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The New Rich-Rich Gap

While the fortunes of CEOs and CFOs grow, other professionals are grappling with the pressures of globalization.

By Robert B. Reich

Web Exclusive: 12.12.05

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Almost 15 years ago, in "The Work of Nations," I described a three-tiered work force found in most advanced economies. At the bottom were workers who offer personal service, mainly in retail outlets, restaurants, hotels and hospitals. In the middle were production workers in factories or offices, performing simple, repetitive tasks. At the top were "symbolic analysts," like engineers or lawyers, who manipulate information to solve problems. Educated to think critically, almost all have university degrees. They were the knowledge workers of the new economy.

I predicted that advances in technology, and globalization, would widen the gaps in income and opportunity between these tiers. I was, sadly, prescient. In recent years, the top fifth of American workers has held 85 percent of the country's wealth. What I didn't predict was that the three tiers would change shape so dramatically.

The top and bottom tiers are growing, and the middle shrinking, much faster than I expected. Symbolic analysts now make up more than a fifth of all jobs in advanced economies, up from about 15 percent 15 years ago. Their incomes in developing economies are soaring, relative to other workers'. In China, the wealthiest 5 percent now control half of all bank deposits. India's symbolic analysts are becoming a new national elite.

Two different groups of symbolic analysts are emerging: national and global. Most symbolic analysts still work within a national economy, manipulating various kinds of symbols with the aid of computers. They're at the core of their nations' middle class -- accountants, engineers, lawyers, journalists and other university-trained professionals.

Yet a new group is emerging at the very top. They're CEOs and CFOs of global corporations, and partners and executives in global investment banks, law firms and consultancies. Unlike most national symbolic analysts, these global symbolic analysts conduct almost all their work in English, and share with one another an increasingly similar cosmopolitan culture.

Most global symbolic analysts have been educated at the same elite institutions -- America's Ivy League universities, Oxford, Cambridge, the London School of Economics or the University of California, Berkeley. They work in similar environments -- in glass-and-steel office towers in the world's largest cities, in jet planes and international-meeting resorts. And they feel as comfortable in New York, London or Geneva as they do in Hong Kong, Shanghai or Sydney. When they're not working -- and they tend to work very hard -- they live comfortably, and enjoy golf and first-class hotels. Their income and wealth far surpass those of national symbolic analysts.

There's a good economic reason that this group of global symbolic analysts emerged. Global commerce is now occurring on a scale and with a complexity that no commercial contract can adequately cover and no single legal system can sufficiently enforce. Hence, global dealmakers must rely to an ever greater extent on an extended network of people whom they trust.

This sort of trust depends on personal connections -- on "relational capital" that draws on accumulated good will, and on confidence that anyone within that trusted circle can be relied on to draw in others equally trustworthy. Global symbolic analysts within a trusted circle share a kind of brand-name franchise that opens doors and consummates deals. They spend a lot of working time in front of computers and on the phone, but also devote significant time to face-to-face meetings, all over the world.

The growing number of symbolic analysts is also helping fuel the growth in the lowest tier, the personal-service workers. It used to be that about a third of the work forces in advanced economies were in person-to-person jobs; now, close to half are. Today, more Americans work in laundries and dry cleaners than in steel mills; more in hospitals and nursing homes than in banks and insurance companies. More work for Wal-Mart than for the entire U.S. automobile industry.

This is happening because busy households are "outsourcing" more housework, because populations of advanced economies are aging, raising demand for elder care, and because the richest 10th have so much discretionary income they can afford lots of pampering. They're hiring coaches, masseurs, drivers, gardeners, cooks and therapists of all kinds. Yet the supply of service workers is increasing faster than demand, due to a flood of new immigrants, and of workers no longer needed in routine production. As a result, the pay for these jobs is low and falling.

