[This is Chapter
Nine of Murphey’s book The Emerging Crisis of Economic Displacement.]
Chapter
Nine
THE
POLARIZING OF INCOME
In Chapter 7 we saw that prominent free-market
economists have acknowledged trends that are vital in our analysis in the
present chapter:
. that a long-term decline has occurred
in the real wages of the bottom half of the
. that this is consistent with what
economic theory would predict under the conditions of the world market;
. that open trade with low-wage
countries will lower wages in the advanced economies;
. that immigration from low-wage
countries also brings down wages in the advanced economies; and
. that an income gap exists and is
widening.
I also discussed how the
marginalizing of most work, and the polarizing of income and wealth in place of
mass unemployment, may be the form displacement takes in the developed
countries. But either unemployment or polarization
has severe implications for a free society.
We will discuss those implications in later chapters in connection with
the conceptual issues about social organization.
This chapter will be like the
preceding one in that it will look at the present and the immediate past to see
what has happened so far. We have
already seen that work is being marginalized, even in the beginning stages of
downsizing. Now we will notice the
extent to which the acknowledged trends that are listed above are already coming
true about polarity.
On virtually all the points we
discuss in the present chapter, there will be thinkers devoted to the
free-market who contest the point, citing statistics intended to show that the
market is proceeding without meaningful polarity. As with similar observations we have noted so
far, it is probable that the particular facts they cite are correct, since
these commentators are both competent and credible. The question that everyone, including the
stalwarts themselves, will need to ask is whether those data tell the whole
story, especially in light of the fact that the world is just getting started
with the forces that are producing the polarization. Obviously, they don't tell everything, since
their thrust isn't consistent with the trends listed that free-market
economists acknowledge or with the developments that economic theory suggests
should be happening.
"What we are looking at in
every country," Rifkin says, "is the creation of a two-tiered
society -- the haves and the have-nots.
The top 20%, the knowledge workers, are growing increasingly
affluent...They are a new cosmopolitan elite.
The bottom 80% of the work force are the blue- and white-collar workers
-- the core of the middle class -- who are becoming increasingly marginalized. They see their wages declining as
productivity rises."[1]
Charles Murray and Richard
Herrnstein were deeply concerned in The Bell Curve about the rise of a
"cognitive elite" at one end of society and a menacing underclass at
the other. "Our thesis is that it
used to be easier for people who are low in ability to find a valued place than
it is now... [W]ith technological advances, the niches for the less intelligent
have shrunk... From their
Richard Freeman in the Harvard
Business Review says that "from
Economist Rudi Dornbusch of M.I.T.
said in 1995 that "since the early 1970s, the economy has failed to deliver
broad-based income gains. Even though
the economy has grown steadily, the average American family is basically where
it was 20 years ago. Poverty rates have
increased, and the economic foundation of the middle class is being
eroded."[4]
The counter-view (at least speaking
of the 1980s and of absolute rather than relative incomes) is presented by
Richard McKenzie, adjunct scholar at the Center for the Study of American
Business, when he says, according to a Heritage Foundation summary, that
"the distribution of consumer expenditure statistics confirms the view
that all income groups got richer during the 1980s." The Heritage book announcements tell us that
David R. Henderson, a Hoover Senior Research Fellow, makes the same point:
"that most families, from high income to low income, saw their incomes
increase during the 1980s."[5]
Compare, however, what former
Republican strategist Kevin Phillips had to say in 1993: "By the early
1990s... only the skilled 25 percent, the college-educated, had middle-class
opportunities. Huge numbers of others
found themselves caught up in what some called the K-Mart Economy -- low-paid
employment in retail stores, discount centers, back offices and fast-food
emporia... In terms of real purchasing power, the earnings of a typical
thirty-year-old high school graduate of 1991 bought about 20 percent less than
the earnings of his counterpart of 1973."[6]
Income:
Those at the high end
The incomes within certain segments of American
society are rising rapidly. My review of
the facts about the rise certainly won't be to encourage class envy, as such
presentations often do, but to lay a foundation for the conceptual issues we
will discuss later. Nevertheless, class
envy will predictably heat up in the
Here are the areas that have been
doing especially well:
.
Growing corporate profits.
