Fareed Zakaria recently published a very good cover story in Time Magazine - How to Restore the American Dream - which was also the basis for a special edition of his CNN program Fareed Zakaria GPS. Dr. Zakaria is a renowned journalist an author, and an astute observer of the vast economic and political changes taking place around the world. Last June I heard him give an excellent talk at an IBM conference in Shanghai.
The basic premise of the Time article and CNN special is that while the forces of technology and globalization helped lead America to the forefront of the world stage, they are now hollowing out America’s middles class. The American Dream, - the possibility that anyone can get ahead and achieve success and prosperity through talent and hard work, - may well be disappearing.
Is the idea of the American Dream dead? “For large swaths of America, it MAY be. The national unemployment rate is 9.6% but that only tells a part of the story. Millions of jobs have been lost in America. The question is: how do we bring jobs - and GOOD jobs - back?”
Zakaria begins his Time article by contrasting the American Dream he encountered when he came from India to the US on a college scholarship in the early 1980s with our present situation.
“I visited college friends in their hometowns and was struck by the spacious suburban houses and the gleaming appliances - even when their parents had simple, modest jobs. The modern American Dream, for me, was this general prosperity and well-being for the average person. European civilization had produced the great cathedrals of the world. America had the two-car garage. And this middle-class contentment created a country of optimists. Compared with the fatalism and socialist lethargy that was pervasive in India those days, Americans had a sunny attitude toward life that was utterly refreshing.”
“But when I travel from America to India these days, as I did recently, it's as if the world has been turned upside down. Indians are brimming with hope and faith in the future. After centuries of stagnation, their economy is on the move, fueling animal spirits and ambition. The whole country feels as if it has been unlocked. Meanwhile, in the U.S., the mood is sour. Americans are glum, dispirited and angry. The middle class, in particular, feels under assault. In a Newsweek poll in September, 63% of Americans said they did not think they would be able to maintain their current standard of living. Perhaps most troubling, Americans are strikingly fatalistic about their prospects. The can-do country is convinced that it can't.”
The US economy has gone through a number of ups and downs over the past sixty years. Unemployment went up during the down periods. Naturally, people got gloomy. But it did not last long. The economy started to improve within a relatively short time, unemployment went down once more, and optimism returned.
But our current downturn might be fundamentally different from the recessions of the past decades. Americans are apprehensive that what we are experiencing is not a cyclical downturn, but a structural shift that is reshaping the economy, putting a lot of pressure on American jobs and wages, and endangering the American Dream.
Because of these structural changes in the economy, many of the jobs lost in the downturn are not coming back. Companies are able to do their present work with fewer people. New jobs are not being created at a fast enough rate because companies are postponing investing until they feel more confident about the future. This has led to our current unique condition: a jobless recovery.
The overall global economy looks generally healthy because, - unlike the US, Western Europe and Japan, - emerging economies are growing quite fast. Those American companies that do business around the world, are therefore doing quite well.
Two major factors are driving this jobless recovery. One is technology-based productivity. Advances in digital technologies have led to massive innovation and efficiencies over the past decade. Companies are finding that they can get the same work done with significantly fewer people due to this productivity resurgence.
The second is globalization. “The companies on the S&P 500 generate 46% of their profits outside the U.S., and for many of the biggest American names, the proportion is much higher.” Many US-headquartered companies are truly global, doing business all over the world. They are cutting jobs in the US and other countries where demand is weak, while adding jobs in the booming emerging markets. This is less a matter of outsourcing jobs than investing where the demand is highest.
“While businesses have a way to navigate this new world of technological change and globalization, the ordinary American worker does not. Capital and technology are mobile; labor isn't. American workers are located in America. And this is a country with one of the highest wages in the world, because it is one of the richest countries in the world. That makes it more difficult for the American middle-class worker to benefit from technology and global growth in the same way that companies do.”
To help us appreciate the pressures facing the middle class, Zakaria references the work of MIT economist David Autor. In The Polarization of Job Opportunities in the US Labor Market, Professor Autor identifies two key challenges facing the US Labor market.
“The first is that for some decades now, the U.S. labor market has experienced increased demand for skilled workers. During times like the 1950s and 1960s, a rising level of educational attainment kept up with this rising demand for skill. But since the late 1970s and early 1980s, the rise in U.S. education levels has not kept up with the rising demand for skilled workers, and the slowdown in educational attainment has been particularly severe for males. The result has been a sharp rise in the inequality of wages.”
