An Unsentimental View of Globalization

Lou Dobbs (CNN) is a traditionalist. Brink Lindsey is a modernist. I feel sorry for Lou Dobbs. He's making money now, but the tide is running out. If this is (fair & balanced)macroeconomics—whatever that is—so be it.

[x Cato Institute]
10 Truths About Trade: Hard facts about offshoring, imports, and jobs.
by Brink Lindsey

Is globalization sending the best American jobs overseas? If you get your news from CNN’s Lou Dobbs, the answer is "of course" and the only real issue is how many trade restrictions should be applied to stem the bleeding.

But the recent scare about "offshoring" is just the latest twist on an inaccurate, decades-old complaint that global trade is stealing jobs and causing a "race to the bottom" in which corporations relentlessly scour the world for the lowest wages and most squalid working conditions. China and India have replaced 1980s Japan and 1990s Mexico as the most feared foreign threats to U.S. employment, and the old fallacy of job scarcity has once again reared its distracting head.

The truth is cheerier. Trade is only one element in a much bigger picture of incessant turnover in the American labor market. Furthermore, the overall trend is toward more and better jobs for American workers. While job losses are real and sometimes very painful, it is important -- indeed, for the formulation of sound public policy, it is vital -- to distinguish between the painful aspects of progress and outright decline.

Toward that end, and to counter protectionist "analysis" masquerading as fact, here are 10 core truths about global trade and American jobs.

1. The Number of Jobs Grows With the Population

As Figure 1 shows vividly, the total number of jobs in the American economy is first and foremost a function of the size of the labor force. As the population grows, the number of people in the work force grows; then market forces absorb that supply and deploy labor to different sectors of the economy.

Consider all the major events that have increased the supply of labor during the last half-century: the baby boom, the surge in work force participation by women, and rising rates of immigration after decades of restrictionist policies. Consider as well the key developments that have slashed demand for certain kinds of labor: the growing competitiveness of foreign producers and falling U.S. barriers to imports; the shift by American companies toward globally integrated production and the consequent relocation of many operations overseas; the deregulation of the transportation, energy, and telecommunications industries and the wrenching restructuring that followed; and, most important, the many waves of labor-saving technological innovations, from the containerization that replaced longshoremen to the dial phones that replaced switchboard operators to the factory-floor robots that replaced assembly-line workers to the automatic teller machines that replaced bank tellers.

Yet in the face of all this flux, no chronic shortage of jobs has ever materialized. Over those tumultuous five decades, a growing economy and functioning labor markets were all that was needed to accommodate huge shifts in labor supply and demand. Now and in the future, sound macroeconomic policies and continued flexibility in labor markets will suffice to generate increasing employment, notwithstanding the rise of China and India and the march of digitization.

2. Jobs Churn Constantly

The steady increase in total employment masks the frenetic dynamism of the U.S. labor market. Gross changes -- total new positions added, total existing positions eliminated -- are much greater in magnitude. Large numbers of jobs are being shed constantly, even in good times. Total employment continues to increase only because even larger numbers of jobs are being created.

According to economist Brad DeLong, a weekly figure of 360,000 new unemployment insurance claims is actually consistent with a stable unemployment rate. In other words, when the unemployment rate holds steady -- that is, total employment grows fast enough to absorb the ongoing increase in the labor force -- some 18.7 million people will lose their jobs and file unemployment insurance claims during the course of a single year. Meanwhile, even more people will get new jobs.

More detailed and dramatic evidence of job turnover can be found in Table 1. According to data compiled by the Department of Labor’s Bureau of Labor Statistics, total private-sector employment rose by 17.8 million between 1993 and 2002. To produce that healthy net increase, a breathtaking total of 327.7 million jobs were added, while 309.9 million jobs were lost. In other words, for every one net new private-sector job created during that period, 18.4 gross job additions had to offset 17.4 gross job losses.

In light of those facts, it is impossible to give credence to claims that job losses in this or that sector constitute a looming catastrophe for the enormous and dynamic U.S. economy as a whole. It is as inevitable that some companies and industries will shrink as it is that others will expand. Localized challenges and problems should not be confused with national crises.

3. Challenging, High-Paying Jobs Are Becoming More Plentiful, Not Less

The ongoing growth in total employment is frequently dismissed on the ground that most of the new positions being created are low-paying, dead-end "McJobs." The facts show otherwise.

Managerial and specialized professional jobs have grown rapidly, nearly doubling between 1983 and 2002, from 23.6 million to 42.5 million. These challenging, high-paying positions have jumped from 23.4 percent of total employment to 31.1 percent.

And these high-quality jobs will continue growing in the years to come. According to projections for 2002-12 prepared by the Bureau of Labor Statistics, management, business, financial, and professional positions will grow from 43.2 million to 52 million, increasing from 30 percent of total employment to 31.5 percent.

4. "Deindustrialization" Is a Myth

Opponents of open markets frequently claim that unshielded exposure to foreign competition is destroying the U.S. manufacturing base. That charge is flatly untrue. Figure 2 sets the record straight: Between 1980 and 2003, American manufacturing output climbed a dizzying 93 percent. Yes, production fell during the recent recession, but it is now recovering: the industrial production index for manufacturing rose 2.2 percent in 2003.

