Democrats looking to Washington during the long, hot summer for signs of their party’s renewal got little in the way of relief. President Obama’s approval ratings tanked after he compromised away historic Democratic positions in the debt-ceiling fight. The party’s Congressional leaders, who in the spring had seemed prepared to fight off Republican attempts to erode Medicare, Medicaid and Social Security, sent so many mixed signals that it was difficult to tell whether the party wanted to fight austerity or embrace it.

Yet beyond the Beltway, a different story has been unfolding. And it holds out promise for a party that needs not just hope but a coherent strategy for the 2012 election season. Dramatic overreach by newly elected Republican governors, who sought to curtail labor rights, undermine local democracy and slash spending for education and local services, has provoked a backlash that draws stark ideological and political lines on fundamental economic questions. And that is winning substantial Democratic victories in unexpected territory, including rural areas where the party suffered its greatest setbacks in 2010.

In Wisconsin, where Governor Scott Walker and his allies stripped most collective bargaining rights from public employees and teachers in an attempt to render public unions toothless, unions and their allies bit back. The same Wisconsinites who protested in the streets in February and March forged a grassroots recall campaign against the politicians who had denied the will of the people. The initiative so rattled Walker’s Republicans that they spent millions organizing recall campaigns against three Democratic senators from Republican-trending districts. That set up a summer of nine recall elections—all of them in districts that had voted for Walker in 2010.

Against an onslaught of outside spending by billionaire conservative donors and their front groups, Democrats defeated two Republican senators and retained all three of their incumbents. This gave the Democrats a 5–4 winning record and a majority of the votes cast in districts that had favored Walker by higher margins than the rest of the state had just nine months earlier. The results collapsed the GOP advantage from 19–14 in the Senate to 17–16, meaning that Democrats and a moderate Republican who broke with Walker on the collective bargaining issue can form a majority to block the governor’s most extreme initiatives. That’s not the clear control Democrats had wanted, of course, but even the Senate’s Republican leader says the emphasis now will have to be on cooperation. And Walker—whose approval ratings are lower than Obama’s—is talking up bipartisanship as he scrambles to avert a recall threat to his tumultuous tenure.

Ohio Governor John Kasich, an ideological soulmate of Walker’s, got the message. After the Wisconsin results were announced, Kasich began pleading with opponents to help him rework legislation he had signed to undermine collective bargaining rights in Ohio. His hope was to thwart a November referendum that seeks to overturn the law using an old reform tool that allows voters to veto offensive legislation. Taking a signal from Wisconsin, and from Ohio’s own remarkable effort to collect 1.3 million signatures (four times the necessary total) to qualify the statewide vote, the We Are Ohio coalition’s Melissa Fazekas declared, “We’re glad that Governor Kasich and the other politicians who passed SB 5 are finally admitting this is a flawed bill. Just like the bill was flawed, this approach to a compromise is flawed as well. Our message is clear. These same politicians who passed this law could repeal it and not thwart the will of the people.”

There’s a confidence level on display in the states that goes far beyond what is being heard in Washington these days. It is rooted in the fact that state-based Democrats have found winning issues in their fights to defend labor rights, public services and public education against a GOP austerity agenda that cuts taxes for billionaires and corporations while placing greater burdens on working families in a period of high unemployment and economic uncertainty.

In New Hampshire, where Republicans scored unprecedented victories in 2010, the GOP is losing House seats in special elections that have turned on the question of whether legislators will override Democratic Governor John Lynch’s veto of an antilabor “right to work” law.

In Maine, where Governor Paul LePage may well be the most extreme of the new Republican leaders, Democrats are not just winning special elections. They are seeing spikes of nearly 20 percent over the party’s 2010 vote totals for candidates who bluntly declare that they are determined to fight the LePage agenda, which has extended so far as to attack child-labor protections. The national Democratic Legislative Campaign Committee notes that Democrats are running on average nine points better than they did in the same districts in 2010. And the DLCC says they are “performing as well now as they were in [the 2008] election—and in fact winning additional seats lost in that election,” as was the case with the defeat of the two Wisconsin Republican senators who survived the Obama landslide.

Perhaps most remarkable is where the Democrats are winning. Most of the recall elections in Wisconsin, as well as many of the special elections in other states, have taken place not in cities but in rural areas. Of the forty Wisconsin counties that were entirely or partially in Senate districts that saw recall races, twenty-three voted Democratic, and four more gave the Democrats 49 percent or more of the vote. Democrats were not just winning counties that voted for Walker in 2010; they even won several counties that voted for John McCain in 2008. That’s a big, big deal, because the national Democratic setbacks in 2010 came overwhelmingly in rural areas, with thirty-nine US House seats in the most rural Congressional districts flipping from the Democrats to the Republicans. That represents two-thirds of GOP Congressional gains, and it parallels patterns that tipped gubernatorial elections and control of legislative chambers.

President Obama and the DC Democrats know they must do better in rural areas; that was the whole point of the president’s mid-August bus tour of small-town Minnesota, Iowa and Illinois. But the president and his aides still don’t quite get what’s working at the grassroots. It’s not soft messaging about rural development, and it’s certainly not comments like the one Obama made in Iowa about the need for “shared sacrifice” from teachers and public employees, who long ago began taking cuts to help balance local and state budgets. What’s working is a clear “Which side are you on?” message when it comes to defending rural schools and services, and the teachers and public employees who provide them, against a Republican austerity message that shifts even more of the burden from the wealthy to working families.

“Schools and services are what keep small towns strong,” says Wisconsin Senate Democratic leader Mark Miller, who represents a number of rural communities. “If the fight is between Democrats who want to defend public schools, public services, and Republicans who want to sacrifice them in order to give tax breaks to the rich, that’s when you’ll see rural voters shifting back to the Democrats. It’s started working in Wisconsin, it will work in Ohio and, if they get the message in Washington, it will work nationally in 2012.”