Although profit margins in recent years have been below the 10 percent
of GNP they averaged between 1940 and 1970, they have been increasing rapidly
relative to workers' incomes. In late
1996, The Economist told how "over the past three years America's
corporate profits have risen by an annual average of 13%, while wages have
risen... 3% a year."[7] A news report in April 1997 said
"profits surged 23.3 percent at Fortune 500 companies in 1996," and
explained that "it was the fourth straight year of strong profit gains
among companies ranked in Fortune's annual listing... The surge in
profits was far greater than worker income gains."[8] High corporate profits aren't a given,
however; William Greider speaks of the competitive squeeze on business firms
and the resulting "threat of weak profits and capital shortages."[9]
. Investors' return on capital. Greider poses "an obvious question: If
labor lost wage incomes and corporations lost profitability, who got the
money? The answer, roughly speaking, is
the owners of financial capital."[10] In the article just referred to in 1996, The
Economist gave the same answer: "Most of the extra income generated by
IT [information technology] and globalization is going straight to the owners
of capital."[11] This is confirmed, also, by Business Week,
which in April 1996 wrote that "in the 1990s, the balance has tilted
radically in the direction of the investor, outweighing other stakeholder
interests, particularly those of employees."[12]
Economist Frederick Strobel speaks
in terms of people whose incomes are "capital-enhanced" as
distinguished from those who are "labor-dependent," and says the
former are gradually gaining ascendancy over the latter.[13] There are major reasons this is occurring:
technology is becoming ever more productive and workers are coming to compete
with an enormous worldwide low-pay labor pool.
Wallace Peterson points to "the faster growth in income from
property--interest, dividends, rents--in the 1980s than in income from work."[14] Writing in 1996, Lowell Bryan and Diana
Farrell predict that the next few years will bring great profit from equity
investment.[15]
That the profits from the world
economy are going to equity owners and the holders of debt will in later
chapters provide us the basis for the solution that I call "a shared
market economy." Both the continued
vigor of the market system and overcoming the problem of polarization depend
upon attaining a widely dispersed ownership of capital -- i.e., of the
enormously productive economy as a whole with its burgeoning technology.
It is in this context that it
matters greatly how much of the world's capital assets a country's citizens
own. Economists often minimize the
impact of foreign ownership of American income-producing assets,[16]
but the net ownership by a country's own citizens of such assets both
domestically and abroad is extremely important if income-flow from capital is
to play a primary role. It will make a
lot of difference to whom the income flows.
In his testimony before Congress on
. Those who inherit. The next time you fly over a continent such
as
The compensation is not necessarily
pegged to performance. In 1990,
according to Business Week, the salary of the CEO of
It's noteworthy that so staunch a
free-market economist as Murray Weidenbaum finds discomfiting "the
unfortunate coincidence between the rising uncertainty and belt-tightening that
is facing most corporate employees and the increasingly generous compensation
packages and the security in the form of ‘golden parachutes' that are granted
to the most senior executives."[25] A similar incongruity can be seen in the move
by thousands of businesses to establish deferred compensation funds for
executives, upon which no taxes are paid until the executive takes the money
out in some future year. A New York
Times News Service report says this "is spreading quickly, even as half
the private work force has no retirement benefits and many companies have been
trimming pension benefits for rank-and-file workers."[26]
Those of us who detest class envy
will have to ponder these facts rather than simply be angry at the class-envy
demagogues who will inevitably spring up to take advantage of them. "Demagogues" may not be the right
word; there will be more than simple opportunism underlying what they are
saying.
.
Highly paid workers.
Before I cite comparisons of salaries demonstrating that there is an
extremely well-remunerated stratum of employees, recall my warnings in Chapter
5 that many statistics relating to this sort of thing are colored by such
issues as inclusion, exclusion, measurement and timing. I give them here because they add texture and
lend a reality that generalizations don't convey. Their validity is best judged, however, by
whether they are consistent with the trends that virtually all economists
acknowledge.
