The question that has preoccupied Washington over the past two weeks is why
American voters, in the midst of a buoyant recovery, reacted so harshly on
Election Day to the President's party. There are as many answers to the question
as there are pundits in this city, which means that there are well over half a
million theories. I offer only one perspective, that of Secretary of Labor --
Secretary of the American workforce -- whose job is to pay special attention to
American jobs, and who has spent much of the last 22 months talking with
ordinary American workers across this country.
The great American middle class has not shared in the benefits of this
recovery any more than it shared in the economic growth of the l980s. True, over
five million jobs have been added since January l993, most in high-paying
occupations, and we are justifiably proud of that record. But the 110 million
existing jobs continue to split between a relative few well-paying ones, mostly
for well-educated professionals and executives, and a much larger number going
nowhere. True, corporate profits soared 45 percent in the last quarter, and
productivity grew at an annual rate of 2.7 percent. But wage growth hasn't
matched this pace. True, inflation has been kept at bay. But rising interest
rates are hitting middle class families with higher payments on cars, mortgages,
and credit cards, while those earning over $100,000 a year -- who own 60 percent
of the nation's bonds and almost onethird of all other interest-bearing assets
-- have much to gain from the rising rates. True, the Administration has
managed, against long odds, to get our economic house in order by shrinking
government, cutting spending, and lowering the deficit. But better fiscal
management cannot reverse the long-term decline of America's middle class.
This divergence -- most of the middle class being left behind while the
overclass breaks away -- has been deepening for fifteen years. Last year alone,
the top fifth of American households took home a record 48 percent of the
nation's total income, and pocketed 72 percent of the entire growth in incomes.
The top 5 percent in particular -- America's overclass -- widened their lead on
the rest of the nation last year, taking home 20 percent of the nation's total
income and more than 40 percent of all the growth in incomes.
Other factors influenced the recent election, no doubt. But never
underestimate the political potency of a declining paycheck. Exit polls on
November 8th showed that support for Democrats dropped most precipitously
between Election Day 1992 and Election Day 1994 among men who lack college
degrees. This group--which includes nearly three out of four working men--has
seen its economic prospects shrivel over the past fifteen years, and has
suffered a 12-percent decline in average real incomes since 1979.
The old middle class has become an anxious class -- worried not only about
sustaining their incomes but also about keeping their jobs and their health
insurance. Our large corporations continue to improve productivity by investing
in technology and cutting payrolls. In a recent survey, three out of four
employers say their own employees fear losing their jobs. Meanwhile, l994 is on
track to become history's second biggest year for mergers and acquisitions. But
who wins in this $300 billion derby? Certainly not the average American worker.
When two industry giants merge, the advantages of the deal often come from
layoffs. Across America, I hear the same refrain: "I've given this company
the best years of my life, and now they dispose of me like a piece of rusty
machinery."
What has happened to the men and women who have lost their jobs? Some have
navigated their way to new and better opportunities. But nearly one out of five
who lost a full-time job since the start of l991 is still without work. And
among those who have landed new jobs, almost half -- 47 percent -- are now
earning less than they did before.
In sum, tens of millions of middle-class Americans continue to experience
what they began to face in the late l970s: Downward mobility. They know that
recoveries are cyclical, but fear that the underlying trend is permanent. They
voted for change in l994 just as they voted for change in l992, and they will do
it again and again until they feel that their downward slide is reversing.
What so many Americans find shocking about today's economy is the seeming
randomness of their fates. On a recent national poll, 55 percent of American
adults said they no longer believe that you can build a better life for yourself
and your family by working hard and playing by the rules. Of those without
college degrees, fully 68 percent no longer believe it. Because they have been
working hard, and they are still falling behind.
This isn't the way it's supposed to be in America. Unlike more fatalistic
cultures, Americans have always had a deep faith that effort will be rewarded,
that you reap what you sow -- in other words, that you earn your fate. If you
work hard and play by the rules, you'll get ahead. That was the bargain. For
generations, Americans have believed in that bargain, guided their lives by it,
passed it on to their children. It's woven deep into the fabric of our culture.
It sounds like an economic equation, but it's more than that: It's an implicit
moral compact. The conviction that you earn your own fate forms the bedrock for
the American ethic of individual worth and accountability.
In the years after World War Two, America built the biggest middle class in
history on the foundation of that bargain. We turned our hard work into homes
and cars, health care and pensions. The middle class grew, enlarged and enriched
still further, as the barriers of race and class and gender slowly began to
fall. Poverty reached an historic low. And the sense of possibility grew
stronger.
But then something happened. Around 15 years ago, this American dream began
to fade. And as it faded, middle class families tried every means of holding on:
Spouses went to work, both parents worked longer hours or took multiple jobs,
they decided to have fewer kids and have them later, they drew down their
savings. But as economist Frank Levy has pointed out, middle class families have
pushed these coping mechanisms about as far as they can go. And they still feel
they are losing the dream.