It is true that manufacturing’s share of gross domestic product has been declining gradually over time -- from 27 percent in 1960 to 13.9 percent in 2002. The percentage of workers employed in manufacturing likewise has been falling, from 28.4 percent to 11.7 percent during the same period. But the primary cause of these trends is the superior productivity of American manufacturers. As shown in Figure 3, output per hour in the overall nonfarm business sector rose 50 percent between 1980 and 2002; by contrast, manufacturing output per hour shot up 103 percent. In other words, goods are getting cheaper and cheaper relative to services. Since this faster productivity growth has not been matched by a corresponding increase in demand for manufactured goods, the result is that Americans are spending relatively less on manufactures. Accordingly, manufacturing’s shrinking share of the overall economy is actually a sign of American manufacturing prowess.

Exactly the same phenomenon has played out over a longer period in agriculture. In 1870, 47.6 percent of total employment was in farming. By 2002 the figure had fallen to 1.7 percent. In the future, manufacturing will in all likelihood continue down the trail blazed by agriculture. People who bemoan this prospect don’t recognize economic progress when they see it.

International trade has had only a modest effect on manufacturing’s declining share of the economy. It is true that imports displace some domestic production. On the other hand, exports boost sales for American manufacturers. The U.S. has been running a manufacturing trade deficit in recent years, but even if trade had been in balance between 1960 and 2002 the manufacturing share of GDP still would have fallen sharply, down to an estimated 16 percent (as opposed to the actual 13.9 percent). Innovation creates a steady, relentless drop in manufacturing’s share of economic activity.

5. Imports Have Not Been a Major Cause of Recent Manufacturing Job Losses

Employment in the manufacturing sector has taken a beating in recent years. Between 1965 and 1990, the total number of manufacturing jobs fluctuated in a stable band between 16 million and 20 million; during the 1990s, the upper limit dropped to around 18 million; but between July 2000 and October 2003 jobs plummeted 16 percent, from 17.32 million to 14.56 million.

Although the losses have been severe, the charge that those jobs were eliminated by foreign competition simply doesn’t square with the facts. As shown in Table 2, manufacturing imports rose only 0.6 percent between 2000 and 2003. By contrast, manufacturing exports fell by 9.6 percent. In other words, during this period the drop in exports accounted for 91 percent of the growth in the manufacturing trade deficit.

Accordingly, imports played at best a trivial role in the recent sharp decline in manufacturing employment. The main culprit was the worsening domestic market for manufactures during the recent recession -- in particular, a big drop in business investment. Between the fourth quarter of 2000 and the third quarter of 2002, total fixed nonresidential investment fell by 14 percent. Looking abroad, it was softening overseas markets, much more than stiffening import pressure, that added further downward pressure on domestic manufacturing jobs. Consequently, anti-trade activists who cite manufacturing job losses as a reason to turn away from trade liberalization couldn’t be more wrong. Expanding overseas markets and commercial opportunities for American exporters would be a shot in the arm for manufacturing employment.

6. "Offshoring" Is Not a Threat to High-Tech Employment

In recent months, historical fears about vanishing manufacturing jobs have been compounded by growing anxiety about trade-related job losses in the service sector. Advances in information and communications technologies now make it possible for many jobs -- from customer service calls to software development -- to be performed anywhere.

In particular, the offshoring of information technology (I.T.) jobs to India and other low-wage countries has received a flurry of attention. According to a survey of hiring managers conducted by the Information Technology Association of America, 12 percent of I.T. companies already have outsourced some operations abroad. As for future trends, Forrester Research predicted in a widely cited study that 3.3 million white-collar jobs -- including 1.7 million back-office positions and 473,000 I.T. jobs -- will move overseas between 2000 and 2015.

Adding to the fear, I.T. employment has experienced a significant recent decline. In 2002, according to the Department of Commerce, the total number of I.T.-related jobs stood at 5.95 million, down from a 2000 peak of 6.47 million. Although some of those jobs were lost because of offshoring, the major culprits were the slowdown in demand for I.T. services after the Y2K buildup, followed by the dot-com collapse and the broader recession. Moreover, it should be remembered that the recent drop in employment took place after a dramatic buildup. In 1994, 1.19 million people were employed as mathematical and computer scientists. By 2000 that figure had jumped to 2.07 million -- a 74 percent increase. As of 2002, the figure had decreased only slightly to 2.03 million, still 71 percent higher than in 1994.

Despite the trend toward offshoring, I.T.-related employment is expected to see healthy increases in the years to come. According to Department of Labor projections, the total number of jobs in computer and mathematical occupations will jump from 3.02 million in 2002 to 4.07 million in 2012 -- a 35 percent increase. Of the 30 specific occupations projected to grow fastest during those 10 years, seven are computer-related. (See Figure 4 for the fastest-growing computer-related occupations.) Thus, the recent downturn in I.T. is likely only a temporary break in a larger trend of robust job growth.

The wild claims that offshoring will gut employment in the I.T. sector are totally at odds with reality. I.T. job losses projected by Forrester amount to fewer than 32,000 per year -- relatively modest attrition in the context of 6 million I.T. jobs. These losses, meanwhile, will be offset by newly created jobs as computer and mathematical occupations continue to boom. The doomsayers are confusing a cyclical downturn with a permanent trend.

7. Globalization of Services Creates Enormous Opportunity for American Industry

Offshoring of I.T. services to India and elsewhere has been made possible by ongoing advances in computer and communications technologies. If those advances indeed pose a threat to domestic I.T. services industries, then it should be possible to trace the emergence of that threat in trade statistics, since offshoring registers as an increase in services imports.

