What Election '96 Should Be About
by Jack Beatty
FAT AND MEAN:
by David M. Gordon.
The Corporate Squeeze
of Working Americans
and the Myth of Managerial
Martin Kessler Books/The Free Press, 336
Read the first chapter of
Fat and Mean
AS an editor of Basic Books in the 1970s and 1980s,
Martin Kessler, a
political economist by training, who died earlier this year, published the two
most influential public-policy books of that era: Lester Thurow's seminal
analysis of the stagflation economy, The Zero-Sum Society (1981), the
most resonantly titled book since Catch-22, and George Gilder's
Wealth and Poverty (1981), which became the bible of supply-side
economics. How fitting that one of Kessler's last books should be David
Gordon's Fat and Mean, which analyzes the overriding economic problem of
the 1990s--falling wages and living standards--with Thurowlike brilliance and
scholarship and Gilderlike vigor, originality, and optimism. Yes, optimism, for
notwithstanding all the bad news it purveys, Fat and Mean shows how the
American Dream can be recovered.
The Dorothy H. Hirshon Professor of Economics at Manhattan's New School for
Social Research, David Gordon (a valued contributor to The Atlantic who,
sadly, died in March, at the age of fifty-one) was conceived in economics. His
parents were both economists: Robert Aaron Gordon served as president of the
American Economic Association, and Margaret Gordon was an expert on trade and
migration. With Samuel Bowles, of the University of Massachusetts at Amherst,
and Thomas E. Weisskopf, of the University of Michigan, David Gordon was a
co-author of Beyond the Waste Land: A Democratic Alternative to Economic
Decline (1983) and After the Waste Land: A Democratic Economics for the
Year 2000 (1990), and of a number of highly influential technical papers in
professional journals. On this reader, at any rate, After the Waste Land
made algebraic demands; its complexity got in the way of its prescient theme
(the wasteful reality of the vauntedly efficient private sector). Fat and
Mean is no less indebted to the newest and most sophisticated research in
economics, but it assumes its debts much more lightly. The book is a model not
just of social-science research but of economic thinking. Testing hypotheses
logically and empirically, setting arguments against counterarguments, Gordon
vindicated his discipline.
"The American economy has been failing most of its people. Why?" Gordon's
answer is the crux of his book, but for those who still doubt the truth of his
assertion, one chart is worth a thousand words. It shows what has happened to
real spendable hourly earnings for "production/nonsupervisory employees in the
private nonfarm sector"--average workers.
"The bottom line is clear," Gordon wrote.
. . . over the past twenty years, real hourly take-home pay for production and
nonsupervisory workers--representing more than 80 percent of all
wage-and-salary employees--has declined by more than 10 percent. The economy
has grown massively since the mid-1960s, but workers' real spendable wages are
no higher now than they were almost thirty years ago [emphasis
Since 1979 only two categories of workers have seen their real hourly earnings
increase: college graduates, who make up just 20 percent of the work force, by
3.5 percent; and those with postgraduate degrees, by 8.8 percent. People with
only "some college education" lost 15.9 percent of their hourly earnings, while
high school dropouts lost 20.6 percent. Of production and nonsupervisory
workers in major industry sectors, construction workers lost 20.7 percent,
manufacturing workers 10.1 percent, transportation and public utilities workers
15.2 percent, and retail workers 17.4 percent. Only workers in finance,
insurance, real estate, and other services (with or without college degrees)
saw any increase in their real hourly wages.
It is often said that wages are falling in all the industrial countries,
not just in the United States. That is a counsel of pernicious
complacency. Besides, it's not true, and this Bureau of Labor Statistics chart proves
The chart--which, because it includes supervisory employees in manufacturing
and not just ordinary workers, shows an anemic gain in wages--returns us to
Gordon's question: Why?
There are two standard answers. One is globalization. U.S. wages are falling
because the new world market for goods and labor is forcing them down. But to
judge by the chart, the same new world market has not kept wages as flat in the
other industrial countries. So, while globalization may have made its
contribution, it can hardly be the major cause of the collapse in American
wages. Moreover, the "trade-and-wages argument"--imports from low-wage
countries caused U.S. wages, especially in manufacturing, to fall--has an
elementary flaw. Gordon wrote that "the bulk of our trade deficit in
merchandise exports and imports, which consists almost entirely of manufactured
goods" is with countries whose manufacturing wages are higher than ours.
The second standard answer is what Gordon called the "skills-mismatch" or
"technology" argument. Secretary of Labor Robert Reich is the leading proponent
of this argument, which according to Gordon is the only serious explanation
other than global trade which economics offers for the wage crisis. To quote
Reich: "[There is a] mismatch between the skills Americans have and the skills
the economy requires." This certainly fits with the fact that Americans with
college or postgraduate degrees are doing much better than those without them.
Thus the answer to the wage crisis is to raise the skill level of the
nonsupervisory work force.
