Wanted: A High-Road Economy

By Holly Sklar, Published on Friday, March 17, 2006 by TomPaine.com

Waving the banner of “global competitiveness,” corporate and government policymakers are running the U.S. economy into the ground. We are becoming a nation of Scrooge-Marts and outsourcers—with an increasingly low-wage workforce instead of a growing middle class.

We are living the American Dream in reverse.

The minimum wage buys less today than it did when Wal-Mart founder Sam Walton opened his first Walton’s 5 & 10 in Bentonville, Arkansas in 1951.

It would take more than $9 in 2006 to match the federal minimum wage peak reached in 1968, adjusting for inflation. At today’s $5.15 an hour, it takes nearly two minimum wage workers to earn what one made 38 years ago.

The minimum wage sets the wage floor. When the minimum wage is stuck in quicksand, it drags down wages for workers up the pay scale as well. Hourly wages for average workers are 11 percent lower than they were in 1973, despite rising worker productivity.

It wasn’t always like this. Between 1947 and 1973, worker productivity rose 104 percent while the minimum wage rose 101 percent, adjusting for inflation.

The United States has become a downwardly mobile society. The American Dream is the American Pipe Dream for more and more people.

The downward shift in wages is moving higher up the career ladder. The inflation-adjusted earnings of college-educated workers have fallen since 2000.

We are breaking records we don’t want to break. Record numbers of people have no health insurance.

The share of national income going to wages and salaries is at the lowest level since 1929—the year that kicked off the Great Depression. The share going to after-tax corporate profits, which heavily benefit corporate executives and other wealthy Americans through increased dividends and capital gains, is at the highest level since 1929.

“In 2005, for the first time since the Great Depression, Americans borrowed more than they earned,” Parade magazine reports in “What People Earn.”

Fueled by obscene wage inequality and tax cuts, income and wealth are piling up at the very top. More and more jobs are keeping people in poverty instead of out of poverty. Middle-class households are a medical crisis, outsourced job or busted pension away from bankruptcy.

Contrary to myth, the United States is not becoming more competitive in the global economy by taking the low road. We are in record-breaking debt to other countries. We have a record trade deficit, hollowed-out manufacturing base and deteriorating research and development. The infrastructure built by earlier generations of taxpayers has eroded greatly, undermining the economy as well as health and safety.

Households have propped themselves up in the face of falling real wages by maxing out work hours, credit cards and home equity loans. This is not a sustainable course. The low road is like a “shortcut” that leads to a cliff.

We will not prosper in the 21st century global economy by relying on 1920s corporate greed, 1950s tax revenues, downwardly mobile wages and global-warming energy policies. We will not prosper relying on disinvestment in place of reinvestment. We can’t succeed that way any more than farmers can “compete” by eating their seed corn.

As Business Week put it in a special issue on China and India, “China’s competitive edge is shifting from low-cost workers to state-of-the-art manufacturing. India is creating world-class innovation hubs, and its companies are far better performers than China’s.”

The United States will not succeed by shifting increasingly from state-of-the art manufacturing and world-class innovation hubs to low-cost workers.

Contrary to myth, many European countries are better positioned for the future than the United States, with healthier economies and longer healthy life expectancies, greater math and science literacy, free or affordable education from preschool through college, universal health care, less poverty and inequality and more corporations combining social responsibility with world-class innovation.

Among the world’s 100 largest corporations in 2005, just 33 were U.S. companies while 48 were European. In 2002, 38 were U.S. companies and 36 were European. CEO-worker pay gaps are much narrower at European companies than American. Americans work over 200 hours more a year on average than workers in other rich industrialized nations.

The United States dropped from number one to number five in the World Economic Forum’s global information technology ranking. The top four spots are held by Singapore, Iceland, Finland and Denmark, with Sweden number six.

The U.S. trade deficit increased 17 percent in 2005. As the Economic Policy Institute reports, “U.S. trade deficits increased with every major area of the world, including China (34 percent), OPEC (18 percent), Africa (15 percent), Europe (15 percent), Mexico and Canada (13 percent combined), Latin America (12 percent), and all Asian countries bedsides China (5 percent).”

In the book How We Compete: What Companies Around the World Are Doing To Make It In Today’s Global Economy, Suzanne Berger reports the findings of MIT’s Industrial Performance Center study of more than 500 international companies. She observes, “Contrary to the widely held belief of many managers, we conclude that solutions that depend on driving down costs by reducing wages and social benefits—in advanced countries or in emerging economies—are always dead ends. . .

“Strategies based on exploiting low-wage labor end up in competitive jungles, where victories are vanishingly thin and each day brings a new competitor. . . As low-end firms that compete on price move from one overcrowded segment of the market to the next, there is virtually no chance of gaining any durable advantage. The activities that succeed over time are, in contrast, those that build on continuous learning and innovation.”

Instead of pretending the problem is overpaid workers and accelerating offshoring, we need to shore up our economy from below and invest in smart, sustainable development. Raising the minimum wage is a vital step.

The high road is not only the better road, it is the only road for progress in the future. An America that doesn’t work for working people is not an America that works.

Holly Sklar is co-author of A Just Minimum Wage: Good for Workers, Business and Our Future and Raise the Floor: Wages and Policies That Work for All Of Us.  She can be reached at hsklar@aol.com.

© 2006 Holly Sklar