billions in taxpayers' money to bail out leading firms in the financial and car industries to prevent the financial meltdown and the ensuing economic recession in 2009 from turning into a second Great Depression.
Moreover, resisting pressure from members of the progressive wing of the Democratic Party, Mr Obama has refrained from launching an aggressive populist campaign against the 'fat cats' on Wall Street and rejected proposals, made by economists on the political left, to nationalise the failed American banks and to impose a set of tough government restrictions on the financial industry.
Instead, the Obama administration opted for requiring the big banks to undergo government stress tests while advancing a new financial regulatory system that did nothing to get rid of the too-big-to-fail financial institutions.
Nevertheless, Wall Street executives and corporate leaders joined the Republicans in blasting the Obama administration's economic policies and, in particular, its plan to reform the healthcare insurance system and the large economic stimulus programme.
Much of the criticism from the business community directed at Mr Obama has been that his policies ended up in increasing the power of the government over the private sector while raising the federal deficit into the stratosphere.
Mirror-imaging these attacks from the right has been the criticism from the political left where Mr Obama has been perceived as appeasing Wall Street and disregarding the interests of Main Street.
So it's not surprising that many of Mr Obama's progressive supporters regard the appointment of Mr Daley and Mr Sperling as part of an effort by the White House to embrace a more Clinton-like centrist approach, including the launching of a series of business-friendly and pro-free trade policy initiatives that not only created more well-paying jobs in the 1990s, but also helped Mr Clinton win the support of independent voters who tend to determine the outcome of national elections.
It is quite likely that Mr Obama and his aides are probably trying to move to the political centre in the same way that Mr Clinton had done in the aftermath of the Republican victories in the 1992 midterm Congressional elections.
Thus, the decision by Mr Obama to reach a compromise agreement on tax cuts and federal expenditure with the Republicans at the end of last year seemed to be the first step in the White House's new strategy.
But then the economic prosperity in the 1990s had to do with the global and national environment - the end of the Cold War and the onset of globalisation coupled with the emergence of the new information technologies. This provided an opportunity to start cutting the federal deficit and create new markets from American investment and trade.
Mr Clinton (and then-Federal Reserve chairman Alan Greenspan) adopted policies that helped American businesses and consumers to take advantage of these new economic opportunities, giving birth to a decade of growth and prosperity and making Mr Clinton a two-term US president.
The global and national economic environment is very different today, as was made clear after the US government issued its new job report last week.
On the same day the report was released, the chairman of the US central bank, Ben Bernanke, told Congress that it 'could take four to five more years for the job market to normalise fully'.
The unemployment rate dropped sharply to 9.4 per cent last month, its lowest level in more than a year and a half, with employers adding 103,000 jobs in December. But that was far fewer than the 150,000 new jobs that many economists expected and suggested that the unemployment rate will probably not fall by much during the next two years.
While private employers created 113,000 new jobs last month, 10,000 government positions were lost. And with all the financial problems facing many local governments, the expectation is that more local government employees will be losing their jobs.
Long-term unemployment
Moreover, there are indications that the percentage of those who have been unemployed for more than six months has been rising, reflecting a trend of long-term unemployment. In fact, what the US Labor Department registers as a 'drop' in unemployment includes also those who have been out of work - but have given up looking for employment, suggesting that the percentage of the unemployed is probably higher than 10 per cent and could be closer to 20 per cent.
Many of those who cannot find jobs lack the required education and skills to work in advanced sectors of the manufacturing and service industries, such as engineering and high technology, which points to one of the major structural challenges that could face the American economy in the coming years: a workforce, including thousands of illegal immigrants, that is falling behind in the competitive labour markets. While US companies will probably hire a small number of Americans for a few highly skilled managerial and technical jobs, they will be inclined to relocate most of their operations to emerging markets, such as China and India, with their large supply of both cheap and skilled workers.
Even under the best-case scenario, there is very little that the Obama administration can do in the next two years to change these and other structural problems. Hence while providing more financial incentives for American companies to expand their operations and signing new trade agreements could increase American economic growth and productivity - and it certainly makes American executives happy - it would probably not help create many more American jobs anytime soon.
And Mr Obama is going to face major political obstacles as he tries to replicate Mr Clinton's success in cutting the federal deficit, the result of more than a decade of huge government spending on costly global wars, social programmes and major tax cuts.
Resistance by interest groups and the bureaucracy as well as opposition by the two major parties will make it close to impossible to reach any major compromise on cutting the deficit in the next two years.
So while Mr Obama will be trying to follow in the footsteps of Mr Clinton, somewhere along the line he is going to discover that he doesn't have one required ingredient: Good timing.
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