Meanwhile, the ranks of production workers have fallen, from about a third of advanced-economy work forces 15 years ago to one quarter. Analysts at Alliance Capital Management in New York, in a study of 20 major economies, found that between 1995 and 2002 more than 22 million factory jobs vanished. The United States wasn't even the biggest loser. America lost about 11 percent of its manufacturing jobs, while Japan lost 16 percent and Brazil lost 20 percent. The biggest surprise: China, which is fast becoming the manufacturing capital of the world, lost 15 percent of its manufacturing jobs.

What's going on? In two words: higher productivity. Factories are becoming more efficient, with new equipment and technology, and in nations like China, market reforms are replacing old state-run plans with modern ones. As a result, even as China produces more manufactured goods than ever before, millions of its factory workers have been laid off.

Routine office jobs are disappearing almost as fast as routine factory jobs. Almost any office task -- claims adjusting, mortgage processing -- can be done more cheaply and accurately these days by specialized software. Jobs that can't be turned into software are heading to low-wage countries as fast as telecom systems can reach them. Not only are call centers, tech support and routine computer coding going abroad, but so are jobs involved in patent applications, divorce papers and certain domains of research. This trend portends a growing clash of interests at the top, between national and global symbolic analysts.

More of the jobs of national symbolic analysts in advanced economies--including software programmers and engineers, designers and researchers -- are heading to national symbolic analysts in China, India and locations in Southeast Asia. Already Siemens, Nokia and General Electric are conducting manufacturing-related R&D in China. As a result, professionals in advanced economies are becoming worried about their job security, and less enamored of free trade and open capital markets. Global symbolic analysts, on the other hand, have a huge and growing stake in globalization. Their relational capital is far less transferable to Asia. Hence, as globalization intensifies, their skills are in ever greater demand.

The fears of national symbolic analysts are premature. The demand for their skills is still rising, notwithstanding the new competition. The earnings of university graduates in the United States and most advanced economies continue to outpace the earnings of those with only secondary-school diplomas, and the earnings of people with graduate and professional degrees are rising even faster. If demand for symbolic analysts were dropping, we would expect the opposite.

Yet unless the advanced economies invest more in education and basic R&D, they could lose their global lead in science, engineering and high-value-added production within a few decades. China and India are now graduating more engineers and computer scientists than are emerging from American and European universities. At some point, national symbolic analysts in advanced economies will lose ground. Their global brethren, meanwhile, will continue to dominate global commerce. The income and wealth gap between them will widen into a chasm. They will live, literally, in different cultures.

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Robert B. Reich is co-founder of The American Prospect. A version of this column originally appeared on Newsweek.

© 2005 by The American Prospect, Inc.

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Bush plans overhaul of US foreign aid system

By Guy Dinmore in Washington

Published: December 11 2005 21:50

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President George W. Bush’s administration is drawing up plans to carry out the biggest overhaul of the US foreign aid apparatus in more than 40 years in an attempt to assert more political control over international assistance, according to officials and aid experts.

The proposed reorganisation could lead to a takeover by the State Department of the independent US Agency for International Development. USAID was established by President John F. Kennedy in 1961, managing aid programmes, disaster relief and post-war reconstruction totalling billions of dollars each year.

Critics in the aid community fear the reorganisation will lead to a politicisation of foreign assistance, where aid will become subordinated to the Bush administration’s drive to promote democracy.

Supporters of the proposed reforms argue that USAID must be brought more in line with policy goals focused on post-conflict reconstruction and democratisation rather than pure development aid where they allege funds are squandered and the agency is driven more by efforts aimed at self-perpetuation.

Condoleezza Rice, secretary of state, and Stephen Krasner, head of policy planning, are leading the reforms. Officials said proposals could be put to Congress next month. A new position of deputy secretary of state for aid and development is being considered.

Previous administrations have considered similar ideas but rejected them as impractical or unlikely to pass Congress, and officials concede this could happen this time round. A precedent of sorts exists in the controversial 1999 merger into the state department of the independent US Information Agency, a move that has since been blamed in part for failures in US public diplomacy.

