Americans Need Jobs, Not Populism
Instead of raging against a "rigged" system, Democrats should work together with business to build an economy that distributes its benefits more broadly.
In 2008, I was elected governor of Delaware. In politics, timing is everything. You can be a fantastic candidate and run in a bad year for your party and get clobbered. You can be an absolute dud and run in the right year and get the brass ring. 2008 was a good year to be a Democrat.
But beyond the political benefit, my timing was awful. A month before I took office at the depths of the Great Recession, Chrysler closed its assembly plant in Newark, my hometown. A few months after my inauguration, General Motors shuttered its plant a few miles away. That fall, Valero closed its refinery. Those three employers had represented the best opportunities for high school graduates to get middle-class jobs for decades. Within a year, all were gone.
The slide got worse. Delaware isn’t New York, but it has a critically important finance sector, which shed thousands of jobs. Even its huge poultry industry was in the middle of one of its lousy cycles. By the end of my first year in office, five percent of Delaware’s jobs vanished. My agenda was clear: My entire tenure as governor would be focused on job creation.
I could have railed against the CEOs of Chrysler, GM, and Valero for pocketing bloated salaries while handing out pink slips to desperate families. I could have said that the economic system is rigged, with the deck stacked against the middle class. Certainly there were many in my party who would eagerly and loudly make such a case. It would have made for great headlines; people may have cheered. But it would’ve been a dodge. Those salaries, generous as they may have been, had nothing to do with plants closing in my state.
The real problem doesn’t fit on a placard. It doesn’t lead people to protest or “occupy” an industry. It won’t get full-throated cheers or point the way to ready made solutions. Because the economic system isn’t so much fundamentally rigged as the populists contend, as it is fundamentally, unalterably, never-to-be-the-same-again changed. And long before the financial crisis hit, Americans shrugged off this changing world.
Globalization means that businesses can hire, locate, and expand anywhere in the world. And if one business seizes global opportunities and another in the same sector does not, the slow business goes the way of Radio Shack. Technology means far more can be produced with far fewer workers. If one business seizes the technological opportunities and another in the same sector does not, the slow business goes the way of Borders Books. Together, the forces of globalization and technology detonating simultaneously as a financial crisis hit permanently altered the landscape of the American economy—stunting wages, reducing employment security, and providing the greatest benefits to those at the top. Even today, with plenty of jobs and wealth being created again, the altered economic terrain is preventing new wealth from being broadly shared. As governor of a state in crisis, these were the truths I had to confront if Delaware was to make progress, not headlines.
Fortunately, this had been a lifelong interest of mine. When I was 17, I visited India. Getting off the bus in New Delhi, I found myself immediately surrounded by impoverished children. That visit—and my shock at what I saw—started me on a lifelong journey. I was especially struck by the dichotomy in wealth that I saw in India. It was unlike anything that I had ever experienced in the U.S. The streets seemed to be full of either successful businesspeople scurrying to work or beggars. I didn’t see much in between. Overwhelmed by what I saw, I asked family friends in New Delhi to explain what I was seeing.
Their answer included some discussion of the caste system and the barriers it created for so many Indians. But they also boiled poverty down to one main cause: a profound lack of decent jobs.
I came back to the U.S. a few months later as a freshman at Brown University resolved to change that. I decided to double major in Development Studies and Economics so I could prepare for a career in economic development. As a senior, I thought seriously about entering the Peace Corps. But my biggest takeaway from my classes: If I wanted to change things, I needed to speak the language of business.
So I embarked on a career that took me from banking to consulting to telecommunications. I loved these jobs. Thanks to my time in business and harkening back to those few depressing days in India, I had developed an overriding conviction that a good job trumps all else. When I entered public service first by serving as Delaware’s State Treasurer for ten years, I focused mostly on economic empowerment for those most in need, leading a campaign to promote the earned-income tax credit and creating the Delaware Money School.
Central to my perspective—from that first trip to India, through my work in the private sector, to my efforts as treasurer to help empower the economically disempowered, to finally returning to India nearly four decades later as governor, seeking job opportunities for Delawareans—is the synergy, rather than the contradiction, between economic growth and economic justice.
The bottom line is that private enterprise creates the primary condition for reducing poverty and want: economic growth. Governments don’t create jobs; however, government has an ability and responsibility to create a nurturing environment where business leaders and entrepreneurs want to locate and expand. What that means is that government has an active role in creating an economic environment that creates middle class success and prosperity.
The pre-recession, credit-filled boom years masked vast changes in the global economy that make recovery more difficult. Specifically, in a world where 3 billion people are looking for jobs but only 1.2 billion jobs are available, employers have more choices than ever about where to hire. And the emergence of digital technologies that displace millions of jobs and lead to rising economic insecurity is significant.
