GB sits down with the former Governor of New York to understand the games and stakes for 2012 and beyond

GB: Will US politics remain divisive over the coming decade?

ES: A decade is a long tenure. I do not think that anybody’s crystal ball can, with any clarity, reach out that far. Certainly, between now and the presidential election in November 2012, we will be faced with a period of divisiveness and sharply contrasting ideological worldviews. We have an increasingly conservative Republican Party that is rejecting Keynesian economics – rejecting a view of government intervention (on both the social and economic levels) that had been the staple of American politics over the last half century – versus a Democratic Party that remains somewhat loyal to traditional Keynesian economics and the notion of government intervention in areas as disparate as education, infrastructure and medical research. This increasingly vitriolic ideological battle, given the backdrop of national economic distress, is leading to divisiveness in our politics. I do not see any reason to believe that the angst that is being felt by the public will dissipate, or that the emotional friction between the two parties will disappear in the near-term.

GB: What are the stakes in 2012 for the presidential election?

ES: The stakes could not be greater. Even though we turn at every presidential election to the old saw that this is the most important election in American history, there is a genuine sense now that history is indeed at something of a fulcrum point. The role of the US as a dominant superpower is, for the first time in nearly a century, being openly challenged by a rising China, by rising economic forces around the world, and by a sense of frailty on the part of the American economy – and indeed a sense of inability on the part of the US government to confront serious issues. As a consequence, we have a significant ideological choice to be made between what is a very moderate and, in a way, a ‘status quo’ Barack Obama – all the rhetoric of transformational politics notwithstanding, he has been a rather ‘down-the-middle’ politician as president – and what would be a rather dramatic move toward conservative ideology if, for instance, Rick Perry (or even Mitt Romney) were to become president. Listen, for example, to the positions that Perry is taking on balanced-budget issues, and on government intervention more broadly.

GB: What are the key policy challenges for the country in the next 10 to 12 years?

ES: The single greatest challenge is the intersection of joblessness and the corollary decline in middle class wealth and an increasingly inequitable national distribution of income. Putting aside how one views this challenge as a philosophical or political matter, its economic impact is the outflow of middle class jobs to other regions of the world. For instance, Canada has done better than the US for the past number of years. Most dramatically and obviously, though, we are talking about the rise of the powerful middle class in China, and increasingly in India. We will also see this in Vietnam and in other countries – meaning that those regions of the world are going to be the centres of global economic activity and wealth creation. All of this will have a dramatic impact on the US, and this will ripple through with social movements that will become perhaps angrier. The Tea Party is maybe one early manifestation of such middle class anger. Putting aside what one thinks of the policies embraced by the Tea Party, I see it very much as the outgrowth of middle class anxiety. This anxiety will begin to take form and take shape in other ways as well. The other big shift, of course, is demographic in nature: the racial complexion of the US will be changing over the next decade. How that affects both politics and social interactions will be interesting to see.

GB: Could you elaborate a little on this changing racial complexion of the country?

ES: In New York City, for instance (I do not have the most recent numbers for New York City; and it is not, of course, a mirror image of the rest of the country), I think that it is the case that white voters, although still a plurality, are now a minority. This will inevitably change the complexion of elected officials. We will have a more diverse leadership – a function of a more diverse society. All of this is a good thing, but it will be a change that will become increasingly apparent to the rest of the world in the coming years.

GB: What distribution of responsibility or labour do you envisage for Washington DC, the states and the private sector in tackling issues like joblessness?

