The Audacity of Hope (18 page)

I told the group that I’d tell their story during the campaign and offered a few proposals that my staff had developed—amending the tax code to eliminate tax breaks for companies who shifted operations offshore; revamping and better funding federal retraining programs. As I was getting ready to go, a big, sturdy man in a baseball cap spoke up. He said his name was Tim Wheeler, and he’d been the head of the union at the nearby Butler steel plant. Workers had already received their pink slips there, and Tim was collecting unemployment insurance, trying to figure out what to do next. His big worry now was health-care coverage.

“My son Mark needs a liver transplant,” he said grimly. “We’re on the waiting list for a donor, but with my health-care benefits used up, we’re trying to figure out if Medicaid will cover the costs. Nobody can give me a clear answer, and you know, I’ll sell everything I got for Mark, go into debt, but I still…” Tim’s voice cracked; his wife, sitting beside him, buried her head in her hands. I tried to assure them that we would find out exactly what Medicaid would cover. Tim nodded, putting his arm around his wife’s shoulder.

On the drive back to Chicago, I tried to imagine Tim’s desperation: no job, an ailing son, his savings running out.

Those were the stories you missed on a private jet at forty thousand feet.

YOU’LL GET LITTLE argument these days, from either the left or the right, with the notion that we’re going through a fundamental economic transformation. Advances in digital technology, fiber optics, the Internet, satellites, and transportation have effectively leveled the economic barriers between countries and continents. Pools of capital scour the earth in search of the best returns, with trillions of dollars moving across borders with only a few keystrokes. The collapse of the Soviet Union, the institution of market-based reforms in India and China, the lowering of trade barriers,

and the advent of big-box retailers like Wal-Mart have brought several billion people into direct competition with American companies and American workers. Whether or not the world is already flat, as columnist and author Thomas Friedman says, it is certainly getting flatter every day.

There’s no doubt that globalization has brought significant benefits to American consumers. It’s lowered prices on goods once considered luxuries, from big-screen TVs to peaches in winter, and increased the purchasing power of low-income Americans. It’s helped keep inflation in check, boosted returns for the millions of Americans now invested in the stock market, provided new markets for U.S. goods and services, and allowed countries like China and India to dramatically reduce poverty, which over the long term makes for a more stable world.

But there’s also no denying that globalization has greatly increased economic instability for millions of ordinary Americans. To stay competitive and keep investors happy in the global marketplace, U.S.-based companies have automated, downsized, outsourced, and offshored. They’ve held the line on wage increases, and replaced defined-benefit health and retirement plans with 401(k)s and Health Savings Accounts that shift more cost and risk onto workers.

The result has been the emergence of what some call a “winner-take-all” economy, in which a rising tide doesn’t necessarily lift all boats. Over the past decade, we’ve seen strong economic growth but anemic job growth; big leaps in productivity but flatlining wages; hefty corporate profits, but a shrinking share of those profits going to workers. For those like Larry Page and Sergey Brin, for those with unique skills and talents and for the knowledge workers—the engineers, lawyers, consultants, and marketers—who facilitate their work, the potential rewards of a global marketplace have never been greater. But for those like the workers at Maytag, whose skills can be automated or digitized or shifted to countries with cheaper wages, the effects can be dire—a future in the ever-growing pool of low-wage service work, with few benefits, the risk of financial ruin in the event of an illness, and the inability to save for either retirement or a child’s college education.

The question is what we should do about all this. Since the early nineties, when these trends first began to appear, one wing of the Democratic Party—led by Bill Clinton— has embraced the new economy, promoting free trade, fiscal discipline, and reforms in education and training that will help workers to compete for the high-value, high-wage jobs of the future. But a sizable chunk of the Democratic base—particularly blue-collar union workers like Dave Bevard—has resisted this agenda. As far as they’re concerned, free trade has served the interests of Wall Street but has done little to stop the hemorrhaging of good-paying American jobs.

The Republican Party isn’t immune from these tensions. With the recent uproar around illegal immigration, for example, Pat Buchanan’s brand of “America first” conservatism may see a resurgence within the GOP, and present a challenge to the Bush Administration’s free trade policies. And in his 2000 campaign and early in his first term, George W. Bush suggested a legitimate role for government, a “compassionate conservatism” that, the White House argues, has expressed itself in the Medicare prescription drug plan and the educational reform effort known as No Child Left Behind—and that has given small-government conservatives heartburn.

For the most part, though, the Republican economic agenda under President Bush has been devoted to tax cuts, reduced regulation, the privatization of government services— and more tax cuts. Administration officials call this the Ownership Society, but most of its central tenets have been staples of laissez-faire economics since at least the 1930s: a belief that a sharp reduction—or in some cases, elimination—of taxes on incomes, large estates, capital gains, and dividends will encourage capital formation, higher savings rates, more business investment, and greater economic growth; a belief that government regulation inhibits and distorts the efficient working of the market; and a belief that government entitlement programs are inherently inefficient, breed dependency, and reduce individual responsibility, initiative, and choice.

Or, as Ronald Reagan succinctly put it: “Government is not the solution to our problem; government is the problem.”

So far, the Bush Administration has only achieved one-half of its equation; the Republican-controlled Congress has pushed through successive rounds of tax cuts, but has refused to make tough choices to control spending—special interest appropriations, also known as earmarks, are up 64 percent since Bush took office. Meanwhile, Democratic lawmakers (and the public) have resisted drastic cuts in vital investments— and outright rejected the Administration’s proposal to privatize Social Security. Whether the Administration actually believes that the resulting federal budget deficits and ballooning national debt don’t matter is unclear. What is clear is that the sea of red ink has made it more difficult for future administrations to initiate any new investments to address the economic challenges of globalization or to strengthen America’s social safety net.

