Obama’s Challenge

We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on Earth to do business. We need to take responsibility for our deficit, and reform our government. That’s how our people will prosper. That’s how we’ll win the future. And tonight, I’d like to talk about how we get there.

The almost universal consensus in the wake of the mid-term Senate and House of Representative elections last November, was that President Barack Obama would be forced to make concessions and cooperate with the newly-elected Republicans. The logic is that, because the Republicans took control of the House, and dramatically curtailed the Democratic majority in the Senate, the political mood of the country has shifted to the right. The President can veto bills adopted by Republicans, while Republicans can filibuster Senate legislation that the Democrats desire. If this face-off were to last until November 2012, public opinion will be the determining factor.

Yet Mr Obama’s State of the Union address showed little appetite for compromise. While Mr Obama gave the impression of being conciliatory and flattering, noting that Democrats and Republicans would have to work together to pass legislation, the main thrust of his speech was a vindication of his own policy platform. Indeed, the speech represents Mr Obama’s fullest repudiation (or refudiation?) yet of the spectre of Sarah Palin.

Two weeks ago, Mr Obama swatted Mrs Palin down in Tuscon for inflammatory rhetoric. Last night, he responded to the attacks of the Tea Party Movement on his patriotism. The ‘problems we face,’ he told Congress, ‘are bigger than politics.’ America is facing unprecedented challenges to its prosperity from developing nations, has its largest debt as a proportion of GDP since the 1940s, and the highest unemployment since the early 1980s (only the second time it has reached 9% since the Second World War). These things are all connected, Mr Obama implied, but competition is about innovation, education and flexibility.

Many Republicans will have agreed with Mr Obama when he stated that ‘None of us can predict with certainty what the next big industry will be, or where the new jobs will come from,’ and when he admitted that free enterprise was critical to innovation. But the President does not intend to rely solely on free enterprise, and his next budget is likely to contain subsidies for industries such as ‘biomedical research, information technology, and especially clean energy technology.’ Mr Obama also proposes to shift the energy subsidies America provides to oil companies – hoping to capitalise on the BP oil spill, no doubt – to renewable and clean energy supplies. In doing so, he risks the almost inevitable discontent that comes with higher fuel bills.

Mr Obama’s proposals to merge regulatory commissions will not be unpopular in Congress, and may prove productive. His suggestion that expenditure is frozen for five years, thus saving $400bn, is an important start to a debate that has not quite taken off in America – legislators, and recently a bi-partisan committee have been saying that the deficit must come down but the questions of how much, how fast and where the cuts will fall have not yet begun in earnest. Republicans will feel that criticism of their tax cuts, which Mr Obama supported in a compromise deal recently (and took credit for earlier in the speech), is politically egregious.

Mr Obama’s proposals to reduce corporate tax rates and look at medical litigation reform as a means of reducing costs are also examples of the President reaching across the aisle, but he made clear that if rebuffed, he would see that the Republicans were viewed as a party keen to put the burden of deficit reduction on the poorest, and as taking the ‘engine out of the airplane to lighten the load’ if they should reject his increases in education and industrial subsidies.

The reaction of the Republicans in the Chamber was suggestive of the future approach to Mr Obama’s Presidency. There was no heckling, but rather, a stony-faced silence. Will the Grand Old Party simply resist the President’s agenda with an air of severe responsibility? While many stalwarts of the party clearly sense an opportunity to dispense with Mrs Palin’s showboating, there is a decided passion for more conservative policies both inside and outside of Congress (House Republicans recently voted to repeal the health care reform in a symbolic act). Many will feel obliged to be vocal in their attacks on the President with primaries coming up shortly to select candidates for 2012.

This could make life difficult for President Obama. His stately manner will reflect well on the television, but he will not have the easiest of rides. He has already upset many in politics by threatening to pass the health care reform bill through a budget reconciliation and with bribes in the form of Medicare subsidies – which will smack of hypocrisy given his commitment to veto any bills with earmarks for the next two years.

The road to 2012 now looks uncomfortably short for the President. His long-term view, previewed in this State of the Union message, will not assuage the very current fears about unemployment, and his trade deals and subsidy programmes will take time to come into effect. That said, making a start on deficit reduction could allay a concern that that is one of the causes of America’s current malaise, as long as it does not play into the Republicans’ hands by allowing them to claim that they would be justified in going further. The debates over the next two years are likely to be rancorous, as tax cuts are pitted against protected budgets and increased spending in areas such as education. Promising to freeze spending overall suggests Mr Obama will seek to stay ahead of the economic debate and that after that, he will gamble somewhat on his record for bringing change to Washington.

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