Barlett and Steele cite income tax
figures for the comparison that in 1959 the top 4 percent of U.S. workers made
salaries and wages equal to what was earned by the bottom 35 percent of workers
-- and that by 1989 this had changed to where the same top 4 percent made as
much as the bottom 51 percent.[27] Along the same lines, Robert Reich analyzes
after-tax income for 1989, and reports that the top 20 percent of the American
people ("mostly comprising symbolic analysts") received "more
than the other four-fifths of the population combined."[28] Business Week said in 1994,
"here's one clue to the future. The
Bureau of Labor Statistics' occupational forecast for the year 2005. Notice which jobs are gaining: professional,
managerial, and technical--high wages, high skills. What's losing: crafts and operators and
laborers...Service workers--that low-pay catch-all... -- will gain 6.4 million
jobs."[29] This is consistent with Herrnstein and
Murray's warning about a developing "caste society" with "an
increasingly isolated cognitive elite; a merging of the cognitive elite with
the affluent; and a deteriorating quality of life for people at the bottom
end."[30]
The bifurcation has been augmented
by the development of fringe benefits, which the Hudson Institute says mostly
go to middle-and high-income employees.
The Institute says that "between 1973 and 1985, fringe benefits (in
1985 dollars) rose by $150 billion, or 4 percent per year. Wages, on the other hand, rose only 1.1
percent per year."[31] Fringe benefits extend the polarization for
workers who receive them. We know, of
course, that in the drive to cut costs firms are desperately seeking to
marginalize as many workers as possible into contract-labor that carries no
benefits.
An exaggerated confidence is often
expressed in the literature that "gaining high skills" is each
individual's best personal
solution. Certainly from
someone's standpoint today it is worth striving to be among the top 20 percent,
or 4 percent as the case may be, if the individual has the intelligence, energy
and aptitude. What none of these data
yet reflect, however, is the impending competition from high-skill, low-pay
workers, professional and technical, all over the world, whose services can be
obtained either electronically at a distance or by moving capital investment to
them. Nor do the data reflect the
impending displacement of many of these high-skill workers by increasingly
"user-friendly" and self-regulated technology. As these things occur, education and high
skill will cease to pay nearly so great a premium, except to a select few. If a large number of people are to plug into
the economy's income-stream, they will have to do it in ways other than
highly-skilled or professional employment.
But that is looking ahead; in the immediate past, and probably for the
near-term future, such people have done and will do extremely well. The opportunities for them seem greater today
than they have ever been.
. The "winner-take-all" phenomenon in
mass markets. A phenomenon that we see
constantly is that vast fortunes are being earned by individuals and firms who
"hit it right" in the mass global market. Michael Jackson, Madonna, George Foreman (who
recently topped $100 million in earnings from his boxing career), and even the
people who thought up "Beenie Babies" in 1997 or, a while back,
"Cabbage Patch dolls" or, earlier yet, "pet rocks," earn
fabulous sums. The reason for it is
well-stated in Robert Frank and Philip Cook's book The Winner-Take-All
Society. In a mass market, they say,
"small increments of talent have great value, and may be greatly rewarded
as a result of the normal competitive market process. This insight lies at the core of our
alternative explanation of growing earnings inequality." What has happened is that "the salaries
of top performers have grown explosively even as most people have struggled to
hold their own." They quote
"Rabo Karabekian, the protagonist of Kurt Vonnegut's novel Bluebeard,"
who explains: "Simply moderate giftedness has been made worthless...Modern
communications has [sic] put him or her into daily competition with
nothing but the world's champions...The entire planet can get along nicely now
with maybe a dozen champion performers in each area of human giftedness."[32]
This doesn't mean that people won't
continue to enjoy such things as melodramas performed by local talent, or their
own city's symphony orchestra even though they could stay home and listen to
the London Philharmonic. But the shift
is definitely present, and will grow as the world becomes more and more
"electronically wired" (an apt expression but perhaps a misnomer,
since wires may soon become a thing of the past).
Income:
for many, stagnation or decline
As will become apparent, the question of what
has happened with the bottom 80 percent of the American people leads into a
statistical quagmire. As a guide,
however, we should remember what the Foundation for Economic Education's Hans
Sennholz, one of those who is most stalwart in defense of the free market, was
quoted in Chapter 7 as having acknowledged in late 1996: "No matter how
you may gather the data, the gap between the most affluent Americans and
everyone else is widening. According to
a Census Bureau report, the share of national income going to the top 20
percent of households increased from 40.5 percent to 46.9 percent between 1968
and 1994. Since 1994 the trend has even
accelerated. At the present rate of
growth, the top 20 percent of households may soon earn more than one-half of
national income."[33]
This is why Wallace Peterson named
his 1994 book Silent Depression.
