Back in June, with his campaign sputtering, Bill Clinton desperately needed to ignite his Presidential bid. The spark came from an unlikely source: a 22-page economic manifesto. Although it ducked the deficit problem and seemed a mite cautious, the plan was credible. Most important, it began to define Clinton as someone other than a traditional liberal determined to redistribute a shrinking pie. This was a Democrat, voters began to learn, who used words such as "growth" as much as "fairness."
If Clinton doesn't sound like Democrats past, credit the new breed of economic advisers he has gathered around him (table). Most members of this eclectic band of lawyers, investment bankers, management consultants, and decidedly nontraditional economists distrust the old Democratic faith in government management of the economy. Yet they're not willing to leave everything to market forces. They seek what they call a third way, one that mixes government activism with private investment.
To them, investment in both human and physical capital is the key to the economic future. They eschew Keynesian manipulation of demand in favor of policies aimed at helping business and labor function more efficiently. That bias plays down the role of the heavyweight macroeconomists who used to dominate Democratic campaigns. Muses Republican activist and Salomon Brothers Managing Director Stephen E. Bell: "Maybe that's why Clinton is doing so well."
The Clinton team has no single economic guru. Several insiders are 1960s student radicals turned fortysomething policy junkies. Most are friends from Clinton's student days. Some, such as Occidental College Professor Derek Shearer, are traditional liberals, while others, such as Progressive Policy Institute Vice-President Robert J. Shapiro, are more market-oriented. They disagree on some key issues, particularly trade and industrial policy. Except for a June session to thrash out the economic agenda and a convention get-together, the group rarely meets. Instead, ideas are chewed over on the phone and by passing around reams of position papers.
`INCENTIVES.' Most recognize the limits of activist government. Says Blackstone Group Vice-Chairman Roger C. Altman: "Government can't by itself create higher productivity or growth. It can create incentives for investment and a stable environment for business to prosper."
To be sure, in recent weeks, Clinton has widened the circle to include more traditional Democratic economists such as Robert Eisner of Northwestern; Alan Blinder of Princeton (a BUSINESS WEEK columnist); MIT Professors Robert Solow, Paul R. Krugman, and Rudiger Dornbusch; Harvard trade specialist Laura Tyson; and Brookings Institution health care expert Henry Aaron. They are helping to fill in details of the economic plan. But the framework was set a month ago by Clinton's brain trust, which puts pragmatism above economic theory.
The best-known is probably Robert B. Reich, who teaches political economics at Harvard's John F. Kennedy School of Government. He's a prolific writer and commentator who has been raising the hackles of academic economists for years. Clinton's economic manifesto--Putting People First--echoes Reich's view that human capital is the key to improving the U.S. standard of living. Reich argues that a country's economy can be built only on its people and their skills. Fiscal policy, he adds, ought to target long-term investment, not deficit reduction. That argument boosts a view that probably serves Clinton's political interests as well: soft-pedaling the painful choices that would have to be made to slash the massive federal deficit. Says Reich: "Our primary goal is an economic growth plan that generates high real wages and improves productivity."
That view is shared by Shapiro, who has been a wellspring of market-oriented ideas for Clinton and his fellow members of the centrist Democratic Leadership Council. A former journalist who was trained as a political economist, he advocates a microeconomic approach to business problems. "We have to focus on how business works," he says. "We cannot manage capitalism."
Clinton's Wall Street connection also presses hard for market-oriented solutions. Blackstone's Altman, who met Clinton when they were both undergraduates at Georgetown University, renewed their acquaintance after Clinton began his campaign. Although Altman was deeply involved in the Carter Administration's bailout of Chrysler Corp., the incident left him with doubts about Washington's ability to intervene in business. "It made me humble about government's role," he says.
Altman once argued strongly for a balanced budget. Now, he thinks a quick, radical deficit reduction "is too much for this fragile economy." While he agrees with Reich that the focus should be on human capital, he also favors government incentives for investment in factories and equipment: "We must invest in both."
