28 November 2008
Barack Obama is building on his stunning US election victory with a $700bn New Deal package plus plans for health and education. But the economic and fiscal crises could throw a spanner in the works. Colin Talbot outlines the challenges for the president-elect
Most of it has already been said – so let's just say that the election of Barack Obama as the first black president of the US is indeed historic and of immense symbolism. It is clearly a turning point in US politics, with possible global consequences.
But the question is, as the president-elect rolls out a New Deal to save the sinking US economy – and puts the finishing touches to his transition team – what kind of turning point?
Elections can sometimes have a symbolic impact that bears little or even no relation to the actual facts. But Obama's election is factually important; he really did notch up a significant win on November 4. With 52% he was the first Democrat since Jimmy Carter to win a majority of the popular vote. He made significant inroads into previously safe 'Red' (Republican) states. However, John McCain's 46% was also – given the unpopularity of the outgoing Bush administration – a reasonable achievement.
And McCain gave a gracious and democratic concession speech – signalling as strongly as Obama's victory that the US is a constitutional democracy, whatever some of its critics say.
Still, the election result is significant less for the actual vote than for its impact. As The Economist put it, while Obama managed to put together a winning electoral coalition it was 'impressive without being revolutionary'. Its true importance lies not so much in the actual votes as in the symbolism of the candidate. As one US commentator said just before the election, this was the US's 'Mandela moment'.
To gauge the extent of Obama's personal triumph, it is interesting to think of the circumstances that before 2007 most commentators would have envisaged for a black candidate to win.
You would have assumed that their party would have selected them in a fairly uncontested and decisive way – rather than having to fight the might of the Clinton machine, as Obama did.
You would have expected it to happen in circumstances of relative peace and prosperity, where electing a black president would not be seen as too 'risky' by too many white voters – not in the middle of two wars and a global financial crisis.
You would have expected the candidate to have had substantial executive experience, not to be a first-term senator with none.
True, Obama had the advantage of a pro-Democrat tide, an enormously unpopular Republican president and the tendency of voters to favour Democrats in an economic crisis. Even so, his triumph in both the primaries and the general election was something special. Team Obama's skill in both the air-war (media, new and old) and the ground-war (getting the voters registered and to the polls) certainly says something positive about his credentials to be a commander in chief.
So much for candidate Obama, what are the challenges facing President Obama? Most critical, of course, are the huge foreign policy issues and the global financial and economic crises – but these have been well discussed elsewhere. Domestic policy issues – especially the public finances, health and education – have received less attention.
But first, there is race. In the excitement of Obama's victory, some commentators have started talking about a 'post-racial' US. Would that this was so. It should also be remembered that white, working-class, less educated people – especially in the South – voted strongly for McCain, even more strongly than they voted for Bush, and that white people overall favoured McCain.
Whether the Obama presidency proves to be as 'transformational' as former secretary of state Colin Powell has suggested remains to be seen. Obviously, the possibility is there. A barrier has been shattered – the image of a black first family, dog and all, in the White House will now no longer be the preserve of Hollywood fantasy.
Whether this translates into (some) white people becoming more accepting of black leaders and less discriminatory at all levels of society, and of black people becoming more accepting of US institutions than they traditionally have been, also remains to be seen. President Obama in action will be an important factor in determining this.
One of the biggest challenges the new president – and his Treasury secretary-elect Tim Geithner – faces is, of course, the economy. Against a backdrop of soaring job losses and foreclosures on homes, Obama has announced a two-year fiscal stimulus programme to save or create 2.5 million jobs by 2010. This could potentially cost up to $700bn – which raises interesting questions about the already gaping hole in the public finances. If you think the UK has budget problems, they are tiny compared with those in the US. The federal budget deficit is around half a trillion dollars (£330bn) – equal to about half of all public spending in the UK. This is a structural deficit that the Bush administration has been building up for some time through its tax-cutting and increased spending. As a result, total public debt is running at more than $10trn or over 70% of gross domestic product (the UK's is currently just below 40%). And the full impact of the $700bn bail-out of the banks and financial institutions, as well as the recession, have yet to be felt.
State and local finances are also rapidly moving into substantial crises. The Economist reports that the fall-off in the tax revenues of these other tiers of government – from local income, sales, business and property taxes – is starting to cause severe problems, which will also jeopardise Obama's reform plans.
Earlier this year, George Bush published an ambitious – some would say fanciful – plan to abolish the deficit by 2012, but few now expect it to even reduce that early, let alone return to zero. And the total debt could rise to $11trn or even $12trn. If the Chinese and other sovereign wealth funds stopped buying US government bonds, which is admittedly unlikely, the US federal government would end up defaulting.