He says: "The word ‘depression'... is the appropriate label for our
condition because, first, the downturn has continued for such a long period of
time -- twenty years -- and also because from three-fourths to four-fifths of
Americans saw the American dream slipping away from their grasp at one time or
another during these years. This
depression is silent because there is none of the sound and fury that
come with a major crash such as the one in 1929; much of the public, the press,
and people in the government sense that something has indeed gone wrong, but
they are unsure of exactly what it is."[34]
The thesis is supported by Business
Week, which said in late 1995 that "over the past two decades, real
wages have been virtually flat, and the productivity-led recovery of the 1990s
hasn't improved the situation... [I]ncome equality is rising." The article says this despite recognizing
that if the data are overstating inflation, workers are doing better than the
wage data show.[35] Alan Tonelson of the U.S. Business and
Industrial Council Educational Foundation confirmed the point about the 1990s
in a letter to the Washington Post in March 1996: "Between 1989 and
1994 alone, real median hourly wages rose only 0.8 percent for American women
and plunged by 6.1 percent for American men." He added that "for several decades, all
the net new jobs created in the United States have been in non-trade service
sectors...These sectors all pay much lower wages on average...."[36] I have previously quoted Richard Freeman's
late 1996 article in the Harvard Business Review. This is what he says about the growing wage
polarity: "In the past two decades, the country's normal high level of
inequality, except in the category of gender, has jumped: Pay in the upper part
of the earnings distribution has risen in comparison with pay in the lower
part. College graduates have gained in
comparison with high school graduates or dropouts. Older workers have gained in comparison with
younger workers. Professionals and
executives have gained in comparison with clerical workers, machine operators,
and laborers...These changes have occurred despite huge gains in employment...
[T]he rising tide of inequality has been accompanied by stagnant real
wages."[37] A great many other sources could be cited
that give similar information.
One development in particular has
kept the public's sense of crisis about this from being higher than it is. Katherine Newman says that "the
wholesale entry of women into the labor market is practically the only thing
that kept the average middle-class family afloat. With men's wages stagnating and the cost of
living rising, it was women to the rescue.
The labor force participation rates of women twenty years of age and
older rose from 43 percent in 1970 to 59 percent in 1992."[38]
It is with regard to polarity,
perhaps more than with anything else, that opposing commentators put the
factual case in issue. Despite Sennholz
and other free-market devotees' acknowledgment of the underlying direction,
many authors of similar persuasion present statistics to show either that
well-being hasn't really stagnated for the average American or that the data
underlying the case for stagnation are faulty:
.
Much of the counter-data are used to defend the economic record of the
Reagan administration against attacks from the Left. (This is important, but we
should realize that it is a lesser-included issue in the much broader
time-sweep since 1973.) Edwin
Rubenstein, whom we know as the statistical columnist for National Review,
says "the economic policies presided over by President Reagan were
stunningly successful." He speaks
of a "middle class boom" and argues that "remarkable upward
mobility is the sole cause" of the middle class's having shrunk. He speaks of "the myth of low-wage
jobs" and calls "completely false" a report that "the
number of working poor rose dramatically from 1979 to 1990."[39] I can't do justice to his statistical points
in a brief account, so the reader will be wise to study his book The Right
Data for the complete statement of his findings.
.
UCLA economist William Allen asks just how unequal the income distribution
really is, and says the appearance of a 6 to 1 ratio between the best-paid
fifth of working families and the lowest-paid "greatly distorts
reality" because it fails to take taxes into consideration, ignores
"differences in sizes of families and in number of workers per
family," and counts only cash income without including the non-cash
government assistance that low-income families receive.[40]
.
An article in American Enterprise says "income can actually
be a somewhat misleading way of judging...It doesn't take into account that
people often have a period of very low income where they live adequately off
savings, or funds from other family members, sometimes for months or years at a
time." It recommends looking at
what people consume, in which case "you find that the difference between
America's top and bottom earners in actual consumption per person is only
2:1. That's the difference between steak
and hamburger, not lobster and catfood."[41]
.
Hinderaker and Johnson have written what is perhaps the most
comprehensive discussion of the inequality issue by those who contest it. Their study has been widely reprinted. They say that "the proposition that
income inequality is a problem, and a growing one, has become a staple of the
left." They argue that "to a
remarkable extent, differences in income relate directly to differences in
work. For the most part, upper-income
American families do better than lower-income families because they work
more." Further: "All of the
net statistical ‘decline' of the middle class was caused by its members moving
into the higher income category...."
