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Copyright © 2002 Robert B. Reich.
All rights reserved.
It is far too early to know what historians will see when they look back on the years 2000 to 2002 from their perches in the future, but it's likely they will chronicle a profound change in America. The years leading up featured almost breathless excitement about getting rich quick in dot-coms, irrational exuberance in the stock market, and boundless confidence about the nation's power and place in the world. Then, in rapid succession, the dot-com bubble burst, the economy drifted into recession, and terrorists attacked with a deadliness and ferocity never known or even imagined before. Then one of our most successful corporations suddenly imploded, revealing a sham of accounting gimmicks and regulatory lapses; investors and employees lost big while top executives walked off with fortunes.
What have we learned, other than humility? We remain a blessedly optimistic people. But these two years have shaken our certainty about some things we had begun to take for granted—especially, I think, the idea that each of us can make it solely on our own. The get-rich-quick exuberance of the late nineties may have temporarily blinded us to how dependent we are on one another. Subsequent events serve as reminders that the strength of our economy and the security of our society rest on the bonds that connect us. But what, specifically, are these bonds? What do we owe one another as members of the same society?
This is a small book about these large questions. Some of the observations recorded here are culled from my writing during these fitful years. In collecting and fitting them together, my hope is to reveal a larger perspective on what is at stake and what we can do about it.
One of my themes concerns politics, and the heightened importance now of a politically active and engaged citizenry. As this volume goes to press, I am heeding my own advice in the extreme by running for governor of Massachusetts. By the time you get around to reading it, I may have succeeded—or else have returned to the far safer ground of commenting from the sidelines. If it's the former, I hope I can put some of those principles into action; if the latter, I hope others will.
Not since World War II have Americans felt so unified. We're fighting a war against terrorism and we're fighting to get the economy moving again. And we're all in this together. Except when it comes to paying the bill.
Add the cost of fighting the war to the biggest military buildup in two decades and extra security at home, and you're talking real money—hundreds of billions of dollars over the next few years. The Bush administration has also enacted a mammoth tax cut—$1.35 trillion over the next ten years. At this writing, the president is proposing almost $600 billion in additional cuts in income taxes and capital-gains taxes. The bulk of these cuts—those already enacted and those proposed—benefit large corporations and people who are already wealthy.
So who's going to pay? Take a guess. Middle- and lower-income Americans.
Most Americans now pay more in payroll taxes than they do in income taxes. Payroll taxes include Social Security and Medicare payments. You pay these taxes on the first $80,000 or so of your income (the ceiling rises slightly every year). After that you're home free. Bill Gates stops paying payroll taxes at a few minutes past midnight on January 1 every year.
None of the enacted or proposed tax cuts affect payroll taxes, even temporarily. To the contrary, they increase the odds that payroll taxes will have to be hiked. That's because the tax cuts, combined with the military buildup, will drain so much money out of the Treasury that there won't be enough money to pay for Social Security and Medicare by the time the early baby boomers begin retiring, about a decade from now. So payroll taxes probably will have to rise in order to fill the gap.
Get it? Income and capital-gains tax cuts for the rich now, payroll tax hikes on middle- and lower-income Americans to come.
Americans like to think we're all in this together, but the fact is that the economic fallout from terrorism is hitting some Americans much harder than others. When the slowdown began, layoffs and pay cuts hit hardest at manufacturing workers, white-collar managers, and professionals. Since the terrorist attacks, a different group is experiencing the heaviest job losses: the low-paid. Many are service workers in retail stores, restaurants, hotels, or other tourist-industry businesses that have been hard hit. Others are caregivers—social workers, hospital workers, elder-care workers—whose jobs and wages are on the line as public budgets are trimmed. The economy may be rebounding, but these people aren't.
Government is less helpful this time around. Safety nets are in tatters. Welfare-to-work programs made sense when work was plentiful, but without work, those no longer eligible for welfare have nowhere else to turn. Even job losers who still qualify find that welfare payments in most states are worth less than before.
Unemployment insurance is also harder for them to get. Since part-time workers, temps, the self-employed, and people who have moved in and out of employment often don't qualify, a large portion of the lower-wage workforce is excluded. Many who don't qualify are women with young children.
Meanwhile, federal programs for job training and low-income housing have been shrunk by budget cuts. State and local governments are in no position to step in. They're already strapped by rapidly declining tax revenues. Rather than beefing up social services, they're cutting them. Rather than improving our schools by reducing class size and offering all-day kindergartens and after-school programs, they're paring back. Instead of making higher education more affordable, it's getting out of reach for many families. Meanwhile, more Americans are in danger of losing health care or are paying more for the care they get.
