The Great Democracy

by Ganesh Sitaraman

  Americans should require that any trade agreement include policies that will ensure that the winners help lift up the losers. First, Congress should direct the US International Trade Commission (ITC), which conducts assessments on the impact that a trade deal will have in different sectors of the economy, to conduct geographic impact assessments. We should know which parts of the country are going to be disproportionately harmed by a trade agreement. Second, Congress should include tax-and-transfer policies in trade agreement implementing legislation. Ideally, this would include a tax on those who the ITC projects will benefit from the trade deal. These dollars should then be placed into a trust fund that would be used for economic growth in areas that are harmed by trade. Third, trade agreements should include a development component requiring countries to spend on programs like infrastructure and education that can help regions adversely affected by trade liberalization. The United States, as part of these development efforts, should also engage in an industrial policy that invests in communities across the country. This industrial policy would jump-start areas with investments in research and development and infrastructure and require that manufacturing take place in the United States when products are built on breakthroughs from public investments in R & D.

  The second thing Washington got wrong was the foreign consequences of trade deals. Despite the optimism about trade liberalization, trade agreements did not lead to more democracy or more open economies. Instead, countries like China have benefited enormously from joining the global economy, have not reformed their undemocratic governments, and use state capitalism and crony capitalism to stack the deck in favor of their own companies, steal technology and trade secrets, and, according to some reports, infiltrate American companies through secret back doors in tech products. Economic integration, in other words, has created a variety of national security and economic security threats—threats that the United States currently has no long-term strategy to address. Unfortunately, our government is also not designed in a way to either develop or execute a strategy to combat these threats. International economic policymaking is split across a variety of departments and agencies—the United States Trade Representative, Commerce, Treasury, State, plus a variety of smaller agencies. This means that there is no single institution thinking in a holistic fashion about the relationship between economic integration, domestic inequality and distribution, and economic security.52

  To promote the development of long-term economic policy, Congress should create a new Department of Economic Growth and Security that would merge all of the government’s disparate offices that work on trade liberalization, trade promotion (that is, helping US businesses find markets abroad), domestic economic development and industrial policy, and economic security. This new department would have the power and responsibility to develop a comprehensive strategy—and to execute it.

  Finally, the trade policy process has been stacked in favor of well-organized and powerful economic interests—particularly corporations and industry associations—that have predictably pursued their own profits over the interests of working Americans. The general public, for example, could not see drafts of the Trans-Pacific Partnership during negotiations because they were classified. Even members of Congress could only look at drafts of the trade deal in a secured facility, and they were not allowed to take notes or have a staff member present. At the same time, members of the USTR’s trade advisory committees—85 percent of which are company or industry representatives—were allowed to see the agreements.53

  We should reform this rigged system by requiring a more transparent, participatory policy process. First drafts of trade agreements should be treated similarly to proposed regulations in other areas of policymaking. Prior to beginning negotiations, the government should make the draft (or part of the draft) available to the public for comment. The government would then have to explain publicly how and why it responded to the comments before it could table the draft with negotiating partners. This would allow everyone—ordinary citizens, small businesses, and nonprofits—to provide comments on how the proposals would impact them. The advisory committees should also be reformed to include a much wider group of interests, including labor and public-interest advocates on every industry-specific advisory committee. The result of these changes would be a trade strategy that takes seriously the demands of democracy. It would be a trade policy for all Americans.

  The Geography of Inequality

  In recent years, commentators of different political stripes have converged on an important point: our society is fracturing geographically. Robert Putnam, on the left, describes how his hometown of Port Clinton, Ohio, once an integrated middle-class town, is now deeply divided—by race, culture, and economic success. Conservative Charles Murray makes a similar point in his book Coming Apart through the discussion of the fictional but representative Fishtown and Belmont. Americans are now sorting ourselves into groups, increasingly living in communities with people who are similar—from the TV shows we watch to our political views.54

  It wasn’t always this way. In the liberal era of the mid-twentieth century, incomes across geography were converging. In 1940, for example, Missourians earned 62 percent of what Californians made, but that number gradually increased to 80 percent by 1980. In the 1960s, the top twenty-five wealthiest metro areas included a wide variety of American cities, including “Rockford, Illinois; Milwaukee, Wisconsin; Ann Arbor, Michigan; Des Moines, Iowa; and Cleveland, Ohio.”55

