Regardless of who wins, places or shows in the Iowa caucuses tomorrow, this much is certain. The eventual Democratic nominee will confront two big challenges in the general election: how to unify and energize the party’s progressive and moderate wings while attracting a healthy majority of the nearly 40 percent of voters who consider themselves independents; and how to neutralize or even turn the tables on the opposition’s central argument about the strength of the economy.
No candidate has yet provided a convincing answer to both questions. To be certain, a veritable policy renaissance has broken out among the primary candidates over the past year. But winning a durable governing majority, as opposed to eking out a narrow victory that leaves the country evenly divided and still immobilized on the day’s great issues, will require more than a portfolio of innovative policy proposals. It will require a larger narrative that conveys a whole that is greater than the sum of its parts.
Optimally, this narrative would frame a new governing philosophy that contextualized these proposals as elements of a strategic response to the reasons why American capitalism has gone off the rails during the past generation. Thus far, however, the candidates have focused on the trees — the relative merits of their individual proposals — rather than this forest.
The last two policy revolutions that spawned political realignments in the U.S. — the New Deal and the Reagan Revolution — were achieved by revisiting first principles of American political economy and reformulating them in a way that recast the role of government in the economy — and with it, the terms of political debate — for a generation. A little-noticed development of the campaign thus far is that this Democratic policy resurgence has begun to do just that.
To understand the significance of the pattern that is emerging from these proposals, we need to be reminded that the production of goods and services (GDP) is just a top-line measure of national economic performance, analogous to the way revenues (sales) are commonly considered the top-line measure of business performance and profits are considered the desired bottom-line result.
The bottom-line way societies — people — judge their economy’s success is not GDP growth but, rather, progress in the living standards of their households and communities, i.e., in the lived experience of ordinary families. And yet, as in a business, it is very difficult to grow the bottom line over time without increasing the top line. GDP growth remains vitally important to progress in living standards for the simple reason that it is easier for everyone to receive a larger piece of pie if the entire pie — the national economy — is expanding.
The cultivation of strong, sustained, broad-based socioeconomic progress therefore requires policymakers to adopt such an explicit twin focus. This is particularly true when markets are undergoing substantial liberalization, integration or technological disruption, since these impose increased human costs in the form of dislocation, insecurity and income dispersion. Governments in modern market economies need to adopt a dual economic policy anchor — national income growth and median progress in living standards. Each objective requires conscious policy effort and performance measurement in its own right.
Like a person who can only see through one eye, standard liberal economics suffers from limited depth perception and peripheral vision in managing the performance of economies because it is not conceptualizing, pursuing expressly through policy or measuring national economic performance simultaneously through these two lenses. Rebalancing capitalism in the 21st century and reclaiming it from the clutches of 20th century neoliberalism begins with reconstituting economics, both scholarship and policy practice, so that it focuses at least as much on cultivating the median living standards of nations as the aggregate wealth of nations.
This doctrinal departure from trickle-down economics, which I call level-up economics, is the implicit thread running through the policy platforms of 2020 Democratic presidential hopefuls, both active and recently suspended.
Regardless of whether they self-identify as democratic socialist, progressive or moderate, the candidates have all proposed or endorsed multiple measures to increase direct support to various dimensions of household living standards. These proposals would use government in new ways to improve the social inclusiveness and sustainability of economic growth and prepare people better to navigate the transformation of work.
Without altering the market’s central role in resource allocation, this new Democratic agenda seeks to improve the diffusion of progress in living standards more directly — through strengthened institutions and incentives in such structural policy areas as training, housing, compensation, environment, health, infrastructure, etc.
Business and political leaders commonly describe people as our economy’s most important resource, but they perennially fail to walk this talk by investing adequately in their capabilities and living standards. This reflects the traditional emphasis on boosting investment in physical and financial capital, often through huge, untargeted expenditures of public resources (e.g., across-the-board personal and corporate tax cuts) having, at best, an indirect effect on jobs and living standards. This new level-up approach, by contrast, focuses on increasing direct public and private investment in multiple aspects of the workforce potential and economic security of households. As such, it would structurally (i.e., as part of the growth process itself) improve the capacity of market economies to diffuse the benefits of growth, thereby bringing more of society along on a nation’s upward development journey.
It also would boost growth. Strengthening skills, consumer purchasing power, and business and public investment in the real economy would lift labor productivity, disposable income and aggregate demand. Adapting power, transport, water and industrial infrastructure to the requirements of the Paris climate agreement would boost employment and median incomes. When assessed against the bottom-line metric of national economic success — broad progress in living standards — these would be far more effective uses of additional public expenditures than the cuts in individual, corporate, estate and other capital income taxes that are the mainstay of trickle-down economics. A win-win-win for the economy — higher growth, greater equity and lower risk — becomes possible by viewing it through the bottom-up, people-centered prism of level-up economics rather than the top-down, financial markets-centered lens of trickle-down economics.
This is akin to what AFL-CIO President Richard Trumka calls kitchen-table economics. While unabashedly progressive in the Roosevelt (both TR and FDR) tradition, the kitchen-table framing and people-centered, human-investment focus of level-up economics lends itself to being articulated in the universal vernacular of the typical household’s purchasing power, employment opportunity and economic security, rather than the divisive language of ideology or identity. It also uses the aspirational vocabulary of business managers and entrepreneurs: economic growth and opportunity. As such, it has the potential to galvanize a much larger political coalition than either party or any faction thereof currently commands.
That is the larger significance of the recent Democratic policy renaissance, which is shaping a new type of structural economic reform that is pro-growth as well as pro-equity and pro-sustainability. Indeed, it is pro-growth because it is pro-equity and pro-sustainability. If enunciated properly, it could reframe the terms of political debate for a generation to come, recasting our conception of government’s role in the economy in line with the demands of the digital age and finally carrying us beyond the stale capitalism-vs.-socialism, moderate-vs.-progressive polemics which have dominated political discourse for the past year and past generation.
Richard Samans is a managing director of the World Economic Forum, chairman of the Climate Disclosure Standards Board, and member of the International Labor Organization’s Global Commission on the Future of Work. He formerly served as special assistant to President Clinton for international economic policy, as National Security Council senior director for international economic affairs, and as economic policy adviser to Senate Democratic Leader Thomas Daschle (D-S.D.). The views expressed here are solely those of the author and are drawn from the research paper, “Level-Up Economics: Beyond the Wealth of Nations.”