The Audacity of Hope - Barack Obama [73]
For a while this seemed to be where the story would end—with FDR saving capitalism from itself through an activist federal government that invests in its people and infrastructure, regulates the marketplace, and protects labor from chronic deprivation. And in fact, for the next twenty-five years, through Republican and Democratic administrations, this model of the American welfare state enjoyed a broad consensus. There were those on the right who complained of creeping socialism, and those on the left who believed FDR had not gone far enough. But the enormous growth of America’s mass production economy, and the enormous gap in productive capacity between the United States and the war-torn economies of Europe and Asia, muted most ideological battles. Without any serious rivals, U.S. companies could routinely pass on higher labor and regulatory costs to their customers. Full employment allowed unionized factory workers to move into the middle class, support a family on a single income, and enjoy the stability of health and retirement security. And in such an environment of steady corporate profits and rising wages, policy makers found only modest political resistance to higher taxes and more regulation to tackle pressing social problems—hence the creation of the Great Society programs, including Medicare, Medicaid, and welfare, under Johnson; and the creation of the Environmental Protection Agency and Occupational Health and Safety Administration under Nixon.
There was only one problem with this liberal triumph—capitalism would not stand still. By the seventies, U.S. productivity growth, the engine of the postwar economy, began to lag. The increased assertiveness of OPEC allowed foreign oil producers to lop off a much bigger share of the global economy, exposing America’s vulnerability to disruptions in energy supplies. U.S. companies began to experience competition from low-cost producers in Asia, and by the eighties a flood of cheap imports—in textiles, shoes, electronics, and even automobiles—had started grabbing big chunks of the domestic market. Meanwhile, U.S.-based multinational corporations began locating some of their production facilities overseas—partly to access these foreign markets, but also to take advantage of cheap labor.
In this more competitive global environment, the old corporate formula of steady profits and stodgy management no longer worked. With less ability to pass on higher costs or shoddy products to consumers, corporate profits and market share shrank, and corporate shareholders began demanding more value. Some corporations found ways to improve productivity through innovation and automation. Others relied primarily on brutal layoffs, resistance to unionization, and a further shift of production overseas. Those corporate managers who didn’t adapt were vulnerable to corporate raiders and leveraged buyout artists, who would make the changes for them, without any regard for the employees whose lives might be upended or the communities that might be torn apart. One way or another, American companies became leaner and meaner—with old-line manufacturing workers and towns like Galesburg bearing the brunt of this transformation.
It wasn’t just the private sector that had to adapt to this new environment. As Ronald Reagan’s election made clear, the people wanted the government to change as well.
In his rhetoric, Reagan tended to exaggerate the degree to which the welfare state had grown over the previous twenty-five years. At its peak, the federal budget as a total share of the U.S. economy remained far below the comparable figures in Western Europe, even when you factored in the enormous U.S. defense budget. Still, the conservative revolution that Reagan helped usher in gained traction because Reagan’s central insight—that the liberal welfare state had grown complacent and overly bureaucratic,