  The era of economic convergence among regions began to come to an end in the 1980s, coinciding with the rise of neoliberalism. Bigger cities got richer and richer as other regions were soon left behind—with massive economic and social consequences. Economists have shown that mobility is highly variable across the country; in some areas, the very poor have only a miniscule shot at making it. Huge swaths of the country are afflicted with an opioid epidemic that ravages families and communities. And in many areas, Americans are literally dying—mortality rates have been increasing for middle-aged white Americans. Harvard sociologist William Julius Wilson once argued that it was the decline of jobs and economic security that led to the social crisis in poor minority-dominated cities. Reflecting on Wilson’s theory, Paul Krugman has commented that in recent decades, “when rural whites faced a similar loss of economic opportunity, they experienced a similar social unraveling.”56 One approach for addressing the geography of inequality is to encourage people to move. Scholars have argued that leading cities attract talented people, spark innovation, and therefore grow. This creates a natural divergence between some places and others. As a result, the goal should be to get Americans moving from low-wage, low-opportunity places to higher-wage places. They argue for changing zoning and land use laws that prevent cities like San Francisco from building. More housing would reduce housing prices and thus make it more affordable for people to move to and live in the Bay Area. They also suggest creating mobility vouchers, which would help facilitate people moving. These proposals have an economic logic to them. But they are less satisfying from a democratic perspective. What happens to the people and communities that are left behind, hollowed out by stripping all their talent and sending them to the big cities? Why should a democratic political system write off entire swaths of the country as dead or dying? And if abandoning parts of the country means further inequality, what about resentment that builds up and the possibility of backlash?57

  A second approach, most prominently offered by former treasury secretary Larry Summers, Edward Glaeser, and Benjamin Austin, is to adopt what they call “place-based policies,” policies targeting areas with the worst unemployment. They identify four types of policies—public investment, tax benefits and grants for businesses, tax benefits and grants for individuals, and deregulatory efforts—and they focus primarily on tax benefits.58 This center-left approach comes from their skepticism of public investment as the route to addressing geographic inequality. “It is impossible to know,” they comment, “whether a r
elocation of capital and labor from Los Angeles to Kentucky will lead to benefits in Kentucky that are large enough to offset the losses in Los Angeles.” Perhaps that is true, but why should we only care about the economic benefits offsetting the losses? Why is this policy choice being made on grounds of what is most economically efficient? And why isn’t it taking into account political consequences, like the skewing of the Senate toward overrepresenting a minority of the country or moral consequences such as health and mortality? A democracy should care about all of its people. We should want the people of both Kentucky and Los Angeles to have good jobs, flourishing livelihoods, and vibrant communities.59

  To be fair, both zoning changes and tax benefits might have places in reshaping the geography of inequality. But both approaches are too quick to take the geography of inequality as a given, as a natural state of affairs. Geographic inequality is a function of public policy. The policy choices we make determine whether there is geographic inequality or geographic equality—and that means those choices can help alleviate inequality.

  Consider a few areas. For decades, trade policy hollowed out some communities while bolstering others. The theory, as we have seen, was that the winners would compensate the losers and that communities would bounce back or people would move. But communities hit by the China Shock didn’t bounce back. Meaningful compensation has never been a serious part of the policy conversation. And for a generation, industrial policy has been more focused on corporate profits than on vibrant communities. Policy makers could have considered these regional impacts and addressed them or could have just said no to the trade agreements. Those were policy choices.

  The failure of antitrust enforcement and the coming of the second monopoly age is another policy shift that contributed. Antitrust laws prevent corporate consolidation, creating an economy of small and medium-sized businesses. And an economy with a large number of flourishing small and medium-sized businesses is one in which wealth and power are distributed throughout the country. To consider a new example, look at the banking sector. From the 1920s to the 1980s, nationally chartered banks were not allowed to have branches in more than one state, and some states even prevented banks from having multiple branches within the state. This effectively meant that the United States had a nation of relatively small banks. In that context, a local bank president was likely to be wealthy enough to sponsor the little league team but unlikely to be one of the richest people in the country. In the 1980s, however, some states began deregulating their banks, and in the 1990s, President Clinton signed the Riegle-Neal Act, a federal law that deregulated bank branch restrictions and allowed for interstate banking, and the Graham-Leech-Bliley Act, which repealed the Glass-Steagall regulations and allowed for depository banks to merge with insurance companies and investment banks. Over time, the banking industry saw merger after merger, consolidation into regional banks and eventually national and international banks. Now we have a small number of gigantic banks that span the country, concentrate wealth and power, and are too big to fail. There are still some community banks and credit unions, but these smaller players compete with global behemoths whose executives are far better compensated than the president of a single bank branch ever could have imagined. Other laws, like the Robinson-Patman Act of 1936, served similar functions. Robinson-Patman was designed to protect small retailers from chain stores, which could use their size and scale to undermine local retailers. The people of the era wanted to preserve their economic democracy and designed the law to achieve that purpose. By the neoliberal era, Robinson-Patman largely went unenforced.60

  Public investment is a third policy choice. Americans in the past invested in massive public works projects to ensure that the whole country would have economic and social opportunities. One of the oldest examples is the US Postal Service. At the very start of the republic, mail was the cutting-edge communications network, and the post office stitched together even the far-flung parts of the new nation. The land-grant college system is another example. Massive public investment in these educational institutions created decades of economic growth, opportunity, and intellectual and social vibrancy in all parts of the country. During the New Deal, the Rural Electrification Administration brought power to remote areas, creating opportunity for millions. New Deal programs also built schools, trails, and other infrastructure throughout the country—from funding the expansion of the hospital in Winnemucca, Nevada, to building a post office in Belleville, Kansas, and a school in Danville, Virginia. Public projects were not designed with economic efficiency alone in mind; they were designed to support communities all across the country.61

  A final factor shaping geographic inequality is perhaps the most surprising—regulation. A number of sectors of the economy—trains, buses, airlines—are network industries. In a network industry, a bigger network is more valuable. For example, if you can fly anywhere in the country—including small cities—that is more valuable than if you can fly only to a handful of cities. At the same time, however, some places are much more expensive to add to the network. Flights to small cities might have a lot less volume, meaning that access will be limited or prices will be extremely high. Regulation solved these problems, guaranteeing widespread geographic access to these important networks.