Yet the fact is that the U.S. runs a trade surplus precisely in the I.T. services most directly affected by offshoring. In the categories of "computer and data processing services" and "database and other information services," American exports rose from $2.4 billion in 1995 to $5.4 billion in 2002, while imports increased from $0.3 billion to $1.2 billion. Thus, the U.S. trade surplus in these services has expanded from $2.1 billion to $4.2 billion.

Meanwhile, the same technological advances that have given rise to offshoring are facilitating the international provision of all kinds of services -- banking, accounting, legal assistance, engineering, medicine, and so on. The United States is a major exporter of services generally and runs a sizable trade surplus in services. In 2002, for example, service exports accounted for 30 percent of all U.S. exports and exceeded service imports by $64.8 billion. Accordingly, the increasing ability to provide services remotely is a commercial boon to many U.S.-based service industries. Although some jobs are doubtless at risk, the same trends that make offshoring possible are creating new opportunities, and new jobs, throughout the domestic economy.

8. Offshoring Creates New Jobs and Boosts Economic Growth

Although offshoring does eliminate jobs, it also yields important benefits. To the extent that companies can reduce costs by shifting certain operations overseas, they are increasing productivity. The process of competition ultimately passes the resulting cost savings on to consumers, which then spurs demand for other goods and services. Whether caused by the introduction of new technology or by new ways to organize work, productivity increases translate into economic growth and rising overall living standards.

In particular, offshoring encourages the diffusion of I.T. throughout the American economy. According to Catherine Mann at the Institute for International Economics, globalized production of I.T. hardware -- that is, the offshoring of computer-related manufacturing -- has accounted for 10 percent to 30 percent of the drop in hardware prices. The resulting increase in productivity encouraged the rapid spread of computer use and thereby added some $230 billion in cumulative additional GDP between 1995 and 2002.

Offshoring offers the potential to take a similar bite out of prices for I.T. software and services. Those price reductions will promote the further spread of I.T. and new business processes that take advantage of cheap technology. As Mann notes, health services and construction are two large and important sectors that today feature low I.T. intensity (as measured by I.T. equipment per worker) and below-average productivity growth. Diffusion of I.T. into these and other sectors could prompt a new round of productivity growth such as that provoked by the globalization of hardware production during the 1990s.

9. The Digital Revolution Has Been Eliminating White-Collar Jobs for Many Years

The attention now being paid to offshoring creates the impression that it is an utterly unprecedented phenomenon. But the very same technological advances that are making offshoring possible have been eliminating large numbers of white-collar jobs for many years now.

The diffusion of I.T. throughout the economy has caused major shakeups in the job market during the last decade. Voicemail has replaced receptionists; back-office record-keeping and other clerical jobs have been supplanted by computers; layers of middle management have been eliminated by better internal communications systems. In all these cases, jobs are not simply being transferred overseas; they are being consigned to oblivion by automation and the resulting reorganization of work processes.

The increased churn in white-collar jobs shows up in the Department of Labor’s statistics on displaced long-tenured workers, defined as workers who have lost jobs they held for three years or more (Figure 5). During the 1981--82 recession blue-collar workers bore the brunt of long-tenured displacement, but by 1991-92 more than half of the long-held jobs lost were white-collar. Even in the better years that followed, innovation and job churn continued to displace white-collar workers at a higher rate than during the 1981-82 recession.

Offshoring is merely the latest manifestation of a well-established process. The only difference is that, with offshoring, I.T. is facilitating the transfer of jobs overseas. In either case, domestic jobs are lost to technological progress and rising productivity. Why is this downside taken in stride when jobs are eliminated entirely yet considered unbearable when the jobs are taken as hand-me-downs by Indians and other foreigners?

10. Fears That the U.S. Economy Is Running Out of Jobs Are Nothing New

Because of the recent recession, the U.S. economy has suffered from a shortage of jobs, as evidenced by the rise in the unemployment rate. There is a natural temptation under these conditions to fear that this temporary setback is the beginning of some permanent reversal of fortune, that the shortage of jobs is here to stay and will only grow worse.

To calm such fears, it is useful to recall that similar anxieties have surfaced before. Again and again, over many decades, cyclical downturns in the economy have prompted predictions of permanent job shortages. And each time, those predictions were belied by the ensuing economic expansion.

Back in the 1930s, the brutal and persistent unemployment caused by the Great Depression gave rise to theories of "secular stagnation." A number of leading economists -- including, most prominently, Harvard’s Alvin Hansen -- argued that declining population growth and the increasing "maturity" of the industrial economy meant that we could no longer rely on private-sector job creation to provide full employment. The stagnationist thesis eventually fell out of fashion once the postwar economic boom gathered steam.

The return of higher unemployment in the late 1950s and early ’60s led to a revival of the stagnationist fallacy, this time in the guise of an "automation crisis." The ongoing progress of factory automation, combined with the growing visibility of electronic computers, led many Americans to believe, once again, that the economy was running out of jobs. During the 1960 presidential campaign, John F. Kennedy, who ran on a pledge to "get the country moving again," warned that automation "carries the dark menace of industrial dislocation, increasing unemployment, and deepening poverty." The American Foundation on Automation and Unemployment, a joint industry-labor group created in 1962, claimed breathlessly that automation was "second only to the possibility of the hydrogen bomb" in its challenge to America’s economic future. For the record, U.S. employment in 1962 stood at 66.7 million jobs -- roughly half the current total.

