Document – Robert Reich, excerpt from The Work of Nations (1991)

Document

A summary is in order. My argument thus far is that the economic well-being of Americans (or, for that matter, of any other group of people sharing a common political identity) no longer depends on the profitability of the corporations they own, or on the prowess of their industries, but on the value they add to the global economy through their skills and insights. Increasingly, it is the jobs that Americans do, rather than the success of abstract entities like corporations, industries, or national economies, that determine their standard of living. …

DATA on the distribution of American incomes are not free from controversy. Like any data, they can be interpreted in slightly different ways, depending on the weights accorded a host of other changes that have occurred simultaneously, and also depending on which years are selected for measurement and how the measurements are done. But nearly everyone agrees that the trend, at least since the mid-1970s, has been toward inequality.

Controlling for family size, geography, and other changes, the best estimate—which I cited earlier—is that between 1977 and 1990 the average income of the poorest fifth of Americans declined by about 5 percent, while the richest fifth became about 9 percent wealthier. During these years, the average incomes of the poorest fifth of American families declined by about 7 percent, while the average income of the richest fifth of American families increased about 15 percent. That left the poorest fifth of Americans by 1990 with 3.7 percent of the nation's total income, down from 5.5 percent twenty years before—the lowest portion they have received since 1954. And it left the richest fifth with a bit over half of the nation's income—the highest portion ever recorded by the top 20 percent. The top 5 percent commanded 26 percent of the nation's total income, another record.

Picture a symmetrical wave that's highest in the middle and then gradually slopes down and out on both ends until merging with the horizon. Through the 1950s and 1960s, the distribution of income in the United States was coming to resemble just this sort of a wave. Most Americans were bunching up in the middle of the wave, enjoying medium incomes. Fewer Americans were on the sides, either very poor or very rich. Only a tiny minority were at the outermost edges, extremely poor or extremely rich. But beginning in the mid-1970s, and accelerating sharply in the 1980s, the crest of the wave began to move toward the poorer end. More Americans were poor. The middle began to sag, as the portion of middle-income Americans dropped. And the end representing the richest Americans began to elongate, as the rich became much, much richer.

The trend should not be overstated. Some researchers, selecting different years and using different measurements, have found the divergence to be somewhat less pronounced. But overall, the trend is unmistakable. There is good reason to suspect that it is not a temporary aberration, and that the gap will, if anything, grow wider. …

Even taken together, the conventional explanations for the widening gap between rich and poor account for only part of the answer. Interestingly, several other advanced economies—with different tax and welfare policies than the United States, and different demographic swings—have experienced a similar shift toward inequality. That the gap widened noticeably in Margaret Thatcher's Britain is perhaps no surprise, but even the benevolent social-democratic Netherlands has not been immune to the trend. A wide divergence between the incomes of a few at the top and almost everyone else has long been a seemingly immutable feature of life in many underdeveloped economies, of course, but the trend there has a new feature: Today's Third World elites are less likely to be descended from generations of wealthy landholders, more likely to have gained their wealth from the jobs they do. After the land redistribution of the 1950s, for example, Taiwan became one of the world's most egalitarian societies. But, while income is still more evenly distributed there than in most developing nations, the gap between rich and poor widened considerably during the 1980s. The streets of Taipei are now clogged with Mercedes-Benzes, Volvos, and Jaguars, as well as rickety bicycles.

One important clue: The growth in inequality within the United States (as well as in many other nations) has been dramatic even among people who already hold jobs. Recall that through most of the postwar era, at least until the mid-1970s, the wages of Americans at different income levels rose at about the same pace—roughly 2.5 to 3 percent a year. Meanwhile, the wage gap between workers at the top and those at the bottom steadily narrowed—in part, because of the benign influence of America's core corporations and labor unions in raising the bottom and constraining the top.

