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                                                                                MAN OF THE YEAR, Page 28

BILL CLINTON

Moving In


The inside story of how Clinton faced his "first crisis" --
and what it says about his leadership style

By MICHAEL KRAMER


    In the early evening of Dec. 7, A small group of economic
advisers met secretly with Bill Clinton at Blair House in
Washington. Their message was depressing: The long-term outlook
for the nation's economy is worse than the public appreciates;
the euphoria surrounding the latest growth figures is unfounded;
and some of the underlying assumptions behind the economic plan
Clinton embraced during the campaign are wrong. "Blair House,"
as it is now referred to in shorthand among a close circle of
Clinton aides, was not a pleasant meeting. The President-elect
feared that his advisers had misled him during the campaign, and
the discussion's revelations constituted the beginning of what
he himself calls his "first political crisis."

    The events leading to Blair House, the session itself and
Clinton's current attempts to turn its implications to his
advantage offer a rare glimpse at the President-elect's
leadership style and governing philosophy.

    Different Presidents use their transitions differently.
Clinton's has been marked by two factors: the beginning of what
promises to be a drawn-out and difficult education process
designed to change the way Americans think about themselves and
their country, and the appointment of advisers whose primary
roles will involve salesmanship and the implementation of
programs more than policy development.

    In choosing his top team, Clinton has been guided by three
considerations: a quest for ethnic and gender diversity; an
emphasis on collegiality; and, in the case of his senior
economic assistants, a desire that their selection be perceived
calmly by the financial markets, whose skittishness could doom
his tenure even before it begins. The last two goals have been
met. The first, diversity, has been harder to achieve, but its
importance has been misunderstood. Clinton in no way feels
obligated to the women's, ethnic and liberal lobbying groups
that seem to have driven him to distraction. To Clinton,
diversity is desirable because it supports his overarching
ambition: that the public turn from its traditional craving for
immediate gratification to an appreciation of the pain,
sacrifice and mutual obligation necessary to bring about
structural economic change. Without that change, Clinton feels,
the nation will not be able to continue growing in an
increasingly global economy. To that end, a Cabinet that "looks
like America" helps.

    Thus begins the education of Bill Clinton -- and Clinton's
first moves toward educating his nation. Along the way Clinton
has displayed several facets of his personality: a leader
feared by his aides, who attempt to shield him from some
uncomfortable truths; an insightful student of economics
nevertheless capable of holding to notions most economists view
as errant nonsense; a man determined to set the country on a
difficult path, who views every setback as an opportunity.

    Blair House was inevitable. When the chore changed from
campaigning to governing, Clinton had to confront the flaws in
his prescriptions and the excessively optimistic projections of
the institutions over which he has no control. "The bad news had
to be delivered at some point," says Labor Secretary-designate
Robert Reich. "It was only a matter of when and where."

    Clinton's economic education began in earnest in late
1991. Facing an electorate immune to campaign promises, Clinton
added heft to his diagnosis of the nation's ills with a 15-page
paper titled "A Plan for America's Future." With its emphasis
on a tax-rate cut for the middle class, the plan served Clinton
well in New Hampshire and for most of the remaining primaries.
But by late spring Clinton was pretending he had never
seriously proposed the tax cut, and he knew the plan could not
survive the close scrutiny it was beginning to receive. It had
accurately signaled Clinton's priorities -- which remain
basically intact -- but there was little supporting data.
Experts like Representative Leon Panetta and Alice Rivlin (whom
Clinton has tapped for the two top slots at his budget office)
derided the plan as unsound, and Ross Perot ridiculed Clinton
for a "a bunch of junk numbers that don't compute." Perot's
criticism dovetailed perfectly with Republican claims that
Clinton was a tax-and-spend liberal, and the Democrat's standing
in the polls sank precipitously.

    Sent back to the drawing boards in June with orders to
"firm up the math," Clinton's team quickly produced Putting
People First (or PPF, as it is called), a 232-page paperback
chock-full of numbers, all of which Clinton swore "added up."
At its bottom line, the proposal promised to halve the nation's
deficit by 1996, an assessment many considered sober and even
courageous because it backed off Clinton's earlier intention to
wipe out the red ink entirely by the end of his first term. But
even this modified deficit-reduction promise owed little to
Clinton's programs. Almost all of the decrease was due to what
Clinton's economists call "natural effects," in this case growth
assumptions generated by the Congressional Budget Office and
estimates of when the government's savings and loan bailout
operation would be completed. Nevertheless, the prospective
halving of the deficit was well received by an electorate
starved for a plan -- any plan -- that seemed to signal tough
action.

    The trouble began almost immediately; the "natural
effects" started changing shortly after the new plan surfaced.
By August the anemic economy and spiraling health-care costs
caused the CBO to increase its estimate of the 1996 deficit by
$100 billion, a profound change that both the Clinton and Bush
campaigns conveniently ignored. "To accommodate the CBO's new
predictions would have made it look like we were caving in to
Perot's view of the world," says a Clinton adviser. "Also,
redoing PPF would have told the constituencies we needed to win
that we'd be hard pressed to fund the programs that were
attracting them to us. Shutting up was smart politically, and
it worked because it was in Bush's interest too. For Bush to
scream about our numbers would have forced him to admit that his
were wrong also, and that the recovery he kept saying was just
around the corner wasn't."