Oddly, without seeming to see what it shows, they set out a table of
"real average family income since 1973" that indicates a drop in
earnings for the bottom 40 percent and little upward change for the next
highest 40 percent. Only the top fifth
shows a major increase.[42] My marginal notes observe that, in my
opinion, their article "raises more questions than it answers."
The most important thing to notice
about this statistical rebuttal of the trend toward more unequal income is that
virtually all the specific points it makes may well be valid, and yet the
increasing long-term polarity that Sennholz speaks of is nevertheless
occurring. The rebuttal directs us away from
understanding the main trend and from seeing that a profound problem confronts
the theory of a market economy. Again,
we are reminded of how, as Chapter 5 made clear, current economic statistics
are a quagmire, and that if we get lost in them we will inevitably become
Hamlet-like in our confusion and indecisiveness.
Before we conclude our discussion of
income stagnation, several other facets need to be considered:
.
Underemployment as a form of decline. In the present context we should recall the
underemployment and insecurity we saw in the preceding chapter. Stagnation and decline often took forms other
than a direct decline in pay: cut-backs in fringe benefits, such as pensions
and health care; the shunting of people from one training program to another
and from one temporary job to another; the early retirement of many who would
like to continue working; the dropping-out of discouraged workers; the
mismatching of jobs and skills.
.
Impact on ordinary life.
Even though we are only in the beginning stages compared to what is to
come, effects can be observed in the lives of the average American. Kevin Kearns of the U.S. Business and
Industrial Council says "the social impact on the United States has been
widespread and often devastating. A
single wage earner has been unable to support a family for some years now. To try to keep families afloat, millions of
wives have joined the work force... The stress on individuals, marriages,
children, schools, and communities is not something that economists measure...
Our social cohesion has suffered greatly...."[43] Business Week in mid-1995 reported
that "consumer spending is chugging along at half the rate of the
spend-happy 1980s...‘This is the weakest consumption cycle of the postwar
period, which is largely a reflection of the wage slowdown,' says Joseph G.
Carson, chief economist at Dean Witter, Discover & Co."[44]
Newman speaks of families' struggles
to afford homes, now that prices are out of reach; of a generation that is the
first since the 1930s "that can expect to have a lower standard of living
than its parents"; of the sense that for the family to get by both spouses
must work, and that children should be delayed because they are a luxury; of
women's "marrying later, having fewer children, and bearing them much
later in life than was characteristic of the 1950s."[45] In late 1996, Otto Scott wrote that
"real statistics tell us that the number of personal bankruptcies are at
an all-time high, and rising at an unprecedented rate. The amount of credit card debt is now equal
to the national annual income of the people."[46]
.
Decline of pension coverage.
What is happening to pensions? In
a chapter entitled "The Disappearing Pensions," Barlett and Steele in
1992 said that "for the first time, the percentage of workers who will
receive a fixed monthly pension is steadily declining...Half of all workers
have no pension plan at all...Workers in the private sector receive far smaller
pensions than workers in local, state and federal governments...Most public
pension plans are underfunded.
Guaranteed, to be sure, but underfunded nevertheless." Significantly, "99 percent of the labor
force works for businesses that do not adjust pensions yearly for
inflation."[47] Kevin Phillips, speaking of private retirement
benefits, says that "as the 1990s began, firms across the United States
were reducing benefits, terminating pension plans and failing to start new ones
either because of financial pressures or because federal rules...were becoming
increasingly expensive and complex...."
The percentage of workers covered was 55.7 in 1979, only 49 in 1990.[48]
.
Millions who lack health insurance. Barlett and Steele in 1992 mentioned "an
estimated forty million Americans who have no medical insurance. That does not take into account more
millions who are underinsured."[49] Those of us who have good health insurance
have a hard time fathoming this; given the high cost of medical care, it means
that those millions of people are just an accident or serious illness away from
destitution.
.
Devastation of blacks. Of
course, the effect on the "average American" isn't the sole
criterion. It is impossible to say how
much of the devastation American blacks have experienced since World War II and
of the consequent social problems for American society as a whole are due to
blacks' displacement first from southern agriculture and then from northern
factory jobs. Cause-and-effect becomes
lost in a fog of contending causes, but without becoming an "economic
determinist" (i.e., someone who tends to see economic causes as the only
ones at work) one should never lose sight of severe economic dislocations.
.