Clinton also gets a hard-nosed investment-banking perspective from Goldman Sachs Co-Chairman Robert E. Rubin. He's serving as an economic sounding board for the brain trusters, offering a perspective on how ideas would work in the real world. He has also pressed the need for long-term solutions rather than quick fixes.
The market orientation of Shapiro and the Wall Streeters is balanced on the left by two old friends of Clinton's: Shearer and Ira C. Magaziner. The least-known of the group, Shearer is probably also the most liberal. He heads Occidental's International & Public Affairs Center and has taught urban studies there and at the University of California at Los Angeles. A onetime anti-Vietnam War activist, Shearer met Clinton while in London doing investigative reporting on the conflict. A close Clinton friend, he serves as a coordinator. Few of his ideas have been adopted by the campaign. He favors aggressive government intervention in both economic and social policy: "I think an activist government works."
HIGH-TECH PUSH. Magaziner, another supporter of government activism, may be the most controversial of the insiders. The management consultant is a pal of Clinton's from their days at Oxford University. He has heavily influenced Clinton's thinking on worker training and education. Unlike Shapiro, Magaziner wants government to support U.S. technologies directly. Says Magaziner: "The extent to which you have strong U.S.-based manufacturing is important."
The role of pulling together these disparate views falls to the youngest member of the team, 33-year-old Gene Sperling. He's also a veteran of the Dukakis campaign and the only one of the group who serves as a full-time Clinton aide. Another macroeconomic outsider, his views have been shaped by Reich, for whom he worked as an assistant at Harvard, and by Lawrence Summers, a former Harvard professor who is now chief economist at the World Bank.
Clinton is, by most accounts, a practical man with little patience for academic theory. "Clinton doesn't have gurus," says Shearer. "He's not set in ideological ways. He wants to know what would work." It's hard to know if Clinton's plan would revive the economy, but so far, it's working just fine as politics.
THE KNIGHTS OF BILL CLINTON'S ROUNDTABLE ROGER C. ALTMAN Vice-chairman of the Blackstone Group, investment bankers. Former Assistant Treasury Secretary for domestic policy in the Carter Administration. Critic of big budget deficits, but urges caution in slashing deficit too quickly now. Says government alone can't create growth and higher productivity IRA C. MAGAZINER President of SJS Inc., a Providence (R.I.) management-consulting firm. Long a friend of Clinton's, he advocates defense-conversion programs and improved education and training for all U.S. workers. A trade hawk, he probably leans more toward managed trade than others in the brain trust do ROBERT B. REICH Lawyer and professor at Harvard's Kennedy School, economic adviser to 1988 campaign of Michael Dukakis, author most recently of The Work of Nations. Has known Clinton since they studied at Oxford. Argues that business and capital know no national boundaries and pushes for human-capital investment ROBERT E. RUBIN Co-chairman of Goldman, Sachs & Co. Chair of New York City's host committee for July's Democratic National Convention and longtime fund-raiser. Barely knew Clinton until recently but is influencing policy more in this campaign than in past races. Helping Clinton prepare for debates. Favors market solutions ROBERT J. SHAPIRO Vice-president of the Progressive Policy Institute, a middle-of-the-road think tank. Former aide to Dukakis, onetime top economic adviser to Senator Daniel P. Moynihan (D-N.Y.), National Bureau of Economic Research fellow. Probably the most market-oriented member of the Clinton economics team DEREK SHEARER Director of the International Public Affairs Center at Occidental College. He's perhaps the most traditional liberal among the advisers. Briefly served as an aide to California Governor Jerry Brown. Calls himself a student of institutional economics but says: "I'm not a mathematical or highly theoretical person" GENE SPERLING Lawyer and graduate of Wharton's MBA program. Former aide to New York Governor Mario Cuomo. Acts as a traffic cop for economic ideas, in constant touch with the brain trust as well as an expanding group of macroeconomists who serve as unofficial advisers to the campaign DATA: BW