The great U-turn: how demographic shifts and regulatory arbitrage turned the United States away from European socialism

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Admirers and detractors of the United States agree on one point: This country is unusually resistant to the social consensus and set of structures broadly known as "social democracy" or "progressivism." (Social democracy leans more toward state ownership, progressivism toward state regulation.) Various versions of such schemes have prevailed in Western Europe and Japan, and to a lesser degree in Britain, Canada, and Australia. The characteristics include a wider scope and role for the state, centralization of decision-making in a national bureaucracy, monopolization of power by a set of large institutions, including state-champion corporations and labor unions, and a wide variety of social entitlements for all citizens. This was the classic progressive economic program; since the 1960s, it has also included certain social characteristics, such as official multiculturalism.

Most of these measures were characteristic of some parts of Continental Western Europe from the late 19th century onward, and became generally prevalent there after the Second World War. The English-speaking countries lagged well behind; Britain began to adopt welfarist policies and admit labor unions to the domestic power system before the First World War, but moved to full entitlement systems and substantial state control of the economy only after 1945. Australia and New Zealand adopted entitlement systems early, using their agricultural and mineral export earnings as petro-states now use oil wealth, but remained socially conservative in many other ways. Canada was essentially similar to the U.S. in its domestic systems (despite some greater public ownership, mostly in transportation) until the 1960s. But by the end of the 1970s, America stood virtually alone in a world of seemingly universal consensus for a strong managerial state.

Optimistic progressives pointed to the accomplishments of the New Deal and the Great Society as evidence that the U.S. could and eventually would achieve their full agenda. Social Security was, after all, a universal welfare entitlement, even if it had to be disguised as insurance; Medicare was the seed of a socialized medical system. Many of the eastern and West Coast states had gone farther with the progressive agenda than the country at large. They were the richer and better-educated parts of the country, and were therefore beacons of the future.

Such a picture was credible through the end of the Great Society, and even through the Nixon administration. In fact, it was possible to see Nixon as the conservative rationalizer of the welfare state, the man who said, "We are all Keynesians now," who imposed wage and price controls, and who created the regulation-extending Environmental Protection Agency. Any non-progressive features of his administration could be dismissed as electoral pandering to the rednecks, to be undone when genuine progressives returned to power.

And in 1976 it did appear that such an administration was at hand, with the election of James Earl Carter. When Carter gained the presidency over a wounded Republican party, he mistook his narrow victory for a mandate to continue moving along the track toward a European-style social democracy, building on Johnson's and Nixon's enhancements of centralized power. In this he was basically following the trajectory of Britain and Canada. Carter envisioned moving toward fully government-controlled medicine, a government-dominated energy sector enforcing strict rationing, and a federally dominated school system promoting governing-class values. In order to carry out his agenda, he created and entrenched two new cabinet bureaucracies, the Departments of Energy and of Education, and a wide variety of new pork and entitlement programs, such as the Comprehensive Education and Training Act and an expansion of the scandal-plagued Community Development Corporations.

Yet by the (unexpectedly hastened) end of his administration, these plans were in ruins. Most of the expansions of power he had envisioned had been forestalled or greatly circumscribed; the nation was engaging in widespread civil disobedience against measures such as the 55-mph national speed limit; and, to the surprise and horror of those who followed the prevailing intellectual consensus, Ronald Reagan had been chosen to take Carter's place. Although it wasn't fully appreciated at the time, Reagan's replacement of Carter marked a critical point (not the first, in fact, but the first generally noticed) of a great U-turn in American politics and society.

For decades--at a minimum, since the beginning of the Progressive Era, and arguably earlier--America had been on a course toward a more centralized society, one in which individualism as it had been understood since before the Founding--a society built on independent families living on their own properties, most of them farms--was being replaced by a different vision. The progressive vision was one of citizens as employees whose existence was mediated by negotiations among large corporations, unions, and government agencies. For such subjects, "rights" were to be a designated set of entitlements granted by those organizations.

America had gone some distance down this road by 1980, although not as far as Canada or Britain, and no where near as far as Germany or France, which had never been all that laissez-faire in the first place. But 1980 marked the point at which the nation reversed course. Thenceforth it would be headed in the opposite direction, toward a new vision of individual ism and decentralism, driven by the computer rather than the plow.

