Governments around the world have had to start competing for the world's capital base. And in spite of their ideological inclination to do otherwise, governments have done so over the last two decades by easing the burden of their taxes and regulation–by capping the growth in government expenditures relative to their economies, by lowering their marginal tax rates, by freeing their industries, and by privatizing their services.
Walter Wriston, former CEO at Citicorp, could not have chosen a more apt title for a book concerned with the policy consequences of modern technology than The Twilight of Sovereignty. Governments, including that of the United States, have lost a measure of their sovereignty. Norman Macrae, former editor of The Economist, explained prophetically several years ago, "In the future, we will vote more frequently with our feet. If politicians try to boss us, brainworkers will go away and telecommunicate from Tahiti. Countries that choose to have too high a level of government expenditure or too fussy regulations, will be residually inhabited mainly by dummies." That future is upon us, and Bill Clinton.
Bill Clinton's election is, in part, a reflection of the global forces at work. The Democrats were forced, kicking and screaming, to choose someone far more moderate than were the candidates of just a few years back. At this juncture, we can still hope that Clinton will respond more effectively to the market forces afoot in the world than George Bush would have.
Without a doubt, Clinton will have an impact on this country. Some of that impact will be positive. He is obviously not the total dummy and liberal ideologue whom some would like to imagine he is, and all can take some solace in that. The country needs a quick learner in the White House. The country probably needs to spend more on basic research, and most likely there are some worthy infrastructure projects that have been left unattended. More importantly, Clinton probably will pass a reduction in the capital-gains tax on long-term investments, something George Bush was unable to do.
Just as certainly, some of Clinton's impact is likely to be negative. The country doesn't need a parental-leave mandate but it will probably get one anyway. We can expect, however that more constraint and guidance will be applied to the policy process in the United States and elsewhere than ever before, not by the visible hands of politics but by the invisible hands of market forces that span the globe. Probably the worst Clinton can do is create expectations among his followers (and opponents) that cannot be realized. In his first post-election news conference, Clinton fully acknowledged, albeit indirectly, the power of world markets: He announced his intention to lower taxes on highly mobile capital in the form of equipment by way of a new investment tax credit, and he talked earnestly of the need to reduce in a measured way the federal budget deficit to calm the jitters evident in world markets.
Those on both sides of the political spectrum who believe that politics control policies should wager that government, on balance, will loom larger in the economy in 1996 than it did under George Bush in 1992. Those who believe that markets constrain politics should probably wager that government, on balance, will be no greater a presence in the economy in 1996 than it was under George Bush.
We prefer the latter wager. If we are proven wrong, there is every reason to believe that Bill Clinton will be the next one-term president.
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