I asked two friends to read a recent article in Foreign Affairs on the relationship between income inequality and American decline. You can find the piece by George Packer here at
http://www.foreignaffairs.com/articles/136402/george-packer/the-broken-contract
You might also appreciate the back and forth between my two friends as they respond to the article.
(1) Jim (not his real name, but for the sake of anonymity):
This article misses the point that quality of life for the vast majority of — if not all— Americans has risen since 1978. He mentions that airlines were so highly regulated in the 70s as to be prohibitively expensive. Deregulation meant that middle class Americans could fly. The economy of the 70s was not a good thing—stagflation hurt a lot of people. Unions prevented growth (see Detroit), which ultimately hurts workers. While CEOs do get paid a lot more, that pay isn’t responsible for unemployment.
His point that companies no longer have social obligations is interesting, but I think the question is can a company with those social obligations compete in a global economy. Then, is it better to have healthy companies employing people productively, or a stagnant or declining business employing people unproductively —and eventually going bankrupt because of it?
(2) Akbar (not his real name either):
I think you are wrong on a lot of points here:
(a) Yes, the quality of life for the vast majority of Americans has risen since 1978. Packer does not dispute this point. But when median wage have stagnated over a period of 40 years while the income of the 1% has increased by 400%, you begin to wonder how Alexis de Tocqueville would react. It is also important to realize that while certain luxuries have become cheaper (such as air travel and home goods) others have become more expensive (houses, education). I would rather pay more for a luxury like a vacation to Hawaii than for a necessity like tuition of up to $50,000.
(b) Let’s be clear about Detroit. The ‘Big Three’ failed not because of the unions, although their demands might have contributed to the headache. The car manufacturers collapsed because NOBODY was buying their cars! They built big, gas guzzling SUVs that people could no longer afford at $4 per barrel.
(c) Of course CEOs being paid 400 times their employees has contributed to ongoing unemployment. Corporations are now sitting on over $2 trillion in cash reserves (http://online.wsj.com/article/SB10001424053111903927204576574720017009568.html).They would rather have this cash to bolster stock quotes and pay out dividends than hire people. Heard of corporate raiders? Private equity firms? CEOs with their golden parachutes while workers are fired and pensions go unfunded? The Forbes 500 list, by no means the main culprit behind unemployment, surely aren’t helping the 25 million unemployed, not when they are not paying their taxes to fund the schools and build the bridges that this country needs (which is perhaps their worst offense). But, hey, if you believe that one day it will trickle down, I’ve been waiting since 1981…
(d) A socially mindful company is not necessarily uncompetitive in the global market place. Quite the contrary can be true. Socially mindful corporations have the loyalty of their employees. This means people are less likely to quit which saves the company precious time and money training replacements. And if there is anything we’ve learned from the 2008 collapse (or the 1929 collapse for that matter), beggaring the middle class is not profitable either. It means average Americans take out credits cards they can’t pay back and take out mortgages they can’t afford. Remind me how that turned out. You just can’t rely upon the 1% to buy all the goods. A social contract with the middle class means having a wealthier middle class. Isn’t having more people that can buys plasma TVs better than having few people that can buy them?