ES; I might have to challenge the premise of your question. The focus is perhaps less on states versus Washington than on what anyone or any government entity can do about the trends that we are seeing. The laws of economics cannot be easily repealed. And globalization has become a given – even if nearly two decades ago, the concept was new to many people. The reality of globalization and the free flow of capital across international boundaries has led to a reality that makes it much harder for workers either in the US, Canada or Germany to get wage increases that are commensurate with the productivity gains that they used to get. It used to be that there was a pretty good correlation between individual productivity increases of, say, five percent, and individual wage increases on, say, the assembly line, of about five percent. That no longer happens. In the last 20 or 30 years, this has been the big disconnect. Even though labour in the US has been getting more efficient – because of significant capital investment – labour does not get the uptick because labour is competing against wages in the rest of the world. Now, is there something that government can do about this? That is the big question that is facing us. You can see people struggling with this at every level – put politics aside. We have tried most of the easy answers. The Republican persistence in seeking tax cuts has led to enormous cuts in marginal rates over the last 10 or 15 years. This really has not led to anything terribly useful in terms of job growth or income growth for the middle class. It has led to very significant wealth increases for the wealthy, but, again, has not led to anything substantial for the middle class. Even I – as a Democrat who has supported the stimulus, and who believes that it has worked more than people acknowledge – concede that it has not brought the economy roaring back: capital is still being invested elsewhere – to a certain extent – where there are greater returns. So the real policy question that is facing Washington right now is: what can be done? Marginal shifts in payroll taxes and even in investments in infrastructure – all of which are in and of themselves important – have not yet produced the big payback over the long-term time horizon. An educated workforce that can permit higher value-added for workers is, as economics will tell you, the only way to ensure that workers will do better. Of course, even there we are not seeing returns, because there is such a vast supply of labour elsewhere in the world. So all of this is a little bit of an economic conundrum that does not, at present, lend itself to an easy answer.

GB: Is this an issue of a dearth of ideas or a recalibration of expectations?

ES: It could be both. They are not either-or. The short answer is: I do not think that we really know.

GB: Is there still a place for intellectuals in US politics? Where are they to be found?

ES: On one level, intellectuals are finding themselves drinking much more heavily these days as they watch politics. From my corner of the world, there certainly is frustration when you see serious – or allegedly serious – presidential candidates rejecting Galileo, Darwin and Keynes, and getting away with it. It is a little difficult to figure out what has happened to our belief in rational thought, science and progress. All that being said, those who live in the world of academia and ideas – there are smart folks out there, and there are many of them – will keep churning out ideas. They are creative. You look to universities and the writers to give inspiration and content to those of us who just try to read and internalize these ideas. You just hope that they will come up with better ideas, and give us the next set of policies that might work.

GB: Is there trouble with the intellectuals’ sales job, though?

ES: To a certain extent, yes. We look back now with such fondness on Bill Clinton’s capacity to connect with the public, and to explain issues and elevate the conversation in a way that, unfortunately, President Obama has not succeeded in doing. There he is, with the loudest, most powerful megaphone out there, and yet he has not challenged or been able to push back against what seems to be a significant turn to the right in the national policy conversation. I keep waiting for him to say: “You know, Keynesian economics is not dead; it works. Here is what the government has to do, and here is the history.” We can all laugh about Al Gore creating the Internet – but, you know, the government did in fact create the Internet. I keep waiting for that articulation of purpose on the part of government.

GB: How dependent is future US power in the world on the domestic game?

ES: They are interrelated. First of all, I would suggest that our position in the world as a superpower is, over a 30- or 40-year time horizon, dependent upon our economic position and military power. Our military power is unquestionably the greatest in history – unchallenged by anybody at this moment. The capacity to maintain this power is dependent on the domestic economy; and our domestic economy will not continue to thrive unless we have domestic politics that understand how to maintain it. If we fail at a political level, then, as we are already seeing somewhat, the emotional position of the US in the world begins to slip. That process will accelerate if we do not alter the trend line on unemployment and our capacity – and the perception of our capacity – to address deeper problems.

GB: What future global challenges will the US not be able to lead on?

