Journalism

September 22, 1996

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"I have a feeling that we're going to start seeing some real critical movements throughout the country," Meyer said. "To individuals, the family is most important. But when you have to have people working two and three jobs, 24 hours a day, the stress levels in the family are so great that I am very concerned. I don't know how much more the middle class — supposedly we're middle class — are going to be able to withstand before you start seeing drastic problems. It is harder and harder to maintain decent physical and mental health, general wellness." Harder yet for her to deal with is the feeling that the situation isn't getting any better.

"I don't see that we are making great strides in any direction that would ease some of this," she said. "I just see everybody scrambling...Literally everyone is tapped out. I have a lot of neighbors who are middle management, who have gotten laid off. It's over. And it's over not a month from now. It's over now. It's really scary. It's not even the American dream anymore. We're just striving to make it...

"I don't foresee anything with the letter W, for wealth, in our future. I question Social Security — if it's even going to be there. I question whether my [pension] plan will even be there. All those things you thought were there, you're just not so sure there're going to be there."

Others interviewed were more bitter. The steady erosion of good-paying jobs, forcing down living standards, is building resentment and anger at the companies and Washington policy-makers who are blamed for the changes.

James R. Rude of Chatham, New Jersey, who lost his job as a computer programmer when foreign workers were brought in to replace his department, says corporate America is killing its own market by eliminating the jobs of potential consumers. Like many interviewed by the authors, Rude is skeptical of the stories he reads about the robust American economy. He says most people he knows see another side of the economic picture.

"I can tell you what's happening," he said. "You got low mortgage rates, yet houses aren't selling. The middle class is scared. They are afraid they're going to lose their jobs and they won't be able to keep their house and keep their cars. So basically big business, by making (big) profits, is good to their stockholders, but they are taking the greatest market and destroying it. They sell their products and services basically to Americans, and they are cutting their own throats. Those quarterly profits look great now. But what will they be like five years from now?"

Most of all, workers are angry about the loss of control over their lives. At work, they appear outwardly docile. Inside, they seethe. These are not members of any right-wing militia. They are not members of any hate group. They are ordinary people from a cross-section of society. They are factory workers and college graduates with advanced degrees. They are Democrats and Republicans, although increasingly they are distancing themselves from both parties.

Consider the observations of three workers, who reflect a largely silent but growing sentiment. A factory worker in Kansas: “Are we just going to keep lowering our standard of living? When that happens, nobody is going to have money to put food on the table. Then you are going to see a revolution because people are not going to be able to feed their families." A former teacher in Illinois: "The level of hostility and anger and frustration is astonishing." A factory worker in Pennsylvania: "There's going to be bloodshed before we get out of this."

WASHINGTON STACKS THE DECK

How did the most emulated society of the 20th century reach a point where average citizens talk quietly and matter-of-factly of revolution and bloodshed? It has come about gradually, the result of policies and decisions that, taken together, have stacked the economic deck against middle America.

Pick a government policy, or a corporate business practice encouraged or abetted by a government policy, and it's likely to be working against the average American. Foreign trade and imports. Immigration. Taxes. Deregulation. Antitrust enforcement. Mergers and layoffs. Self-employment. Retraining. In years gone by, the federal government crafted and implemented policies that encouraged the growth of a healthy, broad-based middle class. No more.

TRADING AWAY JOBS. The government's trade policies are ostensibly intended to create jobs for Americans making products to be exported. Instead, they have had the opposite effect. They have wiped out jobs and driven down wages. That's because Washington policymakers have given foreign producers essentially unrestricted access to the world's richest consumer market — the United States — without insisting upon the same access in return. Indeed, the government has actually subsidized foreign access to the American consumer. This, at the same time that our trading partners, like Japan, have maintained tight controls over their own markets.

Not surprisingly, imports have soared, far outstripping exports. In 1996, the United States will record its 21st consecutive merchandise trade deficit — a record unmatched by any other developed country. By year's end 1996, the nation's cumulative trade deficits since 1976 will add up to $1.9 trillion. More significantly, because of all those imported products that make up the trade deficits, more than 3 million manufacturing jobs in the United States have been eliminated.

