Why America Needs a New Deal for Labor and Business

The U.S. has to produce more and consume less. A handful of companies and unions -- yes, unions -- are showing us how.

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President Obama is cobbling together a new jobs package for September, but it won't be enough to revive the economy. Instead of offering another grab-bag of micro-initiatives, the administration needs to embrace a different model for growth that stimulates production rather than consumption, saving rather than borrowing and exports rather than imports.

This strategy emphasizes investment in the nation's physical, human and knowledge capital--infrastructure, skilled workers and new technology. That's a better way to raise U.S. wages and living standards than a new jolt of fiscal stimulus.

Getting consumers spending again will boost demand, but much of it will leak overseas via rising imports, stimulating foreign rather than U.S. production. In a world awash with cheap labor, where technology gaps are narrowing rapidly, a wealthy society like ours can thrive only by speeding the pace of economic innovation and capturing its value in jobs that stay in America.

The shift from a consumer-oriented to a producer-centered society won't happen without a new partnership between labor and business--and a shift in outlook among workers themselves. Organized or not, U.S. workers should think of themselves first and foremost as producers rather than consumers. They have a compelling interest in keeping the companies they work for competitive, and in supporting a new economic policy framework that enables investment, entrepreneurship and domestic production. This reality points to new relations between workers and companies, and new political alliances.


In the post-war compact of the 1950s and 1960s, workers offered loyalty and labor offered peace to companies in return for stable jobs with decent pay and benefits. But the deal between labor and capital changed as globalization took hold. Workers gave up job security; in return, they got low consumer prices and access to easy credit. Despite access to cheap foreign goods, however, real incomes fell for most households, as real wages dropped and job growth in most parts of the private sector virtually disappeared. Easy credit was used to fund consumption rather than investment in human capital.

Now, at a time when America's economic preeminence cannot be taken for granted, the interests of workers are converging with those of companies, foreign and domestic, that want to invest in the U.S. economy. In a new compact for competitiveness, workers would pay more attention to innovation, workplace flexibility and productivity gains. Companies would invest more in upgrading workers' skills, help them balance the pressures of work and family, and pay them middle class wages and benefits.

Two unions are pointing the way toward such a bargain: the United Auto Workers (UAW) and the Communications Workers of America (CWA).

At the UAW, President Bob King argues that U.S. workers and employers are in the same boat in rough seas of global competition:

The 20th-century UAW joined with the companies in a mind-set that it was the company's job to worry about profits, and the union's job to worry about getting the workers their fair share. The 21st-century UAW embraces as our own the mission of producing the highest quality, best value products for our customers.

To get labor costs down, the auto workers have agreed to a two-tier wage system in which new hires make only about half of what longtime workers earn. And for the first time, they are experimenting with profit-sharing plans that give workers a direct stake in their employers' success. King also wants to jettison long contracts larded with work rules that hinder flexibility and collaboration in the workplace.

Also breaking the traditional mold is the Communication Workers of America (CWA). For example, it has endorsed AT&T's proposed $39 billion acquisition of T-Mobile. This has put CWA at odds with consumer groups that claim the merger will reduce competition in the lucrative mobile phone/internet sector, thereby leading to higher prices for consumers.

But CWA is focused on upping investment in job creation, not just low prices. As part of the proposed merger, AT&T has agreed to make significant investment in new mobile broadband services which could lead to the creation of up to 96,000 new jobs.


The shift from a consumer to a producer society scrambles traditional ideological categories and political alliances. Liberals are right that we need a dramatic boost in public investment, and should pay for it with a combination of spending cuts and higher tax revenues to avoid more borrowing. But goosing production also requires steps conservatives usually favor, such as cutting taxes on entrepreneurs and telling regulators to take a lighter hand to encourage investment in innovative industries.

For example, workers and policy makers should draw distinctions between businesses that are making substantial bets on the U.S. economy--PPI has dubbed these America's "Investment Heroes"--and those that are either hoarding their cash or investing in countries abroad where think they can find a higher return.

Progressives should rethink alliances with "pro-consumer" activists whose reflexive suspicion of business can blind them to the ways innovation and job-creation actually work. In controversies over mergers and acquisitions, for example, such groups typically focus on the hypothetical impact on consumer prices, rather than on the bigger picture of economic investment, innovation and jobs.

Above all, U.S. political leaders need to move beyond today's witless "government vs. markets" debate, in which each side insists, in effect, on tying one hand behind America's back in global competition. A U.S. economic comeback requires both a more strategic public sector and a more dynamic private sector--and a new politics that can give us both.