11 JUNE 1988, Page 11

DUKAKIS: COVERT STATIST

Ambrose Evans-Pritchard on how the Democratic candidate fits the Zeitgeist Washington IT'S the old one-two punch, as they say in America. Jesse Jackson (the closet prag- matist) charges around the country preaching hellfire and socialism, while Michael Dukakis cautiously offers non- commital mush. If the two were in collu- sion it could not be more perfectly con- trived to benefit both. The contrast turns Jackson into the orator in chief, the candi- date of passion, and the conscience of the Democratic Party. His rhyming platitudes and windy repetition would not have taken him so far if he had been running against, say, Mario Cuomo. But it is Dukakis who gains most. Jackson's refusal to bow out of the race, long after a white candidate with comparable support would have done so, has given Dukakis the luxury of winning one primary after another, culminating in California and New Jersey last week, and has created the impression of an unstopp- able juggernaut. His awful first term as governor of Massachusetts in the 1970s suggests that he would not be so sure- footed in the White House. But most important, the leftish overtones of his politics are drowned out by the Jackson fanfare. During the crucial period when Dukakis has been establishing his national identity, he has looked more moderate than he really is.

Dukakis has created the illusion that he is not a statist. He may get away with this for a while because he does not set off the usual 'big government' alarm bells. He is not strictly a New Deal spender. Nor is he a guilt-racked liberal elitist. His Greek father arrived in America with nothing but his wits and a few words of English, and worked his way through Harvard Medical School with heroic self-discipline. It is a background that makes Dukakis scornful of those in the redistributive wing of his party who throw conscience money at social problems. His tune is opportunity, not equality, and he has experimented with workfare programmes in Massachusetts designed to lift the jobless out of the welfare trap, and punish sloth.

Liberals distrust him. But he too tries to manipulate and reform society, though he does it through a form of covert statism. Instead of providing services directly, paid for by taxes, he shifts the cost onto the private sector. He has fathered a bill that will make Massachusetts the first state in America to have universal health insur- ance. It forces employers to provide up to $1,680 a year in health insurance for their workers. It is a hidden but hefty tax. It hits small or struggling businesses (most big firms already provide insurance), and penalises employment instead of consump- tion. At the same time he has made Massachusetts doctors 20 per cent poorer than their colleagues in the rest of the country by fixing limits on some of their fees. The state is known as the 'Beirut of Medicine' among doctors. Medicine' among doctors.

Dukakis has a habit of telling businesses how to run their affairs. As a state legisla- tor in 1970 he pushed through a bill that mandated a 15 per cent cut in all car insurance rates, and that gave drivers automatic right to renew their policies regardless of accidents. Later, as governor, he even told the companies how to phrase their Own policies. 'Mike Dukakis. . . came into peoples' homes and told them how to rearrange their furniture,' says James Stone, who worked for the governor as insurance commissioner. Needless to say, Dukakis is a champion of rent control and has been in battle with developers throughout his career. Lately, he has come to favour impact fees that force builders to do their bit for the public good (i.e. covert tax), like putting up low income housing at their own cost, in order to get planning permission.

`Leveraged-liberalism', as this kind of benevolent extortion has been christened, is less toxic than the real thing. It does not put too much corrupting patronage in the hands of the ruling party, and it avoids sclerosis. 'At least you get a competition of ideas; companies look for the most effi- cient way of doing things,' says Stuart Butler from the Heritage Foundation. But it amounts to regressive taxation, since the cost is passed on in higher prices (and higher unemployment). If business is forced to serve as surrogate nanny for the state, it will shun people who need to be nannied. Job recruiters will become more ruthlessly Darwinist, not less.

'I'm not a great apostle of this; there are all kinds of dangers when you start con- tracting out the welfare state,' says Harold Meyerson, a left-wing Democratic adviser. 'But half a loaf is better than none.' He believes, probably correctly, that there is a renewed desire for government activism in America. If that is so, Reagan takes some of the credit. Contrary to myth he has not cut social spending. He has increased it from 9.7 per cent to 9.8 per cent of CNF. (He has, however, kept military spending below the planned Carter build-up). But Reagan has softened hostility to the wel- fare state by shifting money from 'bad' programmes, like hand-outs for able- bodied adults, to 'good' ones, like health 'I'm always annoyed when she gets through to anybody.' care for the elderly. At the same time, laissez-faire has lost its lustre, not because it has failed to produce' prosperity, but because prosperity has not stopped homelessness, drug abuse, deteriorating schools, and social disintegration.

Government intervention is one thing, however, higher taxation is another. In cities like Washington or New- York the marginal tax rate (including social security) for the middle class is about 45 per cent, which is higher than Britain. Americans complain about it endlessly, and throttled Walter Mondale in 1984 for telling them they would have to pay more. The Demo- crats probably cannot win the White House on a platform of tax increases. Nor can they turn to Treasury notes to build the happy kingdom since Reagan has trumped them royally with his own budget deficits.

The Zeitgeist, then, is activism on the cheap. It cries out for Michael Dukakis. While political economists in Washington propound their frazzled Keynesian or supply-side macro theories, Dukakis focus- ses on the neglected micro side, claiming to have unleashed energy through his strategy of 'investment economics'. It means creat- ing infrastructure to attract and keep businesses, and using government seed money or credit guarantees to help launch high-tech ventures. Wang computers is one of his success stories. Critics say that this is little more than a revamped 'industrial policy'', which may look good in times of prosperity — in a state packed with univer- sities — but which would degenerate into a support system for declining industries if applied nationally during a recession.

Dtikakis has been getting the benefit of the doubt, but his luck may be running out. His career in Massachusetts has been tied to military spending, one of the mainstays of the state. In 1974 he unseated a popular incumbent in part because the defence cuts at the end of the Vietnam war caused a local recession. After his come-back in 1982 the state, and the governor, pros- pered on the Carter-Reagan defence build- up (and the tax cuts enacted while he was out of office, and which he opposed). Now the defence cycle is turning against him. Dukakis has also been careless. He mis- calculated the effects of tax reform in 1986, allowed the bureaucracy to grow, and faces a $300 deficit in the state budget this year. New taxes are probably on the way.

'Republicans see a chink in his armour. They are pointing out that he gave a lead-pipe guarantee' not to raise taxes in 1974, saying the state deficit could be covered by 'improved management techni- ques', and then introduced the biggest tax increase in Massachusetts history. They may score a few hits. But Dukakis is an elusive target. He is a spender, but not an egregious spender; a taxer, but not an egregious taxer. He is definitely an egre- gious meddler, but it will be hard for George Bush to make that a campaign issue.