It was the defeat and frustration of the Carter administration's plans that made the U-turn, which would be long in unfolding, visible to perceptive observers. By objective standards, Reagan's domestic program was quite moderate and constrained, not really dismantling any major parts of the federal machine but merely slowing the rate of increase of federal non-defense spending. Reagan devoted the bulk of his attention to foreign affairs and to implementing his principal insight: He understood that one period of sustained pressure would be sufficient to cause the Soviet empire to collapse without a shot being fired, and he applied that pressure with the intended result.

In parallel, a set of explicitly deregulating and decentralizing developments had emerged, including the privatization of COMSAT (begun under Nixon), the legislative deregulation of the air-transport and freight-rail industries (done under Carter), and the court-ordered demise of the regulated telephone monopoly. The resulting drastic reductions in the price of rail freight, flying, and phone service made it substantially easier to do business nationwide, and indeed worldwide, independent of location. This was an often overlooked factor in the entrepreneurial takeoff and continuing decentralization of the Reagan years.

During World War II, Americans had accepted a great deal of regimentation for the sake of victory, but they made it clear that with the coming of peace they wanted something different. The Democratic party had controlled both houses of Congress from 1933 through 1946, voting reliably for the centralizing policies of Franklin D. Roosevelt. The first post-war election, in 1946, returned the Republicans to power in both houses.

The new Congress proceeded to undo most of the wartime controls and return the country to a more market-oriented economy, while keeping popular New Deal measures such as Social Security. Most important, in 1947 the 80th Congress passed the Taft-Hartley Act over Truman's veto. This outlawed a number of abusive union practices, and in particular allowed states to forbid the practice of requiring employees to join unions.

Subsequently, the Eisenhower administration consolidated the social gains of the 80th Congress, meeting the defense, infrastructure, and economic challenges of the Cold War and restabilizing the country after decades of wrenching and traumatic experiences. Eisenhower also launched a series of initiatives that turned America from what had been, in effect, a continental empire, with a metropole and a quasi-colonial periphery, into a genuinely continental nation. Previously, the Northeastern-Great Lakes metropolitan core had dominated politics, finance, and manufacturing, while the western and southern states were primarily semi-colonial farming and mining regions. The interstate highway system and other advances, particularly the completion of transcontinental coaxial-cable networks (which permitted simultaneous distribution of television programs), direct-dial telephone networks, and expanded air transportation, allowed national activities to take place on a genuinely national scale and pace. A good marker for this transition can be seen in the timing and geography of the expansion of the major-league sports teams.

The final significant development was cheap air conditioning for homes, cars, and commercial buildings. Together with the transportation and communications improvements, air conditioning turned great reaches of the South, Southwest, and West into much easier places to live and work in, and integrated them more tightly into the national economy. As this happened, many western and southern states, where unions had always been weaker, began to pass right-to-work laws as permitted by Taft-Hartley. This created a virtuous circle whereby smaller and newer companies located or relocated in the right-to-work states, reinforcing the pressure for deregulatory and low-tax policies in those states and making them yet more attractive to companies and employees. It could almost be viewed as the last act of America's transcontinental settlement, in which the interior spaces of the Sunbelt were settled a second time upon the discovery of a new type of gold, this time an intangible one of policy advantage.

The effect of this pattern was to set up a national movement from the Northeast to the Sunbelt, a trend that had profound long-term electoral implications. The migration began to affect the distribution of congressional seats and electoral votes as early as the 1960 census, or even the 1950 census, given the substantial movement of population to the West during and after the Second World War. Voters who chose to move to right-to-work states were generally more conservative than those who remained; thus, the shift in electoral votes and House seats to Sunbelt states began to give Republican candidates an edge over Democrats, and, within the Republican party, to give conservative candidates an edge over centrist and liberal ones.

Barry Goldwater's 1952 election as a Republican senator in historically Democratic-leaning Arizona was one of the first fruits of this shift, as was his nomination for president in 1964. Neither would have been likely to happen under the population distributions of 1940. Similarly, northern transplants to the Deep South were one factor in its transition from a predominantly Democratic region to a predominantly Republican one.

