National decline happens to the best. Question is: What are we going to do about it?
|Zack Exley||May 15, 2020||3|
Finally, there's no debate. America is in decline. It was easy to see before Covid-19 for anyone who cared to look. But now even the most deeply-tinted rose colored glasses can't hide the spectacle of our nation allowing hundreds of thousands of people to die because we couldn't simply make 95-cent masks, screen airplane passengers arriving from hot zones, or roll out a simple tracking and tracing app like many countries did within days of the crisis. A small army of commentators are looking for the single cause of America's decline. But the causes are numerous and diverse. The simplest and most honest way to to understand them is just this: At some point in every successful nation's rise, the institutions and organizations that made it successful eventually get old and decay–just like everything in the universe does. What's happened to America over the past several decades of decline happens to every nation. It's normal. The question is, what are we going to do about it? History shows that some nations can languish in decline indefinitely while others pick themselves up quickly. It all comes down to leadership. Know any leaders?
America didn't think it was in decline before Covid-19, because America's "thought leaders" didn't see the decline happening around them. Over the past few decades, the upper middle class, professional classes, or top 20% of income earners–however you'd like to refer to them–saw nothing but progress all around them. Their gentrification of low income neighborhoods was a clear picture of boats rising for all, as long as you didn't ask where all the displaced residents had gone and how they were doing. And for those who moved out to the suburbs, the skyrocketing housing prices, and continued clearing out of low income people from high-income zip codes, was additional visual proof that America was moving on up. The increasing American prosperity observed by those who speak for America–e.g. media personalities, academics, politicians–was an illusion caused by their own self sorting into a handful of ritzy zip codes.
Stepping out of those zip codes, a very different picture emerges: One in which the "bottom" 80% of Americans have watched their wages and wealth decline for four decades and, with those, general quality of life fell as well, now with even basic indicators such as life expectancy and maternal mortality worsening. The prosperity of the majority fell even as overall American productivity continued to rise. America never stopped creating more wealth, but the majority of the people received less and less of it. Where did the excess go? Yes, the extremely wealthy received a disproportionate share of it, but the top 10% and even top 20% also got a huge chunk. Why them and not the majority of workers?
The answer lies in possibly the one true thing that ever made it into Donald Trump's mass rally ramblings: "The politicians dismantled your means of making a living." In 2016, that phrase didn't mean anything to the pundits, because they didn't know what it could possibly mean to "dismantle" a "means of making a living." To professionals, a "means of making a living" is a degree, a talent, or a set of connections. To most of the rest of America, it is a factory, store, gas station, warehouse, or some other place where people go to make and do things of value, things that other people, elsewhere in America and the world, will pay for.
Starting in the 1970's, America's leaders started following a deliberate policy of converting America from a nation that made things to a nation that processed information and moved money. For many leaders it was an honest mistake. They looked at computer programmers making a lot of money in their interesting, clean, and safe jobs, and logically thought it would be nice to give all Americans such a life. When U.S. manufacturing industries faced tough competition from rising nations in East Asia, America's leaders let entire industries go bankrupt or get bought by private equity operators who milked them for cash by beating down wages without investing, finally selling plants off for parts when wages couldn't be slashed any further.
At the same time, our leaders created irresistible incentives for capital to be invested in short-term, unproductive assets such as shopping malls, gas stations and fast food chains that came to line the streets of every town and city (outside of those above mentioned ritzy zip codes). Steelworkers and furniture makers that had earned $50,000-$100,000 per year with full benefits, now took jobs–in our almost perfectly "flexible" labor market–in strip malls making minimum wage, supplemented with food stamps and medicaid. As a result, even though our wages were falling, it seemed that our unemployment rate stayed far below Europe's–and when it did not seem that way, then we simply changed the way we counted the unemployed, removing "discouraged workers" from the statistics.
It didn't have to be this way. Europe faced the same competition from Asia, but European leaders coaxed their industries to reorganize and reinvest in the future. They provided "patient" capital to allow them to do it, they built or beefed up engineering universities and poured huge amounts of money into worker training and education.
America's leaders and professional classes were initially proud of their success relative to Europe's. During Europe's reinvestment process, huge numbers of workers remained unemployed, collecting permanent unemployment benefits thanks to many countries' generous safety net. Meanwhile, America's unemployment rate quickly recovered. While some of that was thanks to all those low-wage jobs in the strip malls, a huge part of America's low unemployment story lay in shady accounting: under Bill Clinton we simply stopped counting many millions of unemployed people who had simply given up.