A spokesman for USAID said no final decision had been taken. He noted that rumours of the agency’s demise surface regularly. Andrew Natsios, head of USAID for nearly five years, announced his resignation on December 2. No replacement has been announced. The USAID spokesman said his departure was not connected to a possible reorganisation.

Mr Natsios was credited with effective responses to natural disasters, such as the Asian tsunami. But experts say USAID and the Pentagon share blame for the failure of state building in Iraq and Afghanistan.

Carol Lancaster, a Georgetown University professor and co-author of “Organising US Foreign Aid” says merging USAID into the state department would be a mistake. “I’m concerned that a real merger has the very great danger of eventually undercutting the development mission because of tensions, pressures and the nature of foreign policy,” she commented. “The pressure to use money for short-term crisis management, or the war on terror, could be overwhelming.”

A State Department official, who asked not to be named, said the goal of the reforms was to make US aid better linked to the administration’s democracy and development agenda.

“There is a feeling that we need to be more strategic,” he said. The administration wanted more flexibility in how money was spent, he said, noting that a considerable portion of the US aid budget was heavily “earmarked” by Congress tying aid to particular countries and projects. The Bush administration began the reform process by setting up the Millennium Challenge Corporation which rewards countries with records of good governance. Welcomed as a good concept, it has also been criticised for moving too slowly.

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Additional reporting by Edward Alden and Demetri Sevastopulo

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DECEMBER 9 - 15, 2005

Powerlines

Low Prices, Widespread Torture

Our new system of global production

by HAROLD MEYERSON

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Whatever its virtues, the United Nations isn’t the first place you’d turn to if you wanted to expose some nefarious internal practices of its more powerful member states. So it came as no small surprise when a U.N. investigator last week documented the “widespread” use of torture in China. Manfred Nowak, who is the special rapporteur of the U.N. Commission on Human Rights, noted that electric shock, sleep deprivation and submersion in water or sewage are still common practices in China when the state seeks to obtain confessions and suppress the political dissent it delicately terms “deviant behavior.”

This is hardly the image of the new, improved capitalist China that the neo-Communist regime and American business have teamed up to convey. As they depict it, China is a bustling, modern society that offers everything a company could possibly want to do business. They’re right — and that’s just the problem.
Because if China offers anything to the corporations of the world, it’s a diligent, skilled — and intimidated — work force. Nowak noted the prevalence of torture in China’s labor camps, where the inmates have been imprisoned for their political or religious beliefs and activities. The ultimate crime in China, after all, is to seek to establish autonomous centers of power — churches, parties, unions — not under the control of the Communist Party. Workers who have led strikes or tried to organize unions are still jailed and tortured in the new-model China, as democracy advocate and union activist Harry Wu — a veteran of the state’s gulags — can attest.

This is a story that implicates all of us. Torture, and fear of torture, are factors in holding costs down in our new-age globalized production system. Take just-in-time delivery, add a touch of submersion in shit, fear of beating, fear of drowning, and voilà! You get Wal-Mart’s everyday low prices.

That’s not quite how the story gets conveyed in the business press, however. When American economists and executives opine about China, you don’t hear about the jailing and abuse of workers who seek decent living standards. There’s nothing new in this: Our guys in the oil business have never said word one about the repressive Saudi regime, and United Fruit was always the Latin American banana-republic dictator’s best friend. But China is different. It’s not just one benighted sector of American capitalism that’s made its accommodations there. Virtually every major U.S. firm involved in manufacturing and marketing is beating a path to China’s door — and surrendering there any political principles they may have brought with them. Rupert Murdoch’s agreement not to air any officially disapproved broadcasts over his satellite TV system is just one, albeit egregious, example.