We are on the way to becoming a two-tiered society composed of a few winners
and a larger group left behind, whose anger and disillusionment is easily
manipulated. Once unbottled, mass resentment can poison the moral integrity of a
nation, replacing ambition with envy, tolerance with hate. Today the targets of
rage are immigrants, welfare mothers, government officials, gays, and an
ill-defined "counter-culture." As the middle class continues to erode,
who will be the targets tomorrow?
All of which raises the central question: Why is it no longer the case that
working hard and playing by the rules reaps a just reward? Why is the middle
class fragmenting? Simply this: Hard work is not enough any more, because two
emerging forces have rewritten the rules. The first is technology -- largely
computer based -- which has either eradicated or devalued every routine job
which can be done by a software program, and simultaneously enriched every job
utilizing the problem-solving skills of the human brain. The second force is
global competition, which has reinforced the same trends, imperiling the jobs of
those who must compete with low-wage workers elsewhere on the planet, while
rewarding those better equipped to take advantage of new markets for American
insights and skills. And we cannot overlook labor unions, whose decline accounts
for as much as 20 percent of the increase in wage inequality among American men.
There is another reason, more difficult to quantify but probably no less
important: The breaching of the postwar bargain between companies and their
employees. It used to be that as companies became more productive and more
profitable, employees who worked hard and proved their loyalty could count on
steady jobs with rising pay and better benefits. No more.
All the old bargains, it seems, have been breached. The economic bargain
was that if you worked hard and your company prospered, you would share the
fruits of success. There was a cultural bargain, too, echoing the same strong
themes of responsibility and its rewards: Live by the norms of your community
-- take care of your family, obey the law, treat your neighbors with respect,
love your country -- and you'd feel secure in the certainty that everyone else
would behave the same way.
How can we get it back? How can we reconstruct our basic bargains? How can
we reverse the erosion of the middle class and the meltdown of our moral core?
It cannot be done by trying to turn back the tides of history -- stopping
technological advances or seceding from the global economy. Even were such a
neo-Luddite strategy possible, it wouldn't rescue those who are falling behind,
only drag everyone down with them. Next week's vote on the GATT accords will
reveal whether America's postwar consensus favoring freer trade still endures.
Another choice is conceding that more and more of our wealth will be created
by a shrinking number of economic superstars, and then trying to save the middle
class by redistributing some of the winners' bounty to the also-rans. Nations
have pursued this path for a time, but it is hard to follow forever, and it has
never been comfortable for Americans.
Others say the solution is far simpler: Cut taxes and lift the burden of a
government which is stifling the middle class. There is no dispute that taxes
should be as low as possible, and that government should not spend a single
citizen's dollar more than it must. The American voter wants a leaner
government, to be sure. But let's not delude ourselves or attempt to delude the
nation: Federal income taxes cannot account for the decline of the middle class.
Federal taxes -- even including the growing social-security burden on average
workers -- took 19.8 percent of middle-income families' earnings in 1980, and
take 19.6 percent today.
Some argue similarly that massive tax cuts for the rich will somehow restore
the middle class. The claim is that while they may not lift middle-class incomes
directly, trickle-down tax cuts, even on the sale of assets that investors
already own, will ignite an economic surge that will boost profits and incomes.
We have heard this before. In the 1980s, this country ran one of history's most
expensive experiments to test this theory. We learned that public deficits can
spur a temporary boom, at the price of long-term indebtedness. The rich got
richer. Everyone else's income stagnated or declined. And to this day we are
paying the bill. Interest on the debt America accumulated under the prior two
Presidents alone accounts for $162 billion a year. The dead weight of this
burden claims 28 cents of every dollar individuals pay in taxes today. Surely
the point has been made. Let's not whip up another toxic economic potion -- a
pinch of Laffer, a dash of Darman, the eye of a Newt -- that all of us will pay
for in the morning.
The only enduring solution is to equip every American to succeed through
hard work--under the new rules. It used to be enough to keep your shoulder to
the wheel and be loyal to your employer. But the rules have changed. Now you
need to make your own way in the economy, learn new skills throughout your
career, be ready to apply them in new ways and in new settings.
Can you get ahead if you play by these new rules? Absolutely. Do the new
rules define enough good jobs to support a new middle class? Without a doubt.
There is no limit to the ingenuity of Americans, no limit to the opportunities
for creating value. A salesclerk who taps PCs to monitor sales and replenish
inventories, and who advises customers on the variety of ways to meet the
customers' needs, adds substantial value; as does an auto mechanic who can
repair the electronic gadgetry under the hood, or the operator of a desktop
publishing program who devises new graphic layouts, or the factory worker who
reprograms a computer-controlled machine tool for finer tolerances and quicker
setups, or the secretary who orchestrates a sophisticated spreadsheet program.
In the emerging economy, every job can become more valuable; every person, more
valued.
Contrary to some theorists, our destinies do not reside in our genes. Study
after study shows that skills can be learned. Every year of education or job
training beyond high school -whenever it occurs in one's life -- increases
average future earnings by 6 to 12 percent. GNP is not simply a matter of DNA.
