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Tuesday, Jan 29, 2013 4:44 PM UTC

Economic prosperity isn’t a zero-sum game

Why can't wealthy Americans realize they'll fare better with a smaller share of a rapidly-growing economy?

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Topics: RobertReich.org, International Monetary Fund, U.S. Economy, Walmart, McDonalds, Globalization,

Economic prosperity isn't a zero-sum gameJob seekers wait in line during a job fair in Portland, Ore., on April 24. (Credit: AP/Rick Bowmer)
This originally appeared on Robert Reich's blog.

As President Obama said in his inaugural address last week, America “cannot succeed when a shrinking few do very well and a growing many barely make it.”

Yet that continues to be the direction we’re heading in.

A newly-released analysis by the Economic Policy Institute shows that the super-rich have done well in the economic recovery while almost everyone else has done badly. The top 1 percent of earners’ real wages grew 8.2 percent from 2009 to 2011, yet the real annual wages of Americans in the bottom 90 percent have continued to decline in the recovery, eroding by 1.2 percent between 2009 and 2011.

In other words, we’re back to the widening inequality we had before the debt bubble burst in 2008 and the economy crashed.

But the President is exactly right. Not even the very wealthy can continue to succeed without a broader-based prosperity. That’s because 70 percent of economic activity in America is consumer spending. If the bottom 90 percent of Americans are becoming poorer, they’re less able to spend. Without their spending, the economy can’t get out of first gear.

That’s a big reason why the recovery continues to be anemic, and why the International Monetary Fund just lowered its estimate for U.S. growth in 2013 to just 2 percent.

Almost a quarter of all jobs in America now pay wages below the poverty line for a family of four. The Bureau of Labor Statistics estimates 7 out of 10 growth occupations over the next decade will be low-wage — like serving customers at big-box retailers and fast-food chains.

At this rate, who’s going to buy all the goods and services America is capable of producing? We can’t return to the kind of debt-financed consumption that caused the bubble in the first place.

Get it? It’s not a zero-sum game. Wealthy Americans would do better with smaller shares of a rapidly-growing economy than with the large shares they now possess of an economy that’s barely moving.

If they were rational, the wealthy would support public investments in education and job-training, a world-class infrastructure (transportation, water and sewage, energy, internet), and basic research – all of which would make the American workforce more productive.

If they were rational they’d even support labor unions – which have proven the best means of giving working people a fair share in the nation’s prosperity.

But labor unions are almost extinct.

The decline of labor unions in America tracks exactly the decline in the bottom 90 percent’s share of total earnings, and shrinkage of the middle class.

In the 1950s, when the U.S. economy was growing faster than 3 percent a year, more than a third of all working people belonged to a union. That gave them enough bargaining clout to get wages that allowed them to buy what the economy was capable of producing.

Since the late 1970s, unions have eroded – as has the purchasing power of most Americans, and not coincidentally, the average annual growth of the economy.

Last week the Bureau of Labor Statistics  reported that as of 2012 only 6.6 percent of workers in the private sector were unionized. (That’s down from 6.9 percent in 2011.) That’s the lowest rate of unionization in almost a century.

What’s to blame? Partly globalization and technological change. Globalization sent many unionized manufacturing plants abroad.

Manufacturing is starting to return to America but it’s returning without many jobs. The old assembly line has been replaced by robotics and numerically-controlled machine tools.

Technologies have also replaced many formerly unionized workers in telecommunications (remember telephone operators?) and clerical jobs.

But wait. Other nations subject to the same forces have far higher levels of unionization than America. 28 percent ofCanada’s workforce is unionized, as is more than 25 percent of Britain’s, and almost 20 percent of Germany’s.

Unions are almost extinct in America because we’ve chosen to make them extinct.

Unlike other rich nations, our labor laws allow employers to replace striking workers. We’ve also made it exceedingly difficult for workers to organize, and we barely penalized companies that violate labor laws. (A worker who’s illegally fired for trying to organize a union may, if lucky, get the job back along with back pay – after years of legal haggling.)

Republicans, in particular, have set out to kill off unions. Union membership dropped 13 percent last year in Wisconsin, which in 2011 curbed the collective bargaining rights of many public employees. And it fell 18 percent last year in Indiana, which last February enacted a right-to-work law (allowing employees at unionized workplaces to get all the benefits of unionization without paying for them). Last month Michigan enacted a similar law.

Don’t blame globalization and technological change for why employees at Walmart , America’s largest employer, still don’t have a union. They’re not in global competition and their jobs aren’t directly threatened by technology.

The average pay of a Walmart worker is $8.81 an hour. A third of Walmart’s employees work less than 28 hours per week and don’t qualify for benefits.

Walmart is a microcosm of the American economy. It has brazenly fought off unions. But it could easily afford to pay its workers more. It earned $16 billion last year. Much of that sum went to Walmart’s shareholders, including the family of its founder, Sam Walton.

The wealth of the Walton family now exceeds the wealth of the bottom 40 percent of American families combined, according to an analysis by the Economic Policy Institute.

But how can Walmart expect to continue to show fat profits when most of its customers are on a downward economic escalator?

Walmart should be unionized. So should McDonalds. So should every major big-box retailer and fast-food outlet in the nation. So should every hospital in America.

That way, more Americans would have enough money in their pockets to get the economy moving. And everyone – even the very rich – would benefit.

As Obama said, America cannot succeed when a shrinking few do very well and a growing many barely make it.

Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written 13 books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org. More Robert Reich.

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