The New Global Economy Takes Your Order

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Outlook: mixed U.S. economic growth will be good for those whose jobs can’t leave—burger flippers (243,000 by 2006), Kinko rats, and daycare workers. But without progressive reforms, these workers will be stuck with low pay, no job security, and no benefits.

Good news! As the 21st century approaches, the left has an opportunity to take control of the national economic debate and change the direction the nation is headed.

For the past generation, we’ve had a right-leaning economy—that is, the economy responded to policy measures that appeal to the political right, such as deregulation and low government spending. Globalization has only amplified that bias. If workers in the U.S. organized to defend their wages, or environmentalists pushed for tighter regulations, companies would move their plants and jobs to Mexico or Asia. Labor unions, unable to protect workers, hemorrhaged money and members. Liberal politicians couldn’t pursue liberal programs. Bill Clinton scraped into office in 1992 and was immediately forced to make deficit reduction his No. 1 priority. He gave one liberal issue, health care, a shot, and got nowhere. Since then, this basically liberal man has been governing like a moderate Republican—and sometimes, as when he signed off on welfare reform, like a conservative one.

But the world economy is changing. Over the next few decades, we could have a left-leaning economy that works best when policies espoused by the traditional left, including higher levels of government spending, are applied to it. Blue-collar workers will likely see some income gains, unions will have an easier time defending the interests of their members, and there will be better prospects for national projects such as helping inner-city residents enter into the economic mainstream.

Don’t get me wrong. This new economy won’t be a utopia. Much of the U.S. workforce will be employed in low-paying service jobs. Falling prices for manufactured goods and stiff overseas competition will continue to take a toll on manufacturing. White-collar jobs and wages will take a hit from technology advancements. And while income and wealth inequality may stop growing, that doesn’t mean the vast income gap will narrow.

On balance, however, if progressives are smart enough and quick enough to grasp the opportunities coming their way, the next generation could see fundamental gains in justice, opportunity, and social welfare for the great majority of American people. Here’s what to look for:

Outlook: excellent Software is becoming the infrastructure of the future, as computers replace travel agents, insurance salesmen, and dozens of other jobs. Close to 346,000 programming jobs are vacant now; another 1.3 million will be created in the next 10 years.

Signs of the Times: Deflation Ahead
Good news for Western liberals is not necessarily good news for the world. We may be facing an old danger—deflation.

For 40 years after the Great Depression, economists’ and politicians’ main worry was deflation. When markets are glutted, companies can’t earn enough to service their debts, prices fall, companies close, people lose their jobs, and stock values tumble. Budget deficits and more social spending are the only real cures for deflation; it becomes government’s job to stimulate demand—to, as Franklin D. Roosevelt used to say, “prime the pump.” Government has done that, redistributing income to the needy in the process, through programs such as Fannie Mae housing loans, welfare, unemployment insurance, and Social Security. All those senior citizens spending money—and all the younger folks who don’t have to support mom and dad—are, economically speaking, antidepressants. Forty years of social progress, not just in the U.S. but also in Canada and Western Europe, were built on the need to keep people spending money.

There are signs—not proof yet, but signs—that excess capacity in manufacturing industries may be setting the stage for worldwide deflation. The collapse of East Asia’s currencies and stock markets (many of them down more than 50 percent in 1997) is what classically happens when economies move from an inflationary phase to a deflationary one. Global interest rates are falling, as is the price of gold, which dropped a dramatic 21 percent last year. The Economist magazine’s commodity price index shows that commodities have fallen 15 percent in price since early 1997. As East Asian producers desperately compete with one another to sell consumer goods in Europe and the U.S., the prices on many more goods will fall. Good news for anybody who needs a camera, VCR, or computer; bad news for banks that have lent large amounts of money to companies that may never be able to repay what they owe.

In the United States, this could signal a resurgence of useful government spending. Back when Kennedy was in the White House, the U.S. could speed up the economy by running a modest budget deficit and giving Americans more purchasing power for goods, then produced mostly in the U.S. The government taxed the producers of those goods on the extra income they received. Deficits tended to pay for themselves. But that tool lost its usefulness with globalization because the goods to satisfy the consumer demand were now being made in South Korea and Japan. When Reagan ran big budget deficits, supply-side tax cuts did not pay for themselves as advertised.