Here is the irony about the modern U.S. economy: It’s once again among the world’s strongest and getting stronger. Unemployment is down and the stock market is near record highs. But individual Americans don’t live in the aggregate and their relatively good fortune compared to other countries is of little comfort to many families across the country. Income inequality is growing worse. And when it comes to the distribution of wealth, ours is now the most unequal of all advanced economies.
And that represents perhaps the greatest challenge: Rising economic insecurity detracts from economic growth—which only compounds the problem caused by rising global competition and technology. People who are economically insecure don’t take entrepreneurial risks. And a huge number of Americans are economically insecure. Only 14 percent of Americans believe they are getting ahead. The rest feel like it’s harder to maintain a middle-class life. And only 39 percent believe their children will live better than they do.
It’s no surprise that people worry about their kids. By 2025, a significant majority of jobs are projected to require training beyond high school. Less than half of the American population has that today. 41 percent of students at four-year public colleges fail to complete their degree within six years. And 67 percent of students at community colleges fail to graduate within three years. Lots of debt coupled with no degree leads to economic insecurity.
Americans are also ill-prepared for retirement, with 40 percent over the age of 45 reporting that the Great Recession had caused them to push back their expected date of retirement.
So if the major structural forces at work in the economy include heightened global competition for jobs and huge productivity gains meaning a need for fewer workers and more economic insecurity, what’s the solution?
In Congress, particularly among Democrats, the rhetoric revolves around fixing a “rigged system” that causes income inequality as well as a reflexive blaming of the financial sector for America’s continued economic woes.
Yes, economic mobility isn’t as robust as it might be. And yes, the wealthy and powerful have more influence than they should. But this is certainly not a new phenomenon. The vast changes in technology and the global economy, however, are the explosive new variables in the economy.
As for the finance sector, it’s too convenient to blame bankers and Wall Street for the fifteen years of stalled middle-class wages, sub-2 percent average U.S. GDP growth, and outsourcing of millions of middle-class jobs. In my state, the finance sector is actually critical in creating middle-class jobs and a strong local economy. Where Wall Street deserves blame—like selling junky mortgages as AAA assets – it should be noted, punished, and reformed. But American capital markets are, on balance, a huge competitive advantage to the U.S. economy.
On the right, the congressional debate revolves around the sanctity and theology of the free market. Too often, the right seems to think the creation of great wealth is more important than whether or not the bounties of that wealth are broadly shared. To be fair to conservatives here at home, a growth rate beyond the meager 1.9 percent the U.S. has averaged since 2001 would benefit everyone. But as the McKinsey Global Institute wrote recently, “changes in average income will not be enough to increase demand if most of the gains accrue to individuals whose needs have already been met.” Growth is necessary, but not sufficient. The growth must lead to the wealth being more broadly distributed.
Delaware did not accept either anti-business extremism or laissez-faire dogmatism; instead, it embarked on a three-part strategy to invest in people, engage with the world and reduce the risks for those who want to take chances for a better future.
Step one was to focus on education, from infancy through college access and workforce training. Delaware has doubled the number of low-income students enrolled in early childhood education centers and improved their performance by linking funding to quality measures.
That emphasis on metrics extends to K-12 education. There should be little debate that higher standards are needed, by whatever name. (In Delaware, we call them Common Core!) The state focused on educator recruitment, training, and teacher prep. And, to prepare more students for the global economy, Delaware created language-immersion programs. Today, 1,400 Delaware kindergartners, first, and second graders learn social studies, science, and math in Spanish or Chinese. They will be fluent in a few years. The program adds schools and grade levels each year.
Many young Americans waste their potential by not even applying for college. In Delaware, taxpayers pay for every high school sophomore and junior to take the PSAT and SAT during the school day. Students don’t have to pay and don’t have to come in on the weekend, so participation rates are extraordinarily high. Delaware has partnered with the College Board, which has secured application-fee waivers to up to eight colleges for low-income students. It has also created an aggressive campaign to reach out to these students to encourage them to apply and volunteers help them with their applications, essays and financial aid. In the first year alone, hundreds more Delaware high school seniors applied and were admitted to college compared to previous years. In a state of Delaware’s size, it’s a great start.
But not every high-schooler heads to college. Plenty of jobs can be filled by individuals who have some training, but not a four-year degree. Creating more opportunities for high school students to get into the workforce and learn new skills will open other avenues for advancement. “Pathways to Prosperity” is a great model in Delaware and elsewhere.
