Updated: Revitalizing the American Dream

I just finished reading the Big Squeeze by Steven Greenhouse, a book which provides vignettes of middle class workers while providing analysis of the issues facing the 21st century American economy. The book provided few original insights - it is not like employment trends has been missed by major political commentators. However, it did provide a concise explanation of the problems, and that in itself is useful.

There are a couple of large themes that can be quickly taken away. First, middle class jobs are increasingly scarce, and there is little reason to believe that the situation is going to improve. Second, businesses are going to continue to perceive their workers as "costs" rather than assets, and work hard to drive those costs down as hard as possible. Third, the types of jobs that are disappearing have steadily moved up the income chart - now even the legal work of top law firms is being outsourced, leaving top law school grads in a lurch. Finally, critical elements in the social mobility ladder of the United States have disappeared, preventing those from the lowest rungs from moving themselves up.

These themes have been clear for at least two decades. What I think is the most interesting question, one rarely raised by this book genre, is where does this take the American economy, and what does that mean for different kinds of workers?

One of my favorite measures of income inequality is the Gini coefficient, which measures how extreme inequality is in a certain population between 0 (no inequality) to 1 (maximum inequality). America had an all-time low during the early 1970s, and since then, the number has steadily risen and is unlikely to slow down. Other statistics are available, and the Big Squeeze provides dozens to show the increasing gap between the haves and the have nots.

This trend has not decreased, but appears to have accelerated even faster as outsourcing and offshoring have decreased the need for middle class salaried positions. Now those positions are even nipping some at the bottom of the upper class category, and it is likely that the elimination of jobs will continue to move up through the income spectrum.

Without significant change, this leaves us in a situation where the vast, vast majority of people work for few wages (even with education and professional degrees) and a small group of highly-successful individuals remain the top of the pyramid. This is essentially the end of the American Dream, perhaps one of the most powerful inducements for societal stability in the United States today. Without the connection between hard work and rewards, I truly worry that our strong economic system will be undone by the results of this trend.

Years ago, I read the book The Time Machine by H.G. Wells, which predicts that the future of humanity will be one of two classes (later breaking into two races): the rich and pampered Eloi and the underground-dwelling Morlocks. Wells was commenting on the plight of workers near the turn of the last century from industrialization. Interestingly, the history of much of the twentieth century showed the opposite trend, starting with the business strategy of Henry Ford to create a middle class labor force.

We need a new Henry Ford for the twenty-first century, someone who can passionately argue that paying employees well - even under competition - can indeed lead to better business profits (just look at a company like Costco). Countering the message of The Time Machine is critical if we are to remain the most dynamic economy in the world.

To this end, I want to amplify one of the smaller conclusions of the Big Squeeze: the American worker needs a larger face in the media and in the political discourse. The choices that our country has made have real consequences for real people. Incentivizing businesses to offshore may increase profits (slightly), but can devastate entire communities and states. As the economic reasoning goes, the economic pie grows larger, but this does not mean that everyone will have a larger slice.

Rebuilding the labor engine that provided the postwar boom will be difficult, but it is certainly not impossible. What it will take is a unique level of leadership to drive a nationwide change in our culture to note that high inequality is bad for business. We've done it once, and it is time to revitalize the America Dream.

Update (7/17/10): Steven Greenhouse has written an interesting story about the Dominican Republic and how one factory is attempting to push against the constant cutting in wages in factory. The experiment will be interesting to watch, especially on college campuses where the clothes made by the factory will be heavily marketed.


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