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I still remember well an incident early in my working life when as a newly minted MBA I worked as a marketing research analyst for several large corporations prior to joining a small family business. At one of those companies in the early 60s, my boss called me into his office on my first day on the job. He jokingly told me he was so happy with my work he was giving me a raise. We both chuckled, and he then explained on that day everyone in the company got an inflation-based increase. It was automatic from the lowliest worker to top management because the unions (then strong) got it written into their labor contract. In that company, everyone got the same benefits as union members. Try finding anything like that today even for union members alone. It's almost unheard of.Today, the country is primarily dominated by service industries many of which require little formal education, only pay low wages and few if any benefits, and offer few chances for advancement. The US Department of Labor projects that job categories with the greatest expected future growth are cashiers, waiters and waitresses, janitors and retail clerks. These and other low wage, low benefit jobs are what many young people entering the workforce can look forward to today. You don't need a Harvard degree for them or even one from a junior college - and for the ones listed above, no degree is needed, not even a high school one.
The continuing decline of good job opportunities is a key reason why the quality of education in urban schools has deteriorated so much in recent years and school dropout rates are so high. In my city of Chicago, half of all students entering high school never graduate and of those who do 74% of them must take remedial English and 94% remedial math at the Chicago City Colleges according to a report published in the Chicago Sun Times. The situation isn't much better in inner cities throughout the country, nor is the level of racial segregation that's grown to levels last seen in the 1960s according to Jonathan Kozol in his new book The Shame of the Nation. Again in Chicago, a shocking 87% of public school enrollment was black or Hispanic, and the situation is about as bad or even worse in most other big cities.
The US Has Always Been the Unthinkable and Unmentionable - A Rigid Class Society
The US has always been what the "power elite" never admit or discuss - a rigid class society. But once there was a thriving middle class along with a small minority of rich and well-off and a large segment of low paid workers and the poor. That majority in the middle could afford their own homes, send their kids to college and afford many amenities like new cars, some travel, convenience appliances and decent health care. I can still remember buying a health insurance plan while finishing my graduate work in 1959 that cost about $100 and change total for respectable coverage for a full year. Honest, I'm not kidding.
Fewer people each year can afford these "luxuries" now, including decent health care coverage, because of the hollowing out of the economy, stagnant wage growth (to be discussed below) and skyrocketing costs of essentials like health insurance, prescription drugs and college tuition for those wanting a higher education. Services now account for nearly 80% of all business while manufacturing has declined to about 14%, and total manufacturing employment is half the percentage of total employment it was 40 years ago and falling. Also, financial services of all types now comprise the largest single sector of the economy at 21% of it. But most of it involves investment and speculation running into the hundreds of trillions of dollars annually worldwide (and the US is the epicenter of it all) just for transactions involving currencies and so-called over-the-counter and exchange-traded financial derivatives. It's not the purpose of this essay to explain the nuts and bolts of this kind of trading except to say they produce nothing anyone can go in a store and buy or that enhance the well-being of the majority public that doesn't even know, let alone understand, that this kind of activity goes on or what the inherent dangers from it may be.
The dismantling of our manufacturing base, however, is a subject that should make daily headlines but is seldom discussed in the mainstream. It's crucially important because one has to wonder how any nation can avoid eventual decline when it allows its manufacturing to be done abroad, reduces its need for a highly trained work force and ends up destroying its middle class that made it prosper in the first place. There are distinguished thinkers who believe as I do that the US has seen its better days and is now in a downward trajectory economically. Unless a way is found to reverse this destructive trend, the US will be Number One only in military spending and waging wars. And no nation in history based on militarism and conquest has ever not failed ultimately to destroy itself.
I'd like to quote two distinguished thinkers who've addressed the issue of growing inequality in the US. On most social matters they'd likely disagree, but not on this one. One was former liberal Supreme Court Justice Louis D. Brandeis who explained: "We can have democracy in this country, or we can have great wealth concentrated in the hands of the few, but we can't have both." The other was distinguished "free market" economist and Nobel laureate Milton Friedman. In his view: "The greatest problem facing our country is the breaking down into two classes, those who have and those who have not. The growing differences between the incomes of the skilled and the less skilled, the educated and the uneducated, pose a very real danger. If that widening rift continues, we're going to be in terrible trouble.....We cannot remain a democratic, open society that is divided into two classes."
The Downward Trajectory of American Workers
Over the past generation working people have seen an unprecedented fall in their standard of living. In the past (except for periods of economic downturn), workers saw their wages and benefits grow each year and their living standards improve. Today it's just the opposite. Adjusted for inflation, the average working person in the US earns less than 30 years ago, and even with modest annual increases is not keeping up with inflation. In addition, the federal minimum wage is a paltry $5.15 an hour and was last increased in 1997. That rate is now at the lowest point it's been relative to average wages since 1949. It's incentivized individual states to raise their own which they have the right to do, and, as of mid-year 2005, 17 of them and the District of Columbia have done it covering nearly half the US population. That helps, but not enough.
Some of the world data is especially shocking, appalling and indicative of the economic trend in the US. According to the UN 2002 Human Development Report, the richest 1% in 1999-2000 received as much income as the bottom 57% combined, over 45% of the world's population lived then on less than $2 a day, about 40% had no sanitation services and about 840 million people were malnourished. In addition, 1 in 6 grade school children were not in school, and half the global nonagricultural labor force was either unemployed or underemployed. Most shocking and disturbing of all is that many millions (likely tens of millions) of people in the less developed world die each year from starvation and treatable diseases because of abuse and/or neglect by rich nations that could prevent it. And these numbers reflect the state of things at the end of a decade of overall impressive economic growth. But it shows how those gains went mainly to a privileged upper class who got them at the expense of the majority below them, especially the most desperate and needy.
The same trend is evident in the US although not as stark as in the less developed world. Except for the mild recession in 2001-2002, overall US economic growth for the past 15 years has been strong and worker productivity high. But the gains from it went to the privileged at the top and were gotten at the expense of working people who saw their wages fail to keep up with inflation and their essential benefits decline. In 2004 the average CEO earned 431 times the income of the average working person. That was up from 85 times in 1990 and 42 times in 1980. It's hard to believe and even harder with the real life example below.
I'd like to nominate a "poster executive" who for me symbolizes classic gross corporate excess and greed. He's the chairman and CEO of Capital One Financial, the giant credit card company that's awaiting the finalizing of its acquisition of North Fork Bancorp. At completion of this deal, the Wall Street Journal reported on March 24 this lucky fellow will realize a gain of $249.3 million from stock options he exercised last year. That's in addition to the $56 million he earned in 2004. What on earth will he spend it on, and how many less fortunate ones will have to ante up to pay for this in the de rigueur job cuts that always follow big acquisitions.
And what will all those other lucky CEOs and top executives spend theirs on as well. If you're not already gagging, let me make you choke. According to a study just released by two Ivy League academics based on interviews with CEOs and top managers of the largest 1,500 public US companies, the top five executives collectively at those companies pocketed $122 billion in compensation from 1999-2003 plus at least $60 billion more in supplemental benefits from SERPs (Supplemental Executive Retirement Plans). Also, other data show average annual CEO pay rose from about $1 million a year in 1980 to an estimated $14.4 million in 2001 and rising - plus all those juicy benefits. I repeat - what on earth can they spend it on. They could never even count it.
Reasons for This Unabated Downward Trajectory
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