In those days, poverty was a consequence of not having a job. The major postwar economic challenge was to create enough jobs for all Americans able to work. Full employment was the battle cry of American liberals, arrayed against conservatives who worried about the inflationary tendencies of a full-employment economy.

Unemployment is now less of a problem, however. In the 1970s and 1980s, over 25 million new jobs were created in the United States, 18.2 million of them in the 1980s alone. There is often a mismatch between where the jobs are and where the people are, of course. Many suburban fast-food jobs go unfilled while inner-city kids cannot easily commute to them. And the Federal Reserve Board periodically cools the economy in an effort to fight inflation, thus drafting into the inflation fight many thousands of those Americans who can least afford it. But these impediments notwithstanding, the truth is that by the last decade of the twentieth century, almost all Americans who wanted to work could find a job. And because population growth has been slowing (more on this later), the demand for people to fill jobs is likely to be higher still in years to come. State governors and city mayors continue to worry every time a factory closes and to congratulate themselves every time they lure new jobs to their jurisdictions. Yet the more important issue over the longer term is the quality of jobs, not the number.

By the 1990s, many jobs failed to provide a living wage. More than half of the 32.5 million Americans whose incomes fell under the official poverty line—and nearly two-thirds of all poor children—lived in households with at least one worker. This is a much higher rate of working poor than at any other time in the postwar era. The number of impoverished working Americans climbed by nearly 2 million, or 23 percent, between 1978 and 1987 (years at similar points in the business cycle). Among full-time, year-round workers, the number who were poor climbed even more sharply—by 43 percent. In fact, two-parent families with a full-time worker fell further below the poverty line, on average, than any other type of family, including single parents on welfare.

The wage gap has been widening even within the core American corporation (or, more precisely, that portion of the global web that is formally owned and managed by Americans).¹⁵ By 1990, the average hourly earnings of American non-supervisory workers within American-owned corporations, adjusted for inflation, were lower than in any year since 1965. Middle-level managers fared somewhat better, although their median earnings (adjusted for inflation) were only slightly above the levels of the 1970s.

But between 1977 and 1990, top executives of American-owned corporations reaped a bonanza. Their average remuneration rose by 220 percent, or about 12 percent a year, compounded. (This is aside from the standard perquisites of company car, company plane, country club membership, estate planning, physical examinations, and so forth.) …

Regardless of how your job is officially classified (manufacturing, service, managerial, technical, secretarial, and so on), or the industry in which you work (automotive, steel, computer, advertising, finance, food processing), your real competitive position in the world economy is coming to depend on the function you perform in it. Herein lies the basic reason why incomes are diverging. The fortunes of routine producers are declining. Inperson servers are also becoming poorer, although their fates are less clear-cut. But symbolic analysts—who solve, identify, and broker new problems—are, by and large, succeeding in the world economy.

All Americans used to be in roughly the same economic boat. Most rose or fell together, as the corporations in which they were employed, the industries comprising such corporations, and the national economy as a whole became more productive—or languished. But national borders no longer define our economic fates. We are now in different boats, one sinking rapidly, one sinking more slowly, and the third rising steadily.

The boat containing routine producers is sinking rapidly. Recall that by midcentury routine production workers in the United States were paid relatively well. The giant pyramidlike organizations at the core of each major industry coordinated their prices and investments—avoiding the harsh winds of competition and thus maintaining healthy earnings. Some of these earnings, in turn, were reinvested in new plant and equipment (yielding ever-larger-scale economies); another portion went to top managers and investors. But a large and increasing portion went to middle managers and production workers. Work stoppages posed such a threat to high-volume production that organized labor was able to exact an ever-larger premium for its cooperation. And the pattern of wages established within the core corporations influenced the pattern throughout the national economy. Thus the growth of a relatively affluent middle class, able to purchase all the wondrous things produced in high volume by the core corporations.

