ECONOMIC APARTHEID? Updated
Wall Street is the undertaker beetle of statistics: the markets voraciously consume, digest and then forget the numbers churned out by the keepers of vital economic statistics each week. Every now and then, however, a statistic pops up that gives pause to this number munching machine because the number points to deep and scary forces gathering beneath the surface. That happened Jan. 9, when the U.S. Labor Department announced that non-farm payrolls only increased by 1,000 jobs in Dec. despite robust economic growth, and it was underscored March 5, when the Feb. payroll number came in at 21,000, a small fraction of the 130,000 new jobs predicted by economists and the 300,000 estimated by the White House. After three months of anemic numbers amid a supposedly robust recovery, even the most Panglossian cheerleaders recognize that consumers can’t spend if they don’t have jobs. Much has been written about outsourcing, but the real threat of these stunning numbers is that they may set in motion a cascade of events that could become seriously destabilizing in the coming years.
A jobless recovery that enriches shareholders, but bypasses America’s debt-burdened employed will exacerbate the wealth gap between rich and poor. This gap was perceived as a problem at the end of World War II, and despite more than 50 years of unprecedented global economic expansion it has only widened, both in the U.S. and in the developing world. In my 1998 book, The Future in Plain Sight, I made the wage gap one of my clues to future instability because the gap is written in the DNA of the way we now do business, and because it is unsustainable. The few can only hold onto their gains with the consent of the many, and at some point those not sharing in those gains will realize that a significant portion the enormous wealth created for the fortunate few in recent years has come out of their future prospects. Back in 1997, I expected that this realization to take a long time to gain traction with workers, but a few more months of payroll numbers such as those released last week, and this “aha” moment might arrive within a year. That’s when trouble will really begin.
The labor department figures have prompted a flood of explanations. Some caution that the payroll number may miss significant numbers of self-employed, while different pundits have mentioned technologically driven efficiency improvements, cautious businesses that make people work harder rather than hire as business improves, and the movement of jobs overseas. This last point is the real problem Any U.S. business can now draw on an unlimited pool of cheap skilled labor for nearly any business need that does not involve face-to-face encounters. This not only fosters recoveries without jobs, it also puts a cap on wage demands by those lucky enough to still hold a job.
The executives making decisions to outsource to low wage employees have their own problems. The digital connections that gives Amalgamated Cup access to cheap programmers in Bangalore also gives competitors in China and elsewhere access to Amalgamated Cup’s markets at home. If a networked global economy has put a cap on wages, it has also put a cap on the prices a business can charge for their goods. Thanks to the Internet everything and everyone is in danger of becoming a commodity.
Both businesses and labor would like to set up barriers to low-priced competitors, but there really is no easy way out of this self-destructive system. If the gap continues to widen and the economy turns down, there will be an ever -growing constituency for protectionist measures and other restraints that could lead us into a disastrous spiral of trade wars. On the other hand, any measures such as government guarantees, safety nets, or other programs offered by politicians trying to capitalize on class resentments would spook the deficit-conscious bond markets, and could easily cause a collapse of the dollar. Because of U.S. dependence on trade and because trillions of dollars in dollar-denominated assets are held overseas, U.S. economic policy is now hostage to the opinions of foreigners, our military might notwithstanding.
Is there a solution? Maybe. A massive public works project that did not expand the deficit would help; something like a massive clean energy program or nationwide high-speed rail network financed by new taxes on pollution and fossil fuels. A more progressive tax system would help as well. Both seem inconceivable since the Bush administration wants to spend public works dollars on Mars not earth, and Congress that has just enacted tax breaks that exacerbate the wealth gap.
Still, if this jobless recovery stalls, and populist resentments find a voice, I suspect that the few might give up a bit to the many in order to hold onto the rest. The South African tycoon Harry Oppenheimer once remarked, “If they don’t eat, we can’t sleep.” He was talking about racial apartheid, but the remark might well apply to economic apartheid as well.