Rise of an underclass. The
situation with many blacks feeds into the problem of an
"underclass." In his 1997 book
on the "new urban poor," William Julius Wilson says that "where
jobs are scarce...and where there is a disruptive or degraded school
life..., many people eventually lose
their feeling of connectedness to work in the formal economy...In the case of
young people, they may grow up in an environment that lacks the idea of work as
a central experience of adult life."
In black ghettos, he says, middle class and working class black families
have moved away, and even black businesses have closed down. There is increased drug trafficking and
consumption, and so much violence, augmented by rapid-fire assault weapons,
that there is a vastly increased murder rate among young black males. The neighborhoods resemble a war zone, with abandoned
and ruined buildings. Sexual barbarism
reigns and there is an extremely low rate of marriage.[50]
Nor is the underclass limited to
ghetto-mired blacks. Murray and
Herrnstein have a section on "the emerging white underclass," and
predict that "sometime in the next few decades it seems likely that
American whites will reach the point of conflagration." They point especially to the rise of
illegitimacy, which they see as a trigger.
The illegitimacy ratio among whites has been increasing rapidly in the
United States, and in Britain has reached 32 percent "with no signs of
slowing down."[51]
In connection with an underclass,
black and white, we confront another set of contradictory data. Karl Zinsmeister, editor-in-chief of American
Enterprise, writes optimistically that "government figures show that
the poorest fifth of the U.S. population today consumes more than the typical
family did in 1955." (This is true,
he says, despite the fact that "unskilled workers have fared worse than
others."[52]) By way of contrast, Business Week says
that "economic opportunity has been shrinking for so long now that
families trapped at the bottom are beginning to show the attributes of a
permanent lower class." It points
out that 70,000 soup kitchens "serve 26 million people a year, about 10
percent of the population."[53] In its review of Rifkin's The End of Work,
the Atlanta Business Chronicle said "the Census Bureau reports that
the number of people working full time, but earning below the poverty level,
rose by 50 percent between 1979 and 1992."[54] Although he sees factors that mitigate the
impact, Rubenstein says "there is no question that there has been a
stubbornly large increase of people with very low incomes."[55]
That there is such an underclass,
and that it is increasing, amounts to a social cancer. The underclass is quite different from the
immigrant-poor of prior generations, people who were poor in the first
generation but whose children rose out of poverty and saw their places taken by
the next wave of immigrants. The
underclass, on the other hand, is composed of people who are mired in
hopelessness and have personal characteristics to match. George Schultz, former U.S. Secretary of
State, speaks of this as a "group of people that I feel is growing in the
United States... that are not really in this system. They are in a system of crime and drugs, of
no family attachments, and of gang attachments... They are in a different
pattern, a different system... It is a threat to society...."[56]
.
The possibility of growing indifference. Herrnstein and Murray voiced a warning that
needs most particularly to be taken seriously by American conservatives and
libertarians: "We fear that a new kind of conservatism is becoming the
dominant ideology of the affluent--not in the social tradition of an Edmund
Burke or in the economic tradition of an Adam Smith but ‘conservatism' along
Latin American lines, where to be conservative has often meant doing whatever
is necessary to preserve the mansions on the hills from the menace of the slums
below."[57] I mention this as pertinent to the present
context, but will mainly leave it to my later discussion of conceptual
issues. An indifference toward polarity
has been accepted as natural in many societies and at most times in history;
but it is utterly at odds with classical liberalism as best conceived. This is another reason why a "market
ideology," if too narrowly framed, is fundamentally inadequate to
classical liberalism.
.
The broken connection between productivity and earnings. According to Ludwig von Mises in Human
Action, economists reason that
"the height of wage rates for each kind of labor is determined by its
marginal productivity." If a gap
comes to exist between the marginal productivity of labor and the prevailing
wage rate, "there will be people eager to take advantage of the
margin...Their demand for labor will bring wage rates back to the height
conditioned by labor's marginal productivity."[58] It is this reasoning that economist William
Allen had in mind recently when he said "wages have grown rapidly during
our nation's history because the productivity of labor has increased...By
competing against one another to obtain greater quantities of labor made more
valuable by more capital, businesses bid up the wages they pay."[59]
There's nothing wrong with the
theory as a good statement of a major premise, but it is important to realize
that the minor premises don't exist to complete the syllogism. First, the facts today make the gap so great
that there is no real chance for the adjustment Mises and Allen talk
about. Productivity has been rising far
beyond what the statistics show, and yet wages have remained stagnant or
fallen. Why? Because of an immensely expanded labor
pool--which is fast becoming a worldwide, not merely a local, pool. The theory itself will tell us that an
enormous expansion in the supply of an
"economic good" (which is what labor is in an economic sense) will
bring its price down even if there is an increasing demand for it, unless the
added demand is commensurate with the additional supply. Second, the new technology certainly raises
productivity, but its non-labor-intensivity offsets (perhaps more than offsets)
the adjustment that Mises and Allen describe as business' "competing to
obtain greater quantities of labor" to "take advantage of the
margin." The augmented productivity
doesn't stimulate a commensurate demand for labor because it simultaneously
makes labor unnecessary.