But, as has been observed, the core is rapidly breaking down into global webs which earn their largest profits from clever problem-solving, -identifying, and brokering. As the costs of transporting standard things and of communicating information about them continue to drop, profit margins on high-volume, standardized production are thinning, because there are few barriers to entry. Modern factories and state-of-the-art machinery can be installed almost anywhere on the globe. Routine producers in the United States, then, are in direct competition with millions of routine producers in other nations. Twelve thousand people are added to the world's population every hour, most of whom, eventually, will happily work for a small fraction of the wages of routine producers in America.

The consequence is clearest in older, heavy industries, where high-volume, standardized production continues its ineluctable move to where labor is cheapest and most accessible around the world. Thus, for example, the Maquiladora factories cluttered along the Mexican side of the U.S. border in the sprawling shanty towns of Tijuana, Mexicali, Nogales, Agua Prieta, and Ciudad Juárez—factories owned mostly by Americans, but increasingly by Japanese—in which more than a half million routine producers assemble parts into finished goods to be shipped into the United States. …

This shift of routine production jobs from advanced to developing nations is a great boon to many workers in such nations who otherwise would be jobless or working for much lower wages. These workers, in turn, now have more money with which to purchase symbolic-analytic services from advanced nations (often embedded within all sorts of complex products). The trend is also beneficial to everyone around the world who can now obtain high-volume, standardized products (including information and software) more cheaply than before.

But these benefits do not come without certain costs. In particular the burden is borne by those who no longer have good-paying routine production jobs within advanced economies like the United States. Many of these people used to belong to unions or at least benefited from prevailing wage rates established in collective bargaining agreements. But as the old corporate bureaucracies have flattened into global webs, bargaining leverage has been lost. Indeed, the tacit national bargain is no more.

Overall, the decline in routine jobs has hurt men more than women. This is because the routine production jobs held by men in high-volume metal-bending manufacturing industries had paid higher wages than the routine production jobs held by women in textiles and data processing. As both sets of jobs have been lost, American women in routine production have gained more equal footing with American men—equally poor footing, that is. This is a major reason why the gender gap between male and female wages began to close during the 1980s.

The second of the three boats, carrying in-person servers, is sinking as well, but somewhat more slowly and unevenly. Most inperson servers are paid at or just slightly above the minimum wage and many work only part-time, with the result that their take-home pay is modest, to say the least. Nor do they typically receive all the benefits (health care, life insurance, disability, and so forth) garnered by routine producers in large manufacturing corporations or by symbolic analysts affiliated with the more affluent threads of global webs.¹⁰ In-person servers are sheltered from the direct effects of global competition and, like everyone else, benefit from access to lower-cost products from around the world. But they are not immune to its indirect effects.

For one thing, in-person servers increasingly compete with former routine production workers, who, no longer able.to find well-paying routine production jobs, have few alternatives but to seek in-person service jobs. The Bureau of Labor Statistics estimates that of the 2.8 million manufacturing workers who lost their jobs during the early 1980s, fully one-third were rehired in service jobs paying at least 20 percent less.¹¹ In-person servers must also compete with high school graduates and dropouts who years before had moved easily into routine production jobs but no longer can. And if demographic predictions about the American work force in the first decades of the twenty-first century are correct (and they are likely to be, since most of the people who will comprise the work force are already identifiable), most new entrants into the job market will be black or Hispanic men, or women—groups that in years past have possessed relatively weak technical skills. This will result in an even larger number of people crowding into in-person services. Finally, in-person servers will be competing with growing numbers of immigrants, both legal and illegal, for whom in-person services will comprise the most accessible jobs. (It is estimated that between the mid-1980s and the end of the century, about a quarter of all workers entering the American labor force will be immigrants.¹²)