This suggests that the Great American U-Turn was due not so much to an inherent or essentialist explanation of American exceptionalism, but a circumstantial one. It was due to some specific characteristics of the American situation in the late 20th century, primarily geographical and technological, that permitted a large-scale inter-regional population shift. This in turn permitted the prescient work of the Founders, in their devotion to federalist principles, to set in motion a process of regulatory arbitrage that created a virtuous circle of deregulation and entrepreneurial vigor. These factors combined with the fortunate political developments of the 80th Congress, particularly the Taft-Hartley Act.

To apply the comparative method, it's worth examining the "socialism gap" between the United States and our closest cousins, Britain, Canada, Australia, and New Zealand. The last three are particularly useful examples, since all three shared the frontier and colonial experience that is so often cited as a principal source of our exceptionalism. To the extent we consider that these experiences shaped America's Founders, we must ask what the equivalent influence on the Canadian and Australian founders as well.

A snapshot of the English-speaking world in, say, 1945 would not have revealed any major gaps, political or practical, between its members in the matters of centralization, state control, and public acceptance of a directive state. Rather, there would have been a clear pattern of a slight lead in adoption of such mechanisms by Britain, with their adoption in the U.S. and Canada coming a decade or two later.

At the end of the 19th century, populist politicians in Australia and New Zealand had conducted a series of experiments in state-driven social-welfare and economic interventions. Both countries had small, homogeneous populations with a very limited set of prosperous industries in farming and natural-resource extraction, exporting mostly back to Britain. Their socialism was not the systematic socialism of latter-day German social democrats or the apocalyptic totalitarianism of Slavic Communists. Rather, it was a series of pragmatic experiments by a collection of somewhat dotty and colorful labor leaders and populist politicians, more Methodist than Marxist, wrapped up in "fair go" rhetoric.

Volatile international price swings, and the lack of effective market mechanisms to cope with them, inspired the establishment of commodity marketing boards; underdeveloped banking and housing sectors led to state provision of single-family houses in New Zealand; and again, the lack of effective capital markets encouraged state entrepreneurship in railway construction. Social- and medical-insurance schemes and old-age pensions pyramided on high childbirth rates, and employers could pass their costs along to their British customers under the wing of Imperial tariff preferences.

Of course, Marxist intellectuals such as those in the Fabian Society were happy to use the results, real or imagined, as an argument for their kind of comprehensive, ideological socialism. However, for many more in Britain, they just sounded like a set of commonsense measures that delivered results. The experience of the First World War seemed to validate this perception. The divisions of robust, healthy Australian and New Zealand troops that had come to their rescue in the grim middle years of trench warfare stood in contrast to the high percentage of conscripts from Britain's industrial slums who were rejected as physically unfit. All those family allowances, free daily rations of milk for school-children, and state-provided cricket fields seemed a plausible explanation.

"One-Nation Conservatives" as well as liberals and leftists were moved to accept a broader degree of state intervention as a result. This came on the heels of the Victorian reformation of mores, which had included a social conscience that led to amelioration of the Dickensian misery of the slums. These trends were also present in the U.S., but less universally.

The Second World War placed Britain under extreme pressure in terms of food and fuel resources, finance, and manpower, both military and industrial. Its response was an extremely high degree of mobilization, including conscription, rationing, and tight planning and control of all economic and industrial matters. This control was generally accepted in the name of wartime necessity, accompanied by a sense that the privation and intrusion were more acceptable because they were shared equally. At the end of the war, this translated into support for the Labour party and its program of a welfare state and state ownership or control of major industries.

The post-war Labour government undertook one of the most sweeping institutional and structural changes ever imposed by peaceful electoral politics in the English-speaking world, particularly in the creation of the welfare state. Yet for all the atmospherics, the actual amount of nationalization was limited to the commanding heights of the old "first industrial revolution" sector, plus health care. The railway companies were acquired, but the railways had been so debilitated by wartime damage and deferred maintenance that massive capitalization was needed to modernize them. It's likely that such rebuilding would have been state-financed, and therefore state-controlled, under a Conservative government as well.