So the next time China has a Tian An Men Square–like convulsion, don’t count on American business to support the Chinese democrats trying to stop the tanks. A more democratic China means workers with more rights and higher wages. For which reason the U.S. government is likely to be conflicted as well. Even now, while the Defense Department views China as a threat, the Commerce Department views it as a trading partner, or even an extension of the American system of production. Nor is it a given that a Democratic administration would be less immune than the Bush administration is to this political schizophrenia. It was the Clinton White House, after all, that promoted China’s no-questions-asked admission to the World Trade Organization.

Suppress unions and you get violence: The Middle Kingdom is home to more labor unrest than any other place — actually, than every other place — on the planet. In the factory zones, workers riot and disrupt when their pay is withheld or their co-workers perish doing dangerous jobs that no one in power cared to make safer. In the West, the riot was the normal form of worker protest before unions were legalized in the 19th and 20th centuries. And destabilizing and destructive as riots may be, they pose less of a threat to a quasi-totalitarian regime like China than an orderly strike led by an autonomous workers’ organization.

China may be the most nominal of socialist states, but its claim to legitimacy is still rooted in mumbled phrases about empowering workers. Accordingly, it has its own government-run unions, which aren’t really unions at all. Controlled by the Communist Party, the All-China Federation of Trade Unions features locals whose leaders are often selected by the employer. These unions do not strike — that would be against the law, and disruptive of the social harmony and political control that the powers that be seek to maintain. They cannot bargain aggressively.

It should shock no one, then, that Wal-Mart — a company that closed down all its meat departments in the U.S. when butchers in one store voted to unionize — has embraced the government union in China. “Should associates [the Wal-Mart term for employees] request the formation of a union,” the company said in a statement released late last year, “the company would respect their wishes.” In Bentonville and Beijing, the only good union is a sham union.

What’s curious is why some of America’s most brilliant and dedicated union leaders should be cozying up to the same sham unionists. At the first organizing conference of the new Change To Win Federation, which convened last month in Las Vegas, delegates welcomed invited guests from the All-China Federation. Ninety-nine times out of 100, the leaders of the Service Employees International Union (the Change To Win union most predisposed to the All-China Federation) can smell a company union a mile away. This time, their noses — well, their strategic and moral sense — failed them.

But they’re hardly alone. American companies and consumers count on China; it’s the producer of choice for a nation — ours — where incomes, on average, no longer rise. Only a spoilsport from the United Nations would have the gall to disturb us with the news that our spiffy, 21st-century, integrated global economic system is built on the barbarism of despots and thugs.

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December 12, 2005

Op-Ed Columnist

Big Box Balderdash

By PAUL KRUGMAN

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I think I've just seen the worst economic argument of 2005. Given what the Bush administration tried to put over on us during its unsuccessful sales pitch for Social Security privatization, that's saying a lot.

The argument came in the course of the latest exchange between Wal-Mart and its critics. A union-supported group, Wake Up Wal-Mart, has released a TV ad accusing Wal-Mart of violating religious values, backed by a letter from religious leaders attacking the retail giant for paying low wages and offering poor benefits. The letter declares that "Jesus would not embrace Wal-Mart's values of greed and profits at any cost."

You may think that this particular campaign - which has, inevitably, been dubbed "Where would Jesus shop?" - is a bit over the top. But it's clear why those concerned about the state of American workers focus their criticism on Wal-Mart. The company isn't just America's largest private employer. It's also a symbol of the state of our economy, which delivers rising G.D.P. but stagnant or falling living standards for working Americans. For Wal-Mart is a huge and hugely profitable company that pays badly and offers minimal benefits.

Attacks on Wal-Mart have hurt its image, and perhaps even its business. The company has set up a campaign-style war room to devise responses. So how did Wal-Mart respond to this latest critique?

Wal-Mart can claim, with considerable justice, that its business practices make America as a whole richer. The fact is that Wal-Mart sells many products more cheaply than traditional stores, and that its low prices aren't solely or even mainly the result of the low wages it pays. Wal-Mart has been able to reduce prices largely because it has brought genuine technological and organizational innovation to the retail business.