In the early 1980s, the coincidence of a severe recession and a string of competitive successes by Japanese producers at the expense of high-profile American industries sparked predictions of the imminent "deindustrialization" of the American economy. As financier Felix Rohatyn complained, in a fashion typical of the time, "We cannot become a nation of short-order cooks and saleswomen, Xerox-machine operators and messenger boys....These jobs are a weak basis for the economy." Along similar lines, Sen. Lloyd Bentsen (D-Texas) fretted that "American workers will end up like the people in the biblical village who were condemned to be hewers of wood and drawers of waters." It should be noted that U.S. manufacturing output has roughly doubled since 1982.

In the early 1990s, another recession resulted in yet another job shortage scare. Ross Perot won 19 percent of the presidential vote in 1992 with a campaign that, among other things, railed against the "giant sucking sound" of jobs lost to Mexico and other foreign countries. That same year, Pulitzer Prize-winning journalists Donald L. Barlett and James B. Steele published a widely discussed jeremiad, America: What Went Wrong?, about the decline and fall of the country’s middle class. That hand wringing was followed in short order by one of the most remarkable expansions in American economic history.

Again and again, serious and influential voices have raised the cry that the sky is falling. It never does. The root of their error is always the same: confusing a temporary, cyclical downturn with a permanent reduction in the economy’s job-creating capacity.

In recent years, many Americans have lost their jobs and suffered hardship as a result. Many more have worried that their jobs would be next. There is no point in denying these hard realities, but just as surely there is no point in blowing them out of proportion. The U.S. economy is not running out of good jobs; it is merely coming out of a recession. And regardless of whether economic times are good or bad, some amount of job turnover is an inescapable fact of life in a dynamic market economy.

This fact cannot be wished away by blaming foreigners, and it cannot be undone by trade restrictions. The innovation and productivity increases that render some jobs obsolete are also the source of new wealth and rising living standards. Embracing change and its unavoidable disruptions is the only way to secure the continuing gains of economic advancement.


Brink Lindsey is a senior fellow at the Cato Institute and director of its Center for Trade Policy Studies. He is the author of Against the Dead Hand: The Uncertain Struggle for Global Capitalism (John Wiley & Sons). This article is based on a longer paper published by the Cato Institute, available online (PDF) . Sources for all the figures in this article are available in the original Cato study

Copyright © 2004 Cato Institute

Super Rangers: The Best Appointees Money Can Buy

I was curious. I moved from Amarillo in mid-May and the fate of former State Senator Teel Bivins' appointment as ambassador to Sweden was in limbo; the Democrats in the Senate were holding Bush appointees hostage unless W pulled down some of his wacko judicial appointments. So, I googled Teel Bivins and learned that he had been confirmed and had presented his credentials to the King of Sweden in early June. There was a fret in Amarillo because Teel had to get to Stockholm before His Majesty left for a summer-long vacation on some private island. Otherwise, Ambassador Bivins would not have been able to take up whatever a non-Swedish speaking diplomat in Sweden does. In the course of googling Ambassador Bivins, I happened upon a piece in the less conservative of the Washington, DC fishwraps that mentioned Ambassador Bivins very prominently. Bivins was interviewed by BBC about the connection between contributing (and raising) big bucks for W in 2000 and his appointment to cement U.S.-Swedish relations. Ol' Teel came up with a highly original line to explain his appointment by W: You dance with them what brung ya. Unfortunately, Coach Darrell Royal—in his heyday as the head coach of the UT-Austin football team— said the same thing first and said it with greater wit. Teel should have said, You get what you pay for. If this is (fair & balanced) plutocracy, so be it.

[x The Washington Post]
Buying Influence and Ambassadorships
By Thomas B. Edsall, Sarah Cohen and James V. Grimaldi

Joined by President Bush, Vice President Cheney and a host of celebrities, hundreds of wealthy Republicans gathered at the Ritz-Carlton Lodge here in the first weekend in April, not for a fundraiser but for a celebration of fundraisers. It was billed as an "appreciation weekend," and there was much to appreciate.

As Bush "Pioneers" who had raised at least $100,000 each for the president's reelection campaign, or "Rangers" who had raised $200,000 each, the men and women who shot skeet with Cheney, played golf with pros Ben Crenshaw and Fuzzy Zoeller and laughed at the jokes of comedian Dennis Miller are the heart of the most successful political money operation in the nation's history. Since 1998, Bush has raised a record $296.3 million in campaign funds, giving him an overwhelming advantage in running against Vice President Al Gore and now Sen. John F. Kerry (D-Mass.). At least a third of the total -- many sources believe more than half -- was raised by 631 people.

When four longtime supporters of George W. Bush in 1998 developed a name and a structure for the elite cadre that the then-Texas governor would rely on in his campaign for president, the goal was simple. They wanted to escape the restraints of the public financing system that Congress had hoped would mitigate the influence of money in electing a president. Their way to do it was to create a network of people who could get at least 100 friends, associates or employees to give the maximum individual donation allowed by law to a presidential candidate: $1,000.