IMMIGRANTS AND A LABOR GLUT. At the same time that trade policies were creating a surplus of laid-off manufacturing workers and managers, Washington rewrote the immigration laws, leading to a record flow of immigrants into a domestic job market that already was unable to create enough good-paying jobs.

Legal immigration in the 1990s will dwarf every previous decade in American history. No other industrial country has allowed in so many workers in so short a time, depressing wages and living standards. So far in the 1990s, the number of immigrants has been the equivalent of adding six new cities to the U.S. map — another Philadelphia, Boston, New Orleans, Fort Worth, Texas, Kansas City, Mo., and Portland, Ore.

On top of those numbers, Congress made it possible for employers to bring in foreign workers, often at salaries below those paid their American employees. Add 2 million more people to the labor force, competing for a declining number of good jobs — from computer engineers to registered nurses, from physical therapists to accountants.

ANTITRUST: BUSTING THE TRUST-BUSTERS. Over the last decade, the government has retreated from its role as trustbuster, backing away from the authority built up painstakingly over nearly 100 years to prevent business combinations that reduce, or threaten to reduce, competition. That, too, has cost jobs.

Where once the government would block the merger of two major competitors, today it routinely rubber-stamps the formation of megacorporations. Federal regulators in 1995 and 1996 let stand such combinations as Wells Fargo & Co.'s $11.6 billion acquisition of First Interstate Bancorp.; Kimberly-Clark's $9.4 billion takeover of Scott Paper Co.; Chemical Bank's $10 billion merger with Chase Manhattan; Pharmacia A.B.'s $7 billion marriage with Upjohn Co.; Hoechst A.G.'s $7.1 billion takeover of Dow Chemical Co., to name only a few.

The mergers, as you might expect, were accompanied by job losses. The Wells Fargo and First Interstate union put 7,200 people on the street. Scott Paper shed 11,000 employees before its merger with Kimberly-Clark, then Kimberly-Clark cut 6,000 more. The Chemical Bank and Chase Manhattan marriage ended the jobs of 12,000 people. Pharmacia A.B.'s $7 billion merger with Upjohn Co. eliminated 3,000 jobs. Hoechst A.G.'s $7.1 billion takeover of Dow Chemical Co. resulted in 8,000 layoffs.

According to Mergerstat Review, a firm that tracks corporate acquisitions, the merger wave in 1995 set a record at $266.5 billion, far outstripping the previous high of $177 billion in 1988, at the height of the corporate takeover craze. So far in the 1990s, the Justice Department has filed an average of 16 civil antitrust cases a year in U.S. District Courts. That's down 63 percent from the 43 cases filed annually during the 1970s. Similarly, the number of restraint-of-trade investigations conducted by the Justice Department plunged 64 percent, falling from an annual average of 267 cases in the 1970s to 96 cases in the 1990s.

THE FALL OF LABOR. As corporations have gained more power, influence and size, trade unions — which once served as a buffer to corporate power — have declined, both in members and political influence. Whatever your attitude toward unions, three trends overlap in this century: The rise of labor in the 1930s and '40s coincided with enactment of federal safety-net programs — from Social Security to unemployment compensation to the minimum wage. Labor's continuing rise in the 1950s and '60s paralleled the growth of the country's broad-based middle class, which for the first time expanded to include blue-collar workers.

Conversely, the decline of labor in the 1970s, '80s and '90s — union membership fell from 35 percent of the workforce in 1955 to 14 percent in 1995 — mirrors the decline of the middle class. So, too, do strike statistics. With mergers and corporate downsizing, unions have had to concentrate on trying to save jobs, not striking for higher wages. During the 1950s, unions averaged 352 work stoppages a year. That dropped to 283 in the 1960s, then held steady at 289 in the 1970s. It plummeted to 83 in the 1980s, and to 38 thus far in the 1990s. The number of workers involved in strikes has fallen from an average of 1.6 million a year in the 1950s to 273,000 in the 1990s.

CAUGHT IN THE TAX TRAP. Tax policy over the last three decades has worked steadily against the middle class. Layered over the transition to a more regressive tax system has been another form of wealth-shifting: transfer of much of the corporate tax burden to individuals. America's largest and most powerful businesses now pay federal income tax at a fraction of the rate they once paid.