“A second, equally significant challenge is that the structure of job opportunities in the United States has sharply polarized over the past two decades, with expanding job opportunities in both high-skill, high-wage occupations and low-skill, low- wage occupations, coupled with contracting opportunities in middle-wage, middle-skill white-collar and blue-collar jobs. Concretely, employment and earnings are rising in both high-education professional, technical, and managerial occupations and, since the late 1980s, in low-education food service, personal care, and protective service occupations.”
“Conversely, job opportunities are declining in both middle-skill, white-collar clerical, administrative, and sales occupations and in middle-skill, blue-collar production, craft, and operative occupations. The decline in middle-skill jobs has been detrimental to the earnings and labor force participation rates of workers without a four-year college education, and differentially so for males, who are increasingly concentrated in low-paying service occupations.”
What can we do as a nation to help restore the American Dream? In the end, the only possible answer is to create new jobs to replace those that are not coming back as the economy restructures. Those jobs will have to ultimately be created by the private sector, not by government. Zacharia offers a few key ideas to encourage this process of job creation.
“Shift from consumption to investment. Everyone agrees that the best way to create good jobs in the U.S. is to create new industries and companies and to innovate within old ones. This means large investments in research, technology and development. As a society, this needs to become our strongest focus.”
“Training and education. We need more and better education at every level, especially job retraining. So far, most retraining efforts in the U.S. have not worked very well . . . But the path to good jobs for the future is surely to expand apprenticeship programs substantially so industry can find the workers it needs.”
“Fiscal sanity. To pay for such initiatives, the government needs to get its house in order. The single most important aspect of this is getting health care costs under control, followed by other entitlement programs, especially pensions at the state level. . . We need a radical rebalancing of American government so it can free up resources to fund future growth.”
“Benchmark, benchmark, benchmark. There is now global competition for growth, which means the U.S. has to constantly ask itself what other countries are doing well and how it might adapt - looking, for example, at what other countries are doing with their corporate tax rates or their health care systems and asking why and where we fall short. Americans have long resisted such an approach, but if someone else is doing tax policy, tort litigation, health care or anything else better, we have to ask why.”
While the bulk of How to Restore the American Dream deals with weighty business and government matters, Fareed Zarakia concludes his CNN program on a more personal note, offering advice to individuals, who are trying to make sense of all these changes as they think about their future lives and careers:
“First, try to do something that is really a specialized craft or art, . . . something that feels more like artisanship than routine work. Things that are custom and custom-made still survive. Things that are commodities get made in China.”
“Second, go local. Do something that can't be outsourced. Jobs that involve personal face-to-face contact will never go to India You cannot get a janitor, an electrician, a fireman, physical trainer, a garbage collector, a dentist, nurse or interior designer to work for you from India.”
Make yourself indispensable. “Can everyone become indispensable? Well, no, but if you learn a difficult craft and are good at it, if you can collaborate well, synthesize well, put things together, work with others and work well across countries and cultures, you will have a leg-up.”
“It is never too late to learn another language. And that itself would be a powerful step in the right direction. If you are fluent in Spanish or Mandarin or Hindi, all of a sudden this new world has many new opportunities for you.”
“The other language that would be a huge advantage anywhere is math. If you are good at math, you will be able to manipulate data, algorithms, symbol, graphs, balance sheets and all of these skills are the essential skills for a knowledge-based economy.”
Very wise advice from one of the best thinkers about our brave new world.
The American Dream (of the 1960s-1980s) is powered by the energy consumption of the average American guy or gal. Nowadays that is causing you to suck in oil from the rest of the world at an alarming rate; also if everyone in the world used energy at the same rate as the prototypical US citizen, we wouldn't be able to get oil out of the ground fast enough (and it wouldn't last for very long before it was all used up, anyway).
So what do we do, as a global species, to avoid a damaging 'resuorce squabble' ?
I spent a while living in San Jose, California, in the 1980's ( I normally live in the UK ), and it struck me that people generally had higher salaries but higher overdrafts and higher mortgages than in the UK. That is OK if it lasts; but if the world 'flattens' (as it is doing) then you do tend to get a 'blow-out' and it does affect most the middle classes. The poor are poor and it makes no difference, the rich survive anyway, but the middle gets asset-stripped.
Life in America is good, for the most part, but it was never 'home' for me.
Posted by: Chris Ward | November 05, 2010 at 11:11 AM
I was recently in Germany for a month and one of the things that struck me was the decentralization of industry. It appeared that any town of 500 or more had an industrial area with businesses that provided jobs for the area.
The German education system also has a stronger focus on promoting trades with a formal education path. In America the trades are an after thought and seem to be ignored by the education system.
Posted by: Paul | November 05, 2010 at 11:19 AM