The Pioneers have evolved from an initial group of family, friends and associates willing to bet on putting another Bush in the White House into an extraordinarily organized and disciplined machine. It is now twice as big as it was in 2000 and fueled by the desire of corporate CEOs, Wall Street financial leaders, Washington lobbyists and Republican officials to outdo each other in demonstrating their support for Bush and his administration's pro-business policies.

"This is the most impressive, organized, focused and disciplined fundraising operation I have ever been involved in," declared Dirk Van Dongen, president of the National Association of Wholesaler-Distributors, who has been raising money for GOP candidates since 1980. "They have done just about everything right."

For achieving their fundraising goals, Pioneers receive a relatively modest token, the right to buy a set of silver cuff links with an engraved Lone Star of Texas (Rangers can buy a more expensive belt buckle set). Their real reward is entree to the White House and the upper levels of the administration.

Of the 246 fundraisers identified by The Post as Pioneers in the 2000 campaign, 104 -- or slightly more than 40 percent -- ended up in a job or an appointment. A study by The Washington Post, partly using information compiled by Texans for Public Justice, which is planning to release a separate study of the Pioneers this week, found that 23 Pioneers were named as ambassadors and three were named to the Cabinet: Donald L. Evans at the Commerce Department, Elaine L. Chao at Labor and Tom Ridge at Homeland Security. At least 37 Pioneers were named to postelection transition teams, which helped place political appointees into key regulatory positions affecting industry.

A more important reward than a job, perhaps, is access. For about one-fifth of the 2000 Pioneers, this is their business -- they are lobbyists whose livelihoods depend on the perception that they can get things done in the government. More than half the Pioneers are heads of companies -- chief executive officers, company founders or managing partners -- whose bottom lines are directly affected by a variety of government regulatory and tax decisions.

When Kenneth L. Lay, for example, a 2000 Pioneer and then-chairman of Enron Corp., was a member of the Energy Department transition team, he sent White House personnel director Clay Johnson III a list of eight persons he recommended for appointment to the Federal Energy Regulatory Commission. Two were named to the five-member commission.

Lay had ties to Bush and his father, former president George H.W. Bush, and was typical of the 2000 Pioneers. Two-thirds of them had some connection to the Bush family or Bush himself -- from his days in college and business school, his early oil wildcatting in West Texas , his partial ownership of the Texas Rangers baseball team and the political machine he developed as governor.

"It's clearly the case that these networking operations have been the key driving Bush fundraising," said Anthony Corrado, a visiting scholar at the Brookings Institution and a political scientist at Colby College . "The fact that we have great numbers of these individuals raising larger and larger sums means there are going to be more individuals, postcampaign, making claims for policy preferences and ambassadorial posts."

Asked whether the president gives any special preference to campaign contributors in making decisions about policy, appointments or other matters, White House spokesman Trent Duffy said, "Absolutely not." The president, Duffy said, "bases his policy decisions on what's best for the American people."

Pioneers interviewed for these articles were reluctant to discuss on the record their contacts with the administration. "That's dead man's talk," one said. The Bush campaign declined repeated requests to reveal the entire 2000 list of Pioneers, saying it is contained in computer files they can no longer access.

Bush campaign spokesman Scott Stanzel said, "Our campaign enjoys support from nearly 1 million contributors from every county in this nation. We're proud of our broad-based support, and the Bush campaign has set the standard for disclosure."

M. Teel Bivins, a rancher, Pioneer and member of the Texas Senate awaiting confirmation as ambassador to Sweden , spoke more openly in an interview with the BBC in 2001. "You wouldn't have direct access if you had spent two years of your life working hard to get this guy elected president, raising hundreds of thousands of dollars?" he said. "You dance with them what brung ya."

For the 2004 election, the composition of the Pioneers has changed, reflecting the broad support the Bush administration has given and received from industries ranging from health care to energy.

Of the 246 known Pioneers from the 2000 election, about half -- 126 -- are Pioneers or Rangers again. They are joined by 385 new Pioneers and Rangers whose backgrounds are less from Texas and the Bush circle than from the nation's business elite, particularly Wall Street and such major players as Bear Stearns & Co. Inc., Kohlberg Kravis Roberts & Co.; Goldman Sachs Group Inc., Merrill Lynch & Co. Inc., Credit Suisse First Boston Inc. and Morgan Stanley & Co. Inc.

The campaign's most productive Zip code this year is Manhattan 's 10021: the Upper East Side , bounded by Fifth Avenue, East 80th Street, East 61st Street and the East River .

"This is the most successful political fundraising mechanism in the history of politics, and it will be emulated by other candidates and campaigns in the future," said Craig McDonald, executive director of Texans for Public Justice, a public interest group that has tracked the Pioneer network for five years.

First Goal: $50 Million

No candidate in recent history was better positioned than George W. Bush to draw on so many disparate sources of wealth. The task for the four Bush friends who met in Midland, Tex., in late 1998 -- Texas Republican fundraiser and public relations specialist James B. Francis Jr., fundraiser Jeanne Johnson Phillips, state Republican chairman Fred Meyer and Don Evans, then a Texas oil man -- was to figure out how to capitalize on the extensive network of rich and powerful people that the governor, his father, brothers, uncles, grandfather and great-grandparents had built up over the past century.

This account of the founding of the Pioneers is drawn from interviews with three of the four participants.

Two wings of the family, the Bushes and the Walkers, had long been entrenched in the industrial Midwest and on Wall Street. This establishment, in turn, had produced the investors who had bankrolled the venture of George H.W. Bush into the oil industry after World War II, his acquisition of wealth through oil and his ascent to national prominence.