That may be changing. Increasingly, the growth areas in Western economies are likely to be in services, and nontraded services at that. Nontraded service providers—hospitals, schools, UPS—are stuck at the point where the service is consumed. As the population ages, for example, we will spend more on nursing homes; they can’t move to Guatemala, no matter how cheap wages are there.

Outlook: poor Just as the industrial revolution gave the masses greater access to goods, the technology revolution will make expertise plentiful—and cheap. The collapse of intelligent services will likely destroy much of the U.S. professional class. The full-time professor, for example, is headed toward extinction. In 1997, 46% of university faculty were part-timers or adjuncts, making roughly $15,000 a year.

The New Labor Market
The next sign of a changing economy comes from the American labor market. Here, the good news is that the bad news is over—namely, the U.S. workforce has already taken its hit from globalization. In 1970, manufacturing accounted for 27.3 percent of American jobs. In 1995, that figure had declined to 15.8 percent. Not all of this was due to globalization—technological innovations reduced the need for labor in the manufacturing process—but certainly cheap labor abroad had an effect on blue-collar labor in the U.S.

Adding to the problem was the rush of women into the job market. In 1970, 79.7 percent of men were in the labor market; only 42.6 percent of American women were in the labor market. By 1997, 59.8 percent of women were in the labor force, compared to 75 percent of men. The effect on wages was somewhat perverse. When one woman went to work, the household income rose; but as millions of women went to work, labor became cheaper. The result was that American households (married couples with children) increased their annual hours on the job from 3,270 in 1979 to 3,549 in 1994, an 8.5 percent increase—but inflation-adjusted hourly earnings fell by 9 percent. Taken together, these changes brought about a shift in the balance of power between capital and labor in the United States. Workers were cowed by the threat of plant closures and by the millions of unemployed people eager to take their jobs. The worst of these problems is likely behind us (although normal changes in the business cycle could take unemployment temporarily higher).

First, the decline in manufacturing jobs will slow. In the past 25 years, manufacturing’s share of total employment declined by 42.1 percent. This decline will not be sustained: 25 years into the future it’s extremely unlikely that manufacturing jobs will fall to 4 percent of the total workforce. It’s like the concept of diminishing returns—no trend goes on forever. The jobs most vulnerable to foreign competition and automation have largely already been lost. Additionally, any continuing shrinkage in the manufacturing sector will have less impact on the economy as a whole simply because manufacturing now makes up a smaller part of the total picture.

Second, the wave of women moving into the workforce is largely over. The supply of new workers will be limited to immigration and population growth. Demand for labor is likely to be higher than in the last generation, but the supply will be relatively smaller. This translates into higher wages and lower unemployment.

The result promises to be an improving job market for blue-collar workers. At the very least, their incomes should stop falling. At best, they could recover much of the ground they lost in the last generation. Judging from historical experience, this will not only be good for individual workers, it will be good for the labor movement as a whole. Why?

When times are truly bad, labor doesn’t have much clout. Organized labor did not do well from 1929 to 1933, the years when the economy went into a tailspin. Labor only began to make progress when the worst of the Depression was over—when workers were still angry about low wages, but when they had also begun to regain some confidence in their bargaining position.

That could be where we stand today. Unemployment is well below 5 percent, the lowest in a generation, and many workers have learned to distrust management during the past few downsizing decades. An alienated labor force flexing its muscles—this could be organized labor’s best opportunity ever for a comeback.

Outlook: good Hollywood has always had international appeal. These days, almost half of a film’s revenue comes from overseas markets, and globalization will only increase the demand for and access to Western entertainment. The film industry is projecting a steady 8-10% increase every year. And foreign box office receipts mean even a megaloser like The Postman could make a profit. Someday.

The New Service Economy
A second critical point is that the much ballyhooed service economy is no longer looming on the horizon. In the U.S., at least, it has arrived. Today, services account for far more GDP than manufacturing or agriculture. Entertainment has replaced aerospace as the leading revenue industry in Southern California. In the Northwest, the real buzz is not Boeing, but Microsoft. In New York, financial services (including real estate) are now the biggest employer, while manufacturing jobs in that city continue to shrink.

This service economy, however, is not better than a manufacturing economy—just fundamentally different, bringing with it a new mix of problems and opportunities.

