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.

Moreover, when U.S. workers suffer setbacks -- a health crisis or job loss -- the decline in their economic well-being is far steeper than it used to be. Research by Yale University political scientist Jacob Hacker has shown that families whose incomes drop typically face 40 percent drops, significantly more than during the 1970s and '80s. A higher education degree has become a less reliable insurance policy against such economic setbacks. Princeton University economist Henry Farber has found that college-educated workers who lost jobs between 2001 and 2003 suffered proportionately deeper pay cuts when they went back to work than those with less education.

Should we as a society simply acknowledge that America's economic compact is largely a thing of the past? I don't think so. And, as a Democrat, I want my party to offer an optimistic vision to people who believe that the economic compact is history. Right now, our party is divided on how to do that, but it needn't be. We can come up with ways to not only ease the pain of job dislocations but also help foster middle-class jobs in the future. Here are some things Democrats (and Republicans) should be able to agree on:

Reducing the health care burden on employers.

Encouraging companies to outsource their jobs to rural and urban parts of this country, rather than overseas. (One consultant who advises firms on how to cut legal costs uses the phrase "Banga-tucky" to get them to look at Kentucky as the Bangalore of inexpensive legal work.)

Replacing our fragmented and confusing programs for people who have lost their jobs with a simple, unified system so that a worker can easily find and be eligible for meaningful assistance. Benefits should include health insurance while they're between jobs and wage insurance ensuring that no established worker sees more than a 25 percent drop in income when he or she finds a new job.

Giving workers more help before they lose jobs, by creating "flexible education accounts" with tax credits for education and training.

This may sound like another wonky policy list, but the idea behind the approach is essential. We must recognize both the limits and responsibilities of government. And that means a government that does things it can do -- boosting health and education -- and does not try to do the things it can't do, such as stopping globalization.

One thing no government can do is to accurately pinpoint the middle-class opportunities that will replace the ones flowing to India, China and Mexico. Only 15 years ago, some analysts forecast that work as a travel agent would be one of the fast-growing job categories; it's down 38 percent since then. And no one predicted the number of jobs that would be associated with the Internet.

It is precisely because we lack a road map that it is so crucial to strengthen public investments in research and education, which have traditionally laid the foundation for discovering and exploiting previously unimaginable jobs and industries. The United States is entering a 20-year period in which there will be no net growth in our native-born workforce. At the same time, there are five times as many graduates of engineering programs in China and India together as there are in the United States. And those nations are doubling their support for research as a percentage of gross domestic product (GDP).

Our call to meet this challenge doesn't have to be couched in the jargon of policy. It should echo earlier calls for Sputnik-level initiatives to expand basic research, improve problem-solving skills in our classrooms, and massively increasing the incentives, grants and pay we need to inspire a new generation of scientists. It should recognize that if our workforce isn't growing, we need to inspire and better employ those on the margins of our economy, while helping the poorest children to get to society's starting line.

Funding such efforts, while restoring fiscal discipline, would require a bipartisan fiscal deal that would both repeal tax cuts for the most fortunate and slow entitlement growth. Neither the undoing of trade agreements nor further cutting of the capital gains tax rate will ensure that we remain a nation able to fulfill its unwritten economic compact, and where all boats, not just the yachts, rise with the tide.

Author's e-mail:

gsperling@americanprogress.org

Gene Sperling was the head of the National Economic Council under President Bill Clinton. He is a senior fellow at the Center for American Progress and author of "The Pro-Growth Progressives" (Simon & Schuster).