Most Americans are on a downward slide not because of some genetic deficiencies,
but because they lack the learnable skills to prosper in an economy convulsing
with change.
We know we cannot resurrect the old middle class of the first decades after
World War Two. The economy has changed forever. What we can do is clear the way
for a new middle class - a middle class equipped to master the realities of the
new economy, at least as large but more inclusive than the vast middle class of
our younger days. A new middle class with plenty of room for people who play by
the rules, without requiring a four-year college degree as the entry ticket. A
new middle class that rests on a refinement of the old American bargain: You
take responsibility for working hard, you get a chance to work smart.
The private sector has a critical role to play in creating this new middle
class. It won't happen unless companies invest heavily in training their workers
to use new technologies, and give them authority to make decisions. This is not
a matter of charity. The best companies in America, large and small --
LeviStrauss, Lincoln Electric, LS-Electro-Galvanizing, Anheuser-Busch -- are
treating their employees as assets to be developed rather than as costs to be
cut. Some are also sharing with their workers the upside gains of the
enterprise as well as the downside risks, converting a portion of wages into a
share of the profits. I have begun to travel around the country, celebrating the
companies and workers that are leading the way in this new compact.
Mark my words: If American industry fails to forge such a compact with their
workers, it will jeopardize American competitiveness in decades to come. If
American business continues to pursue short-term profits at the price of
insecurity and falling living standards for a large portion of our society, it
will sooner or later reap the bitter harvest of popular rage. The American
public is basically pro-business. But that support rests on an implicit bargain.
And business betrays that bargain every time it fires an older worker in order
to hire a younger one at a lower wage, provides gold-plated health insurance to
top executives while denying its workers health coverage, labels employees
independent contractors in order to avoid paying them full-time wages and
benefits, or discards its workers rather than invest in them when profits are
booming.
But it's not realistic -- it's not even responsible -- to expect business to
carry the whole burden. All of us have a stake in rebuilding the middle class,
creating ladders into it from the underclass, and restoring the reward for
working hard and playing by the rules. If the rules have changed because of
advanced technologies and global competitors, then this nation has a moral
obligation to help all Americans who are willing to work hard prosper under the
new rules.
We have made progress on this agenda in the last 22 months - an agenda which
Al From, Will Marshall, Rob Shapiro, and the DLC have championed: The Earned
Income Tax Credit, to help hardworking families stay out of poverty.
Low-interest loans to attend college. School-to-work apprenticeships to gain job
skills. One-stop career centers to link unemployment insurance to job training.
Voluntary skill standards, to know what to train for. All of these have been
bi-partisan efforts (which partly explains why they received so little coverage
in the media). They already have helped real people get new and better jobs.
These initiatives, however important, are only a bare beginning. If this
society is to reverse the long decline in living standards of American workers,
a far bolder strategy is necessary. Incrementalism just won't do; if there was
any doubt on that point before November 8, there can be none today. First, to be
sure, let's accelerate the agenda of reform: Streamline and consolidate the
current clutter of adult education and jobtraining programs, and pull the plug
on programs that don't work. But reform is no longer enough -- we need to
reinvent lifelong learning. Instead of feeding the budgets of bureaucracies
-federal or state -- let's channel resources directly into the pockets of
ordinary Americans so they can get the skills they need -- at the time, in the
place, and in the way that makes sense for them. In other words, let's put
people first. And finally, let's make sure that Americans have up-to-date
information on what skills are in demand and likely to stay in demand, and where
they can get those skills.
How to pay for this, on the scale required to reverse the downward slide?
The federal budget is already strained. The DLC's Progressive Policy Institute
has suggested at least one possibility -- one that squares with the voters'
distaste for halfway approaches. It has compiled a formidable list of special
tax benefits for particular industries, totaling over $111 billion over 5 years.
I invite the other great think-tanks of this city -- the Heritage Foundation and
the Cato Institute, to pick two at random -- to add to the list their own
examples of business subsidies that don't make sense. Since we are committed to
moving the disadvantaged from welfare to work, why not target corporate welfare
as well, and use the savings to help all Americans get better work? Ending
corporate welfare as we know it is a worthy goal, made all the worthier if it
frees funds for investments in workers. "Welfare to work," in the
fullest meaning of this phrase -- including cuts in corporate welfare to pave
the way to better work -- offers a powerful theme for the 104th Congress.
What America must do, fundamentally, is to empower every man and woman to
earn their way into the new middle class. This is the Administration's central
mission; we must not be distracted by secondary concerns or entangled in
partisan wrangling. We are eager to cooperate with the new leadership in
Congress on how best to rebuild the middle class. But there will be no
compromise in our commitment to this mission. Because America's real choice for
the coming decades is between strenuous measures to restore our middle class
tradition, and equally strenuous -- but infinitely sadder -- efforts to
accommodate ourselves to its disappearance.
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