How to Refloat These Boats

By Gene Sperling
Sunday, December 18, 2005

No Democratic sound bite is quoted more often by Republican tax-cut advocates than President John F. Kennedy's line that "A rising tide lifts all boats." It might come as a surprise, then, that Kennedy first used the line in a speech delivered in Colorado on Aug. 17, 1962, after congressional approval of a giant dam project. His point was to justify greater spending on infrastructure, and there is not a single example in his presidential papers of his using the metaphor specifically to promote tax cuts.

What made Kennedy's line powerful, however, was not its use to buoy a specific ideological or fiscal agenda, but its optimistic assurance that good economic policy simultaneously spurs growth and raises the living standards of all Americans. It took the two tests of U.S. economic policy -- equity and growth -- and merged them into one common aspiration.

This formulation has taken on new meaning today. The tide of the American economy is still rising, but it is lifting fewer boats. Faced with international competition, technological advances and the outsourcing of jobs, managers and college graduates, as well as workers, are increasingly worried that their boats may be capsized by the fierce waves of globalization, even if U.S. overall growth and productivity are rising, according to recent studies by the Social Science Research Council. Many fear that jobs will flow only to those with the very highest skills and those whose physical presence is required -- such as barbers, construction workers, food service providers -- while large numbers of middle-class jobs will be lost or relegated to lower status (and pay).

In other words, the rising tide will lift some boats, but others will run aground.

Our ability to address this question is hampered by an impoverished debate between a "sky is falling" camp, which believes it is possible to save the middle class by turning back the tide of globalization, and a "don't worry, be happy" camp, which assumes that any government response to ensure shared prosperity will be counterproductive.

Both perspectives miss the mark. While members of the "sky is falling" camp are right to advocate stronger labor standards in low-wage countries and enforcement of the rules for fair trade, it is naive to think that these measures would significantly reduce the dislocating effects of technology and global competition. Indeed, well-intentioned efforts to save jobs by blocking global competition could backfire if they prevent U.S. companies from improving efficiency to stay ahead. Nor should we assume that global competition always leads to uneven growth. In the 1990s, more open markets and freer trade contributed to record job growth, higher wages for upper-, middle- and lower-income Americans, and historic declines in African American and Hispanic poverty and unemployment. Throughout history, there have been dire predictions that stiffer competition would lead to the demise of the middle class -- from post-Civil War fears that good jobs would relocate to a low-wage South to worries in the 1980s that Japan would eat our lunch. But these fears have never been realized.

Still, such figures and historical facts hardly support a don't-worry-be-happy approach. For one thing, China and India represent a level of competition unlike anything that ever came out of the American South, Japan or South Korea. China and India have nearly 40 percent of the world's population (compared with 3 percent for Japan and South Korea), and thanks to the revolution of information technology, hundreds of millions of their citizens have entered the global workforce, competing on an unprecedented scale for jobs located in the industrialized nations.

As China, India and other developing countries move up the skills ladder, job losses in the United States have begun to shred an unspoken economic compact. Generations of Americans have accepted that the right combination of education, hard work, integrity and risk-taking is a one-way ticket to economic security and a better life for their children. Like the common law notion of "reliance" -- where unwritten statements and promises create expectations that people act upon -- this article of faith has shaped people's lives, choices and attitudes. In the 1990s, when job turnover surged due to global competition, President Bill Clinton was able to assure people that our economic compact was not broken -- it simply had to be updated to include a college degree, lifelong learning and technological literacy.

Recently, however, not just factory workers, but software engineers, travel agents, law clerks and even radiologists are watching their jobs move overseas. (A recent study showed that a quarter of all hospitals outsource radiology work.)

The exodus of highly skilled jobs has undermined faith in our economic compact in two ways. First, it shakes the assumption that hard work and education guarantee upward mobility, if not for the current generation then for the next.

Second, it damages the core belief that years of hard work ensure a modicum of economic dignity. In place of this, recent job losses have spread a fear of falling, a fear that job dislocation could mean not just temporary hardship, but a permanent change in livelihood, a forced departure from home and neighborhood and a dropping out from an economic class. This represents, as anthropologist Katherine Newman writes, an "eviction from the American dream," which "calls into question the assumptions upon which [people's] lives have been predicated." Workers receiving pink slips who lament that "I played by the rules, I did everything I was supposed to do" seem to me to be expressing their belief that the unwritten economic covenant they had relied upon is broken.

Even with solid economic growth in recent years, there is evidence to back up these sentiments. Inflation-adjusted weekly and hourly wages have actually declined since the recession ended in November 2001 -- an almost unprecedented trend for the first four years of recovery. Census figures show that during this period median family income has decreased by nearly $1,000 (adjusted for inflation) and that the number of Americans living below the poverty level has increased by 4 million.

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