The coal industry was nationalized as a payoff to the miners' union. The steel industry was quasi-nationalized through a coordinating entity that eventually came to be called British Steel. Steel nationalization was undone quickly by Churchill's returning Conservatives in the early 1950s; rail and steel nationalization were undone in the Thatcher revolution a few decades later. Of all the post-war nationalizations, only that of the health-care system proved to be an enduring political success, and it was the one most ardently envied by the American Left. British socialism was, overall, more Bismarckian than Leninist.

In 1945, it was quite possible that America would soon follow Britain in many of its key social initiatives. Harry Truman is today remembered primarily for his assertive foreign policy. Many forget or ignore that in economics he was a hard-core New Dealer who was firmly in favor of regulation, mandatory union membership, and nationalized health care. It was only after the 80th Congress turned America back onto a more private and decentralized path, while the Labour government put Britain on the path of centralization and welfarism, that a substantial divergence appeared. Even then, the United States's lag was seen by progressives as merely temporary, to be corrected as soon as progressive government was restored.

In 1962, the Canadian province of Saskatchewan created a mandatory, universal government-run medical-insurance scheme, although only after a bitter battle that included a 23-day doctors' strike. Other provinces quickly followed suit, and by 1966 Canada had formally established by federal action a comprehensive, state-controlled medical system. Meanwhile, with his huge congressional majorities elected in 1964, Lyndon Johnson enacted Medicare. Many on the left thought this would soon be expanded to a general state-funded medical system. Yet no significant movement was made in that direction until the Obama administration's legislation of this year, which still falls well short of either the British or the Canadian model. For a brief moment after the electoral triumph of the Left in 2008, it seemed as if the U-turn might be turned again. But the vociferous and widespread opposition to the Obama agenda suggests that the U-turn is part of a long-term transition and is not likely to be reversed by short-term politics.

Had Truman or Lyndon Johnson been able to push through a similar British- or Canadian-style agenda in their times, the new institutions and arrangements would have immediately appealed to a substantial bloc of the electorate, particularly unionized employees of large corporations, who would have constituted a substantial lobby for the entrenchment, protection, and expansion of those institutions and benefits. By 2009, this bloc was substantially smaller and weaker, and it has had to expend substantial amounts of its political capital merely to stay alive. The entrepreneurial companies, the self-employed, and small businesses that do not benefit from, but rather are penalized by, this agenda are conversely stronger.

One way to think about the U-turn is to look at an alternative history that was proposed and advocated, but never came to pass. By the 1880s, Britain had seen its share of world manufacturing decline significantly from its mid-century high-water mark of half the world's output. A great deal of the difference was a result of the rapidly growing output of the U.S. and Germany. At this time Germany was barely a decade old as a state, having united only in 1871, while the U.S. had preserved and deepened its unity just six years before that. It seemed as if the prevailing worldwide trend was the merger of smaller entities into large ones. Little Britain seemed destined to be permanently surpassed by the newer, larger, more vigorous unions.

Yet an alternative beckoned alluringly. While the world's attention had been fixed on the Americans' sprint to populate their part of the continent, their fellow onetime British subjects to the north had achieved an equally remarkable feat. From being in 1783 a dumping ground for dispossessed American loyalists, Canada had achieved its own coast-to-coast settlement, becoming a self-governing dominion in 1867 and completing a transcontinental railroad by 1885. Australia began in an even more inauspicious fashion as a penal colony in 1788, but grew to a self-governing continental federation by 1901. New Zealand quickly followed suit, while on yet another continent the gold-rush crowds of the 1890s seemed to be in the process of rapidly outnumbering the Dutch settlers of South Africa with restless Britons.

With this background, a group of Victorians, both British and colonial, began to dream of a globe-spanning Imperial Federation under the Crown, uniting Britain and all of its colonies of settlement into a global federal state, governed by a single Imperial Parliament, and able to operate on the same scale as the U.S., Germany, and Russia. Taken singly, Britain and its colonies amounted to, respectively, no more than a small island with a shrinking share of the global economy and a collection of scattered deserts and forests sparsely populated by a handful of settlers. Taken together, they might be a functionally equivalent (if more widely scattered) version of the U.S. (Britain equaling the Northeast, Canada the Midwest and Northwest, Australia the Southwest and California), wanting only a set of American-style federal institutions to keep pace with America and Germany. It just needed some Founding Fathers to bring it into existence.

