Why the Democrats can't win national elections

During last fall's lamentable Presidential campaign, I received a phone call from a young aide to Massachusetts Governor Michael Dukakis. He was contacting me, he said, on the recommendation of a top Dukakis economic adviser, who had suggested I might be able to identify some exciting growth companies the governor could visit on one of his frequent California campaign swings.

Duly flattered, I proceeded to give him the names of several of my favorite companies. I mentioned Zero Corp., the metal-fabrication company that has helped lead the resurgence of American manufacturing. I also recommended AST Research and Everex Systems, two microcomputer makers that have emerged as strong new players in an industry the experts had declared closed to entrepreneurship. Then, of course, there was Cypress Semiconductor, the vanguard of a generation of entrepreneurial U.S. chip companies that are beating the Japanese at their own game.

The aide asked me a series of questions about each company, most of which seemed reasonable enough: the backgrounds of the founders, the nature of the industry, the location of the companies, and so on. But when he asked whether the companies were unionized, I knew we were in trouble. "Well, no, of course not," I said. "Do the companies have to be unionized to be considered?"

I could feel the chill across the transcontinental phone lines. "We have political considerations," the aide said. "Thank you for your help." Thus ended my brief career as a Dukakis adviser.

It was, I admit, a distinctly minor incident in a less than memorable campaign. Yet, when I think back, I wonder if there might not be a broader lesson in this little exchange -- a lesson that helps explain why Michael Dukakis is battling budget deficits in Boston these days, rather than in Washington, D.C. For the attitude of that young aide reflected, once again, the Democrats' apparently willful inability to understand the changes sweeping the nation's economy.

I say "willful" because their ignorance is hard to explain otherwise. You don't have to read Inc. to know that the U.S. economy depends increasingly on small, usually nonunion companies for jobs, new products, and management innovation. Nor is it the large, heavily unionized companies that have led the country's recent industrial revival. According to economic forecaster Albert Sindlinger, companies with fewer than 100 employees accounted for roughly 60% of last year's factory income gains.

It's not even true anymore (as it once was) that unionized companies represent the cutting edge of enlightened labor-management relations. These days a union shop is as often a sign that a company is poorly run. Meanwhile, the most daring experiments in enlightened management are occurring in nonunion, entrepreneurial companies -- Nucor Corp., Visible Changes, Quad/Graphics, Springfield Remanufacturing, Action Instruments -- that have pioneered in the use of incentives, in-house training, and employee stock ownership. Such companies are, of course, atypical, but the fact remains that the absence of a union no longer signifies the presence of sweatshop working conditions.

And yet the Democratic Party appears oblivious to all this. Hopelessly locked into the big-business-big-labor paradigm of the 1930s, it dares not do anything to upset the AFL-CIO. Heaven forbid that its Presidential candidate should visit a nonunion plant. Similarly, the Cuomo Commission on Trade and Competitiveness managed to lay out a national economic strategy for party policymakers, while scarcely mentioning the existence and role of small, nonunion companies.

There's a certain self-destructiveness in this attitude. For one thing, the party is catering to a shrinking constituency at the expense of a booming one. Between 1980 and 1987 union membership declined more than 15%; during that same period the number of small businesses skyrocketed almost 40%. Today, entrepreneurs (including sole proprietors and owners of small corporations) outnumber union members by more than a million people.

The irony is that the Democrats could probably attract a significant amount of small-business support with an intelligent program stressing lower interest rates, lower capital-gains rates, greater access to capital, technical assistance, and job training. After all, more and more of these new companies are being started by people from groups that traditionally tend to vote Democratic anyway, notably women and ethnic minorities. Abandoned by their party, they wind up turning to the Republicans by default.

I'm not suggesting that the Democrats abandon their principles. On the contrary, there is something fundamentally democratic (with a small d) and progressive about an entrepreneurial economy, something egalitarian and open. Yet the party leadership would rather turn the clock back to its glory days of the 1930s than accept the challenges of a new era. That's too bad for the Democrats. Without a vision appropriate to the nation's emerging economic realities, they are likely to remain just where they are today -- out of date and out of the White House.