The 41st president had, in pursuing his own political ambitions, built up a financial network that he in turn could pass on to two of his sons, George W. and Jeb.

At the time of the 1998 Midland meeting, Evans, Phillips, Francis and Meyer had the relatively modest goal of raising a minimum of $50 million to reject public financing for the 2000 Republican primaries and to be free to spend without limit until the summer nominating conventions.

Other Republicans had rejected public money for the primary season before, in order to spend their own wealth. Bush, in contrast, was not going to use his own money -- he was going to raise it from hundreds of thousands of donors.

The early signs were favorable. For months, Bush's handlers had been signaling that the Texas governor was ready to run for the White House. Big givers, in turn, were promising support. The pledges posed two problems.

The first was that the Bush network was made up of men, and a scattering of women, who were used to writing big checks. Donations to Bush's gubernatorial campaigns, to the Republican National Committee's "Team 100," to Jeb Bush's Florida Republican Party and to the Bushes' earlier oil and baseball ventures had no contribution limits. Transfers and gifts of $100,000 or more were commonplace within this universe.

Federal elections, however, were different. A key provision of the 1974 Watergate reforms for the first time set a limit on individual contributions to a presidential campaign: a relatively paltry $1,000.

"We had to turn these people into money raisers instead of money givers," Francis said in a recent interview -- to get them to do the dirty work of politics, to make hundreds of calls to clients, subcontractors, to their corporate subordinates, to their law partners and fellow lobbyists and plead for cash.

Their problem can be illustrated by looking at the $41 million Bush had collected for his two gubernatorial bids under rules allowing unlimited contributions. If the same number of people had contributed under federal campaign rules with a limit of just $1,000 each, Bush would have raised only $14.3 million.

At the 1998 Midland meeting, the goal was to figure how to get "two steps ahead" -- to use Meyer's phrase -- of the $1,000 contribution limit.

Francis came up with the idea of making it a competition. "We purposely set the bar high," Francis said. "These are very successful, very competitive people," and the requirement of raising at least $100,000 in contributions of $1,000 or less was designed "to tap into their competitive instincts."

Not only would the fundraisers compete to make Pioneer, they would also vie to see who could raise the most money, and, even more significantly, who could recruit the largest number of other Pioneers.

The second problem was accountability. Fundraisers are notorious for making extravagant promises and claiming credit for every name they recognize on a donor list. "You can have an event that pulls in $3 million, and there will be 20 guys each saying they raised $1 million," said a Republican fundraiser who spoke under the condition of anonymity.

A system was needed to make certain there was no double or triple counting, that when a check came in for $1,000, proper credit was given to the fundraiser who had solicited the money.

Phillips proposed a solution: Every fundraiser would be assigned his or her own four-digit tracking number. A Pioneer would get credit only for those checks that arrived with the correct tracking number clearly printed on them.

In addition, prospective Pioneers would have a direct line into the Bush campaign finance offices. There they could routinely find out where they stood, compared with the rest of the field. Every month, they would get printouts of donations. Everyone assigned a number could check regularly to see if their $1,000 pledges had been fulfilled.

Soon after the 1998 Midland strategy session, Francis, Evans, Phillips and Meyer joined other campaign operatives in Dallas to put the plan to work. The four reported directly to Karl Rove, Bush's principal political adviser. Francis took charge of the Pioneer program. In addition to Bush family members and friends, Francis had essentially four spheres of money to mine, all of which overlapped at various points.

The first sphere was formed by the group of men who had repeatedly gambled on George W. Bush as an entrepreneur, investing in failed Bush ventures in the oil business and then joining Bush in the highly profitable acquisition of the Texas Rangers baseball team. The Rangers made millions for Bush and his partners.

The second sphere was made up of the Texas political elite and business community that supported him as governor. Many were involved in the energy industry. Others sought tighter restrictions on lawsuits against corporations and physicians. Gov. Bush had won approval of state legislation favorable to both of these constituencies.

The third sphere was made up of the Republican financial elite with strong ties to Bush's father, the 41st president.

During the Nixon and Ford administrations, the senior Bush had cemented alliances on crucial fronts, serving in top posts at the United Nations, the Republican National Committee and the Central Intelligence Agency. More importantly, during three runs for the presidency, two terms as vice president and one as president, the elder Bush had cultivated and assiduously maintained a national base of major donors and fundraisers. Many were ready and willing to support his son -- including some of the 252 members of the Republican National Committee's "Team 100," each of whom had given the party at least $100,000.

The importance of this legacy to George W. Bush is clearly reflected in the composition of the 246 men and women who would become Pioneers in 2000. At least 60 -- 24 percent -- had been supporters of Bush's father in the 1980 or 1988 campaigns.

The fourth sphere was composed of the supporters of Bush's fellow Republican governors, most importantly those of his brother, Jeb Bush in Florida . By November 1999, well before any primaries or caucuses had been held, George W. Bush already had the endorsements of 26 of 30 GOP governors.

The Bush campaign tapped these sources to raise a then-record $96.3 million for the primaries in 2000, far outdistancing Democrat Gore's $49.5 million. Both candidates received $68 million in public financing for the general election campaign.