In short, the fat years of the nineties left us woefully unprepared for a slower economy that's taking a particularly large toll on hardworking families and the poor.
In the past, when Americans faced a common problem—the Depression, a hot war, a cold war—we understood intuitively that we were all in it together. Someone's misfortune could be anyone's: "There but for the grace of God go I." Social insurance was a natural impulse, a first cousin to patriotism. It was not difficult to sense mutual dependence and to agree on a set of responsibilities shared by all members, exacting certain sacrifices for the common good.
But that sense of commonality is endangered as we drift into separate worlds of privilege and insecurity. I can't help asking, if you'll pardon me for questioning our newfound unity, whatever happened to the social contract?
The sobering news is that even our ten years of economic expansion didn't do much for the bottom half. Sure, they had jobs, but they had jobs before the last recession, too. The fact is, the median wage—the real take-home pay of the worker smack in the middle of the earnings ladder—is not much higher than it was in 1989. In my home state of Massachusetts, the typical household ended the roaring nineties $4,700 poorer (adjusted for inflation) than it began. And health and pension benefits for the bottom half continue to shrivel.
Many families have made up for the steady decline by working longer hours. The average middle-income married couple with children works almost 4,000 hours a year for pay—about seven weeks more than in 1990. But for most mortals who do not relish what they do for pay, more hours at work does not translate into a higher standard of living. On top of that, jobs are less secure. Health care is more expensive. Working families are shelling out huge bucks for good child care. And if you've got elderly parents who also need help, it's even rougher. At the same time, the upper reaches of America have never had it so good. Their pay and benefits have continued to rise.
Look, I don't begrudge anyone a fat paycheck or a big dividend check. But the worrier in me won't let go. I don't want my boys to grow up in a two-tiered society where they'll have to live in gated communities. Yet that's the direction we're heading in.
The problem is not that some of us are getting rich. That's the good news. The problem is that most of us are getting nowhere, even though we're working harder than ever before. We are hurtling toward a society composed of a minority who are profiting from changes in the economy and a majority who are not.
The consequence of this erosion extends beyond economics. It helps explain why hard-pressed parents can't find the time to raise their kids the way they themselves were raised and to pass on the values they grew up with; why voters whose family budgets pinch so tightly are outraged about government inefficiency and waste; why even instinctively generous Americans find their compassion toward the less fortunate flagging; why our politics have become so angry, even sometimes ugly.
Perhaps most important are the moral consequences. Put simply, it just isn't right. The glaring, grotesque wrongness of what's happening to hardworking American families spawns despair and cynicism. It affronts our values, mocking the American bargain linking effort and reward. It makes people feel like suckers and gnaws away at the precious ethic of responsibility. It closes the gate to the very poor. Ultimately, the hollowing-out of the middle class and the creation of a two-tiered society pose a mortal threat to what's always been special about our country.
Why isn't this being talked about? My guess is that Republicans don't feel comfortable with the topic because they don't have any solutions they'd find palatable. The right wing of the Democratic party has drifted toward a flaccid Republicanism, where the basic philosophy is that everyone is on his or her own. Corporate America isn't particularly eager to talk about it, or to sponsor television programs or advertise in magazines that do. But the fact is, as we proceed with the war on terrorism, our domestic agenda is in shambles. We need to make the case that we can only be a strong nation if the working middle class and the less fortunate are brought along. True national security begins with economic security.
Millions of Americans—myself included—were raised to believe in a simple bargain: Anybody who worked hard could earn a better life for themselves and their family. That's anybody—not just the wellborn, not just the well connected. Anybody with the drive and discipline to make the most of their opportunities had a decent chance to make it. Corporate America backed the bargain, too. Employees who worked hard and gave it their all could share in the company's success. If the company did well, their jobs were reasonably secure, and their wages and benefits rose.
In the 1950s, my mother and father worked six days a week in their small clothing shop, selling skirts and dresses to the wives of factory workers. I remember making signs when they had special sales: COTTON DRESSES, $2.99; BLOUSES, $1.00. As factory wages went up, local families had a bit more to spend every year, and my parents' little business grew less precarious. They went upscale. We all did better together. Growing together was the way it worked in America.
