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Created: August 4, 2003
Latest Update: August 4, 2003
http://www.latimes.com/news/printedition/opinion/la-op-friedman3aug03,1,6881631.story Original source URL.
White Collar Blues
Government and the rich win and educated workers lose when jobs go offshore
By David Friedman David Friedman, a contributing editor to Opinion, is a senior fellow at the New America Foundation.
August 3, 2003
News that major U.S. technology companies, among them IBM, plan to export thousands of high-skill jobs overseas indicates that worrisome trends in the U.S. economy will probably strengthen. Optimists contend that such "workforce flexibility" guarantees that something new — the Internet, biotechnology — will turn up to create similar high-paying jobs and carry the economy forward. But rather than triggering real economic development, moving white-collar jobs offshore underscores how reliant the U.S. economy has become on inflating high-end wealth and paper assets to compensate for large-scale job losses. If this pattern holds, the next boom may quickly mutate into another unsustainable bubble, further limiting America's industrial options.
Before the mid-1980s, Americans of all classes shared more or less equally in the economy's gains. Wages of the lowest-paid workers rose at virtually the same rate as salaries of corporate executives. Good times stimulated relatively well-paying employment opportunities across a wide range of industries, including manufacturing and services. Most of these jobs offered health care and other benefits.
Since then, gains in income and wealth have become increasingly concentrated in the hands of fewer and fewer Americans. According to data from the Internal Revenue Service, total personal income expanded by more than $3.8 trillion from 1986 to 2001. More than $2 trillion, however, was paid to the richest 10%. Incomes of the top 5% of U.S. households grew nearly three times faster than those of the remaining 95%.
Federal Reserve Board data compiled by the Urban Land Institute show that the value of U.S. residential homes, private businesses and stocks ballooned by more than $6 trillion from 1989 to 1998. Yet, 50% of this new wealth was realized by just 1% of the population. The top 10% of households accumulated 75% of the gains. At various times, households moved in or out of the top income brackets. But by any measure, America's economic bounty has accrued to a relatively small slice of the populace.
Such statistics have sparked endless debates about social equity, trickle-down economics and the long-term benefits of free trade. Yet they raise a more important issue. Societies with skewed distributions of wealth tend to be less dynamic. Wealthier classes naturally want to preserve the economic status quo, and they have the financial and political wherewithal to do it.
In the last few years, this has produced an unusual partnership between America's wealthiest elites and the public sector. The relationship is symbiotic, which helps explain why official America seemed indifferent to the exodus of manufacturing jobs overseas — and a net loss of 5 million such jobs since 1979 — and now seems unworried about the potential flight of white-collar workers, which one report predicts could amount to 500,000 of the 10.3 million U.S. technology jobs.
When wealth concentrates at the top end of the economy, government becomes more and more reliant on the wealthiest to pay its bills. In 1975, when income growth was more widely distributed, the richest 1% of Americans paid 18.7% of all federal income taxes. By 2000, the richest 1% were paying a whopping 37% of the nation's income taxes. More broadly, the top 10% of American households accounted for barely 50% of total income taxes as late as 1986. Today, they pay about 70%, or nearly $700 billion.
Today, if you're, say, a U.S. filmmaker or an executive of a high-tech company, you can freely shift skilled and managerial-level jobs to low-wage or government-subsidized nations or hire at will from a bottomless pool of compliant workers in those countries. As a result, you can accumulate personal wealth much more rapidly. In turn, you pay far more in taxes.
This arrangement also makes private-sector employment less secure. That boosts demand for government services like job retraining and education. Tenured, benefit-rich public-sector jobs become more attractive. As wealth creation at the top is fostered, so too is the apparent need for and capacity to fund the public sector.
But it's difficult to sustain economic growth this way. For example, during the last boom, the economic link between elite wealth and the public sector was most fully forged in New York City, Seattle and the Bay Area. For a time, housing prices soared, stock options fattened executives' incomes and the resulting tax windfall fed public-sector expansion.
When the economy slowed, these areas were especially vulnerable. Land-use, zoning and redevelopment policies had driven out the middle and working classes, leaving behind an unbalanced economic base. Even after the economy soured, growth restraints kept property values high and public spending continued unabated, frustrating hopes for a quick turnaround.
To a lesser degree, these problems affect the national economy. Exposed to trade and immigration pressures, earnings are falling or stagnant in a growing number of occupations, including the high-tech sectors that were only recently hailed for their long-term prospects. In its latest assessment, the Bureau of Labor Statistics soberly predicted that, by 2010, waiters, cashiers, food preparers, gardeners, security guards, janitors and similar low-wage, low-skill jobs would be among the occupations expected to generate the most new jobs. The stimulus required to jump-start the economy seems to be rising with each business cycle; it is currently nearly $1 trillion worth of government and trade deficits, as well as the most rapid interest-rate reductions of the last 50 years. Which raises another question: If the U.S. economy is flexible enough to bounce back from losing thousands of white-collar jobs overseas, why has it only sluggishly responded to the unprecedented stimulus?
Unless public policy dramatically changes, the next recovery, should it arrive as predicted, will probably retrace the boom-and-bust trajectory of the recent past. Companies with no or weak earnings and with no readily identifiable business prospects are already contributing to the stock market's recent gains. Job and income growth for all but the richest Americans remain weak and are likely to stay that way until late in the next business cycle. If tax revenues increase once more, the public sector will once again expand, only to risk an even more intractable funding crisis when the almost inevitable correction of inflated asset prices takes place.
More balanced, full-spectrum private-sector development, including a more sophisticated approach to trade, immigration and growth controls, would reduce many of these risks. Imports from countries that don't maintain reasonable environmental or labor standards could be limited, for example, or legal immigration levels more strictly enforced. Yet America's two major political parties seem unable to escape their ideologies and consider policy alternatives that would help diversify the economy.
Democrats have largely abandoned their New Deal, pro-industrial political legacy in favor of an elite-dominated, anti-development sensibility. The powerful public-sector unions that now dominate the party have little incentive to expand the private sector, in no small measure because they disproportionately benefit from the accumulation of massive wealth in a small number of pockets.
Across the aisle, Republican economic thinking is increasingly shaped by what political commentator Michael Lind calls "Southernomics" — a primitive commodity capitalism inspired by 19th century industries like cotton and oil production. Its adherents are unlikely to be troubled by the expansion of a concentrated, aristocratic-style wealth distribution. The party's once vocal advocacy for entrepreneurial, egalitarian development is today rarely heard.
It may be that America's flexible labor force is enough to stimulate an unexpected creative breakthrough, reinvent the U.S. economy, replace the nation's dwindling supply of quality jobs and pay off the nation's huge public deficits. But it's just as likely that the next boom will be even more volatile and short-lived than the last one. If so, the pathologies latent in the U.S. economy may become even more entrenched and increasingly difficult to treat.