In 2002, Congress enacted the McCain-Feingold bill banning contributions to political parties of what is known as "soft money" -- unlimited donations from corporations, unions or the wealthy. Instead, the legislation raised the "hard money" limit on contributions to candidates from $1,000 to $2,000.

"The organization of the Pioneers and Rangers is significant, and it is the way of the future," said Ken Goldstein, a University of Wisconsin political scientist. "People with Rolodexes and the ability to raise money have always been valuable, but with the passage of McCain-Feingold, they have become especially valuable. . . . [T]he ability to get friends, colleagues and business associates to give the maximum hard money amount is now even more valuable."

With soft money banned, the 2004 Bush campaign has greatly expanded the Pioneer program, setting a new record of more than $200 million raised so far. This year, Kerry, the presumptive Democratic nominee, followed Bush's lead and rejected public financing for his primary campaign, fearing he would be crushed by the Bush organization if he were forced to abide by the $45 million spending limits that accompany public financing. Kerry recently released a list of 182 people who have each raised a minimum of $50,000, helping to bring his total to at least $110 million.

The Democrats are increasingly relying on independent groups known as 527s, after their designation in the tax code. They currently raise unlimited funds for political ads that have been used to attack Bush. Two prominent examples are the Media Fund and Moveon.org. Financier George Soros and Peter B. Lewis, chairman of the Progressive Corp., have each given more than $7 million to these organizations.

For the general election campaign, Bush and Kerry are accepting public money; each will get $75 million.

Until the conventions this summer, Bush can enjoy his spending advantage over Kerry, saturating the airwaves with ads that help to define Kerry, particularly in the battleground states.

The Bush reelection campaign is currently riding a wave of Wall Street money and has consolidated the Republican establishment with the backing of prominent Washington lobbyists and trade association executives. They are not only highly effective fundraisers themselves but also their client and membership lists include some of the most regulated, and most politically active, corporations in every state.

At least 64 Rangers and Pioneers are lobbyists, including Jack Abramoff, who until recently specialized in representing Indian tribes with gambling interests; Kirk Blalock, whose clients include Fannie Mae, the Health Insurance Association of America, and the Business Roundtable; Jack N. Gerard, president of the National Mining Association; and Lanny Griffith, whose clients include the American Trucking Associations, Brown & Williamson Tobacco Corp., the Southern Co., a major energy concern, and State Street Corp.

On Track to Appointments

Big donors, Republican and Democrat, have always received benefits from the administrations that received their largess. Bill Clinton brought big donors into the White House and let them sleep in the Lincoln bedroom and appointed some to government jobs.

The Bush campaign's innovation in the late 1990s was to institutionalize what other administrations had done more informally, which is to create a special class of donors that can be singled out from the pack and tracked with precision. Some of their transactions with the administration can also be tracked.

Sometimes the interests of Pioneers are relayed in subtle, indirect ways, through members of Congress or Republican leaders, especially in the case of major administration bills enacted since Bush took office: three bills granting tax relief to the wealthy and to corporations, the 2003 Medicare bill supported by the drug industry and other major health lobbies, and pending legislation providing tax breaks and regulatory relief to the energy sector.

At another level, requests for tickets to an event, such as a White House party, are likely to be more overt than the nuanced approach needed to get on the radar for a presidential appointment.

"It is noticed that you are doing extra work and you have a lot of friends in the administration," said Rep. Jennifer Dunn (R-Wash.), a Pioneer who was considered for a presidential appointment. Her son, Reagan Dunn, was hired by the Justice Department, and her new husband, E. Keith Thomson, was appointed last year as the director of the Office of Trade Relations. "A lot [of Pioneers] have a particular interest and you have lots of contacts, and you say, 'I'd like to sign up to be an ambassador when one comes along.' "

The Pioneer tracking system ensures that hard work gets noticed. That's why Rep. Rob Portman (R-Ohio) signed up this year. He read that Dunn, Speaker J. Dennis Hastert (R-Ill.), and others were Pioneers. Portman had already raised money, "but I didn't have a tracking number. I finally decided to get one. I wanted to be supportive, and be viewed as supportive."

Critics complain that the Pioneer and Ranger program allows the campaign to track those who raise big money while cloaking details about them from the public; campaigns are required to report the names of the individual donors, but not the fundraisers who solicit the donations.

"The campaign is tracking them and giving them credit -- and supposedly all the access and influence that comes with huge campaign contributions," said McDonald of Texans for Public Justice. He said the Bush campaign has never released a complete list of Pioneers and Rangers with the specific amounts of money they have raised. Once, in response to a lawsuit, campaign officials said that such a list was not available.

"It is unbelievable that the most successful fundraising list in the history of politics has been misplaced," McDonald said.

Gary C. Jacobson, a University of California at San Diego political scientist who specializes in campaign finance, said the Pioneer program "is a way of allowing individuals to accumulate political clout despite the fact that contribution limits are relatively low."

"You can no longer give $100,000 and be an ambassador, but you might be able to raise that amount and accumulate the same kind of political debt," Jacobson said.

Nancy Goodman Brinker, one of the 23 Pioneers from the 2000 campaign who became an ambassador, said she does not remember exactly when or who first brought up a diplomatic appointment. She said it "seemed to evolve" after someone asked her whether she wanted to serve. The next thing she knew, she was talking to Clay Johnson in the White House personnel office about her choices. "One of the reasons why I chose and asked to be placed in Budapest ," Brinker said at her Senate confirmation hearing, "was because I think there's been an amazing story of loyalty by this country."