What are the major advantages of a service economy? The first, clearly, is that it is basically much easier on the environment. The health of a manufacturing economy—and the paychecks of the people who work in it—is inescapably linked to heavy industry with all its attendant environmental problems. As the economy continues to shift toward services, we can escape the grim trade-off of economic growth for environmental responsibility. Improvements in telecommunications, for example, reduce the need for travel. Millions of Americans now telecommute to work at least some of the time. Videoconferencing and e-mail are lessening the need for face-to-face business meetings, and therefore the need for business travel. The more rapidly these technologies grow, the less fossil fuel we will consume and the less expansion we will need for both air- and land-transportation systems.

New tax policy can and should favor nonpolluting service industries. Depreciation schedules, subsidies, and other aspects of our tax code come from an era when helping manufacturing companies make profits was—correctly—seen as the best way to raise the incomes of working Americans. As Ted Halstead and Redefining Progress point out, reducing corporate income taxes and replacing the lost revenue with carbon taxes on the amount of CO2 released by any given factory will not only help clean up the environment, it also could accelerate long-term growth and improve standards of living by channeling investment into the new “sunrise” industries that are creating the future. Any tax effort, however, will face major obstacles from the political right.

Progressives need to build durable coalitions with these sunrise industries—high tech, HMOs, software, entertainment—to lead the way toward a service-friendly tax code. Suppose, for example, that companies got tax credits based on the percentage of their employees who became at least part-time telecommuters. That would be popular with two-income families juggling childcare and elder care. It would also be popular with high-tech corporations, which would save money by having their employees work more from home. It would increase the market for their products as other companies rushed to turn their own employees into tax-advantaged telecommuters. Making interest on student loans tax-deductible, as well as allowing tax write-offs for people who spend money on job training or who reach certain levels of skill development, is another way to achieve a more service-friendly economy.

Just as New Deal liberals built a national housing program to ensure prosperity in a manufacturing economy, today we should build a similar system to support the development of the service sector.

Decline of the White-Collar Workforce
Both sides of the political spectrum have confused the dawn of the service economy with the Second Coming. Swept away by the glamour of the transition to a service economy, they have failed to look carefully at the downside. And there is a downside: Millions of workers will be trapped in low-wage positions with no hope of upward mobility, and—despite the conventional wisdom that sees the service economy as a white-collar bonanza—automation will devastate the earnings of many white-collar workers and consign whole professions to the dustbin of history.

To look at the blue-collar issue first, it’s now clear that a service economy requires a large number of relatively low-wage workers. Burger flippers are only the beginning. There are also Kinko rats, daycare teachers, elder care orderlies, and many others. Because most of these jobs are not very productive—orderlies today can’t change many more bedpans per hour than they could in 1900—it will be difficult for those employees to make decent livings.

Indeed, since productivity in manufacturing is both easier to measure and easier to increase than productivity in services, as the economy shifts from manufacturing to services the rate of productivity growth tends to slow down. In 1996, manufacturing productivity grew 3.3 percent while overall workforce productivity grew only 1 percent. And productivity is the ultimate limit on wage increases—a continuing shift into a service economy would slow any rise in wages and living standards.

This intensifies the conflict between producers and consumers. Most working families in America need childcare, but because one childcare worker can only watch a given number of children, the affordability of childcare for many families depends on low wages for childcare workers. If childcare could become more “productive”—if one daycare worker could effectively watch 60 children rather than six—then wages could rise even as costs remained affordable. This, unfortunately, is impossible. The resulting dilemma is particularly difficult for progressives, whose sympathies lie both with working people who desperately need childcare and daycare workers who deserve decent incomes for the difficult and important work they do.

Outlook: bleak As new technology co-opts accountants’ craft, demand for their expertise will decrease—as will their salaries. Sales of TurboTax and related software increased 13% last year. Cost of TurboTax: $39.99. Average cost of a CPA: $75 per hour.

The same conflict will take place as the baby boomers age. Most won’t be able to afford high wages for home care workers; yet those aides want, need, and deserve to be well-paid. Worse still, from the standpoint of society as a whole, if aging boomers can’t afford home help, they may have to move into nursing homes and other assisted-living facilities, where the burden will fall on taxpayers and the government.

The second major problem with a service economy, one not yet widely considered, is that technological change is revolutionizing high-end, highly paid service jobs. Yesterday it was textile and steel workers who felt the impact of technological change and industrial upheaval. Today, and even more tomorrow, doctors, lawyers, bankers, brokers, and managers are going to feel the pain. Deep Blue, the computer that defeated Gary Kasparov in chess, could be the symbol of the 21st century: In the period we are now entering, most brain workers will learn what muscle workers already know—human beings are often no match for machines.

