Why Clinton Is Smiling

The President is riding a booming U.S. economy to the G-7 summit

In 1990, the last time the leaders of the Group of Seven industrial nations came to the U.S. for their annual economic summit, America was slipping into recession. Playing host in his hometown of Houston, President George Bush had to endure lectures from his European and Japanese colleagues about his government's ballooning budget deficit and its tepid economy.

Bill Clinton will suffer no such indignities when the Summit of the Eight--the G-7 nations plus Russia--convenes on June 20 in Denver. Indeed, this time around, the American President can hold up his economic policies as models for others. He will be riding a mile-high economic boom that is the envy of the other leaders: 4.1% growth in the last 12 months, 4.8% unemployment, a 2.8% inflation rate that shows no signs of surging, and a rapidly shrinking deficit. In a June 9 interview with BUSINESS WEEK, Clinton took partial credit for this success story: "We are testing the limits of a theory no one knew the answer to when we began--which is whether we could stretch a business cycle beyond its normal limits because of [rising] productivity, open markets, technological advances, and sound policy."

SHOWING THE WAY. Clinton is eager to climb up on the international soapbox to trumpet this message. With some European leaders being pressed by voters to ease up on the pain of budget cutting, privatizations, trade liberalizations, and other economic reforms, Clinton will be able to point to the record of the U.S. in the 1990s and urge them to stay the course. He may also give them a glimpse of his next economic reform--preparing for the huge surge in public spending that will be required when baby boomers start to retire in the next century.

Indeed, Clinton now views himself as a leader who can show other nations how they, too, can ease the wrenching transition from the Industrial Age to the Information Economy. His formula: decentralized government, free trade, and investment in training workers for the future. Already, he expects Britain's rejuvenated Labor Party to follow his lead. Newly elected British Prime Minister Tony Blair is "trying to make Britain an open, competitive player in an increasingly global society, while maintaining the social contract," the President said in the interview.

White House aides also hope for a much needed side benefit from the Colorado confab. They want the global spotlight to boost Clinton's stature and divert public attention from Administration scandals--Whitewater, the Donorgate fund-raising flap, and Paula Corbin Jones's sexual harassment suit. Republicans hope--and Democrats fear--that the steady drip of scandal will erode Clinton's high approval ratings and boost GOP leverage in policy battles. Denver gives Clinton a chance for "a political bank shot," says Republican pollster Frank I. Luntz. "He's trying to use the foreign policy arena to restore his credibility at home."

Will it work? While Administration officials point to polls that indicate little public interest in the controversies, critics doubt Clinton's ability to continue to keep the "character issue" from hurting his Presidency. "This tabloid sensationalism surrounding Bill Clinton makes it impossible for him to be an effective global leader," insists Republican consultant Scott W. Reed, who managed Bob Dole's Presidential campaign.

"STRETCHING." The carefully scripted Denver summit will give Clinton the opportunity to look anything but ineffective. At the top of the agenda: welcoming Russia into the powerful G-7 club. Clinton says he'll do everything possible to bolster the former superpower's struggling free-enterprise system.

Then there will be the leaders' private discussions, which promise to be more interesting--and important. There will likely be talks on European monetary union, which looks suddenly shaky in the wake of the French elections. But aides say Clinton is more eager for closed-door talks on a favorite subject: how the G-7 nations can meet their social needs while promoting growth. Although no breakthroughs are expected, the leaders will "share the political constraints they face as they try to strike a balance between market forces and social goals," says a top Administration official.

When he comes down from the summit, though, Clinton will return to Washington, where he will play to a far less receptive audience. First, he'll have to cope with Republicans in Congress who are bent on tilting the budget deal's tax cuts and spending limits toward their wealthier constituents. Then, he faces an uphill battle to pursue trade liberalization--the issue that he will be telling the other G-7 leaders is so vital to world economic health. Clinton concedes that there is bipartisan opposition to the next steps in his trade agenda: renewing China's most-favored-nation trade status and winning "fast track" authority to negotiate trade pacts in Latin America. But he predicts he'll win the negotiating authority later this year.

Nor is Clinton home free on the balanced-budget deal. The President is now beginning to object to changes proposed by GOP leaders. They are, he says, "stretching at the edges of this agreement" by altering his education tax breaks, eliminating aid for some legal immigrants, and tilting tax cuts toward wealthier Americans. On June 10, he criticized House Republicans' tax plan, saying it "does not meet the test" of the budget pact. And he says he won't let Congress gut the agreement.

In the end, Clinton says he expects the budget deal to prevail. Then, he'll have to turn to the economic initiatives that could consume the rest of his term: long-term reform of Medicare and Social Security. Despite resistance on the political left, the President vows: "We are going to do it--at least if I have anything to do about it."

White House officials, however, are still trying to figure out how. The GOP wants to write plans for a Medicare reform commission into its budget bill, but Clintonites say they can't deal with any reform ideas until after the budget is settled. The Administration is even less prepared to tackle Social Security. So while Clinton says he would be happy to tackle the pension system as soon as 1998, aides say that tough choices will probably have to wait until after the midterm elections.

Reweaving the most venerated pieces of the American safety net will require enormous political firepower. For now, Clinton is standing tall among his global peers. But as recently ousted conservative governments in Britain and France discovered, the summit leaders "speak to each other from atop eight greasy poles," says Robert Shapiro, vice-president at the Progressive Policy Institute. With a summer of congressional scandal-mongering ahead, Clinton can only hope that Denver's global powwow will give him the clout to stay on top.

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