It's harder for Wal-Mart to defend its pay and benefits policies. Still, the company could try to argue that despite its awesome size and market dominance it cannot defy the iron laws of supply and demand, which force it to pay low wages. (I disagree, but that's a subject for another column.)

But instead of resting its case on these honest or at least defensible answers to criticism, Wal-Mart has decided to insult our intelligence by claiming to be, of all things, an engine of job creation. Judging from its press release in response to the religious values campaign, the assertion that Wal-Mart "creates 100,000 jobs a year" is now the core of the company's public relations strategy.

It's true, of course, that the company is getting bigger every year. But adding 100,000 people to Wal-Mart's work force doesn't mean adding 100,000 jobs to the economy. On the contrary, there's every reason to believe that as Wal-Mart expands, it destroys at least as many jobs as it creates, and drives down workers' wages in the process.

Think about what happens when Wal-Mart opens a store in a previously untouched city or county. The new store takes sales away from stores that are already in the area; these stores lay off workers or even go out of business. Because Wal-Mart's big-box stores employ fewer workers per dollar of sales than the smaller stores they replace, overall retail employment surely goes down, not up, when Wal-Mart comes to town. And if the jobs lost come from employers who pay more generously than Wal-Mart does, overall wages will fall when Wal-Mart moves in.

This isn't just speculation on my part. A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, "The Effects of Wal-Mart on Local Labor Markets," uses sophisticated statistical analysis to estimate the effects on jobs and wages as Wal-Mart spread out from its original center in Arkansas.

The authors find that retail employment did, indeed, fall when Wal-Mart arrived in a new county. It's not clear in their data whether overall employment in a county rose or fell when a Wal-Mart store opened. But it's clear that average wages fell: "residents of local labor markets," the study reports, "earn less following the opening of Wal-Mart stores."

So Wal-Mart has chosen to defend itself with a really poor argument. If that's the best the company can come up with, it's going to keep losing the public relations war with its critics. Maybe it should consider an alternative strategy, such as paying higher wages.

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Copyright 2005The New York Times Company

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"Most Wanted" Corporate Human Rights Violators of 2005

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CATERPILLAR - Human Rights Abuses: contracting with known violators of human rights, enabling house demolition, supplying equipment that kills Palestinian civilians and American peace activists

CHEVRON - Human Rights Abuses: environmental destruction, health violations, and violent killings

COCA-COLA - Human Rights Abuses: violent killings, kidnap and torture, water privatization, health violations, and discriminatory practices

DOW CHEMICAL - Human rights abuses: creation of chemical weapons, marketing poisonous chemicals, illegal dumping of toxins into populated areas, environmental destruction, health problems, death

DYNCORP/CSC - Human rights abuses: causing health problems, environmental devastation and death; endangering lives; physically abusing individuals; sex trafficking

FORD MOTOR COMPANY - Human rights violations: environmental degradation, climate change, fueling wars for oil

KBR (KELLOGG, BROWN, AND ROOT): A SUBSIDIARY OF HALLIBURTON CORPORATION - Human rights violations: Overcharging and providing unnecessary services on taxpayer's dollar, bribery, exploiting third country nationals

LOCKHEED MARTIN - Human Rights Abuses: War profiteering, warmongering

MONSANTO - Human Rights Abuses: Displacement, health violations, and child labor

NESTLÉ USA - Human Rights Violations: Abusive child labor, repression of worker rights, aggressive marketing of harmful products, violation of national health and environmental laws

PHILIP MORRIS USA and PHILIP MORRIS INTERNATIONAL (a.k.a. the Altria Group Inc.) - Human Rights Abuse: aggressively marketing lethal products

PFIZER - Human Rights Abuse: Killer price-gouging

SUEZ-LYONNAISE DES EAUX (SLDE) - Human rights abuse: Water privatization

WAL-MART - Human Rights Abuses: worker rights violations, labor discrimination, union busting

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Go to Source URL for Complete Details & Links...

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