Not long ago we all worried about restoring America's "competitiveness."
American industry, it seemed, was short-sighted, slow-footed, and dim-witted,
and the American economy on an inexorable decline. Europe and Japan -- the
inefficiencies of the past seared away by World War II -- were charging past us.
Now let me read you something that appeared in this city's own Dallas
Morning News, two and a half weeks ago: "The United States has climbed
to the top of a list of the world's most competitive economies, displacing
Japan." The source is the World Economic Forum, a respected Swiss
association that each year charts the economic performance of industrial
nations.
What gives? Were the experts crazy then? Are they crazy now? Has
everything changed completely in just a few years?
Well, for one thing, the United States is enjoying an economic recovery,
while other advanced economies are still struggling to come out of recessions.
But beyond the transitory ups and downs is the more fundamental success of
American business in restructuring itself and investing in new equipment, with
the result that productivity growth since 1990 has been averaging a healthy two
percent a year. Factory productivity alone has leapt over 5 percent during the
past year.
And yet, are we really competitive? What do we mean by "competitiveness"
anyway? Rarely has a term of public discourse gone so directly from obscurity
to meaninglessness without any intervening period of coherence. Surely the
ultimate test of competitiveness should be the standard of living of Americans.
And not just the average American: averages don't always reveal the most
telling realities. Shaquille O'Neal and I have an average height of six feet.
The reality is that American incomes have barely edged upward, and most
Americans find themselves on the same downward track they've been on for fifteen
years. And although over 4 million new jobs have been added to the American
economy, 8 million Americans are still unemployed and 4 million are working
part-time who would rather have full-time jobs.
Broad trends that have accelerated since the mid-1970s are splitting
America's middle class into three new groups: An underclass largely trapped in
center cities, increasingly isolated from the core economy; an overclass of
those who are positioned to profitably ride the waves of change; and in between,
the largest group, an anxious class, most of whom hold jobs but who are
justifiably uneasy about their own standing and fearful for their children's
futures.
For much of this century, Americans of diverse backgrounds and conditions
were bound together by two powerful forces. One was the threat of Soviet
aggression. The looming presence of a rival "superpower" stoked our
sense of shared purpose. The other was a growing economy. Our sense of common
destiny was nourished by the certainty that a rising economic tide would lift
all Americans.
Today, in almost opposite fashion, each of these once-sturdy bonds have
come undone. The Cold War ended dramatically. We watched it on CNN. And now,
we welcome the newly liberated world it has wrought. But America's middle class
crumbled quietly. We watched it happen day by day, but somehow never really saw
it. And now, we confront its consequences.
Over the next few months, I will be talking about what government and
individuals can do to boost more Americans into a new middle class. But this
morning, I want to address the special role of the private sector. This is both
because the private sector is the most formidable force for recreating America's
middle class, and because a clear-eyed calculation of corporate interests must
reckon such a renewal as vital for long-term business success.
Let me first address the cause of the disintegration of the middle class.
What divides the over, the under, and the anxious classes is both the quality of
their formal educations and their capacity and opportunity to learn throughout
their working lives. Skills have always been relevant to earnings, of course.
But they have never been as important as they are today. Today, skills shape
the fundamental fault line running through the American workforce. Only
fifteen years ago, a male college graduate earned 49 percent more than a man
with only a high school degree. That's a sizable difference, to be sure. But
it's a divide small enough for both men to occupy terrain each would call middle
class. Now shift to the present. In 1992, a male college graduate out-earned
his high school graduate counterpart by 83 percent -- a difference so great that
they no longer inhabit common territory or share common prospects. Women are
divided along similar, though slightly less stark, lines.
Use a different lens and the picture sharpens further. Traditionally,
membership in the American middle class included not only a job with a steadily
increasing income, but a bundle of benefits that came with employment. Once
again, we see a widening gap, related to education and skills.
Employer-sponsored health coverage for workers with college degrees has declined
only slightly, from 79 percent in 1979 to 76 percent in 1993. But for high
school graduates, rates have fallen further: 68 percent to 60 percent over the
same period. And rates for high-school dropouts have plunged -- from an already
low 52 percent in 1979 to only 36 percent last year. Retirement will only
harden these divisions. Nearly two out of every three workers with college
degrees get pension coverage on the job. More than three out of four high
dropouts do not.