So the outlook for the public finances is gloomy, to say the least – especially at a time when more is being demanded from the federal government and more has been promised by the incoming president. It is hard to avoid thinking there are going to be some very disappointed people in the next two to three years.
Similar question marks surround Obama's campaign pledges on health and other welfare issues. Many people will be hoping for a reduction in the soaring cost of health insurance – the principal source of health cover for most Americans. This has doubled since 2000 at almost four times the rate of wage inflation. Moreover, what are called 'co-pays' (or what we call top-ups) have spiralled – more than half of all personal bankruptcies in the US are attributable to medical bills. More than 45 million Americans have no medical insurance, including 8 million children – and 80% of these are in working families.
The main planks of reform proposed by Obama seem to be to build on the existing, employer-based insurance system and extend it. This would be done through a combination of regulation requiring broader coverage by private insurance schemes and some publicly provided insurance, through something called the National Health Insurance Exchange. The cost of these changes would be found from efficiency savings, more (imposed) co-ordination of health care and regulation of drug costs. He has appointed high-profile veteran senator Tom Daschle as secretary of health and human services.
It is hard to say whether Obama's plans could reverse the trends towards less insurance coverage, higher costs of public and private provision and increasing inefficiency. Most analysts seem to think they will certainly increase public spending on health.
On education, Obama is increasing funding to the No Child Left Behind school improvement policy, rather than scrapping it, as many Republicans wanted. He is committed to revising and extending the focus of federal efforts on the primary and pre-school age group. This includes increased funding for 0–5 childcare and education; reducing and simplifying testing; and scrapping failing 'charter' schools, which receive public money but are free of some controls in return for producing agreed results. Obama is also planning to expand the Department of Health and Human Services' Head Start programme, which provides comprehensive education, health, nutrition and parent involvement services to low-income children and their families. He also proposes an American Opportunity Tax Credit, effectively a $4,000 grant to every college student to cover roughly two-thirds of tuition fees at an average public college.
All of this costs – and federal education spending is set to rise. By how much is not yet clear. And of course it has to be remembered that the federal government has limited leverage over education, which is mainly a state and locally controlled policy area.
As if all these areas weren't enough to deal with, Obama will have to repair the reputation of the presidency. He will take over an enfeebled White House with worryingly little ability to steer the most powerful nation on the planet. Congress, the courts, and civil-society organisations have all contributed to this weakening of presidential power. But probably the biggest issue will be the crumbling relationship between the presidency and the 'fourth branch' of government – the federal bureaucracy. It might be that the simple fact of the new president will substantially reverse the growing disloyalty and general fractiousness of the federal machinery of government.
Obama might not exactly get his 'Blair moment' – when civil servants turned out in 1997 to applaud the new prime minister as he entered Downing St for the first time – but many federal bureaucrats will at the very least give the new regime a fair wind. Obama's moral advantage is obvious, turning that into practical action will be a challenge that he will need strong support from the federal bureaucracy to achieve, even with the 3,000 or so presidential appointments at his disposal. As the Bush regime has found out to its cost, exerting presidential power through brute force is often unproductive – Obama will need to win hearts and minds.
This is even more important in the context of reports that he is going to go for a 'big bang' approach to reform – using the momentum of his electoral success to advance on many fronts simultaneously. Not just in urgent foreign policy/military areas such as Iraq, Iran and Afghanistan, but also on a number of domestic policies – economic policy and financial regulation; health; education; and climate change. This is a big agenda but he seems to have drawn lessons from the early failures of the Clinton presidency, which was seen as disastrous in taking forward the new president's agenda.
This is a risky strategy, but like his '50 state' electoral strategy, it might just work. Like in the elections, Obama might have the 'big Mo' (momentum) in office. As Italian revolutionary Antonio Gramsci used to say, 'optimism of the will' or as Obama would have it –'yes we can'. But optimism needs to be tempered with, as Gramsci added, 'pessimism of the intellect'.
The appointment of Rahm 'Rahmbo' Emanuel as his 'tough cop' chief of staff indicates that Obama recognises the need for some realism in what will be necessary to achieve his goals. His careful distancing of himself from the current regime on the grounds of 'one president at a time' – especially on the financial rescue package – also shows a careful and calculating approach. The possibility that he will make Republican appointments to his first Cabinet and his approach to the Clintonites, including Hillary – on track to become secretary of state – speak to his recognition of the need to build a broad coalition for change, and fast. There is the possibility the Obama presidency will be eventually remembered not just for the vote, or even the 'colour' of the candidate, but the all-inclusive character of his presidency itself.
Colin Talbot is professor of public policy and management at the Herbert Simon Institute, Manchester Business School
PFnov2008