To understand the magnitude of the tax shift, consider this: If corporations paid federal income tax today at the effective rate paid in the 1950s, the U.S. Treasury would collect an extra $250 billion a year — wiping out the federal deficit overnight. The top corporate rate in the 1950s was 52 percent. Today it's 36 percent.

RISE OF THE INFLUENCE-PEDDLERS. To intercede with policymakers and members of Congress, U.S. multinational corporations and foreign companies — as well as foreign governments — hire high-priced Washington lobbyists. Usually, the lobbyists are former U.S. government officials who know the intricacies of U.S. economic policies and have personal relationships with those still in power.

A revolving door of Washington insiders who go from government jobs to lobbyist-consultant, and back again, has given insiders — and the people who hire them — enormous influence over government decision-making. Working Americans have no comparable representation. How effective is the Washington lobbying corps?

In 1970, Japan, Mexico and South Korea fielded 47 registered agents to lobby the U.S. government on their behalf. By 1995, their ranks had swelled to 118—an increase of 151 percent. During that same period, imports from the three countries increased by 2,900 percent, rising from $7 billion to $210 billion. If supporters of the minimum wage had enjoyed the same lobbying success with Congress and the White House as the foreign agents of Mexico, Japan and South Korea, the lowest paid worker in America today would earn $48 an hour.

TERMINATED WORKERS: THE RETRAINING GAME. So far in the 1990s, several million workers have lost their jobs through corporate mergers, imports or when U.S. multinational corporations moved production to low-wage countries. The abruptly terminated employees received mixed treatment from the U.S. government—at a cost of many billions of taxpayer dollars.

The government retrained some displaced workers for new occupations, but not others. It provided job counseling for some workers, but not others. It provided job-search assistance for some workers, but not others. It provided extended benefits to tide some workers over lengthy retraining, but not others. Under this latter government program, many workers said they attended training courses not because they wanted to learn a new trade, but so they could collect an additional one year of unemployment benefits.

Even those workers serious about retraining fared poorly. In a study of one government program, only two of every five workers who completed retraining found jobs in their new fields. And only one found a job in the field that had the potential to pay a wage equal to that earned in the lost job. hat's more, many workers receive training for jobs that don't exist, or for dead-end jobs.

Not all U.S. job losses, obviously, have been caused by imports, immigration, or corporations seeking bigger profits. Technology, too, has eliminated jobs. Hardly an industry has escaped the revolution in computers and other new technology. Tasks that once required dozens of workers can now be performed by one person sitting at a terminal.

But the process of machines replacing human labor is hardly new. Yet in the past, when a new technology made an older one obsolete, it often created more jobs than it eliminated — when airplanes replaced passenger trains, for example. That is not happening today. What is also different: Many of the jobs being eliminated are not casualties of changing technology or obsolete industries. We still use telephones, hammers, screwdrivers, air conditioners, paper clips, ceiling fans, notepaper, toys and windshield wipers. We still wear shoes, dresses, pants, shirts, sweaters, skirts and coats. We still watch television, listen to radios and play stereos.

These and other products we buy, though, increasingly are made outside the United States. None has become obsolete, like the buggy whips and steam locomotives of old. What's obsolete in the new American economy is the people who make them. But isn't high technology the answer? Haven't entire new industries sprung up to provide jobs, so we no longer need the older manufacturing industries that are being shipped offshore?

The computer industry itself is an obvious example. The writing and production of software programs and the manufacture of computer hardware have created thousands of new jobs. Twenty-five years ago, there was no Microsoft Corp., the software developer whose operating system controls the workings of most personal computers in the world, a company that employs around 16,000 people.

But already, the United States is facing challenges in high-tech jobs from developing nations, whose governments are targeting technology as a growth industry and whose computer technicians work more cheaply. To be sure, the demand for computer systems analysts and scientists has grown steadily, from 359,000 in 1985 to 933,000 in 1995. But in a workforce of 116.6 million people, those jobs represented just eight-tenths of 1 percent of the total.

Meanwhile, other computer industry jobs already are in decline. The number of workers in computer production and related jobs has fallen from a high of 298,000 in 1988 to 189,000 in 1995, as 109,000 jobs disappeared. And in yet another computer field, the U.S. Labor Department forecasts that "employment of computer and peripheral equipment operators is expected to decline sharply through the year 2005. Many experienced operators are expected to compete for the small number of openings that will arise each year..."

