As Wall Street pats itself on the back, trouble lurks behind the boom, warn Joel Kotkin and David Friedman
With the Asian dragons vanquished, Wall Street soaring to new heights and United States unemployment rates at modern lows, American elites are indulging in an orgy of self- congratulation unmatched since the Roaring Twenties.
“France had the 17th century, Britain the 19th and America the 20th. It will also have the 21st,” gushed real- estate magnate and publisher Mortimer Zuckerman inEApril’s Foreign Affairs. In the hipEtechno-journal, Wired, Peter Schwartz and Peter Leyden recently rhapsodised, “We are riding the early waves of a 25-year run of a greatly expanding economy that will do much to solve the seemingly intractable problems like poverty and ease tensions throughout the world.” Conservative theorist Irving Kristol, writing in the Wall Street Journal, celebrated the emerging “American imperium”.
We have another idea: hold the champagne. Millennial giddiness may well prove tragically shortsighted. To a large extent, it reflects not a widely shared prosperity but a yuppie narcissism that has snared both mainstream liberals and conservatives – a kind of cross-ideological delusion fuelled by rising stock values and a robust demand for well- educated white-collar baby boomers.
This yuppie consensus about the nation’s new manifest destiny has pushed aside discussion of the US’s more troubling realities. Increasingly, serious critiques now come only from the fringes of the left and right, groups whose rigid ideologies and unrealistic proposals tend to obscure the questions they are raising about the long-term health of the US economy. Amid the glee about the current boom, who wants to talk about issues such as the US’s need for more skilled workers or the consequences of growing class divisions in a country that celebrates its belief in equal opportunity and fairness?
A decade ago, anxious Wall Streeters talked about “turning Japanese” to survive. Now Asia’s financial implosion is seen as proof that the US, and especially Wall Street, was number one all along. This mentality ignores the fact that the ever- increasing flood of imports from Japan, Taiwan, Indonesia, Malaysia, Thailand and the Philippines – and, more importantly, the slowdown of US exports – will hasten the shift of technology and production jobs from the US to overseas markets.
Such developments may not generate the widespread turmoil long predicted by trade critics on the left and right, but they will almost certainly erode the fortunes of millions of factory workers and entrepreneurs across the country.
Cash-flush investment funds, for example, relentlessly promote the notion that the US’s computer sector is an unqualified success. But there are warning signs that all is not well in this innovative industry. From 1989 to 1995, the percentage of foreign-made components in US computer products rose from 42% to 65%. During that same period, the industry’s import of components grew at three times the rate of export. And where does 80%of this imported computer equipment come from? Asia, of course.
It’s not just computers. In the early 1990s, Japanese car manufacturers invested heavily in new technology, increased manufacturing capabilities and novel product designs. Their already dramatic US market recovery received an unexpected boost when the Asian currencies took their recent tumble against the dollar, leading to huge sales gains at the expense of premier American-model cars. For the first time in years, Japanese firms built the first and second best-selling cars in the US, dethroning Ford’s Taurus. Luxury models from Europe and Japan were widely credited with causing a 7% decline in General Motors’s sales early this year, as the once-dominant company’s sales volume fell to its lowest levels in decades.
Then there’s the troubling case of Boeing Company, which recently swallowed its last US commercial aircraft rival, McDonnell Douglas Corporation. The Seattle-based giant has reported billions of dollars worth of backlogged orders, yet continues to announce job cuts and the shift of production work overseas.
Even if Boeing and other sophisticated manufacturers wanted to keep more production here, they cannot find enough skilled labour. Some of this has been caused by a dramatic drop in the availability of new workers: US labour force growth has dropped by half – from 2,5% a year two decades ago to 1,3% today. This decline has helped push unemployment to record-low levels, but it has put extreme pressure on employers who need a steady supply of trained workers.
Increasingly, it is the quality of the labour force that presents the most pressing challenge to American industry. The country is not training enough skilled workers to support its manufacturing industries. At Newman Machine Works in Burbank, California, the nation’s good economic times have allowed company president Dave Goodreau to increase his shop-floor workforce from eight to 17. He says he could hire 50 more machinists – at salaries close to $10Ean hour and more than twice that for experienced workers – if they could be found.
“We’re paying for the sins of 20 years of decline in the industrial arts in the schools,” Goodreau suggested. “The tap water has been shut off. All we get now is a drip, drip, drip.” Goodreau has learned first-hand what has been reported: the country faces a shortage of about 24 000 machinists, according to industry estimates.
As the futurist Herman Kahn observed 15 years ago, American popular culture increasingly rejects the traditions of hard physical labour so critical to the nation’s industrial ascendancy over the past century. Even in the popular software and entertainment industries, the US is simply not producing the technical talent it needs. The number of US computer science graduates has fallen from a high of 50 000 in 1986 to 36 000 in 1994.
The National Science Foundation reported that, in 1995, 30% of all research and development workers with science and engineering doctorates were foreign-born. One-fifth of all undergraduates in computer-related fields – and half of all doctoral candidates – are citizens of foreign countries. The US has long attracted foreign students. Now, many are being recruited to stay by US companies that desperately need their skills.