But earnings and benefits don't even tell the complete story. Merely
getting a job and holding on to it depend ever more on skills. In the 1970s,
the average unemployment rate for people who had not completed high school was 7
percent. By the 1980s, this rate grew to 11 percent; by 1993 it had passed 12
percent. Job loss for high school graduates has followed a comparable
trajectory. By contrast, the unemployment rate for workers with at least a
college degree has remained around 3 percent.
In a seeming paradox of today's economic news, financial markets fret that
unemployment is too low to contain inflation, even while 8 million willing
American workers remain jobless. Part of the answer to the apparent
contradiction is that markets for highly skilled labor are becoming tight in
many parts of the economy, creating the conditions that can kindle inflation
worries. But millions of less-skilled workers remain idle or underemployed.
This wasted workforce is walled off by skill barriers from the leading edges of
the economy where capacity constraints loom. The best way to expand the
economy's capacity and lower the level of unemployment needed to bridle
inflation is to dismantle these walls by preparing underutilized workers for
more productive work.
When flashed on a screen in a hotel ballroom, bar graphs and trend lines
have a certain innocuous quality. They're abstract, and they're fleeting.
Click a button and the numbers vanish. But as they take hold in the
neighborhoods and workplaces of America, these forces are ominous. Consider the
physical separation they have already helped forge. The overclass has moved to
elite suburbs -- occasionally into their own gated communities or residential
compounds policed by their own security forces. The underclass finds itself
quarantined in surroundings that are unspeakably bleak, and often violent. And
the anxious class is trapped, too -- not only by houses and apartments often too
small for growing families, but also by the frenzy of effort it takes to
preserve their standing, with many families needing two or three paychecks to
deliver the living standard one job used to supply.
In other words, even as America's economic tide continues to rise, it no
longer lifts us all. Only a small portion of our population benefited from the
economic growth of the 1980s. The restructurings and capital investments
launched during the 1980s and continuing through the 1990s have improved the
productivity and competitiveness of American industry, but not the prospects of
most Americans. And the people left behind have unleashed a wave of resentment
and distrust -- a wave buffeting government, business, and other institutions
that the anxious class believes has betrayed them.
Consider the striking turnaround in public opinion. In 1975, according the
Gallup poll, 40 percent of the American public said it had confidence in
Congress. Today, the figure is 18 percent. In 1975, more than a third of
Americans said they had confidence in big business. Today, only a one-quarter
do. Nearly every institution in this country -- public schools, newspapers,
television, labor unions, even organized religion -- have suffered declines in
public esteem. Nearly every leader in society has become a lightning rod for
public frustration.
This creates fertile soil for the demagogues and conspiracy theorists who
often emerge during anxious times. People in distress, people who fear their
future, naturally cling to what they have and often resist anything that
threatens it. People who feel abandoned -- by a government that has let them
slide or a company that has laid them off -- respond to opportunists peddling
simplistic explanations and sinister solutions. Why are you having trouble
making ends meet? We're letting in too many immigrants. Why are you struggling
to pay your bills? Affirmative action tilts things in favor of
African-Americans and Hispanics. Why is your job at risk? Our trade policies
have not been sufficiently protectionist.
Such sentiment transcends ideological divisions. Conspiracy theorists on
the left concoct stories of a cabal of corporate puppeteers pulling the strings
of global trade; those on the right spin tales of a President who orchestrates
murder. Talk radio, that otherwise sparkling tribute to free expression, has
taken on a newly malevolent edge -- elevating ratings by escalating rage. And
odd alliances have formed to repel the notion that free trade can produce middle
class prosperity. Recall the recent debate over NAFTA, from which I still carry
scars.
So what's the solution? We can't turn back the clock and return to the safe
old world of routine mass production that dominated post-war America. Efforts
to do so -- say, by keeping foreign investment and goods outside our borders or
by stifling technological advances -- would not resurrect the old middle class.
They would only inhibit the ability of every American to prosper amid change.
The real solution is to give all Americans a stake in economic growth, to
ensure that everyone benefits from our newfound competitiveness. That way, we
can grow together -- and increase our capacity for non-inflationary growth. 12
million unemployed or underemployed Americans, and millions more whose wages are
stagnant or declining must be puzzled at talk of an overheating economy. We can
do better than that. This economy will not be at full capacity until we tap the
potential of all our citizens to be more productive.