JOBS THAT MIGHT HAVE BEEN

All these and other changes are adding up to a great power shift — away from employees and communities, and toward corporations and shareholders.

Under the new economic rules, corporations lay off employees in good times, as well as bad; close plants at will; subcontract work out to shops where wages and benefits are less; export many jobs abroad to low-wage countries; bring in foreign workers, who will work longer hours for lower pay; and influence policy in Washington along lines that serve their interests exclusively. It is not just employees who have been hurt; small companies and industries also have borne the brunt of these policies.

Take a look at one segment of one small industry — flower growers. In 1971, there were 1,525 commercial growers of standard carnations in 36 states. They dominated the U.S. market. As cheaper imports flooded the country, the number of domestic growers dwindled to 95 in 1995 — a falloff of 93 percent. Today, foreign growers of standard carnations control the American market, accounting for 88 percent of all such flowers sold. The result: loss of thousands of American jobs.

Or consider the disappearing auto worker. Over the last two decades, 40 percent of the hourly production and skilled workers at the Big Three auto plants have vanished. From 1978 to 1995, the GM, Ford and Chrysler work forces shrank from 667,000 to 398,000 hourly employees. Not to worry. As Washington and Wall Street are quick to point out, new jobs were created throughout the country to replace the old. Why, employment by Wal-Mart alone has increased by 2,890 percent in less than two decades.

In 1978, Wal-Mart had 21,000 employees. Last April, the company issued a news release from its Bentonville, Ark., headquarters, announcing: "Wal-Mart's U.S. employment has climbed to 628,000 — roughly the population of North Dakota — or one of every 200 civilian jobs." In short, Wal-Mart has roared ahead of GM, Ford and Chrysler as a major American employer.

There are, to be sure, several significant differences. First, 30 percent of Wal-Mart's workers are part-time; the Big Three auto workers are full-time. As for pay, a GM assembler earns $18.81 an hour; a tool and die maker, $21.99 an hour. Most Wal-Mart employees earn a dollar or two above the minimum wage, $4.25 an hour in 1996. The autoworkers have a guaranteed annual pension. The Wal-Mart employees do not.

Then there's the matter of benefits. The auto workers receive fully paid health care. Their monthly pensions are guaranteed. Wal-Mart part-time workers receive no company-paid benefits and full-time workers must pay part of the cost of their health insurance.

Beyond the jobs eliminated, there is an equally serious problem: jobs that should have been created — but weren't. It used to be that a new invention, a new technology introduced into the U.S. market would guarantee employment for thousands, often tens of thousands, of American workers for decades. More than a century ago, in 1882, Western Electric Co. became the sole manufacturer and supplier of telephones for the American Bell Telephone Co., later AT&T.

In 1905, Western Electric moved its main manufacturing facility from downtown Chicago to Hawthorne, Ill., on the outskirts of the city. Over the next seven decades, the Hawthorne works — which included more than 100 buildings — turned out telephones and telephone equipment. It provided jobs for as many as 43,000 workers, since all telephones used in the United States were manufactured in this country.

Then came cellular phones. Within a few years after their introduction in the mid-1980s, most cellular telephones were manufactured in other countries, including those that carried the AT&T and Bell company labels. The drain of phone-manufacturing and related-equipment jobs overseas had its impact at Hawthorne, and, in 1986, the plant closed.

A chief reason for cellular phones going offshore: U.S. government policies that lowered tariffs on imported products and encouraged corporations to manufacture their products in lower-wage countries and ship them back to the United States. In 1990, sales of cellular telephones in the United States reached nearly 1.9 million units. Imports that year totaled 1.3 million units — or 68 percent of those sold. By 1994, most cellular phones sold in the United States were made abroad.

The manufacturing jobs that once provided a middle-class lifestyle for American workers now provided employment for foreign workers. Between 1990 and 1994, imports of cellular phones from South Korea rose 446 percent, from 247,038 to 1,349,691. Imports from Mexico spiraled 1,836 percent, from 27,259 to 527,708. And imports from China shot up a whopping 11,428 percent, from 6,245 to 719,905.