  Under the system of airline regulation that existed until 1978, the Civil Aeronautics Board (CAB) assigned airlines routes and regulated the prices of routes. This ensured that airlines would serve small and medium-sized cities and that prices were equitable—the longer the flight, the higher the price. The CAB would give airlines some highly profitable routes and some less profitable routes that were nonetheless important to serving farther-flung communities. The profitable routes subsidized the less profitable routes, and competition among airlines was all about the quality of service.62

  After deregulation and a few bursts of new competition, the industry saw wave after wave of mergers. The airline industry transformed from a “regulated oligopoly… to an unregulated oligopoly.” This had a few consequences. First, airlines shifted from serving many cities on a point-to-point basis to a hub-and-spokes model. Hubs like Atlanta and Dallas would have hundreds of flights, and travelers to smaller places would have to connect through the hubs. This meant fewer direct flights for passengers. Second, some airlines succeeded in creating fortress hubs, in which one carrier could have 70–90 percent of the market into that airport. This effective monopoly means they can charge travelers higher prices. Finally, the airlines reduced services and increased prices on small and medium-sized cities. These were never profitable routes, and there was far less reason to cross-subsidize them in an era without regulation.63

  These seemingly minor shifts, tied to what is usually considered a great public policy success, have had a devastating impact on many communities across the country. Chiquita—the banana company—had been headquartered in Cincinnati, Ohio, for decades. But in 2011, the company announced it was moving to Charlotte, North Carolina. Why? The airport. Once a high-traffic international airport, Cincinnati’s airport lost two-thirds of its flights between 2004 and 2012 and saw increased fares due to airline consolidation and the shift to a hub-and-spokes model. “If you’re a global business like Chiquita, which operates in seventy countries and needs to be able to attract global talent,” two journalists noted, commenting on Chiquita’s departure, “the situation is untenable.” With the company’s move to Charlotte went four hundred jobs, not to mention all the economic activity that its employees engaged in—trips to the movies and restaurants, shopping at local stores—and the company’s philanthropic efforts in the community. Nor is this story unique. After a massive decline in air traffic in Memphis, combined with higher fares, the Folk Alliance music convention departed for Kansas City; the Church of God in Christ moved its annual meeting too. The law firm K&L Gates moved its annual firm-wide gathering from Pittsburgh to New York and Washington. Getting to Pittsburgh had just become too difficult.64

  Economic inequality, social pr
oblems, and community vibrancy are all tied together. Whether we have opportunity across geographies is a policy choice. Restitching our social fabric and alleviating the economic and social suffering across much of the country will require considering how all types of policies—trade, tax, public investment, industry, and even regulation—impact communities across our expansive democracy.

  8

  POLITICAL DEMOCRACY

  The most familiar understanding of democracy focuses on its political aspects. Political democracy simply means that the political system is responsive to the people. Or, to put it in more obvious terms, a representative government should be representative. But our political system today isn’t representative. From voting and elections to legislation, regulation, and even litigation in the courts, every branch of government is failing in its responsiveness to the people. Indeed, for all of the country’s deep tribal divisions, we share at least one thing in common: according to polls, the number one fear for most Americans—more than 70 percent—is government corruption.1

  Americans recognize that our democracy is no longer working for the people—and the failures of political democracy stand in the way of achieving an economic democracy and a united democracy. The vast majority of Americans, for example, support gun control legislation, yet nothing happens. The vast majority of Americans support increasing Social Security, yet nothing happens. The vast majority of Americans think climate change is real and are concerned about it, yet nothing happens. The vast majority of Americans support higher taxes on the wealthy and putting limits on campaign spending, yet these things never happen either.2

  In the last decade, political scientists have issued a barrage of studies showing how unresponsive the political process is to ordinary Americans. Larry Bartels, in an important study of the Senate, found that the views of the poorest one-third of constituents had no impact at all on senators’ behavior. Martin Gilens ends his extensive study comparing the political influence of the poor, middle class, upper middle class, and the richest 10 percent of Americans with this depressing conclusion: “Under most circumstances, the preferences of the vast majority of Americans appear to have essentially no impact on which policies the government does or doesn’t adopt.” We have instead what scholars call a “democracy by coincidence,” in which the views of ordinary people prevail only when they coincide with the views of the wealthiest elites.3