ES: When Fukuyama’s book, The End of History, came out, I remember saying to others that, while we have won the ideological battle regarding liberal democracy and capitalism, Fukuyama is forgetting about fanaticism – fanaticism that is visible primarily in the context of religion today (although this has not always been the case). I am not sure that we will be able to push back successfully against this rise of fanaticism; that is, against the threat of fanaticism that does not understand the notions of tolerance. We are doing what we can, but have not quite figured out whether the answer is necessarily a military response. We have tried that in various places, obviously, and sometimes it works better than at other times. Is it soft power that you should use to interact with other nations? Is it simply about expanding our economic reach? Somehow, we are not yet winning the battle in persuading a significant part of the world that the fanaticism that we are seeing is simply not an ideology that works over the long-term.

GB: What is the biggest societal weakness in the US?

ES: The US’s greatest strength is that we still have the best-educated workforce and population – at some level. The weakness is that we are beginning to lose the capacity to educate ourselves as well as we need to for future success. The core strength of the people here in the US – our human capital, as it were – will ultimately determine success or failure. And I am not persuaded that we are investing in that human capital as we must.

GB: Are there countries in the world that provide interesting examples for emulation by the US on particular major policy issues?

ES: I suppose that we all should believe that you look around the world to see who is doing what well in terms of health care. I do not want to start listing individual countries, but there are certainly better examples of high-quality health care being delivered at a much lower cost than here in the US. We have not yet figured out this problem, which is a real economic problem. In terms of education, I scratch my head – both as someone who has just been on the outside watching and who has been in government trying to figure out how to use resources to fund educational systems. There are great examples around the world of systems in which kids are doing better than they are here in America. On the whole, we are a little out of balance here right now, and so we clearly have to look around the world to ask: is somebody else getting it right? Are they getting better fixes than we are?

GB: How do you see the future of the North American continent?

ES: North America will, of necessity, become a more integrated economic and social entity. The ties between the US and Canada should become tighter, as our common economic future becomes increasingly apparent to all. We also share common challenges, as lower-wage parts of the world will compete to take away the jobs that are the backbone of our middle classes.

GB: What would be your idealized future vision for Wall Street and, relatedly, global finance?

ES: Finance should be plumbing. I am not denigrating it, but it should be a system that permits capital to flow to sectors that can then invest productively. It should not be the end in and of itself. Finance became such an end in and of itself when 40 percent of our corporate profits were being earned by the financial institutions alone. That spoke to a type of casino approach. Too much of the return was being scraped off by institutions that were gambling, rather than institutions that were creating the wealth. I saw that someone cleverly wrote the other day: “Repeal Dodd-Frank, but pass Glass-Steagall.” There is a lot of merit in this. We are trying to regulate these huge institutions, instead of separating them into smaller, more nimble entities with limited purpose – entities that would actually compete with each other. We have gone the wrong way in addressing ‘too big to fail.’ We have made banks bigger, rather than smaller. I am not sure that this concentration will work. The conflicts of interest are going to be impossible to mediate. And the problems that we are building – structurally – are really going to be hard to overcome. I think that we have now paid a price for this, although we have not yet addressed it officially.

GB: What is the future of the law in the US, and how might this evolution affect American politics and culture?

ES: This again comes to the 2012 presidential election. No individual president since Roosevelt has had the chance to appoint a significant nucleus of justices. With so many appointments, the entire direction of how we view the Constitution shifts. But if we were to have Romney or Perry in the White House, and Republicans in the Congress, and if we put more justices of the school of Thomas or Roberts on the court, then that really could begin to move our interpretative theories – certainly not in the direction in which I would want them to go. Indeed, that could change the direction significantly from what has been the accepted understanding of the Constitution for the last 60 or 70 years. I really do think that it will be interesting to see how the court rules on the constitutionality of a number of laws: one key law, of course, will be the determination of the constitutionality of the health care act. This will presumably be determined by the current nine justices, which means that there is a pretty good chance that it will be upheld. That being said, if we get a conservative president, then nominations will not be in the Elena Kagan mould. That will push us in a very different direction – an uncomfortable one for me, and for many others, I suspect. So that is one of the big choices that we as a country are facing.

Eliot Spitzer served as Governor and Attorney General of New York State. He lives in New York City with his wife. They have three daughters.

(Photograph: Courtesy of CNN)