The Power of the Purse

The often used "power of the purse" may have first been uttered on January 4, 1788, by Oliver Ellsworth in Hartford, Connecticut. Elsworth had represented his state at the Constitutional Convention in Philadelphia and was addressing Connecticut's convention to debate whether to ratify the proposed federal constitution. He argued in part that to ensure the financial resources to provide for national defense, "Government must...be able to command the whole power of the purse."

The Constitution was indeed ratified and went into effect, giving Washington the power of the purse. More than two centuries later, some observers worry that it is also true that "the power of the purse is able to command the whole of Government." The degree to which that has at least an element of truth was evident in the intense battle in early 2000 over whether or not to grant China permanent normal trading relations (PNTR) and clear the way for it to join the World Trade Organization (WTO).

To start with the climax of the story, a front-page story in the New York Times on May 25, 2000, told readers, "In a stunning victory for the Clinton administration and corporate America, the House today swept aside economic restrictions on China that were part of anti-Communist policy for two decades. By a surprisingly wide margin, 237 to 197, lawmakers voted to give Beijing permanent normal trading privileges after months of fierce lobbying that pitted business against organized labor."¹

The beginning of at least part of the story dates back to 1989 and what has become known as the Tiananmen Square Massacre, representing the attack on antigovernment demonstrators by People's Liberation Army troops in Beijing's main square and many other sites in China. In the aftermath, Congress enacted legislation requiring that the president report every year on China's human rights record, giving Congress an annual opportunity to revoke China's Most Favored Nation (MFN) trade status with the United States. It is worth noting that the MFN designation was misleading, because it really meant normal trade relations at tariff rates no higher than those of most other countries, which presumably were also MFNs.

Each year during the 1990s the president reported, somewhat disingenuously, that China's human rights record had improved, and each year Congress was the scene of numerous speeches castigating China. These were followed by a vote continuing the status quo.

It became apparent that this annual ritual would no longer suffice when, in late 1999, Washington and Beijing reached an agreement after long negotiations on trade relations that included U.S. support for China's admission into the WTO. Although President Clinton could support China's entry into the WTO without congressional approval, it was necessary to grant China the same permanent trade privileges extended to other U.S. trading partners to avoid violating WTO rules.

That set the stage for one of the most intensely fought legislative conflicts of Clinton's eight years in office. With the Senate expected to vote for PNTR, the battlefield was the House of Representatives. Many of the arguments pro and con had little or nothing to do with economics.

Among others, opponents of PNTR included human rights advocates dismayed by China's abuses, environmentalists worried about China's poor record in that area, and continuing cold war warriors opposed to China's communist government.

Proponents used other arguments. "We're all horrified by what happened at Tiananmen Square," said Julie Moore, president of the Chamber of Commerce for Decatur and Macon County. "But we have a better chance of helping the Chinese people if we are there," presumably to keep an eye on the government and set a good example.² Even more important was the national security argument. As National Security Adviser Sandy Burger put it during one speech, "Rejection [of PNTR] will set off a downward spiral that could disrupt stability in Asia, diminish the chance of dialogue across the Taiwan Strait and deflate hopes for a more constructive relationship between the U.S. and China.³ That theme was hammered home not only by President Clinton, but by every living former president and by such luminaries as former secretary of state Henry Kissinger and former chairman of the Joint Chiefs of Staff Colin Powell.

In the skein of controversy, the final decision came down to one of economic strength, of business versus labor. This line-up was evident in that, despite President Clinton's advocacy of PNTR, House Democrats voted 138 to 73 against the measure, while supposedly opposition Republicans voted in favor of PNTR by 164 to 57.

Manufacturing, service industry (such as banking and insurance), and agricultural leaders lined up solidly for the bill, which they believed would bring them better investment opportunities and sales. Some 200 top executives signed a letter in support of PNTR. The industry-backed Business Roundtable and the U.S. Chamber of Commerce spent an estimated $10 million on a television, radio, and print advertising campaign that focused on the districts of uncommitted House members. Individual legislators were visited by hordes of economic leaders from their home districts. "It seems like there have been hundreds of them," one congressman sighed.⁴

Labor mounted a countercampaign. "This is a betrayal of workers' interests," said George Becker, president of the United Steelworkers of America. "This is about moving factories from the U.S. so that they can export back here.⁵ Union lobbyists worked the halls of Congress and labor supporters and others descended on Washington to demonstrate. In the end, they did not prevail. "A few thousand people bused to Washington today by A.F.L.-C.I.O. labor bosses can't change the fact that the sky is blue, the earth is round and trade is the key to [American prosperity]," countered Representative David Dreier, a California Republican.⁶ And so it was that the support of PNTR status for China and, by inference, U.S. support for its entry into the WTO was passed by the House. John J. Sweeney, president of the A.F.L.-C.I.O. gave the epitaph for the efforts of the unions and other opponents to the measure. "We mounted a forceful and nearly successful challenge to an array of money and forces unlike any before seen in a lobbying campaign," he said.⁷ They had come close, but that only counts in horseshoes.

1. New York Times, May 25, 2000.

2. New York Times, April 21, 2000.

3. New York Times, May 2, 2000.

4. New York Times, April 21, 2000.

5. New York Times, May 25, 2000.

6. New York Times, April 13, 2000.

7. New York Times, May 25, 2000.