There is more to do. But in a world in which the skilled will do well, Delaware is preparing this generation and the next to be ready to compete in a global workforce where employers have an increasing number of options for where to hire.
But simply preparing students to compete in the global economy is not enough; they need to actively embrace the opportunities it presents. Billions of new middle-class consumers are being added globally over the next 15 years and they will create trillions in new wealth outside of the United States.
While some Democrats are skeptical of the President’s effort to sign a massive trade deal with Asia, I see opportunities. U.S. exports as a share of gross domestic product are only half that of the world’s as a whole. An Asian trade agreement could lower tariffs and export barriers so businesses can gain a foothold. America could become an export giant again, not the laggard it is now. Export jobs pay well—20 percent above the average wage, according to the International Trade Commission. And the 17 most recent trade deals turned a $2 billion trade deficit in the blue-collar goods sector to a $30 billion trade surplus, according to a new report.
Government also has an important role to play in promoting trade. That means reauthorizing the State Trade Export Promotion program at a more aggressive level and providing technical assistance to small businesses that want to export. It likewise requires renewing the Export-Import Bank so exporters aren’t at a significant competitive disadvantage. Corporate tax rates need to stop providing an incentive to global businesses to do “inversions,” in which they reincorporate and invest abroad instead of at home. It also means significant promotion abroad of the benefits of investing in the U.S. The Select USA program is worthy of expansion. And it’s up to the government to attract—and retain—more skilled immigrants, who add enormous value and energy to the economy, and create jobs for American workers. That will require better immigration rules for those with high skills, including more HB-1 visas.
It’s not enough, though, simply to increase economic growth, unless its fruits are broadly shared. When Americans support each other, they maximize their individual and collective opportunities to succeed. Delaware has increased the minimum wage, invested in substance-use disorder treatment to help people get back on their feet and created strong partnerships between employers and educational institutions on skills training.
The ability of Americans to earn a decent minimum wage, to access affordable and quality health care, and to live a retirement in dignity differentiates us from so many countries where those conditions don’t exist. Failing to provide these basic supports actually cannibalizes the economy. When Americans don’t feel confident in their own financial future, they won’t spend the money that fuels the consumer-driven economy.
Business icons built this understanding into their own business models. American auto pioneers insisted on paying a wage that allowed their own employees to purchase what they manufactured and assembled. Employers know that employees who are worried about losing their job because they have to take care of sick relatives are unlikely to perform at desired levels. Government policies give mothers and fathers the certainty that an on-the-job injury won’t plunge their families into poverty.
These investments should help those in the workforce attain the basic four tickets to a stable and secure middle class: a reasonable wage, a comfortable retirement befitting a lifetime of work, affordable health insurance, and enough money to save for college.
Last year, I signed legislation raising Delaware’s minimum wage to $8.25 per hour. But it’s not enough to raise wages, without empowering workers to make prudent financial decisions. The StandByMe program, an alliance between employers and nonprofits, embeds financial counselors at places of business. Employers ranging from grocery stores to hotels have found that because employees gain confidence from this counseling, they are less likely to be absent from work and turnover is reduced.
All workers deserve a shot at a decent retirement. For a long time, capital has earned significantly greater returns than labor. The share of national income generated by worker salaries has fallen by more than ten percent over the last thirty years. As Third Way notes, “If all working people, whatever their age, could get a piece of these gains, it would improve their financial well-being.” Their suggestion: a 50-cent per hour minimum requirement contribution from all employers to all employees that would be invested in a low-fee diversified fund and that would provide a decent nest egg at retirement.
The third ticket is affordable health insurance. Now that the Affordable Care Act is law, it is time to focus on the “affordable” part. Moving health care away from a fee for service model to one based on value, would help eliminate a system that is laden with rising costs that eat up paychecks, send jobs overseas, overburdens taxpayers, and drowns out public investments.
And the fourth ticket is college savings. That’s why programs like Delaware’s SEED program, which pays for two years of community college, as well as dual-enrollment programs, in which students take college classes while still in high school, make so much sense.
In Delaware, these ideas are working. Today, the unemployment rate is below five percent. Delaware employs more people than at any point in its history. And the job growth rate has been among the best in the country for the last couple years.
Long-term success requires an active government that partners with business to ensure that the bounty of economic growth is shared broadly. Sharing this bounty is not about having a “bleeding heart.” It’s a matter of cold economic sense.
I am hugely bullish about the future of the American economy because I believe in investing in people, engaging with the world and sharing broadly the bounty that economic growth will generate. Growing without sharing won’t get it done. And neither will redistribution without growth. Americans really are in this together.