We must together build a new middle class -- a middle class based on the
power of ordinary workers to add ever more value because they have the skills to
do so.
Individuals and families shoulder much of the responsibility here, of
course. Ultimately, they must face the realities of the new economy, and ensure
that they and their children have the basic intellectual tools to prosper in it.
Government has a role, too. It can clear away some of the obstacles --
improving the quality of public education, setting skills standards, and
smoothing the transition from school to work and from job to job.
But individuals, however resourceful, and governments, however reinvented,
can't build a new middle class on their own. Business has an indispensable role
to play. And let me put the issue cleanly: Unless business joins in rebuilding
America's middle class -- training and empowering ordinary workers to be
productive and innovative -- this task cannot succeed. I recognize the stakes
this sets. But I believe that business will, in the end, find the motives to
fulfil its central role. There are two good economic reasons for business to
enlist: First, the members of America's imperiled middle class are key
productive assets. Second, they form the majority of most companies' customers.
Consider each of these reasons in turn.
It is no news to business leaders that a skilled workforce can be a
strategic trump card. Other elements of a business can be replicated by
competitors -- machines, processes, raw materials, access to cheap labor around
the world. But a skilled, flexible workforce that can create value in ways that
matter in the marketplace can offer enduring competitive advantage.
Companies throughout America are demonstrating that success often hinges on
treating workers as assets to be developed, not costs to be cut. And they're
doing it with front line workers who are not necessarily four-year college
graduates. In my travels around the country, I have seen the pattern again and
again: at an electro-galvanizing steel plant in Cleveland, a telephone assembly
plant in Atlanta, an insurance company in Hartford, an accounting firm in
Chicago, a machine-tool company in Rochester. Many of the companies
represented here in this room are among the pioneers of this approach to
creating profits and productivity in the new economy. In the process, you have
helped create the vanguard of this new middle class: technician workers with
training beyond high school, but not necessarily a college degree.
Lew Platt, the CEO of Hewlett-Packard, told me the other day about HP's
integrated circuit plant in San Jose. Yields had been too low, the reject rate
too high, even after HP had installed state-of-the-art machinery. What was the
problem? HP discovered that its front-line workers in San Jose, most of them
without college degrees, knew a lot about what wasn't working in the plant.
What they needed was an extra increment of training, and the authority to
implement their solutions on the spot. HP decided to try a campaign of
training for the San Jose electronics workers -- thousands of them -- and it
transformed these front-line workers into technicians. It worked. Quality
improved dramatically, yields jumped, and the plant became enormously
competitive. Not only did HP turn its plant around, it also added thousands of
workers to the ranks of the new middle class.
So my first reason for optimism that business will play its part in building
a new middle class based on skills is that workforce investments often make
excellent business sense, and business increasingly knows this.
The second reason also affects the bottom line, if a bit less directly. For
most American companies, their major market remains American consumers. In the
1950s and 1960s, the American consumer market was the most buoyant in the world.
Selling into a prosperous, sophisticated home-country market gave American
companies a world-beating edge in industry after industry. Company profits and
middle class incomes climbed in tandem. Mass production spawned the middle
class; the middle class fueled mass production. But since the mid 1970s -- as
incomes stagnated, divisions widened, and America's mass market fragmented --
the U.S. market has become less dominant as a commercial launching pad. A
revitalized middle class means stronger domestic demand and a better proving
ground for global business success.
These are good reasons for business to invest in human capital, but
apparently not reason enough. A new survey by the Bureau of Labor Statistics
found that not quite half of all establishments provide any formal training in
job skills. Other recent data show that employers tend to concentrate training
investments on workers who are already skilled. A third of young workers with
college degrees receive work-related training. But only one out of six workers
with a high school degree got such training, and only one out of ten high school
dropouts.
When nations are wise and lucky--as America has been for much of its history
-- an implicit social compact knits together business success, rising living
standards, and pro-business politics. But the erosion of the old middle class
poses a threat to the bargain that has paid off so well for so many American
citizens and American companies. Business success no longer automatically
brings rising living standards for all. There is a danger that the interests of
corporations playing on a global scale will be seen as distant from the
interests of American citizens, that higher rates of productivity will not be
understood to mean higher living standards for ordinary Americans. As most
Americans find themselves working harder for less, and the American dream
recedes, the much-vaunted competitiveness of the American economy seems like a
cruel hoax.