Brinker said one of her primary concerns, before accepting the nomination, was her parents, who are in their eighties. The presidential personnel team works with a potential nominee to find a good fit, which she called "matching talent with interests." She knew George W. Bush from his days in Texas , where she founded the Susan G. Komen Breast Cancer Foundation, named for her sister who died of breast cancer.

"There were discussions where your talents fit in which country," Brinker said. "I specifically did not want to go -- I could not -- be farther than a 10-hour plane ride because of my [elderly] parents. I wanted to be in the European continent somewhere, particularly a country like this, where I thought I could try to make some kind of difference."

Patronage decisions for Pioneers and other friends of the president are made largely by Rove, the White House senior political adviser, and Andrew H. Card Jr., the chief of staff, in consultation with the Office of Presidential Personnel, which handles the vetting process, according to senior Republicans who would speak only on the condition of anonymity. Any donor who wants to be considered for a major job must indicate interest to one of those two men, the Republicans said.

These Republicans acknowledged that finance issues were taken into account, but said there were instances of donors being disappointed and people getting plum positions who had done little to help the campaign treasury.

In making decisions immediately after the election, Rove consulted Jack Oliver, a trusted insider in Bush's political family who managed the fundraising effort for both of his presidential campaigns. Oliver's main function was to tell Rove "what people had really done" to raise money, one of the senior Republicans said. Now, such decisions are made entirely within the White House, the official said, and Rove and Card also have sway over lesser favors, and "scrub the lists" of invitations to White House holiday parties.

"I can call Karl, and I can call about half of the Cabinet, and they will either take the call or call back," said one lobbyist Ranger, who described such access as "my bread and butter" and spoke only on the condition of anonymity. He and others noted that going to top officials in either the White House or in Cabinet departments is only used as a last resort on important issues and not always with success.

"It's much better to start with an assistant secretary or the White House public liaison office. Those people know who you are and can usually deal with the issue," another Ranger said. "You don't seek out the maitre d' unless you really need to."

Several major fundraisers in the lobbying community complained that as the election approaches, Rove has become a "little gun-shy" when dealing with association executives and lobbyists, fearful that his involvement with any special interest might produce adverse publicity.

"It's different now that we are in campaign mode," the lobbyist said. "Karl doesn't even want to be involved in courtesy visits [with clients]. 'Don't bring this to my office,' he'll say. He's been snakebitten" because of past controversies over his alleged involvement with groups seeking special favors, especially decisions involving steel import tariffs.

In response to questions about his contacts with Pioneers and Rangers, Rove said, "I talk to a wide variety of people, members of the campaign from the grass roots on up. . . . It's part of my job to keep an open ear to what people are saying around the county."

White House sources said that if anyone refers to fundraising while seeking something from the administration, the policy is to then "vet" the request with the White House counsel's office to make sure no regulations or laws are being violated.

Commerce Secretary Evans also plays a key role. "Evans acts as a kind of court of appeals . . . everybody knows that Evans is one of the president's best friends. So he can be very effective intervening for you with just about any department," one fundraiser-lobbyist said.

This lobbyist described the following situations as the type in which Evans can effectively help: "Say you've got a bunch of telecom companies that are frozen out of doing business in Russia, and [the] State [Department] won't do anything, or your sugar people can't get a fair hearing at USTR [the Office of the U.S. Trade Representative] in negotiations with Mexico. . . . [Evans] can make them stop and listen. He can get something unstuck."

Evans was the one fellow Pioneer Ken Lay turned to in desperation in the fall of 2001, when Enron spiraled toward bankruptcy. Lay wanted help with the company's credit rating, but Enron was in too much trouble, and Evans was unable to oblige.

For 2004: Super Rangers

Last month at the Ritz-Carlton Lodge on Lake Oconee , after the golf and the entertainment and a reception with Bush for the elite Rangers, the "appreciation" of the campaign's leading fundraisers gave way, inevitably, to a business meeting.

On a bright Saturday morning, more than 300 of Bush's Pioneers and Rangers eschewed the links to gather in a windowless conference room. Sipping imported mineral water and coffee, Wall Street mingled with Texas .

A Post reporter walked into the session, which the campaign described later as an event closed to the media. The speakers "were under the belief that they were speaking privately with our contributors," campaign communications director Nicolle Devenish said.

There they learned that the Rangers would soon lose their top status, just as the Pioneers had before them. Raising $200,000 was a starting point, they were told. But to qualify as a "Super Ranger," they would have to raise an additional $300,000 for the Republican National Committee, where the individual contribution limit is $25,000.

"The name of the game is maxing out the dollars," Oliver told the gathering.

As the Super Ranger notion was unveiled, attendees shifted in their seats. Some looked up eagerly, but others demurred. "The rest of us, who don't have members or clients with deep enough pockets to come up with $25,000 said, 'Oh, [expletive],' " said one attendee who asked to remain anonymous.

To reach the new goals, Travis Thomas, the Bush-Cheney finance director, explained to the gathered Rangers and Pioneers how they could hold fundraisers in their homes featuring an appearance by the president that would bring in $2 million to $3 million in bundled contributions. Private homes, he pointed out, are more comfortable for the president.

And, Thomas added, "If it is in a private residence, it can be closed to the press."

Staff writer Mike Allen and researcher Alice Crites contributed to this report.

© 2004 Washington Post