For me, Lily Geismer’s impressive, readable new book on the history of the New Democrats has a personal angle. In Left Behind: The Democrats’ Failed Attempt to Solve Inequality, she describes how a new generation of younger Democratic politicians in the late 1970s turned away from direct government intervention as the way to tackle poverty and inequality and instead advocated a much larger role for private business. One of their models was ShoreBank, in Chicago’s South Shore neighborhood, which had deployed an innovative lending strategy to help restore a deteriorating neighborhood. Bill and Hillary Clinton, among others, said the bank should inspire similar institutions nationwide.
I come from South Shore, and my mother lived there until 1994. (Michelle Robinson Obama grew up two blocks away, and attended the same elementary school I did nine years after me.) I also had an account at ShoreBank—until it failed after the 2008 financial crisis. The bank’s history is a central element of Geismer’s smoothly written account of the origins of the New Democrats and the years their ideas were popular. The bank’s collapse helps show why those policies eventually largely failed.
Geismer looks first at Colorado Senator Gary Hart, who made a strong run for the Democratic presidential nomination in 1984. Next, she chronicles the emergence of Bill Clinton and the founding of the Democratic Leadership Council in 1985; besides Clinton, the DLC’s leading lights included Al Gore, Missouri Representative Richard Gephardt—and Delaware Senator Joe Biden. She then turns to her central focus, the Clinton presidency. She summarizes those eight years as an “enduring effort to promote private-sector investment, market-based tools, and opportunity—rather than redistribution, government assistance and economic security—as the best route to address poverty, economic inequality and racial segregation.”
One of Geismer’s strengths is that she takes the New Democrats seriously, instead of dismissing them as opportunists who just wanted to counter the rise of Ronald Reagan and Newt Gingrich by tacking toward the center. She writes, “The New Democrats’ adoption of market-oriented approaches to address inequality was not a defensive reaction to the Republicans. Rather, it was based on a genuine belief in the power of the market and private sector to achieve traditional liberal ideals of creating equality, individual choice, and help for people in need.”
ShoreBank certainly did give the New Democrats reason for optimism. South Shore, originally an all-white middle- and working-class neighborhood, transformed in the 1960s and ’70s, as hardworking Black families, like Michelle Obama’s, moved in. Our traditional bank stopped making home improvement loans, and the buildings, especially the major apartment blocks, began to deteriorate. Then a new band of young idealists took over the bank and started lending to the new owners. We could see the community revive before our eyes.
Geismer, who teaches recent political and urban U.S. history at Claremont McKenna College, tells ShoreBank’s story vividly, including interviews with the protagonists. She gives the same respectful treatment to other New Democrat policies: charter schools; public/private partnerships that were supposed to replace public housing; welfare “reform.” In each case, though, she shows that the original bright hopes rarely worked out in practice.
She chronicles in valuable detail the Clintons’ love affair with “microfinance”—empowering the poor, especially women, to set up their own small businesses. The pair got the idea from Muhammad Yunus, who had launched the concept in his home nation, Bangladesh, and they helped establish similar programs in Arkansas when Bill Clinton was governor. With time, evidence showed that microfinance had also been oversold, and didn’t live up to its first extravagant promises (in either the U.S. or Bangladesh).
In the end, the fate of ShoreBank helps explain where the New Democrats went wrong. First, the bank’s original success was somewhat misrepresented. Banks need money—deposits—to be able to lend, and the South Shore community by itself was not well off enough to generate enough of them. So ShoreBank’s leaders solicited deposits from the Ford Foundation and others. These deposits were not, strictly speaking, charity—the bank did pay interest—but you can see why spreading ShoreBanks across the country was an illusion; there simply weren’t enough foundations willing to move their deposits out of traditional banks.
Far more important, though, was the massive 2008 financial crash. ShoreBank itself apparently did nothing wrong, but the upheaval crushed it anyway. In 2010, we account holders were mailed notices explaining that the bank had failed, but that we were protected by federal deposit insurance. (This was a legacy of the New Deal; it was not a “public/private partnership” that rescued us.) Federal regulators moved our accounts into a more traditional bank elsewhere in the city. Soon, parts of my old neighborhood started deteriorating again.
What went wrong? During the Clinton era, the biggest banks lobbied successfully to reduce government regulations. In 1999, they succeeded in abolishing the Glass-Steagall Act, a New Deal law that had prevented investment banks and commercial banks from joining together. Once Glass-Steagall was gone, an immediate wave of mergers created the vulnerable, poorly supervised giants that were major culprits in the 2008 disaster. Bill Clinton may have made speeches extolling ShoreBank, but his administration lit the fuse that allowed Citibank, JPMorgan Chase, and Lehman Brothers to trigger the biggest economic crisis since the 1930s. After the explosion, the government bailed out Citibank and the other giants. But it let ShoreBank die.
Geismer ends her book with an eloquent summary:
The successive and overlapping economic, political, and social crises of the twenty-first century reveal the limitations of the Democratic Party’s commitment to making the market do good. Community development banking, microenterprise, Empowerment Zones, charter schools, free trade and New Markets tax credits do not hold the answers to the problems caused by large-scale economic restructuring, persistent unemployment, foreclosures, and the retrenchment of direct cash assistance.
The Biden administration’s first year further proves Geismer’s thesis. Joe Biden may have been one of the original New Democrats. But his big-government spending proposals to rebuild America show that he’s learned from their mistakes—and moved on.