That's logical enough--and a good idea in any case. But, Gordon's critical
review of the literature demonstrates, the technology argument has only
circumstantial evidence to support it--as its more candid proponents concede.
Grant, for example, that computerization brought about the relative increase in
the earnings of computer-literate college grads. Computerization caught on in
the mid-1980s. "But the real earnings of male college graduates actually began
to fall in absolute terms after 1987," Gordon wrote, as the wage crisis crept
up the income scale. In fact, from 1983 to 1993 real hourly wages fell or
stagnated for those workers the Bureau of Labor Statistics identified as
"computer operators" and "engineering technicians," while they climbed 31.2
percent for doctors and 29.7 percent for lawyers and judges--hardly high-tech
professionals. After raising a cluster of similarly persuasive objections to
the skills-mismatch explanation for the wage crisis, Gordon asked, "Have we
found a modern version of the story about the emperor with no clothes?"
But if "trade" and "technology" at best only begin to explain the wage crisis,
then what really explains it?
THE title of Gordon's first chapter gives the game away:
his villain is
"corporate bloat." Thus Fat, which was created to implement a corporate
strategy--namely, Mean. Since the early 1970s, when wages started their
long dip down, American corporations have been following a "Big Stick" strategy
toward their production and nonsupervisory employees. Corporate America's
response to global competition has been to get tough on unions; to lobby hard
and successfully against meaningful increases in the minimum wage; to invent
new categories of workers--contingent, part-time, temporary--who typically get
no health insurance or other benefits and can be hired and fired as needed. At
the same time, it has bulked up with managers and supervisors to monitor
employees whose morale has fallen apace with their wages. Gordon explained the
logic of the Big Stick this way:
Can't trust your workers when left to their own devices? Peer over their
shoulders. Watch behind their backs. Record their movements. Monitor them.
Supervise them. Boss them. Above all else, don't leave them alone. As one
recent study observed, "American companies tend, fundamentally, to mistrust
workers, whether they are salaried employees or blue-collar
There are about 17 million monitors and supervisors, not including their
secretaries and assistants. They cost the economy $1.3 trillion in compensation
in 1994, or four times the cost of Social Security, and almost exactly what the
federal government collected in all taxes in 1994. This "bureaucratic burden"
is equivalent to $1.00 of a $5.00 six-pack, or $4,000 of a $20,000 car. Of the
industrial economies in Gordon's sample, none, except tragically propinquant
Canada's, carries anything like as heavy a burden. Whereas 13 percent of U.S.
nonfarm workers are managerial and administrative employees, according to the
Yearbook of Labour Statistics, only 4.2 percent of Japanese workers, 3.9
percent of German workers, and 2.6 percent of Swedish workers are in that
category. Had we held our bureaucratic burden to the Japanese percentage,
Gordon calculated, about 10 million workers would have been freed--none dare
call it "downsized"--to do something more valuable in the economy (which almost
anything other than implementing a wasteful strategy would be), realizing a
possible "corporate bureaucratic dividend" of some half a trillion dollars.
The bureaucratic burden mirrors the decline in wages for the 80 percent of the
work force--as it rises, they fall--that is not in the Fat. (To quote Gordon,
"Men who worked at least eight out of ten years as managers during the 1980s
earned 68 percent more than the average earnings for all male workers.") Since
1947 the number of managers and supervisors has exploded by 360 percent, but it
was only in the early 1970s, with the arrival of the Big Stick, that the burden
began to get really heavy. "And for this strategy to work, the power of the
stick-wielders had to be enhanced," Gordon wrote, noting "a massive income
shift, within the total category of wage-and-salary employee compensation, from
production and nonsupervisory earnings to nonproduction and supervisory
salaries." This income shift, all but ignored in the media, was about seven
times as large as the defense buildup of the Carter-Reagan years. Gordon cited
observations from Malcolm Baldridge, who was a Secretary of Commerce in the
Reagan Administration, and Peter Drucker on what the latter called the "gross
overweight around the midriff" of U.S. corporations. On becoming the chief
executive officer of General Electric in the early 1980s John Welch said, "We
were hiring people [just] to read reports of people who had been hired to write
Hasn't the "downsizing" scythe of the nineties cut this Fat away? Not yet.
Whereas a total of 2.5 million Americans have lost their jobs owing to
corporate restructuring since 1991, the percentage of managers among nonfarm
employees rose from 12.6 in 1989 to 13.6 in 1995. Although many middle managers
have been let go, even more production workers have too, allowing the
percentage of managers to grow. Gordon, complementing the view that James
Fallows expresses about the out-of-touch media in his new book, Breaking the
News, wrote, "The media appear to pay disproportionate attention to
downsizing toward the top rungs of the occupational hierarchy because these
workers are disproportionately their friends and relatives and readers and
listeners." Inconveniently for Gordon's thesis (and for a small city's worth of
families), 1996 began with news of AT&T's plans to lay off thousands of
mostly managerial employees.
It is as if the downsizing revolution were now devouring its perpetrators.