I don’t want to exaggerate the consequences of this stalemate. A strategy of doing nothing and letting globalization run its course won’t result in the imminent collapse of the U.S. economy. America’s GDP remains larger than China’s and India’s combined. For now, at least, U.S.-based companies continue to hold an edge in such knowledge- based sectors as software design and pharmaceutical research, and our network of universities and colleges remains the envy of the world.

But over the long term, doing nothing probably means an America very different from the one most of us grew up in. It will mean a nation even more stratified economically and socially than it currently is: one in which an increasingly prosperous knowledge class, living in exclusive enclaves, will be able to purchase whatever they want on the marketplace—private schools, private health care, private security, and private jets— while a growing number of their fellow citizens are consigned to low-paying service jobs, vulnerable to dislocation, pressed to work longer hours, dependent on an underfunded, overburdened, and underperforming public sector for their health care, their retirement, and their children’s educations.

It will mean an America in which we continue to mortgage our assets to foreign lenders and expose ourselves to the whims of oil producers; an America in which we underinvest in the basic scientific research and workforce training that will determine our long-term economic prospects and neglect potential environmental crises. It will mean an America that’s more politically polarized and more politically unstable, as economic frustration boils over and leads people to turn on each other.

Worst of all, it will mean fewer opportunities for younger Americans, a decline in the upward mobility that’s been at the heart of this country’s promise since its founding.

That’s not the America we want for ourselves or our children. And I’m confident that we have the talent and the resources to create a better future, a future in which the economy grows and prosperity is shared. What’s preventing us from shaping that future isn’t the absence of good ideas. It’s the absence of a national commitment to take the tough steps necessary to make America more competitive—and the absence of a new consensus around the appropriate role of government in the marketplace.

TO BUILD THAT consensus, we need to take a look at how our market system has evolved over time. Calvin Coolidge once said that “the chief business of the American people is business,” and indeed, it would be hard to find a country on earth that’s been more consistently hospitable to the logic of the marketplace. Our Constitution places the ownership of private property at the very heart of our system of liberty. Our religious traditions celebrate the value of hard work and express the conviction that a virtuous life will result in material reward. Rather than vilify the rich, we hold them up as role models, and our mythology is steeped in stories of men on the make—the immigrant who comes to this country with nothing and strikes it big, the young man who heads West in search of his fortune. As Ted Turner famously said, in America money is how we keep score.

The result of this business culture has been a prosperity that’s unmatched in human history. It takes a trip overseas to fully appreciate just how good Americans have it; even our poor take for granted goods and services—electricity, clean water, indoor plumbing, telephones, televisions, and household appliances—that are still unattainable for most of the world. America may have been blessed with some of the planet’s best real estate, but clearly it’s not just our natural resources that account for our economic success. Our greatest asset has been our system of social organization, a system that for generations has encouraged constant innovation, individual initiative, and the efficient allocation of resources.

It should come as no surprise, then, that we have a tendency to take our free-market system as a given, to assume that it flows naturally from the laws of supply and demand and Adam Smith’s invisible hand. And from this assumption, it’s not much of a leap to assume that any government intrusion into the magical workings of the market— whether through taxation, regulation, lawsuits, tariffs, labor protections, or spending on entitlements—necessarily undermines private enterprise and inhibits economic growth. The bankruptcy of communism and socialism as alternative means of economic organization has only reinforced this assumption. In our standard economics textbooks and in our modern political debates, laissez-faire is the default rule; anyone who would challenge it swims against the prevailing tide.

It’s useful to remind ourselves, then, that our free-market system is the result neither of natural law nor of divine providence. Rather, it emerged through a painful process of trial and error, a series of difficult choices between efficiency and fairness, stability and change. And although the benefits of our free-market system have mostly derived from the individual efforts of generations of men and women pursuing their own vision of

happiness, in each and every period of great economic upheaval and transition we’ve depended on government action to open up opportunity, encourage competition, and make the market work better.

In broad outline, government action has taken three forms. First, government has been called upon throughout our history to build the infrastructure, train the workforce, and otherwise lay the foundations necessary for economic growth. All the Founding Fathers recognized the connection between private property and liberty, but it was Alexander Hamilton who also recognized the vast potential of a national economy—one based not on America’s agrarian past but on a commercial and industrial future. To realize this potential, Hamilton argued, America needed a strong and active national government, and as America’s first Treasury secretary he set about putting his ideas to work. He nationalized the Revolutionary War debt, which not only stitched together the economies of the individual states but helped spur a national system of credit and fluid capital markets. He promoted policies—from strong patent laws to high tariffs—to encourage American manufacturing, and proposed investment in roads and bridges needed to move products to market.

Hamilton encountered fierce resistance from Thomas Jefferson, who feared that a strong national government tied to wealthy commercial interests would undermine his vision of an egalitarian democracy tied to the land. But Hamilton understood that only through the liberation of capital from local landed interests could America tap into its most powerful resource—namely the energy and enterprise of the American people. This idea of social mobility constituted one of the great early bargains of American capitalism; industrial and commercial capitalism might lead to greater instability, but it would be a dynamic system in which anyone with enough energy and talent could rise to the top. And on this point, at least, Jefferson agreed—it was based on his belief in a meritocracy, rather than a hereditary aristocracy, that Jefferson would champion the creation of a national, government-financed university that could educate and train talent across the new nation, and that he considered the founding of the University of Virginia to be one of his greatest achievements.