All that job loss is from a single industry — cellular telephones. When viewed across all manufacturing, the loss of jobs that should have been but aren't is staggering. If the percentage of the workforce employed in manufacturing today was the same as in 1956, there would be an extra 20 million good-paying jobs for people who make things with their hands.

It was not supposed to turn out this way. Global trade was supposed to benefit American workers. The justification for various free trade initiatives has been that they would stimulate the export of American products and create more jobs at home. This hasn't happened. Just look at the scorecard on the cross-border trade between the United States and Mexico following implementation of the North American Free Trade Agreement (NAFTA), which tied together the markets of the United States, Mexico and Canada.

When NAFTA was proposed in 1990, supporters insisted it would open the door to vast numbers of American products for sale in Mexico. Said George Bush in 1991:

" I don't have to tell anyone...about Mexico's market potential: eighty-five million consumers who want to buy our goods. Nor do I have to tell you that as Mexico grows and prospers, it will need even more of the goods we're best at producing: computers, manufacturing equipment, high-tech and high-value products."

Said Frank D.Kittredge, president of the National Foreign Trade Council, in 1993:

"The last point I think we cannot miss...is the competitive advantage in the Mexican market that NAFTA gives to United States manufacturers. Talking about tilting the playing field, it really tilts the playing field in favor of U.S. manufacturers."

Said the New York Times, in a 1993 editorial:

"NAFTA would lower Mexican tariffs by a lot and U.S. tariffs, because they are already low, only a little. That means the price of U.S. goods in Mexico will fall enough to make U.S. exports more affordable to Mexicans...NAFTA will raise U.S. exports."

Proponents pointed to a United States' trade surplus of $4.9 billion with Mexico 1992 as evidence of the benefits of expanded trade with Mexico through NAFTA. "Already, we sell far more to Mexico than they do to us," The Philadelphia Inquirer editorialized on Sept. 15, 1993.

President Clinton also cited the trade surplus in a Sept. 14, 1993, speech urging congressional approval:

"I believe that NAFTA will create a million jobs in the first five years of its impact...NAFTA will generate these jobs by fostering an export boom to Mexico...In 1987, Mexico exported $5.7 billion more of products to the United States than they purchased from us. We had a trade deficit. Because of the free market, tariff-lowering policies of the Salinas government in Mexico, and because our people are becoming more export-oriented, that $5.7-billion trade deficit has been turned into a $5.4-billion trade surplus for the United States. It has created hundreds of thousands of jobs."

Well, how goes the export boom with Mexico?

The widely-touted trade "surplus" with Mexico evaporated after NAFTA was approved. In 1995, the United States recorded a $16.2 billion merchandise trade deficit with Mexico, an all-time record. Indeed, the U.S. trade deficit with Mexico was greater than with all of Western Europe ($15.2 billion.) Exports of American goods to Mexico have gone up, from $41.5 billion in 1992 to $46.2 billion in 1995, an increase of 11.3 percent. But in a story that has been repeated over and over in U.S. trade policy, imports from Mexico rose five times faster, going from $40.5 billion in 1992 to $62.4 billion in 1995, an increase of 54 percent.

Not everyone in Washington, of course, subscribed to the policies that are costing American jobs. And many who supported them acted out of good intentions, actions that have had unforeseen consequences. But, taken together, these decisions are causing a relentless erosion of the middle class.

How have the people in Washington sold these policies? In the case of foreign trade, they were promoted as providing the lowest possible prices and broadest choice for consumers — never mind who'd make money off the imports or whose jobs would be lost. Rep. David Dreier, a California Republican, put it this way in October 1993 during congressional debate over NAFTA: "Now, what is the goal of implementing a free-trade agreement like this? It is to help the consumer gain the ability to purchase the best-quality product at the lowest possible price."

Thus, if offshore workers earning 50 cents an hour can produce a shirt that sells for much less than one produced by Americans earning $4.25 an hour, the United States must import the cheaper shirt and workers in this country must forfeit their jobs. Left unsaid is this: A society built on the economic principle that the lowest price is all that matters will be quite different from a society built on the principle that everyone who wants to work should receive a living wage. The former society — label it the bottom line society — will be filled with retail clerks, warehouse helpers and shippers earning little more than minimum wage. The latter with skilled tradesmen, craftsmen and professional workers earning $20 an hour or more.

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