    Campaign staff members could not take into account another
part of the "natural effects" problem until after the election.
Congress adjourned without appropriating further funds to cover
lost deposits in the failed S&Ls; the effect of that inaction
was not known precisely until mid-November. Now, says Clinton,
there is "a need for more money to pay depositors and therefore
less debt relief than I was counting on."

    As head of the Clinton transition's economic planning
group, Reich became responsible for putting it all together for
the President-elect at Blair House. "By definition, the
`natural effects' stuff was out of our control, so laying that
much on him was easy," says one of the Blair House participants.
"The question beforehand was how to tell him that some of the
cost estimates and revenue projections in PPF were, to put it
mildly, unrealistic. Clinton has a fierce temper -- you don't
ever want to be on its receiving end -- and he was convinced the
PPF numbers were airtight. So we rehearsed what to say and
scripted around a bit in the hope of avoiding an outburst."

    The Blair House session was held in a first-floor
conference room dominated by a portrait of Franklin Roosevelt.
At least one of Clinton's aides noted the irony: "Here it was
Pearl Harbor Day, and we were dropping an economic bombshell on
the boss under a painting of the Depression President." To
minimize the chances of Clinton's insisting on a line-by-line
reassessment of his plan's assumptions, a chart titled Budget
Deficit Forecasts Under PPF Policies was, according to one
Clinton aide, "rounded off in a conelike fashion and rendered
approximate." It was a fool's errand. Clinton stared at the
chart, pointed to the cone that represented his advisers'
estimate that the numbers were off by at least $24 billion (and
perhaps much more) and said, "What's this?" In a nanosecond, an
old debate reopened over two items Clinton is counting on to cut
the deficit $67 billion over four years. The first involves the
President-elect's proposal to recapture $45 billion (over four
years) in tax receipts he believes is owed by foreign
corporations doing business in the U.S. Among those who have
studied this problem seriously, Clinton is about the only person
left who still thinks such a windfall is possible. "Ain't no
way," says Panetta. "Maybe we'll get $3 billion a year -- if
we're lucky."

    "I know what everyone else thinks," says the
President-elect. "But I'm going to push for it, and I think we
can pull it off."

    Clinton's aides also tried disputing the proposal's claim
that unspecified "administrative savings" can yield $22 billion
over four years. They were cut short. Clinton is unimpressed by
his predecessors' failed attempts to swipe at waste, fraud and
abuse. "I told my people I'd force those savings simply by
cutting agency budgets by 3% a year," Clinton says. "I did the
same kind of thing in Arkansas. There's a lot of flab, believe
me."

    As Clinton dug in, his aides folded their tents. "We
didn't talk about the other softness," says one of the Blair
House briefers. "We weren't getting anywhere, and Clinton was
beginning to turn the bad news around." In fact, as an incurable
optimist, Clinton actually became exhilarated. He acknowledged
that his aides' report made their collective challenge more
difficult, but, says a Blair House participant, "he clearly
relished the chance to use the news to help teach people to
appreciate the severe structural problems of the economy, the
need to sacrifice even if the short-term situation improves."

    Blair House left Clinton to ponder his campaign pledge. In
public he now calls his promise to cut the deficit in half in
four years "a goal." Privately he understands that a true
halving (in absolute dollars) would require a gasoline tax and
other levies he is loath to impose. Eventually, the political
trick will probably involve redefining the problem, either by
1) claiming that halving the deficit as a ratio of the debt to
the gross domestic product should be considered a promise
fulfilled or 2) arguing that there are different kinds of
deficits, and that any funds appropriated for long-term
improvements like public works projects should be viewed as
welcome investments rather than as crippling and wasteful
current-consumption expenditures.

    But changing the terms of reference is tomorrow's problem.
To push far-reaching reforms like an overhaul of the nation's
health-care system, and to ensure that any temporary fiscal
stimulus is inextricably tied to a long-term deficit-reduction
scheme, Clinton had to decide how exactly to spread the bad news
he got at Blair House. He had already become famous for
downplaying whatever encouraging economic statistics have come
along, and he followed suit within hours of Blair House. But he
knew the mega-message would be better received if it were
broached first by a third party whose analysis he could
thereafter second. This is the key to understanding Clinton's
governing style. As the historian Arthur Schlesinger notes,
Clinton views successful leadership as a process of persuasion
rather than preachment. Throughout the campaign, Clinton scored
repeatedly by engaging voters in a dialogue that demonstrated
his knowledge of public issues while at the same time convincing
his audiences that he heard their concerns and was actually
learning from the colloquy.