Doctors, lawyers, and many other professionals today are like the well-paid artisans who made material goods by hand at the dawn of the industrial revolution, when few people owned manufactured possessions. Steel was prohibitively expensive and even the most basic necessities of daily life—clothes, furniture, pots and pans, tools—were considered treasured heirlooms. The industrial revolution brought a collapse in the artisans’ standard of living. Unskilled factory workers replaced them as the manufacturers of these products. Ultimately, of course, the factory workers’ incomes rose, and in the end, the majority of people had moved from an economy of scarcity in material goods to an economy of abundance.

Yet in the world of services, most of us still live in an economy of scarcity. Education, health care, childcare, elder care—these are things all of us require, yet very few of us get the quality or quantity we need. And those are only the most conspicuous services. Most of us could use a great deal more career counseling, more financial planning, more legal assistance, and more tax help. We are without real access to high-quality assistance when buying consumer goods, selecting a physician, choosing a college for our kids, or making important decisions about our careers.

The service revolution will change all that. Our grandchildren will be plugged into the world more than we are. Whether through expert systems connected to their health care provider, personal agents on whatever the Internet grows into, or sophisticated legal software that can provide middle-class families with the level of expertise now available only to the wealthy, our descendants will be far better off than we are.

The industrial revolution gave the masses central heating, air conditioning, movies, stereos, and cars; the service revolution will make expertise as cheap and available in the future as Styrofoam is today. The falling—even the collapsing—price of intelligent services is going to open the door to enormous and important new industries.

There is, however, a rather large catch. Capitalism advances through a process of creative destruction, and what is likely to be destroyed as this process advances are the incomes and living standards of much of the American professional class. Dramatic falls in the price of legal expertise, for example, mean reduced incomes for many lawyers. In 1997 I could write a legal will using Quicken software; today I can shop for mortgages and insurance the same way. Who knows what Quicken 2000 will let me do?

Tax accountants will feel the pressure as tax software improves. Civil servants will face enormous pressures; the waves of layoffs and restructurings that swept private employers in the last decade have barely begun in government. We are already seeing the beginning of this great shift. Look at American medicine, where increasing numbers of physicians report declining incomes. HMOs and other cost-containing management techniques are beginning to squeeze the medical profession. At some point in the not-too-distant future, most key health care decisions will be made by computerized medical databases, listing everything from the patient’s detailed medical history to the most advanced treatment protocols and research available. RNs and other, cheaper health care workers will increasingly be the intermediaries between the public and the health care system. The same is true for academia. The tenured professor is becoming a rare bird on the contemporary campus. Gypsies and adjuncts—more flexibly hired and fired, more poorly paid—are filling more and more university slots.

Given that the learned professions remain an area where the left is relatively strong, it may be tempted to join the intellectual Luddites in resisting the changes taking place. Support for lifetime job protection for government employees and public school teachers is one example where this has already happened. I once asked Newt Gingrich if he ever worried that liberals would develop a program of public school reform that would take the issue away from Republicans. “No,” was his answer, “because whatever proposals the Democrats want to make, they have to clear them with the teachers’ union.” Any humane political movement will work to ensure that human beings aren’t too casually sacrificed to the gods of the market. Still, on the big questions, progressives should be on the side of growth and change. The majority of the American people will benefit greatly from the changes now under way; progressives’ goal should be to support the transformation of the American economy rather than to block it.

Outlook: good The growing availability of medical information technology and patient history databases (along with cost-cutting HMO management) means RNs, health aides, and even those at the front desk will play a larger role in making diagnoses. Aging boomers will increase demand for home and institutional health care. By 2006, there will be 410,000 new RN jobs, at an average starting salary of $40,000 a year.

Political Priorities
The stunning defeat of President Clinton’s request for fast-track trade authorization in the House of Representatives last fall signaled to some a new age in American politics. A revived progressive coalition closely linked to an invigorated labor movement derailed a corporation-led initiative on a major matter of international economic policy. Put that together with the Teamsters’ victory in the UPS strike and it begins to look as if 1997 saw an important turning point in American politics.