Gordon's thesis made him less sympathetic to their quandary than common
humanity warrants. Managers are people too. A capitalism without workers:is
that where this destructive madness will end? Better Fat and Mean, say I, than
Lean and Mean.
did stockholders and boards of directors of corporate America permit the
bureaucratic burden to grow? Is productivity growth higher among our
management-light, non-Big-Stick-wielding industrial competitors? (Hint: yes.)
Why has computerization fed instead of cut the Fat? How have U.S. corporations
that have not used the Big Stick fared relative to their meaner competitors?
Haven't quality-of-work-life programs blunted the stick? (Hint: no.) For the
answers to questions like these, see Gordon's book.
It ends, as I will, with a list of negative and positive incentives for
corporate America to drop the Big Stick and stop the wage squeeze affecting 80
percent of U.S. workers before it triggers bread riots--and causes goods to
pile up in stores because wage-challenged consumers are unable to buy them. In
a sign that consumer demand is in fact contracting, at least eight major
retailers filed for bankruptcy last year, and analysts were predicting more
filings this year in the wake of the miserable Christmas shopping season, which
saw mainly upscale retailers, who cater to the top 20 percent of the work
force, enjoy good sales.
The biggest negative incentive would be to change the law so that unions can
fight back against the Big Stick. Union membership tracks the decline in wages.
Unions got clobbered in the eighties, when corporate America implemented the
Big Stick and the Reagan Administration staffed the National Labor Relations
Board with conservatives who rejected unfair-labor-practice complaints against
corporations at a record rate. The saddest chart in Gordon's book shows a
straight line running down the page--the decline in union membership from 35
percent of the work force forty years ago to less than 15 percent in 1994. The
union wage, as a study by David Card and Alan B. Krueger, of Princeton
University, has shown, puts upward pressure on all wages, and so all workers
have a stake in union expansion. Gordon recommended simple changes in the law
that would make it easier for unions to organize and would allow all but the
top managerial employees to join.
Among his other recommendations:
These steps make economic sense. The Big Stick is killing the economy.
But corporate America will vigorously fight any such reforms through its
well-funded political arm, the Republican congressional majority. Dick Armey,
the Republican majority leader in the House, says eliminating the
minimum wage is his idea of a moral issue. As for the Democrats, they, too,
depend on corporate campaign contributions. President Clinton won the election
in part by promising to raise the minimum wage, but he reneged to win corporate
support for NAFTA, a kick in the teeth to the low-wage workers who voted for
him in 1992. In a statement indicative of the attitude of the Administration,
Vice President Herbert Hoover Gore, speaking before a New Hampshire chamber of
commerce, benignly depicted AT&T's huge layoffs as a "natural impulse . . .
to change and to become as efficient as possible."
- Finance Social Security out of general revenues, as most other advanced
countries do, instead of from a separate tax on payrolls, so that employers
would not be able to avoid the tax by hiring temps.
- Raise the minimum wage from $4.25 to $6.50 an hour over four years, and index
it to increases in the cost of living. This would give a fillip to wages and
especially to the wages of women, since 58.8 percent of employed women work at
or below the minimum wage. In a numerically surprising analysis, Gordon showed
how the wages of more than 20 million workers have been negatively affected by
the fall in the real value of the minimum wage.
- Extend a variety of direct subsidies to firms that drop the Big Stick. How
would a company demonstrate its reform? Perhaps by sharing the fruits of
productivity increases with workers instead of lavishing them on executive pay
raises and corporate dividends.
- Mandate vacations of at least three weeks, which, Gordon wrote, would
"contribute to breaking down the artificial distinctions . . . between
full-time and part-time employees," and make other changes in the Fair Labor
Standards Act to enhance the benefits and job security of disposable or
contingent workers, who number upwards of nine million and the growth of whose
presence in the work force since the 1970s dolefully has coincided with the
decline in real wages.
Pat Buchanan doesn't talk this way about corporate downsizing, nor does
Massachusetts Governor William Weld, at the other end of Republican politics.
Word from inside the Clinton Administration is that Dick Morris, the
consultant-guru of Clinton's re-election campaign, who has peddled his
versatile counsel to Republicans like Jesse Helms and Trent Lott, is telling
Cabinet members to stop talking about economic insecurity. The economy is
great, and it's our economy--that's the Morris message that Gore was parroting
in New Hampshire. Under Clinton the Democrats have lost any claim to economic
populism just when circumstances are giving it a new lease on emotion and
We are at a paradoxical moment in economic history, when what is in the broad
interest of all U.S. corporations--well-paid worker-customers--may not be in
the narrow interest of any one corporation. And government, which should assert
the national interest in resolving this paradox, is throwing up its hands. The
relative optimism in Gordon's book springs from the economic facts. The
political facts warrant despair.
Copyright © 1996 by The Atlantic Monthly Company. All rights
The Atlantic Monthly; May, 1996; What Election '96 Should Be About;
Volume 277, No. 5;