These trends are most pronounced in the high-technology hotbeds of California. Today, one-third of the engineers in Silicon Valley and Orange County are from other countries. Half the skilled employees at special-effects firms such as Los Angeles’s Rhythm and Hues are from another country – mostly from East Asia and Europe. “Our ideal person is someone who’s very strong in maths or engineering or technology, plus has a second degree in art,” said Rhythm and Hues founder John Hughes. “Those people are very hard to find and in fact we have to search the world … They often just don’t exist here.”
Skilled immigrants have become a kind of secret weapon for technology firms unable to find the workers they need. But mounting anti-immigrant sentiment and new immigration laws have reduced the number of highly skilled newcomers coming to the US. Between 1992 and 1995, the influx of skilled immigrants dropped by 32% – and nearly 75% in California’s Silicon Valley. The Information Technology Association of America estimates there are now 190 000 vacancies for high-tech workers, and the industry could create a million more new jobs over the coming decade.
This seems like good news for skilled US computer workers. And it is, in the short term. Over the long haul, however, these restrictions on immigration could backfire. In this growing digitised world, computers make it possible to do some work almost anywhere. Some US firms have already set up shop in India, Israel, Ireland, the Philippines, Mexico and even Russia.
Marketing Information Systems, a business software firm in Evanston, Illinois, has been hiring computer programmers in St Petersburg. “It’s difficult to find people in this country any more,” explained company president John Kennedy. “There’s huge pressure on salaries. You have managers who make $50 000 a year interviewing programmers who won’t even work for under $65 000 or $80 000 a year.”
Kennedy’s company is not alone. American multinationals doubled their investments abroad in the early 1990s, creating many high-skill positions. In the early 1980s, for example, one of every 40 employees in Intel’s Malaysian operations was an engineer. A decade later, that proportion had risen to one in six.
The real question is whether Wall Street values US economic might, or is exploiting the short-term attractiveness of American equities in light of favourable interest rates and fiscal instability in Euro-obsessed Europe and browbeaten Asia. It is far from clear that the US’s recent upturn heralds the end of cyclical economics or the dawn of limitless prosperity. Perhaps the current economic boom is like a good run at the craps table, with the winners – skittish global capital – ready to turn tail with the first bad roll.
Another problem with the yuppie consensus lies in the limits of this “limitless” prosperity. The remnants of the non-Clintonised left are correct in suggesting that a significant proportion of the US population faces permanent impoverishment or, at best, stagnant wages. The percentage of people living in poverty grew from 12,8% to 13,7% between 1989 and 1996, government figures show.
By most measurements, the Clinton recovery has been far less egalitarian than the much-criticised Reagan “era of greed.” Between 1990 and 1995, the median family income actually declined slightly while the number of people with a net worth over $1- million more than doubled. Since 1979, the wages of the bottom 20% of workers dropped nearly 12%, and by 1,6% since 1990 alone.
Even the pro-Clinton Progressive Policy Institute recently admitted that, adjusted for inflation, compensation for the bottom half of the wage scale is 75c less per hour than 20Eyears ago. In Silicon Valley, according to a study by the labour-backed Economic Policy Institute, real wages for the bottom 20% of the workforce have declined during the decade as the ratio of top corporate to production worker salaries skyrocketed from 41:one (1991) to 220:one (1996).
This tendency to ignore the US’s urban problems while celebrating the nation’s global dominance is particularly acute in New York City – the epicentre of US triumphalism – where unemployment rates are nearly twice the national average and job growth lags behind almost every major city in the nation. The region has the worst income inequality in the nation.
This growing gap between the affluent and the working poor threatens the US’s future prosperity. The percentage of Americans who feel the interests of employers and employees are in conflict has increased from 25% during the Great Depression – the supposed heyday of class consciousness – to 45% today, according to polling data.
The indifference of the yuppie consensus to such potentially devastating realities triggers comparisons with the “let-them-eat- cake” self-absorption of the 1920s.
None of this presupposes that the US’s future is necessarily bleak – only that declaring victory on the strength of a bull market, even an unprecedented one, is premature at best.
If we can use current prosperity to address our competitive and class problems, rather than luxuriate in the glow of a Dow Jones average that may soon approach the 10 000 mark, it is certainly possible to imagine a second American century in which national challenges are honestly addressed and even successfully resolved. But it is profoundly self-delusional to claim the future by ignoring the present.
Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy. David Friedman is a fellow at the MIT Japan Programme
Phil Jakobi, who runs Delco Machine and Gear, an aerospace machining shop in Long Beach, California, says popular culture has made blue-collar work unfashionable among young people. Like Goodreau, he has lost recruiting battles to McDonald’s, even though his machine shop jobs come with higher pay, full benefits and company- subsidised training.
In the short term, Wall Street couldn’t care less about such things. It celebrates the export of high-end research or manufacturing jobs – as well as wage and price squeezes. Usually, such efforts earn at least a coveted “buy” recommendation from market gurus.