To succeed, Clinton needs the convictions of his courage


THANKS to his leadership on health reform, Bill Clinton is enjoying a second honeymoon with voters. Yet, even if his bold program gets through Congress unscathed and delivers real health security, other economic woes will bedevil his presidency.

The most fundamental of these is the lack of good jobs. This continues to be the weakest recovery since World War II.

If the core constituency of the Democratic Party -- working people -- gain health security but lose job security, Bill Clinton is in trouble.

A related danger is Mr. Clinton's odd embrace of the proposed North American Free Trade Agreement.

Among Democratic voters, NAFTA is as unpopular as health security is popular.

Experts can debate whether NAFTA will yield a net gain or a net loss of U.S. jobs (my own view is a net loss unless Mexico heroically increases its wages). But whatever losses it does produce will be blamed on Mr. Clinton.

The predecessor U.S.-Canada Free Trade Agreement took effect in 1989, during a recession. As Canada lost jobs -- some due to open trade with the bigger U.S. economy, some to recession -- Canadian Prime Minister Brian Mulroney's popularity sank. Soon he lost his job.

Underlying the key issues of jobs and health care is a deeper ideological question about which the Clinton administration has yet to make up its mind: Is the free market the solution or the problem?

On health care, Mr. Clinton has evidently decided that a free market is the problem. At a recent conference sponsored by the magazine which I edit, The American Prospect, Mr. Clinton's health adviser Paul Starr explained that a free market in health care delivers neither efficiency nor security.

Private insurers seek to avoid risks, so people who change jobs cannot count on keeping their insurance. At the same time, a private health system is fragmented, which drives up costs.

The president's solution, said Mr. Starr, is "one part regulation, one part competition." The regulatory aspect mandates a high-quality basic insurance package for all, caps costs, streamlines claims processing and prohibits insurers from refusing anyone coverage.

The competitive part allows citizens to shop around among plans, which enhances choice and places competing plans under a form of market discipline as well. But this "hybrid," in Mr. Starr's term, is far from a pure free market.

The Clinton health plan therefore offers deeper philosophical lessons that go far beyond its immediate virtues as health reform.

It reclaims and rehabilitates a principle that has been at the core of the Democratic Party at least since Franklin Roosevelt: Free markets do many wonderful things, but they need to be managed if they are to deliver reliably for ordinary people.

BIn the case of NAFTA, however, Mr. Clinton is placing all his eggs in the free-market basket and ignoring the economic effect on his political base. Supposedly, if we just get rid of "artificial" barriers to trade, both economies will benefit.

In reality, of course, the barriers are far from artificial, for Mexico and the United States are two separate countries. We have different laws, different political rights, different economic institutions and radically different living standards.

Historically, nations that trade with each other (and Mexico is already a major trading partner) have nonetheless maintained tariffs and other barriers, as buffers against these social and political differences.

The decision to grant one nation special trade status is basically political, not economic. Indeed, NAFTA violates the cardinal principle of the GATT trade system that all trading nations are supposed to receive the same treatment.

Mr. Clinton embraced NAFTA partly to reward Mexico's free-market convergence with the United States and partly to show big business that he believes in freer markets.

The administration may yet be saved from itself on NAFTA, from the often ignored third party to the treaty. Canada has national elections on Oct. 25, and Prime Minister Kim Campbell's Progressive Conservative Party is currently trailing the Liberal Party in opinion polls, 39 percent to 24 percent.

The opposition leader, Liberal Jean Chretien, favors renegotiation of NAFTA. If Mr. Chretien's Liberals win, Mr. Clinton will have a splendid excuse to take NAFTA back to the Mexicans, to negotiate tougher side agreements on labor and the environment. Indeed, the very existence of such agreements is a tacit concession of the need for buffer mechanisms -- market management -- before two such different economies attempt to integrate.

Philosophical confusion is also reflected in the administration's embrace of greater budget balance -- another favorite of free-marketeers -- at a time when the economy desperately needs a dose of public investment to restore growth.

At bottom, the core inconsistency of Mr. Clinton's diverse economic policies reflects a weakness that has afflicted recent Democratic administrations. Somewhere deep in their bones, Democrats know that they are supposed to deliver for ordinary working people where markets fail to do so.

But in an economy where money talks, Democrats are also under relentless pressure from society's business interests to demonstrate "soundness" -- respect for free markets -- on key economic questions.

To succeed, Mr. Clinton needs not only the courage of his convictions, as he has demonstrated on health care. He needs clearer convictions.

Robert Kuttner writes a weekly column on economic matters.

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