It is because of these things that
Kevin Kearns spoke recently of "the de-linkage of wages from increases in
productivity." He says that
"from 1972 onward, the productivity of the American worker has continued
to rise. In fact, in the last several
years it has skyrocketed. But real wages
have continued to decline."[60] Bryan and Farrell in Market Unbound:
Unleashing Global Capitalism tell how between 1981 and 1991 in the
automobile industry plants shut down and real hourly wages fell, even though
productivity went up.[61] In the Harvard Business Review, Schwab
and Kaljian say "the whole phenomenon of delocalization [i.e., the seeking
of the lowest costs worldwide] has broken the linkage that previously existed
among high technology, high productivity, high quality, and high wages. It was this linkage that once appeared to
guarantee ever-improving standards of living in the industrialized
countries. Today, however, it is
possible to have high technology, high productivity, high quality, and low
wages" [their emphasis].[62]
.
Effects on Europe. It has
often been observed that Europe has opted for welfare state supports for the
unemployed rather than the competitive wage-competition typical of the United
States. Bryon Higgins at the Federal
Reserve's 1994 Jackson Hole symposium told how "in most European
countries" there has been "high structural unemployment, especially
for low-skilled workers," with "much of the increased unemployment
[not being] merely temporary."
"Employment protection legislation" has made "employers
less willing to hire workers in the first place"; and "generous
government payments to the jobless" have underwritten unemployment.[63] At the same symposium Frans Andriessen said
"the problem in Europe is that we are hardly able to create jobs. Since 1960, the number of jobs in the United
States grew by 84 percent, in Japan by 46 percent, and in Europe by a mere 6
percent." He pointed to the effects
of massive immigration of low-skilled workers and to a welfare state
"system so generous that the incentive for the unemployed to look for a
job has been substantially reduced, if not completely removed."[64] In mid-1995 Anthony Harrigan cited a source
that told that "in Britain wages are stagnating and that nearly 90 percent
of new jobs in the U.K. are part-time."[65]
.
Effects on Japan. John P.
Martin at the 1994 Jackson Hole symposium reported that "Japan has managed
to keep recorded unemployment low, at between 1 and 3 percent, throughout the
entire postwar period. The current
unemployment rate is around 3 percent.
But this understates significantly the true extent of labor market slack."[66] In May 1995, Cato scholar Stanley Kober
reinforced this when he said that "to improve their earning capacities,
Japanese companies have to get their costs under control, and that means
addressing the question of excess staffing.
Although Japan's low official unemployment rate--three percent in
September, 1994 -- has been a source of domestic pride and foreign envy, former
minister of trade and industry Hiroshi Kumagi has admitted that that number is
misleading and conceals a lot of in-house unemployment. He also has acknowledged that unemployment
would have to rise as a consequence of restructuring."[67]
.
World poverty and polarization.
Paul Kennedy tells how "after nearly five decades of unprecedented
global economic growth, the world heads toward the twenty-first century with more
than a billion people living in poverty [his emphasis] -- an awful enough
figure until one realizes that those people are [defined as] people ‘struggling
to survive on less than $370 a year,' not the billions...who live in countries
like Botswana or Guatemala where the per capital
These numbers will grow far worse as
information age technology's displacement of work more and more hits the
peoples of the less developed countries.