America has got off that track. We're growing apart—and at a quickening pace. My parents retired before the new economy elbowed out the old. Most of those factory jobs are now gone. Jobs like them accounted for over a third of all American jobs in the 1950s; now, fewer than 16 percent. Many of the old service jobs have disappeared as well. Telephone operators have been replaced by automated switching equipment, bank tellers by automated teller machines, gas station attendants by self-service pumps that accept credit cards, and secretaries by computers and voice mail. Any job that can be done more cheaply by a computer is now gone, or pays far less than before.
We can't bring back the old economy, and shouldn't try. But that doesn't leave us helpless. What we can do is create a new economy in which many more succeed.
Earnings began splitting between the have-mores and the have-lesses largely because of two revolutions—one in computer technology, the other in global economic integration. The combined effect has been to shift demand in favor of workers with the right education and skills to take advantage of these changes, and against workers without them. Meanwhile, the unionized segment of the workforce has shrunk. Today, fewer than 10 percent of private-sector employees are unionized. In 1955, 35 percent were unionized. At the same time, the real value of the minimum wage has declined. The drop in unionization has taken a toll on the wages of men without college degrees. The drop in the minimum wage has taken the biggest toll on the wages of working women without college degrees.
The real puzzle is why in recent years we've let this happen. If the right education and skills are so important, why haven't we done more for our schools? Why is the federal government cutting back on job training? Why is college becoming less affordable? If family incomes are under greater and greater stress, why have we let unions wither and the minimum wage decline? Why haven't we widened the circle of prosperity so that more Americans have a decent shot at it? In short, why has the social contract come undone? In the world's preeminent democratic-capitalist society, one might have expected just the reverse: As the economy grew through technological progress and global integration, the "winners" from this process would compensate those who bore the biggest burdens, and still come out far ahead. Rather than being weakened, the social contract would be strengthened.
Nations are not passive victims of economic forces. Citizens can, if they so choose, assert that their mutual obligations extend beyond their economic usefulness to one another, and act accordingly. Throughout our history the United States has periodically asserted the public's interest when market outcomes threatened social peace—curbing the power of the great trusts, establishing pure food and drug laws, implementing a progressive federal tax, imposing a forty-hour workweek, barring child labor, creating a system of social security, expanding public schooling and access to higher education, extending health care to the elderly, and so forth. We did part of this through laws, regulations, and court rulings, and part through social norms and expectations about how we wanted our people to live and work productively together. In short, this nation developed and refined a strong social contract, which gave force to the simple proposition that prosperity could include almost everyone.
Every society and culture possesses a social contract—sometimes implicit, sometimes spelled out in detail, but usually a mix of both. The contract sets out the obligations of members of that society toward one another. Indeed, a society or culture is defined by its social contract. It is found within the pronouns "we," "our," and "us." We hold these truths to be self-evident; our peace and freedom is at stake; the problem affects all of us. A quarter of a century ago, when the essential provisions of the American social contract were taken for granted by American society, there was hardly any reason to state them. Today, as these provisions wither, they deserve closer scrutiny.
To the extent that there's been a moral core to American capitalism, it's consisted of three promises.
First, as companies did better, their employees would too. As long as a company was profitable, employees knew their jobs were secure. When profits rose, wages and benefits (health care and pensions) rose, too. In harder times, companies accepted lower profits to retain their workers. At worst, if a recession hit hard, companies laid workers off temporarily and then hired them back as soon as the economy turned up. The communities where most employees lived were also part of the contract: As long as the company was profitable, it remained in the community—often underwriting charities and responding to community needs.
"The job of management," proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in a 1951 address typical of the era, "is to maintain an equitable and working balance among the claims of the various directly interested groups ... stockholders, employees, customers, and the public at large. Business managers are gaining in professional status partly because they see in their work the basic responsibilities [to the public] that other professional men have long recognized in theirs."
Excerpted from I'LL BE SHORT by Robert B. Reich. Copyright © 2002 by Robert B. Reich. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
|1.||Whatever Happened to the Social Contract?||1|
|3.||Work That Pays, Insurance if It Doesn't||47|
|4.||Lifelong Learning: Education for the Twenty-first Century||63|
|5.||The Day I Became a Feminist: Real Family Values||89|
|6.||The Long View: A Decent Working Society||109|
Posted April 12, 2004
In reading this book, I was impressed anew with the observations of this very perceptive observer of this period. This book evokes an intriguing idea. (Isn't that one of the best recommendations a book can have?) And the idea is: isn't it axiomatic that for capitalism to succeed, the great majority of the people and their institutions must be HONEST? Without this, won't capitalism collapse just as ignominiously as communism did?Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.