What wasn't visible at first was that Europe was taking a long-term approach, investing in next-generation, high-wage industries. They used their technological edge over East Asia–an edge that we also enjoyed–to scale up their high tech industries that were still beyond most Asian countries reach. For example, the smart phone industry was more or less developed first in Scandinavia and other parts of Northern Europe. Opponents of industrial policy point to this as a failure because national champions Ericsson and Nokia lost their market dominance to Asia in fully assembled phones. But today, the most expensive parts of iPhones and Androids are still made in Europe. Thousands of European firms spun out of that early cell phone industry–aided by patient loans and venture capital facilitated by or directly granted by governments. Moreover, big national champions never go extinct. Today Ericsson and Nokia each employ twice as many employees as Facebook and earn billions in revenue–in nations a fraction of the size of the U.S.. Because they make the most valuable things in the world, workers at all these thousands of European firms have enormous bargaining power, and earn extremely high wages compared to their America counterparts. Incomes in the U.S. are higher than Europe's only when you include America's top 20% of fabulously paid professional workers, but when you look at the working class only, wages in the part's of Europe that practiced good industrial policy are higher, and the floor on low-wage jobs is much higher. The moral of the story is that because Europe's workers continued to make valuable things that the world needed, they retained their own value. As the world economy continued to grow, the value of what Europe's manufacturing firms produced grew. Because of automation, manufacturing's share of the workforce declined slightly, but it continued to provide high-wage employment for around a third of workers–providing good jobs directly or indirectly to the bulk of non-professional and non-college educated workers.
While Europe earned a premium, as the world's boutique, high-end supplier however, America became the indebted consumer, wanting the smartphones and other magical things, but making nothing to trade for them besides hamburgers and french fries. And that is what Trump meant, when he said it at three stadium rallies per day across the rust belt in 2016, by, "the politicians dismantled your means of making a living."
So why did America lapse into decline when most of Northern and Western Europe, faced with the same problems, managed to keep moving forward? It was not inevitable. It was not built into our social DNA. The leaders who came to power in the U.S. during the crisis just happened to really hate industrial policy, or any kind of government intervention in the economy. Yes, there is a history to why that was, rooted in all kinds of factors in America that pushed things in that direction. But it didn't have to go that way. None of those factors were so overwhelming that they couldn't be overcome by good leadership. After all, for most of American history, we've been great at industrial policy and investment.
The truth is we just hit the end of our run, because to many of our leaders were captivated by a mystical story of the power of non-intervention in the economy. Our nation made a misstep and tripped.
But we humans don't like to think of history that way. We like to think there are big, immovable reasons and meaningful trends behind our fate. Lefties like to think that Europe succeeded because of its socialist traditions. But it was almost universally center-right capitalist parties that led the investment programs–parties that came to power in the same neoliberal revolution led by Thatcher and Reagan. In fact, there were many proponents in the Reagan revolution who championed industrial policy, but they lost early battles and were sidelined. Again, I agree that longterm tendencies in American history coaxed that outcome into being. But there are opposite tendencies just as powerful that could have created an investment-oriented outcome if the right leadership was in place.
It didn't happen. But it could now. Unfortunately, the strongest sign of a new leadership rising around investment are rising with the anti-immigrant, "anti-everything" populist right, in leaders like Marco Rubio, Josh Hawley, and Tom Cotton, who are all talking forcefully about industrial policy and public investment. Expect them and other Republicans to make a strong case to the American people for their program from the 2024 Republican debate stage. If they're making that case after four years of inaction by Biden, in the midst of a lingering Covid Depression, then say hello to our next giant step toward real fascism. Where will the next generation of leaders come from then? Unfortunately, D/democratic (in Europe, social democratic) parties have almost never led effective national investment programs. The exception in the United States was the economic mobilization around World War II, which was led by a bunch of business Republicans that FDR hired to run the war economy. Large-scale investment continued after the war for a little while under Republican president Eisenhower. A handful of Democrats do talk about investment via the Green New Deal, but most of them are interested in every part of the Green New Deal other than the investments.
Where does this leave us? Not in a good position, that's for sure. But maybe it's a position from which America will have no choice but to promote an entirely new kind of leader capable of both upholding America's core values of openness and pluralism while also driving forward an investment plan to rebuild America for all. Know anyone like that?