Why US Democrats Must Derail Republican Party Nationalist Populism With Economic Populism

The Republican presidential aspirant nominated at this summer’s convention is likely to become that party’s nominee in part by invoking jingoist and xenophobic themes drawn from the playbooks of eastern European authoritarians. Miloš Zeman, the Czech President asserts, for example, “I do not want Islam in the Czech Republic.” And Hungarian premier Viktor Orbán has declared “We would like Europe to remain the continent of Europeans.” Such nationalist populism also has a prominent historic role in the U.S., featuring at times scapegoating of Irish, Catholics, Asians, Jews and Eastern Europeans.

Now the targets are Muslims and Latinos. This theme can be countered by Democrats with appeals to cosmopolitan America’s better angels – its Judaeo-Christian, immigrant and liberal democracy roots, its diverse and welcoming culture and its visceral anti-authoritarianism. But those angels will be more persuasive when combined with a compelling Democratic narrative of economic populism.

There lies a problem. Democrats have been in power for 8 years with paltry results for the middle class. Real wages have risen steadily in Australia and northern Europe in this period, yet stagnated in the U.S., income disparities widening. Indeed, the mean 2.5 percent real wage gains by German workers in 2015 alone exceeds the cumulative rise in median real American weekly wages since 1979. Wall Street malfeasance goes unpunished. Collective bargaining is not prioritized despite supermajority support for unions as devices to raise wages.  The carried interest tax loophole remains wide open. Trade agreements give short shrift to wage concerns. Tax inversions have become commonplace. America has earned a reputation globally as a tax shelter for the rich, worse than Luxembourg or the Cayman Islands. Even long overdue EU steps to close tax loopholes exploited by multinationals are demonized by Obama administration Treasury officials.

Warring on Wages

Some of this dismaying record reflects Republican Party intransigence. But a considerable portion is self-inflicted by President Obama, lending credence to Republican attacks on wage stagnation. Such attacks are disingenuous because higher wages have been a third rail of Republican politics since President Reagan. Its recent history is a litany of wage suppression: a political party determined to slow the recovery while opposing minimum wages, collective bargaining, higher overtime pay, paid sick-leave and the like. They reject linking wages to productivity gains or to CEO pay. That party is centered in corporate America unduly prioritizing profits at the expense of wages. Demographically, it is centered in the American south, home of right-to-work laws. And Republicans have enjoyed some success in expanding right-to-work laws and in torpedoing minimum wage laws to the Midwest, causing regional wages to drop: the wage differential between the Midwest and the non-union South across all industrial sectors, for instance, fell from $7 per hour in 2008 to $3.34 per hour in 2011.

Economic Populism: A Reform Agenda of Codetermination and Wages Linked to Productivity

Pew polling finds that Democrats are viewed as more attentive than Republicans to middle class worries. But electorally, this edge is threatened by Republican nationalist populism and economic frustration.  And their electoral success in November may well hinge on a visionary agenda of economic populism. The gig economy certainly poses unique challenges, but more seminal are concerns about job offshoring and wage suppression.

The poster child for wage suppression globally is Amazon which delinks wages from productivity and aggressively rejects collective bargaining. Even in Germany, competitors like Otto or Hermes Fulfillment are obligated to pay more under regional collective bargaining agreements reached by employers and workers, with rogue Amazon profiting by being the first to drive wages to the bottom.

The one proven remedy across the globe for offshoring and wage suppression is codetermination. It should form the heart of a visionary Democratic agenda, drawing on its proven success in Germany and her neighbors. German codetermination has succeeded decade after decade in nurturing and sustaining a high wage economy because corporate policies at larger (> 1,000 employee) enterprises reflect considered deliberations by boards of directors not in thrall to short-termism or narcissistic activist investors. Is codetermination socialism?  No. It strengthens capitalism. Wages are higher; labor force skill levels are higher; and offshoring enhances rather than harms domestic wages. Indeed, investors award a higher Tobin Q to firms practicing codetermination, powerful evidence that shareholders stand to gain.

The vision should also include the anticipation that every worker will share in the gains from growth. That means a national expectation like Australia or Germany that wages in every job in every corner of America will rise each year by the sum of inflation and a hefty portion of productivity growth. Another conceptual precedent is the de facto UK wage increase standard documented recently by the Financial Times.

Electoral success for Democrats in November will hinge on muting Republican nationalism with economic populism centered on raising wages. Democrats should break with the uninspiring Obama legacy by redefining their vision of the American economic experience to include reformation of corporate governance and linking wages to productivity.  Few Americans would defend the behavior of U.S. executive suites and most would welcome a powerful, seasoned alternative to misfiring quarterly capitalism.