An objective assessment would almost certainly reach the conclusion that American businesses are much better positioned to do well in a flattening world than American workers. Despite that at both the state and national level our policy focus is on helping companies compete. This despite record corporate profits both before and after the Great Recession. At the same time that workers are experiencing chronic high unemployment and downward pressure on wages – particularly for the 75% or so of adults without a four year degree.
In an earlier post I included this quote from All State CEO Thomas Wilson: “I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business … American businesses will adapt.” This is the new reality: American companies positioned to do well in a global economy, American workers not positioned well.
If the goal of economic policy is – as it should be – to raise the standard of living of Americans, focusing policy on helping American companies rather than American workers is a big mistake. And what is most harmful is that the focus on helping business is happening at the expense of American workers. Cutting business taxes, and at the national level cutting taxes on business owners and top managers, has been accompanied by cuts in both investments in education and the social safety net.
Joel Klein, the former head of the New York City public schools, in an insightful Atlantic article on the problems with American public education laid out well the economic importance of education: During the first three-quarters of the 20th century, America developed an enormously successful middle class, first by making high school universal, and then, after the Second World War, by making college much more available, through the GI Bill and other scholarship programs. As a result, our educational attainment kept pace with our strong technological advancement. But that’s changed markedly since 1980, and now our technological progress is advancing more rapidly than our educational attainment. From 1960 to 1980, our supply of college graduates increased at almost 4 percent a year; since then, the increase has been about half as fast. The net effect is that we’re rapidly moving toward two Americas—a wealthy elite, and an increasingly large underclass that lacks the skills to succeed.
And it is not just a declining middle class that is at stake. The future of the American economy in large part will be determined by the level of human capital Americans bring to the labor market. As Klein points out the American Century was built on a base of workers who had the skills to take advantage of the leading technology of the times. Without that America would not have become the dominant economy on the planet. The critical importance of technology and education is detailed in the must read book the Race Between Education and Technology by Claudia Goldin and Lawrence Katz.
They convincingly, with lots of detailed statistical analysis, make the case that it is human capital (the talent people possess) that was the driving force behind American economic dominance and widespread prosperity through the mid Seventies. From the Civil War until then we were by far the most educated country on the planet. Since then our education attainment has stagnated and we have lost our competitive advantage in human capital. The result we are less and less competitive in the global economy. This is the fundamental lesson we need to learn: human capital is at least as important to economic growth and prosperity as physical capital.
At both the state and national level, for the good of the American economy and the economic well being of American families, we need a fundamental shift in policy. The priority needs to be on better positioning American workers to compete in a flattening world.