House Minority Leader Dick Gephardt’s steadfast opposition to fast-track, plus the cohesion of House Democrats united against the president (only 20 percent of them backed the White House), gave progressive Democratic activists a taste of something they had long been denied: victory.

And with Al Gore still tarnished from his Buddhist temple appearance and facing united labor opposition, it began to look as if Gephardt had a fighting chance to win the party’s nomination in 2000—and as if opposition to globalization was the key issue that would unite the Democratic Party and galvanize American progressives.

There is some truth in this. Yes, labor is gaining strength, and yes, a major opportunity for constructive politics is opening up. But trade and globalization issues will not be the key to a liberal revival. In fact, if progressives remain so hypnotized by the familiar problems of globalization that they fail to note the changes in the way globalization is affecting the American economy, the result could be political disaster.

The globalization model that most people carry around in their heads today looks something like this: The flight of manufacturing jobs to low-wage countries reduces wages and employment prospects here in the U.S. At the same time, wages are prevented from rising overseas because repressive regimes in alliance with multinational corporations keep wages low. Furthermore, there are so many unemployed people in the world—think of China, India, and Bangladesh—that it could be decades before wages start rising again.

At the same time, says the model, globalization attacks democracy in high-wage countries. Market forces inhibit the ability of governments, and therefore of citizens, to impose tough environmental or labor standards. International competition for new investment reduces a government’s ability to increase revenue through business taxes. International agreements, such as NAFTA and the creation of the World Trade Organization (WTO), codify these negative tendencies. By relegating international regulation of labor policies to such toothless groups as the International Labor Organization (ILO), the trade agreements reached in the last decade aggravate the inherent problems of globalization.

Outlook: poor What’s good for RNs and physician’s assistants is bad for doctors, who will no longer be needed to call the shots. Medline’s widely used database has 9 million citations, and doctors say HMO cost-cutting has already started to hit their salaries.

And there is one final flaw: The free flow of capital through international markets, which is the most striking result of globalization and one of its chief causes, is profoundly destabilizing. The risks involved in international capital movements, the volatility of currency rates, and the prevalence of speculation have serious consequences for private firms, for the broader health of capital markets generally, and for national economies. Again, the tendency is to reduce the ability of populations to control their economic destinies through a democratic process, while creating dangerous new instabilities that could someday usher in a financial catastrophe.

This conventionally progressive view of globalization looks very familiar to me because I was one of the people who helped develop it. Over the years, I and others have argued that labor unions, environmental groups, and other key progressive organizations need to develop international strategies because many of our problems can be addressed only at a global level. Gradually, more people have come to share this analysis, and it has increasingly helped shape progressive political strategies in a number of countries. Environmentalists have joined with trade unionists and others to oppose globalization initiatives that make it easier for capital to move unrestrictedly around the world in search of higher profits without also including acceptable safeguards and standards for human beings and the world they live in.

Neither the Clinton administration nor its predecessor took these arguments very seriously, and neither NAFTA nor the WTO agreement paid more than lip service to these vital issues. As a result, many people on the left opposed the agreements and, last fall, opposed giving the president fast-track authority to negotiate new trade agreements that can’t be amended by Congress.

With strong backing from labor, Dick Gephardt looks about ready to make resistance to inadequate globalization proposals one of the cornerstones of his presidential campaign. And many people on the left believe that opposing globalization can be a major element of a new populist and progressive political movement in the U.S.

That would, I now think, be a mistake. That is not because NAFTA and the WTO are perfect. They aren’t. Labor market and environmental problems won’t go away, and those who oppose including them in international trade agreements have yet to propose a suitable alternate home for them. Critics, myself among them, warned for many years that the forced high savings and export orientation of the Asian tiger economies were dangerously deflationary. Increased domestic consumption—through higher wages and more social and infrastructural spending—in the tiger economies is more necessary than ever for these countries to grow.

The contradiction between democratic decision making in national and local politics on the one hand and the bureaucratic, administrative structure of international trade arbitration and agreements on the other is a troubling one, and it will become more troubling as time goes on. The international financial system that now exists is very far from being prudently regulated. Attention still needs to be paid to these issues, and a rational, progressive approach to globalization will remain important into the future.

Outlook: bleak The rapid development of legal software, which allows consumers to write wills and other contracts on their own, will likely mean a fall in the price of legal expertise and a dramatic decrease in most lawyers’ salaries. Manufacturers of WillMaker and related software report a 23% sales growth over the pa


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