According to a Federal Reserve survey, 49 percent of Americans owned stocks in 1998. That was up from 31.6 percent less than a decade earlier. Various polls show that this number has continued to rise apace since then, to something approaching 60 percent. And because stockholders tend to be older and better-educated than the average citizen, they are more likely to be voters. According to Democratic pollster Mark Mellman, about 70 percent of likely voters own equities, either directly or indirectly through mutual funds and retirement accounts.
This is a statistic with potentially staggering implications. The phenomenon of a mass, share-owning middle class is without precedent in human history. One might expect that it would affect American politics in all sorts of ways. Yet the phenomenon is quite recent, and there's no agreement as yet about whether the democratization of capitalism that occurred in the 1990s has changed the country's political consciousness--or whether it will be a significant factor in this year's elections. George W. Bush and the Republicans are betting that it will make a big difference. Al Gore and the Democrats seem to be betting that it won't.
The clearest signal that Bush is embracing a new politics of prosperity is the Social Security plan he outlined this spring and has been touting in televised ads. Although Bush has been intentionally vague about the details, his basic idea is clear enough: Younger people would be allowed to withhold something like one-sixth of their Social Security taxes and instead put the money in individually controlled retirement accounts. A decade ago, this sort of idea for privatizing or partially privatizing Social Security had little appeal beyond the free-market think tanks. The promise of a greater "return" from Social Security was nothing to match the threat of a reduction in benefits, something that Democrats accused Republicans of secretly supporting.
Of course, Al Gore is making that charge again this year. The difference is that unlike all Republican nominees since Barry Goldwater, Bush is willing to hazard the accusation. The premise of Bush's plan is that Americans are habituated to the kind of double-digit returns the stock market has delivered over the past two decades and frustrated with the lower level of return generated by Social Security's risk-free investments. His wager is that the appeal of controlling one's own assets and the promise of outsized returns now outweigh concerns about benefit cuts. In other words, Bush believes that Americans who have been pouring their money into stocks and mutual funds over the past decade will tolerate more risk in exchange for the possibility of a higher reward.
Another case in point is the call by Bush and the congressional wing of the GOP to repeal the estate tax. Only about 2 percent of people who die each year leave estates large enough to be taxed--a threshold set at $675,000 this year and slated to rise to $1 million by 2005. Thus, the proposal sounds like a response to exactly the kind of special pleading by the rich that Republicans are known for heeding, often to their own political detriment. But a new politics of prosperity might change that dynamic. Having a million bucks to pass on--or have passed on to you--is no longer so implausible to many people who work full time and think of themselves as middle class but have seen their 401(k) accounts rise with the long bull market. Or at least, so the Republicans are hoping.
Then there's Bush's position on the Microsoft case. Hinting that he sides with Bill Gates rather than with the Justice Department is, to be sure, a sop to voters in Washington state as well as a way of appealing directly to a company that has become a huge political donor. But it's also an appeal to holders of Microsoft stock, who would benefit from an outcome favorable to the company. Just a decade ago, the notion that any single company's stockholders might constitute a significant voting block would have seemed preposterous. Today, there are enough people who own shares in any of a dozen companies to give a candidate pause. According to the Wall Street Journal, 37 percent of stock mutual funds hold Microsoft. The only question is whether and under what circumstances small investors will make voting decisions on the basis of their portfolios.
In some ways, Al Gore also appears to be betting on new economy politics. He touts the epic rise in the stock market during the Clinton administration as something beneficial to the whole country, not just those who have gained the most from it. His Social Security-plus proposal, like Bush's plan, would create individually controlled investment accounts that would allow lower-income workers to become stock-market investors (though Gore would append his accounts to the existing system rather than carving them out of it). Where Gore previously decried the idea of investing Social Security funds in the stock market as akin to roulette, his new plan recognizes the appeal of equities to the great washed.
At the same time, Gore's plan is redistributive and, unlike Bush's plan, does the most for those least likely to be in the market already. Gore proposes that the federal government match retirement contributions by a ratio of as much as 3-to-1 for the poorest workers. He presented his plan with a populist rhetoric reminiscent of pre-Clinton Democrats like Tom Harkin and Dick Gephardt. On his "Progress and Prosperity" tour last month, Gore said that his retirement plan was not just for "the ones who think comfortably about their savings over scotch in the clublooking out at the golf links," but also for those "who carefully try to make it all add up to the dream over a pressured half-hour lunch break on the factory floor."
In various other recent comments, Gore seems to have disavowed the premise that middle-class Americans identify with big corporations or their stock prices. Gore's big pitch following his Social Security plan was an attack on "big oil." He suggested, without much in the way of evidence, that high gas prices were the result of collusion. And last week, Gore went after pharmaceutical companies for what he termed "price gouging." The explanation for these anti-corporate outbursts may have something to do Ralph Nader's entry into the presidential campaign. But it may also be based on a political calculation that even if corporate profits are diffused more widely than they once were, the feeling of victimization at the hands of giant corporations remains a stronger political motivator.
Gore's operating assumption is that most middle-class voters still think of themselves primarily as workers, even if they own substantial investments. Bush's assumption is that most of us now think of ourselves as investors, even if we don't have much invested. Come Election Day, we may find out who was right.