John Rapley It's election season in the United States. That means that, as they tend to do every four years, Democrats talk a populist line on the economy. As surely as George W. Bush connected with the Republican 'base' - conservative Christians in particular - in 2004, the Democrats want to do a better job than they did the last time of connecting with their core supporters - unionised workers topping their list.
So, they are telling people that the economy isn't working for ordinary people, that Chinese imports are putting American workers out of jobs, and that free trade is bad for American families. Normally, this kind of talk lasts until after the election, when the speeches are tucked into desk drawers and business returns to normal.
This time around, though, the populist tide may prove to be more lasting in its impact. And this is not merely because some of the candidates seem more serious now, but because some of the populism is already starting to translate into policy.
On trade, the pro-free trade stance that dominated the U.S. political establishment in the 1990s has weakened substantially. There are unlikely to be any more advances on that front before the election. Meantime, Congressional pressure has apparently helped to prod China to allow its currency to revalue: by keeping its exports cheap, China's undervalued currency was seen in the U.S. as an unfair trade advantage.
The Bush administration's effort to liberalise immigration policy also ran into Congressional opposition. And Congressional Democrats succeeded in raising the national minimum wage in the face of business objections.
Us dollar standings
Perhaps even more significant than all this is that as foreign governments reduce their dollar reserves, the U.S. dollar continues sliding on world currency markets, and is now near record lows. A sell-off remains a possibility. A low dollar raises import prices. Over the medium term, this could mean an increase in domestic production to substitute for imports. More tellingly, it could eventually lead U.S. firms that have been moving operations to East Asia in search of cheap labour to curtail their investment there.
This outsourcing boom was behind much of the productivity increase in the U.S. economy in the 1990s. Many firms, whether directly or through contract arrangements, shifted production out of the U.S. and into the low-wage workshops of Asia. But even when they didn't move, the possibility of doing so gave managers a bargaining advantage over their workers. The threat of exporting jobs enabled U.S. firms to keep a lid on wages and demand more output from their workers ("if you don't, I can find someone who will"). The resulting low-inflation productivity surge drove up profits, sending the stock market to historic highs.
The recent partial reversals of the free-trading, strong-dollar environment have already begun to show up in the productivity figures: U.S. workers' jobs are increasingly secure, and consequently they are not as easy to 'discipline.' Productivity is thus growing much more slowly. As for wage gains, they have been muted by the sharp jump in inflation. But future increases seem now to be locked into the economy.
This wouldbe bad for profits, and thus for the stock market. Inflation might also rise, which would affect interest rates negatively. On the other hand, the highly uneven distribution of the gains of the 1990s boom would finally get some rectification. The gains that American workers delivered shareholders in the 1990s would finally start flowing to them instead.
Therefore, it seems that this time around, the populist streak in US politics might outlast the election campaign. The 'ordinary American' may finally get more than tough talk from the country's leaders.
John Rapley is a senior lecturer in the Department of Government, UWI, Mona.
