Exhibit A.If Horatio Alger were writing today, he'd find himself fallen on hard times. This quintessential American novelist of the gospel of achieving success through "luck and pluck" might have trouble creating a convincing story of upward mobility for the '90s. "Tattered Tom" might rise to the top in the aerospace industry, only to be downsized during a merger. "Gilbert Grayson" might find his livelihood vanish after being replaced by a computer. "Ragged Dick" might find himself slumming in dives or alleyways with the rest of the castoffs of the Brave New Global Economy.
Of course, even at its height of believability this myth was embellished; as economic commentator Jeff Faux has noted, Alger's characters often made it more by luck than pluck-by marrying the bosses daughter, or by stumbling onto an unearned windfall. But no myth is more central to the American character than that of unlimited opportunity. While few actually made it from the bottom to the top, the prospects for individual advancement made relative deprivation tolerable.
And during the first two post-World War II decades, it really did work this way. Income statistics show a steady improvement in living conditions across the income spectrum-as well as a small, if perceptible "catching up" by those at the bottom. The promise of personal advancement has served as a social glue holding together a very diverse and restless culture. What happens when that glue dries up, and the cracks in the system begin to widen into fissures?
The "American dream" has been in retreat for two decades. Nationally, real hourly wages for production workers are 13 percent lower now than they were in 1973. Continual productivity growth is coupled with wage stagnation. Inequality of wages, family incomes, and accumulated wealth are all up. The share of family income received by the bottom 60 percent of families is the lowest since statistics began to be compiled in 1947. And as Business Week recently reported, social mobility has also declined, meaning that people are more likely to end up right where they started. At the same time, safety nets have been eroding. Corporations are mulching pensions and reducing or eliminating health care coverage in order to improve the bottom line. And, attacks on welfare benefits mean that public safety nets are fraying as well.
This has only slowly affected the political debate because the first victims of these changes had little clout. Sociologist William Julius Wilson argues that jobs first moved out of the inner cities, affecting predominantly black workers. Then, in the '80s, blue-collar workers in the Rust Belt were hit by deindustrialization.
Now, increasing insecurity has crossed the racial and class divide. Wages of the college educated began to decline in 1987, and downsizing and salary cuts are now plaguing middle management. Also, even the young and highly skilled are increasingly in danger of being displaced by those yet younger and more tolerant of low wages than themselves.
"Free market" economists and their ideological brethren in business and politics have been working overtime to justify this growing inequality. This worked during the 1980's, but such arguments increasingly ring hollow. Perversely, it took a right-wing demagogue, Patrick Buchanan, to bring these issues onto the radar screen, but even the party of the "common man" shows some signs of coming off its heady courtship with the business class. The anger of the insecure and downsized is finally registering in the minds of opinion-makers and the chattering classes, and promises to be a prominent part of the current election campaign. How has the American economy become a rigged game, and what, if anything, can we do about it?
Winners in the Global Game
The answers are to be found not in economic theory, but in politics. Economic and political changes provide those at the top with the means to grab the lion's share of national income and wealth. The globalization of financial and product markets allows businesspeople to put all workers in a bidding war with one another for jobs, with the "winner" being the one willing to work for the least, under the worst conditions, and to accept the greatest degradation of the natural environment.
Within this global game, the domestic game is rigged as well. Businesses grease the skids with political contributions which ensure that the most sacrosanct welfare programs are the corporate variety. The decline of good jobs allows businesses to play cities or regions against one another in search of the lowest taxes, weakest regulations, and largest public subsidies.
After this game over the location of jobs, where government and workers play the suckers, individuals at the top squabble over the spoils. U.S. executives in particular have proven themselves to be world class in their ability to feather their own nests. Median executive compensation at the largest companies increased by 31 percent in 1995. Executive compensation expert Graef Crystal calculates that the total compensation of chief executives now stands at 187 times that of the average production worker, up from the already excessive levels of 35 times in 1974.
What of the argument that the market requires obscenely high salaries in order to sort the best executives into positions where they can produce the most value? Unfortunately, there is little evidence that things work this way. Competent managers can be had in Europe and Japan for a fraction of their cost in America. And, numerous studies, including one by Fortune magazine, show there is no relation between executive salaries and return to shareholders. Why then the explosion of salaries? One reason is a common practice by board members, who are often top execs themselves, of engaging in mutual back-scratching at salary-setting time.
Top executives also get rewarded for failure. When average workers screw up on the job, they are likely to be summarily fired or demoted; when top execs botch it, they are likely to be bought out, or to float away gracefully on a golden parachute.
A movement toward "shareholder value" (i.e. a focus on stock prices and dividends above all else), and tax changes which penalize direct compensation, have shifted the feeding frenzy toward stock options. This perversely increases the incentive for corporate honchos to squeeze the wage bill through downsizing, union-busting, and unilateral wage cuts. The market then responds as positively as teen girls to the latest crooner. Research shows that tossing people onto the unemployment line is a sure fire way to increase stock prices. But equally telling, there is no evidence that the high human cost of layoffs leads to increased productivity or profits. A study of 547 companies by the American Management Association showed that less than half of companies that downsized saw any increase in profits. Only a third of such companies gained any increase in productivity. So who benefits? An examination of data by management consultant Alan Downs showed that "CEO's who lay off large numbers of employees are paid more than those who don't."
Turning Things Around
Those at the top have become addicts, fixated on additional money and power just as the junkie subsumes all human relationships to the need for the next fix. Can the better side of our culture-optimism and community spirit-be harnessed to create new forms of social bargains to replace the ones that have been tossed aside? Conservative "New Democrats" have called for a new communitarianism-which as translated into policy usually means enforcing paternalism on the poor while blaming them for the plight of the middle class. But if we are really concerned about reinvigorating responsibility, we will bring owners and executives back into cooperation with the rest of us through political and labor organizing, and new legislation.
"Old Democrats" are showing signs of coming to life again with a modernized liberalism that recognizes the changes in the global system. Secretary of Labor Robert Reich, and Senators Ted Kennedy of Massachusetts and Byron Dorgan of S. Dakota, call for a two-tier corporate tax system, with lower rates for companies which create jobs or improve worker training. Senator Jeff Bingamin of New Mexico proposes taxation of short-term stock trades to short-circuit the myopia of the stock market. House majority leader Dick Gephardt is campaigning for a common economic agenda to be promoted by all Democratic congressional candidates.
New popular movements, including third parties such as Labor Party Advocates or the New Party, may serve as a catalyst pulling our politics toward real solutions. Labor unions are rediscovering an emphasis on organizing the unorganized. Unions, environmentalists, and advocates of human rights are continuing to push for labor and environmental standards in international trade treaties and organizations.
Of course, its entirely possible that the frustration many feel will be channeled into what William Greider calls "rancid populism," ranging from the ill winds of Limbaugh-style rhetorical flatulence, to darker varieties embodying physical or institutional violence against individuals or classes of people. Thus far, primitive urges to find and punish the weak in order to shore up people's fragile positions have crowded out other possibilities. We can hope that this is the year when the pendulum finally begins swinging back the other way.
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