Harald Malmgren says "in the new technological environment, the
traditional reliance of some nations on natural resources may turn into an
economic nightmare."[69] The poverty levels represent untold tragedy
for the people directly involved. For
the peoples in the developed world, those levels create a threat of mass
migration, challenging the very existence of the developed societies. Moreover, in a relatively short time any talk
of limiting the "proliferation" of nuclear, biological and chemical
weapons of unlimited killing power will be a thing of the past; literally
everyone, large and small, will have those weapons. Our earlier discussion of the utopian potential
from the new technology did not include an ability ever to ensure a universal
perception that existing arrangements are just and right. That day will never come. The world is such
that even the most benevolent developments won't eradicate perceptions of
injustice. But the dangers posed by
nuclear, biological and chemical weapons will be multiplied many times over if
there are billions of desperate people.
None of this is affected in the least by the fact that world population
has soared along with economic growth so that it is possible to say that the
world's masses of people "are themselves at fault" for their
plight. In this book we are concerned
not with "finding fault," but with analyzing the impending world
situation and determining what can most constructively be done about it.
Wealth
also polarizing
So far, we have talked about
income. It should be apparent, too,
though, that, unless there are offsetting factors, a vastly unequal distribution
of income will result in vastly unequal wealth.
(Surprisingly, there has not been much discussion of the effects, now
and prospective, on society. Billions of
dollars have been made in drug trafficking, for example. What are the sociological effects? Will that wealth become the "old
money" of the next generation, with its holders being the social and
political leaders of their time? Similar
questions apply just as much to the legitimate wealth piled up through the
other enormous incomes.) Will a rigid
class (or "caste") system develop, perhaps headed by a worldwide
elite? And will it be an elite that sees
itself as not particularly identifying with any one country?
In the United States, according to
Wallace Peterson, "in 1989 the top 1 percent of families owned 49.4
percent of common stocks and 78.9 percent of bonds, public and private. The lower 90 percent owned only 14.6 percent
of stocks and even less of bonds, 6.5 percent.
Of business assets, 61.9 percent were owned by the top 1 percent, and
another 29.1 percent by the next 9 percent of families, leaving only 9.0
percent owned by the lower 90 percent of families."[70] The April 1997 news report that told of CEO
compensation said that "today, the top 1 percent a families have an astonishing
42 percent of American wealth--double what they had in 1972."[71]
Retirement stock funds have become
the public's most significant asset, but surprisingly most Americans aren't
involved with them. In 1995, Business
Week reported that "over the past five years, the value of equities
and mutual funds held by households has jumped by $2.4 trillion, to $4.5
trillion."[72] Economist Robert Kuttner a year later
reported that the percentage of American households holding stock, directly or through
institutions, increased to 37 percent in 1992 compared to 33 percent in
1983. He observed, however, that
"most of these holdings were small potatoes. The top 5% of all households owned fully 77%
of equity holdings, including individual shares, defined-contribution pension
funds, IRAs, Keoghs, 401(k)s and the like, and mutual funds... The bottom
80%... owned just 1.8% of the total value."[73] Compare how revealing these details are when
put next to a late 1996 report that says optimistically that "more than 50
percent of all Americans now own stock."[74] This 50 percent figure is somewhat
incongruous, since in March 1996 Business Week spoke of "the
approximately 20% of the workforce who own stocks or have 401(k)s"[75]
and in late 1995 American Enterprise said 21 percent of American
households own stocks.[76]
If the public in general were
beginning to hold shares in stock funds, the picture would look very different
than it does. As a college professor, I
am allowed under the tax laws to put 17 percent of my income into tax-deferred
retirement investments. I have long assumed that everyone else has been given
the same opportunity. But that just
isn't so. Legislative decisions about
taxes in the United States have been surprisingly divorced from considerations
of fairness and equal opportunity in establishing such perquisites. Favorable treatment has been abundant for
some and virtually non-existent for most others.
The
technology and displacement's other impacts
Little in the world as we have known it will
be unchanged by the forces now at work.
If I may be allowed to broaden our scope again to go beyond polarization
(which is otherwise the subject of this chapter), here are some of the
additional areas of impact commented on in the literature:
. Changing values and lifestyles. In 1970 Alvin Toffler looked ahead to "rising affluence and transience," which he said will "ruthlessly undercut the old urge to possess." In place of possessions, "consumers begin to collect experiences as consciously and passionately as they once collected things." What did he speculate the effects might be? "Serial marriage -- a pattern of successive temporary marriages--is cut to order for the Age of Transience." He predicted a great variety of choice; few roots, but many niches; a cracking-up of consensus, without a new one forming; and the rise of many subcults.