It's Economic Security, Stupid

By Joe Klein

The future of U.S. politics has become clearer in the past few weeks: we are about to have a major debate over the relative merits of economic freedom and economic security. It could be an ugly, simplistic and demagogic debate, as we have seen in the Dubai Ports controversy. Or it could be a much needed discussion about how the U.S. should respond to the impact of globalization on domestic economic stability, homeland security and foreign policy. Fat chance of the latter, you say, and you're probably right--but there are real issues beneath the bluster. And the nation's continued strength and prosperity are very much at stake.

The Republican Party has been a vehement bastion of economic freethinking for the past 25 years. This has been an extremely successful political strategy, and it rests on a basic truth: capitalism is the best way to create prosperity. But the strategy frays when taken to its extreme: the more untrammeled the capitalism, the greater the inequities. And with George W. Bush as freedom's ultimate exemplar, the G.O.P. has refused to acknowledge the new playing field--the severe dislocations and vexing security questions--created by a freewheeling global economy. But the Bush view has taken a serious hit in the Dubai Ports controversy. The Republicans have shattered over foreign ownership of American assets. They seem as confused as Democrats normally do.

And it is an extremely confusing issue. Foreigners aren't allowed to own U.S. television stations, which is why Rupert Murdoch had to become an American citizen to create the Fox network. Is owning a TV station a greater threat to national security than managing a port? Let me make a fearless prediction here: the ports controversy will soon turn into an even greater battle over U.S. defense contracts going to foreign-owned companies, including--as the Washington Post reported last week--Dubai International Capital, which wants to buy a company that makes components for U.S. tanks and military aircraft. Lawrence Korb, a defense specialist at the Center for American Progress, estimates that foreign companies may receive as much as 20% of Pentagon contracts, sometimes in tandem with U.S. companies and sometimes dealing with sensitive technologies. I asked Korb what would happen if we ended the practice. "Things would be a lot more expensive," he said, "and the quality probably wouldn't be as good."

Which, in a nutshell, is the rationale for--and the dilemma of--globalization. The Democrats have been deeply split between free traders and protectionists in the recent past, but they appear to be coming together now--and moving to the left. Bill Clinton was a free trader in the 1990s; Hillary Clinton opposed the Dubai Ports deal and voted against the Central American-Dominican Republic Free Trade Act in the 2000s. "I think we've pushed too far in the direction of unfettered markets," says Joseph Stiglitz, a Nobel-prizewinning economist who chaired Bill Clinton's Council of Economic Advisers. "Markets aren't perfect. They don't deal with security issues, for example. And though President Clinton tried to emphasize it, we didn't do enough to address the impact of globalization on the American middle class."

There are dangers here for Democrats. There is the temptation of demagoguery. Foreigners are the fattest of targets--Dubai sheiks, robotic Chinese sweatshop workers, illegal immigrants from Mexico--and many Americans want to kiss them all goodbye. There is also the possibility of severe economic consequences if foreign-owned companies are suddenly made unwelcome in key sectors of the U.S. market. Asians and Arabs hold an awful lot of U.S. dollars, and if they can't spend them on property in the U.S., they will surely make their investments elsewhere, taking with them jobs and opportunities that would have come to the U.S. Finally, if punitive protectionist measures--tariffs, for example--are taken against the Chinese and others, prices will rise and the American standard of living will decline.

But there may be--dare I say it?--a third way available, a path between market worship and protectionism. Stiglitz and other moderate Democratic intellectuals believe that the heart of "economic security" as a political strategy should be a drastically revised social safety net for American workers. By offering universal health insurance and government-subsidized pension reform, Washington would relieve U.S. companies of those two burdens. Also helpful would be wage insurance, which would soften the blow for laid-off workers forced to take lower-paying jobs, and a turbo-charged government effort to promote new industries (like alternative fuels) to provide high-paying jobs. These ideas would cost money and demand higher taxes, which horrifies the economic-freedom crowd. They also don't address foreign ownership of U.S. assets. Still, if middle-class Americans began to feel a bit more secure about their own lives, they might be willing to look at the rest of the world--and controversies like the Dubai Ports deal--less emotionally.