Now is the time to renew the compact among American businesses, American
government, and American working men and women. Now is the time to reknit the
connections between the two defining national traditions of free enterprise and
broadly shared middle class prosperity.
The Clinton Administration is pledged to deliver on government's side of
this new compact. This Administration's commitment to building a new middle
class already has produced results -- but perhaps because many were born in
bipartisan harmony rather than partisan discord they have gone unnoted.
Political conflict is a far more exciting spectator sport.
An additional 130,000 children each year can now be made ready to learn
through Head Start. About 120,000 disadvantaged students participated in this
year's summer job program. Almost a half million young Americans will be
entering youth apprenticeships. Three and a half million Americans each year
will gain the option of repaying their education loans as a percentage of
future income. Twenty thousand young Americans -- more than ever served in the
Peace Corps even at its height -- will be working on national service projects
in their communities. Fifteen million working families with modest incomes have
gotten the tax relief necessary to make work pay. And -- with your help --
we've begun transforming the old unemployment system, built for another era and
another economy, into a modern reemployment system. This year alone more than
half a million permanently laid-off Americans will get the help they need to
find new and better jobs.
This Administration has made bold moves, in addition, to get the nation's
economic house in order. Consider the record: The deficit, as a portion of
GDP, is at its lowest level in fifteen years, and is projected to remain there
even without additional spending cuts. Government payrolls are being reduced by
250,000 workers. Inflation is low, and there are scant signs of overheating.
We are committed to free trade. Thanks to the North American Free Trade
Agreement, our exports to Mexico are now growing at three times the rate of
exports to the rest of the world. Soon, Congress will approve the latest GATT
agreement, opening even more markets to more American services as well as goods.
And no Administration has been more vigorous in promoting American business
overseas -- from Saudi Arabia's $6 billion aircraft purchase, to Brazil's $1.5
billion contract with Raytheon, to the Commerce Secretary's recent mission to
China, to the Energy Secretary's mission to Pakistan.
Today, this Labor Secretary embarks on a mission as well. This mission is
to American business, and Dallas is my first stop. The aim of my mission is to
stress the urgency of the other side of this compact. For the future prosperity
and stability of this nation, American business must reciprocate by investing in
American workers.
How should this be done? What should be the specific contents of this
compact? I cannot predict the exact provisions. Obviously, one means of
committing American business to workforce investment would be through a simple
requirement that firms spend a small portion of their payrolls upgrading the
skills of all employees.
The administration is not advancing such an option as a formal policy
proposal because we are not convinced it is the best way to achieve the goal of
stepped-up investments in worker skills. Flat requirements like this can invite
endless legal pirouettes, resulting in ever more intrusive regulation. I hope we
can discover together a better way -- voluntary commitments to, and disclosure
of, such workforce investments; cooperative agreements among firms in an
industry to share the costs of basic skill training; agreements between large
firms and their smaller suppliers and customers to do so; employee education as
an object of collective bargaining; awards or certifications for businesses that
invest substantially in their workers; collaborations between high schools and
companies to hire school-to-work apprentices; shifts in the tax code to create
added incentives for workforce training. These and other approaches -- alone or
in combination -- may be more effective than a uniform requirement. But if we
cannot develop a superior approach, it would certainly be better to embrace that
method than to abandon the goal. Let's get to work on the options.
You in the National Alliance of Business, and the broader business community
you represent, have already accomplished a great deal, and ought to be proud of
your achievements. But the centrifugal forces that are pulling America apart
call for even greater resolve. We can build a new middle class, and new ladder
into it for the underclass. You and I know it's possible. We've glimpsed its
beginnings. But without the redoubled energies of American business -- without
the fundamental understanding that no task is more central to our future -- the
sturdy middle class that was once our country's defining quality will continue
its steady erosion.
So as I launch my mission to American business, I ask that you lend your
resolve to the creation of a new compact -- for profitability, for shared
prosperity, for an easing of economic anxiety and the social tensions it spawns.
Join in the debate over the terms of that compact, and the business role in
building workplace skills. And commit yourselves to renewing the American
dream, to nurturing a new middle class that is even more inclusive than the old,
and equipped to master the challenges of the new economy.
DOL Home Page |
Top of
Document | Top of List
|