Perhaps the fiercest competition that in-person servers face comes from labor-saving machinery (much of it invented, designed, fabricated, or assembled in other nations, of course). Automated tellers, computerized cashiers, automatic car washes, robotized vending machines, self-service gasoline pumps, and all similar gadgets substitute for the human beings that customers once encountered. Even telephone operators are fast disappearing, as electronic sensors and voice simulators become capable of carrying on conversations that are reasonably intelligent, and always polite. Retail sales workers—among the largest groups of in-person servers—are similarly imperiled. Through personal computers linked to television screens, tomorrow's consumers will be able to buy furniture, appliances, and all sorts of electronic toys from their living rooms—examining the merchandise from all angles, selecting whatever color, size, special features, and price seem most appealing, and then transmitting the order instantly to warehouses from which the selections will be shipped directly to their homes. So, too, with financial transactions, airline and hotel reservations, rental car agreements, and similar contracts, which will be executed between consumers in their homes and computer banks somewhere else on the globe. …

Unlike the boats of routine producers and in-person servers, however, the vessel containing America's symbolic analysts is rising. Worldwide demand for their insights is growing as the ease and speed of communicating them steadily increases. Not every symbolic analyst is rising as quickly or as dramatically as every other, of course; symbolic analysts at the low end are barely holding their own in the world economy. But symbolic analysts at the top are in such great demand worldwide that they have difficulty keeping track of all their earnings. Never before in history has opulence on such a scale been gained by people who have earned it, and done so legally.

Among symbolic analysts in the middle range are American scientists and researchers who are busily selling their discoveries to global enterprise webs. They are not limited to American customers. If the strategic brokers in General Motors' headquarters refuse to pay a high price for a new means of making high-strength ceramic engines dreamed up by a team of engineers affiliated with Carnegie-Mellon University in Pittsburgh, the strategic brokers of Honda or Mercedes-Benz are likely to be more than willing.

So, too, with the insights of America's ubiquitous management consultants, which are being sold for large sums to eager entrepreneurs in Europe and Latin America. Also, the insights of America's energy consultants, sold for even larger sums to Arab sheikhs. American design engineers are providing insights to Olivetti, Mazda, Siemens, and other global webs; American marketers, techniques for learning what worldwide consumers will buy; American advertisers, ploys for ensuring that they actually do. American architects are issuing designs and blueprints for opera houses, art galleries, museums, luxury hotels, and residential complexes in the world's major cities; American commercial property developers, marketing these properties to worldwide investors and purchasers. …

Almost everyone around the world is buying the skills and insights of Americans who manipulate oral and visual symbols—musicians, sound engineers, film producers, makeup artists, directors, cinematographers, actors and actresses, boxers, scriptwriters, songwriters, and set designers. Among the wealthiest of symbolic analysts are Steven Spielberg, Bill Cosby, Charles Schulz, Eddie Murphy, Sylvester Stallone, Madonna, and other star directors and performers—who are almost as well known on the streets of Dresden and Tokyo as in the Back Bay of Boston. Less well rewarded but no less renowned are the unctuous anchors on Turner Broadcasting's Cable News, who appear daily, via satellite, in places ranging from Vietnam to Nigeria. Vanna White is the world's most watched game-show hostess. Behind each of these familiar faces is a collection of American problem-solvers, -identifiers, and brokers who train, coach, advise, promote, amplify, direct, groom, represent, and otherwise add value to their talents.¹⁶

There are also the insights of senior American executives who occupy the world headquarters of global "American" corporations and the national or regional headquarters of global "foreign" corporations. Their insights are duly exported to the rest of the world through the webs of global enterprise. IBM does not export many machines from the United States, for example. Big Blue makes machines all over the globe and services them on the spot. Its prime American exports are symbolic and analytic. From IBM's world headquarters in Armonk, New York, emanate strategic brokerage and related management services bound for the rest of the world. In return, IBM's top executives are generously rewarded.

Review

1. 1) According to Reich, how did the distribution of wealth in the United States change between 1960 and 1990?

2. 2) What categories of workers does Reich describe? How did the different groups make their livings? How was the relative importance of these categories changing?

3. 3) How was the globalization of manufacturing affecting the American economy? Who benefitted from globalization? Who did not?