    While it seemed that Clinton had merely adapted his
campaign techniques to reflect the fact that many people take
their cues from television talk shows, he had actually (and
typically) studied the problem of changing perceptions quite
rigorously. A treatise Clinton has found particularly useful in
this regard is Reich's book The Power of Public Ideas. The
central tenet of Reich's argument is contained in two sentences:
"The core responsibility of those who deal in public policy .
. . is not simply to discover as objectively as possible what
people want for themselves . . . It is also to provide the
public with alternative visions of what is desirable and
possible, to stimulate deliberation about them, provoke a
reexamination of premises and values, and thus to broaden the
range of potential responses and deepen society's understanding
of itself." Or, as Franklin Roosevelt once said, "All our great
Presidents were leaders of thought at times when certain
historic ideas in the life of the nation had to be clarified."
As an admirer of both Reich and Roosevelt, Clinton views their
analyses as crucial to his overarching goal. His proudest
achievement so far, he says -- his "enduring legacy" -- is that
he taught the people of Arkansas to "think long term. It's what
I want most to do nationwide. It won't be easy and it will
require a constant dialogue with the country, but it has to be
done and I mean to do it."

    To begin that march, to spark the discussion that Clinton
most wanted to flow following Blair House, his already
scheduled economic conference in Little Rock offered a flag of
convenience -- and a particularly apt messenger was quickly
engaged.

    John White "drafted Ross Perot's economic plan," Clinton
said as he introduced his chosen agent in Little Rock, "and
later, much to my delight, endorsed the Clinton-Gore ticket."

    White's pedigree was especially important to Clinton. The
19 million people who voted for Perot represent the nation's
political balance of power. To ensure his re-election and garner
the support he needs for his programs, Clinton must have the
Perot constituency in his corner. His challenge is analogous to
Richard Nixon's in 1968. Following that election, the George
Wallace vote was up for grabs. The Wallaceites were mostly
Democrats, and they could have reverted to their traditional
home, but Nixon lured them to the G.O.P. with his Silent
Majority rhetoric.

    Clinton views the Perot vote as similarly in flux, and he
intends to secure it. Thus, those of his plans deemed most
attractive to Perot's voters, like welfare reform, national
service and campaign reform, have been designated high
priorities by the President-elect. Welfare reform and national
service could be costly, but Clinton says he can push the "big
bucks" into the "out years." Campaign reform is even better, a
twofer from God. "The Perot people share my view that the system
is broke," he says. "Campaign-finance reform is part of the way
to begin fixing it. We're gonna do it" -- and it costs nothing.

    White's Little Rock audience knew he had strayed to
Clinton from Perot, but they also knew he had never wavered from
describing Clinton's numbers as "strained." So when White spoke,
people paid attention. To those who had been at Blair House, it
was all familiar. In fact, almost all White's comments
reflected the Blair House presentation to Clinton, and a Clinton
aide worked closely with White in Little Rock. "I was told they
needed someone to deliver the hard message," says White. "They
dumped the data on me and provided me with the graphics." In
fact, the charts White used in Little Rock were some of the very
same diagrams Clinton's briefers had used in Washington. But
not all of them; White wasn't told about the Clinton team's own
view of the PPF numbers that he had himself questioned earlier,
and he played the dutiful soldier in Little Rock. White's
audience heard him ascribe the bad news entirely to the changing
"natural effects."

    "Well," White says now, "the PPF part of the problem is
not really that great, and all of Clinton's numbers are going
to have to be refigured anyway to deal with the new realities.
All that counts at this point is that Clinton follow through on
the central idea, that his energies be directed toward getting
people focused on the long-term stuff that needs to be
addressed at a time when the nation is getting giddy about a
possible recovery."

    White's brief remarks in Little Rock ended with these
words: "In summary . . . the deficit problem is growing worse
and must be dealt with through a multiyear, specific
deficit-reduction program with real targets, one that is
published now and shows significant progress in this decade."
Clinton could not have put it better himself, and he quickly
reiterated the salient points in White's presentation, cleverly
tying his analysis to White's by asking "Is that correct?"
Assured that he had indeed accurately reflected what his staff
had prompted White to say, the President-elect remarked, "Thank
you very much. It was a terrific job." To those who knew what
was going on, Clinton's smile seemed just a little wicked.

    Clinton was pleased, but the message has received less
play than he would like. "Frankly, I'm surprised that it hasn't
been understood more widely," he says. "We're going to have to
work on that. I told you it wasn't going to be easy." No doubt
Clinton will himself take an increasingly active role in
spreading the news, but the collusion between White and Clinton
in Little Rock may be a model for future setups. Clinton, it
should be noted, believes change requires dialogue -- or at
least its patina. "People engaged by their leaders in a
conversation feel better about the outcome even if they would
prefer a different one, simply because they are given a chance
to have their say," Clinton says. "Dialogue is the way to teach"
-- and the best instructors confect it when it doesn't occur
naturally.

    They began calling him "Slick Willie" long ago. The
Arkansan who coined the sobriquet didn't mean it as a
compliment. But as Clinton the teacher grows into leadership,
the nation will have to learn another lesson: slick is a word
that need not always be interpreted pejoratively.