Obama Tilt Toward Rubinomics Stirs Warning From Organized Labor

By Kristin Jensen and Matthew Benjamin

Aug. 18 (Bloomberg) -- AFL-CIO Secretary-Treasurer Richard Trumka delivers a slap at former Treasury Secretary Robert Rubin in a slide show exhorting union members to back Democrat Barack Obama for president.

Blaming unfettered global trade and inadequate government regulation for lost manufacturing jobs and a staggering economy, Trumka's presentation cautions that ``it will do us little good if, when the next Democrat moves into the White House, Wall Street takes command of our country's economic policy.''

Trumka leaves no doubt that the rebuke is aimed at Rubin, Wall Street's most prominent Democrat. It's ``hard to tell the difference'' between Rubin and Republican Treasury Secretary Henry Paulson, the presentation says. Trumka's critique reflects the concern among organized-labor officials that Rubin and like- minded Democrats may win the behind-the-scenes battle to shape Obama's economic thinking.

``I'm hearing Rubin's name more and more associated with the campaign's economic policy,'' says James Torrey, a top Obama fundraiser and chief executive officer of New York-based Torrey Associates LLC, a hedge-fund investor.

Rubin, who became chairman of Citigroup Inc.'s executive committee after leaving President Bill Clinton's Cabinet, represents policy priorities that would favor free trade and more emphasis on deficit-cutting budget discipline if Obama beats Republican John McCain on Nov. 4. Meanwhile, Trumka and his boss, AFL-CIO President John Sweeney, are pushing trade policies that would protect U.S. industries, universal health care, and spending on highway construction and other projects that would create union jobs.

Growth and Fairness

Rubin, in an interview, says Obama isn't favoring either faction's agenda. ``Very much as President Clinton did, he's focusing on both competitiveness and growth on the one hand, and distribution and fairness on the other,'' he says. ``It seems to me that's where he ought to be.''

Still, the Wall Street contingent's clout has grown within the Obama camp in the two months since Rubin's first-choice candidate, New York Senator Hillary Clinton, conceded the nomination.

A Rubin protege, Jason Furman, is now the economic-policy director of Obama's campaign.

Valerie Jarrett, one of Obama's closest friends and confidantes, attended a meeting hosted by Rubin, 69, several weeks ago and says they've talked by telephone several times.

Outnumbered at Forum

At an economic forum last month, Sweeney, former Labor Secretary Robert Reich, and union advocates were outnumbered by the likes of Lawrence Summers, Rubin's successor as Treasury secretary; JPMorgan Chase & Co. CEO Jamie Dimon; former Republican Treasury Secretary Paul O'Neill; and former Securities and Exchange Commission Chairman William Donaldson, like O'Neill an appointee of President George W. Bush.

``Senator Obama made it clear that he would be reaching out to members of that group in the future,'' says another participant, Laura Tyson, who worked with Rubin as the head of the White House Council of Economic Advisers.

Labor's apprehensions surfaced after the June 9 appointment of Furman, a Brookings Institution scholar and former Clinton White House aide. One reason: In 2005, Furman published a paper saying Wal-Mart Stores Inc. creates productivity gains and consumer savings that outweigh the low wages it pays workers.

`Very Strong Ideas'

Furman, who turns 38 today, disputes the notion that any faction holds sway. ``Barack Obama is somebody who has very strong ideas about economics,'' he says. ``And no one, not Bob Rubin, not Bob Reich, not Rich Trumka, is going to walk into a room and change his fundamental, underlying priorities.''

Even so, some union leaders are already girding to fight for influence in any future Obama administration. If the Rubin camp were to win out, it would boost the odds that an Obama presidency might sidestep significant trade restrictions and sacrifice spending programs for the sake of deficit reduction.

``I worry about his influence,'' says Leo Gerard, president of the United Steelworkers.

Trumka, 59, says the AFL-CIO began months ago to look for candidates for Cabinet posts, including the Treasury and Energy Departments, as well as the Federal Reserve.

``This will not be business as usual for us,'' Trumka says in an interview. ``They're not going to be able to pat us on the head and say, we'll let you give us three names for the secretary of labor, and think that we'll be happy.''

Getting Out the Vote

Obama, 47, can't afford to alienate organized labor. Union households account for almost one in four U.S. voters, and labor is crucial to turning out the vote. The 10.5 million-member AFL- CIO, the nation's largest labor organization, plans to use 250,000 volunteers to contact 13 million voters in 24 states; the Steelworkers plan to deploy 250 paid election workers across 27 states.

One of Obama's biggest challenges, in fact, may be winning a significant share of rank-and-file union voters, who backed Clinton by large margins in Ohio and other industrial swing states.

So far, Obama's economic promises satisfy most union goals. The Illinois senator has said he would reopen the North American Free Trade Agreement. He backs universal health-care coverage, middle-class tax cuts and spending for infrastructure and education.

``I'm very comfortable with the way Senator Obama personally has laid out his agenda,'' Gerard says.

Radio Ad

Obama's rhetoric has often veered toward protectionism. A radio commercial in Wisconsin and Pennsylvania says McCain appeared at a Sturgis, South Dakota, motorcycle rally after opposing rules that would make the government buy vehicles from U.S. manufacturers such as Milwaukee-based Harley-Davidson Inc.

``It's time to hear the roar of a strong American economy again -- and stop John McCain from shipping our jobs overseas,'' the ad says.

After criticizing Nafta while stumping for primary votes in states that have lost manufacturing jobs, Obama rarely brings up the trade deal since claiming the nomination. He told reporters on June 20 that ``there was some overheated rhetoric'' about trade during the primaries, while reiterating his opposition to Nafta.

Since Rubin began advising the campaign, Obama and his team are also talking more about deficit reduction, a Rubin priority that may threaten union-backed spending programs.

Strong Dollar

At an Aug. 5 town hall meeting in Berea, Ohio, Obama touted the benefits of a strong dollar, a cause Rubin championed at the Treasury. ``A strengthening of the dollar'' would mitigate rising gasoline prices, he said.

The statement appalled economists aligned with unions, which fear that a stronger dollar would make imported goods cheaper and hurt export sales. ``The strong-dollar policy is very harmful,'' says Dean Baker, co-director of the Center for Economic and Policy Research in Washington. ``There's some real fundamental differences between the Rubinites and the labor people, and I don't know how you get them on the same page.''

Obama seems to be trying. Last month, he told reporters that, while he planned to cut the deficit, ``it is important for us to make some critical investments right now in America's families.'' In an Aug. 9 radio speech, he mentioned the budget deficit, then pledged to close tax loopholes that he said encourage companies to move jobs overseas.

In the end, the competition for influence between laborites and Rubinites may actually prove politically helpful, says Charlie Cook, editor of the nonpartisan Cook Political Report.

``What you need is two loud voices in the room to keep Obama down the middle, which is where he needs to be to get elected,'' Cook says.

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net; Matt Benjamin in Washington at mbenjamin2@bloomberg.net