Historian Duncan Bell has called this "one of the most audacious political projects of modern times." It was the political equivalent of the visionary engineering of Isambard Brunel and the other great Victorian engineers. In a world of crawling stagecoaches, painfully constructed stone-arch bridges, and wooden ships at the mercy of the winds, Brunel saw broad-gauge trains steaming at a mile a minute, iron spans crossing wide estuaries, and steamships that amounted to vast floating cities bridging the oceans and linking continents in safety and comfort. Brunel turned his visions into reality, but the Victorian political visionaries saw only a shadow of their dreams come to pass, in the form of what came to be known as the British Commonwealth.

The reasons their dream never became real are varied. While the voluntary Commonwealth worked well, it seemed unnecessary, and when the voluntary system became inadequate, it was too late to build a federal solution. Other options became more attractive, such as working out separate national deals with the United States. Finally, Britain itself was beguiled by the alternative of European unification. Its 1961 application to join the European Economic Community, which signaled a willingness to disrupt trade ties with its Commonwealth partners, came as a shattering blow. Gradually, the existing ties--particularly the common citizenship and ease of personal movement between dominions--were extinguished.

Ironically, then, just as the United States was knitting together its quasi-colonial outlying regions into a true nation by means of jet aviation, simultaneous national broadcasting, direct dialing, the interstate highway system, and air conditioning, the Commonwealth was shrinking its horizons by terminating common citizenship and restricting freedom of movement. Jet aviation, television broadcasting, and geosynchronous satellites (again ironically, all invented or co-invented by Britons) were finally promising the technical means to realize the premature vision of the old Imperial Federationists, just as the last few political ties that remained from that dream were being severed.

Had the full federalist vision been realized, an Imperial Federation would have been subject to the same decentralist pressures as was the United States. It would have been difficult at best to apply a single, centralized administration in such a polity to the extent needed for progressive planned economies, and cheap, unrestricted movement between its components would have undercut extremes of taxation by those units. Perhaps the most important effect would have been psychological: the sense, always present, of broad lands overseas that were there as a potential, whether you chose to exercise the option of migrating or not. Kipling, a fan of Greater Britain, wrote lovingly in the 1890s of "the far-flung fenceless prairie / Where the quick cloud-shadows trail." Even in 1953, Nevil Shute's futurist novel In the Wet pictured a Commonwealth in 1980 linked by jet aviation and common citizenship, to the consternation of British socialist politicians.

Today, a wave of privatization and deregulation throughout the English-speaking world and beyond has narrowed the socialism gap between the U.S. and its Anglosphere cousins, with the primary exception of health care. Canada and Britain have privatized their state-owned railways and many other industries. In some areas, such as air-traffic control and airport operation, it is the U.S. that is the socialist relic. Conservative governments in Britain and Canada have announced intentions to reduce the size of the state. Meanwhile, the Obama administration is seeking to close the socialism gap by expanding the American state, having already made a start in health care and, supposedly temporarily, auto manufacturing.

Yet no sooner had Obama and his supporters started down this road than the decentralized nature of post-U-turn America threw roadblocks in their path. Diverse "new media" prevented the administration from flooding the discussion zone with a uniform message and provided a channel for organizing protests, leading to the tea-party movement. Resurgent state governments have filed suit to overturn Obamacare, and perhaps shrink the scope of the Commerce Clause in the process. If successful, these suits could be as momentous a development as the Taft-Hartley Act.

The American U-turn, despite Obama, seems well established, in contrast to the tentative movement to shrink the British state and revisit the increasingly problematic decision to join the European Union. Obama came to office hoping to found the New New Deal, but America is no longer the America of FDR. A combination of the Founders' gift of a fundamentally decentralist Constitution and the sheer elbow room of the American continent appears to be pointing us to a third era in American history, taking the technological and civil-rights gains of the second, centralized, industrial era, but returning to the decentralized and diverse community vision of the Founding.

Mr. Bennett is the author of The Anglosphere Challenge (Rowman & Littlefieli, 2004). 

Bennett, James C. "The great U-turn: how demographic shifts and regulatory arbitrage turned the United States away from European socialism." National Review 4 Oct. 2010: 28. Student Resource Center - Gold. Web. 19 Oct. 2010.