Down-sizing Downsizing
The Clinton administration
isn't particularly mendacious on economic matters--in fact, economic analysis
and reporting under Clinton have been unusually scrupulous. But the president
has changed his mind about economic policy so often that now his officials
sound insincere even when they speak the plain truth.
And so I
feel a bit sorry for Joseph Stiglitz, the eminent economist who chairs
Clinton's Council of Economic Advisers. In April, Stiglitz released a report on
the state of the American worker, more or less confirming what most independent
economists had already concluded: Workers are not doing as badly as recent
headlines might suggest. In particular, the impact of corporate downsizing has
been greatly exaggerated.
Stiglitz's report was, to all appearances, a sincere
attempt to produce a realistic picture of the American labor market. Yet it was
treated by nearly all commentators as a purely political document--an
election-year effort to accentuate the positive.
But the
commentators had reason for their skepticism. After all, other members of the
administration--especially Labor Secretary Robert Reich--have been insistently
pushing a very different view. In the world according to Reich, even well-paid
American workers have now joined the "anxious classes." They are liable any day
to find themselves downsized out of the middle class. And even if they keep
their jobs, the fear of being fired has forced them to accept stagnant or
declining wages while productivity and profits soar.
Like much of what Reich says, this story is
clear, compelling, brilliantly packaged, and mostly wrong. Stiglitz, by
contrast, is telling the complicated truth rather than an emotionally
satisfying fiction.
To understand why Reich is
wrong (about this and most other things), think about the strange case of the
missing children. During the early 1980s, sensationalist journalism, combining
true-crime stories with garbled statistics, convinced much of the public that
America is a nation where vast numbers of children are snatched from their
happy families by mysterious strangers every year. TV shows about "stranger
abductions" are a media staple to this day. In reality, however, such crimes
are rare: about 300 per year in a nation of 260 million.
It's not
that abductions never happen. They do, and they are terrible things. Nor is the
point that the kids are all right: For hundreds of thousands of American
children, life is sheer hell. Almost always, however, the people who victimize
children are not strangers. For every child kidnapped by a stranger, at least a
thousand are sexually abused by family members. But stranger abductions made
good copy, and therefore became a public concern out of all proportion to their
real importance.
Corporate downsizing is neither as terrible nor as rare as
stranger abduction, but the two phenomena share some characteristics. Like
stranger abductions, downsizing is a camera-ready tragedy, perfect for media
exploitation, that is only a minor part of the real problem.
Stiglitz's report is full of
dense statistical analysis making this point, but here's a quick do-it-yourself
version. A February Newsweek cover story entitled "Corporate Killers"
listed just about every large layoff by a major corporation over the last five
years. The number of jobs eliminated by each company appeared in large type
next to a photo of the CEO responsible. The article implied that it was
describing a national catastrophe. But if you add up all the numbers, the total
comes to 370,000. That is less than one worker in 300--a tiny blip in the
number of workers who lose or change jobs every year, even in the healthiest
economy. And the great majority of downsized workers do find new jobs. Although
most end up making less in their new jobs than they did before, only a fraction
experience the much-publicized plunge from comfortable middle class to working
poor. No wonder Stiglitz found that the destruction of good jobs by greedy
corporations is just not an important part of what is happening to the American
worker.
The point
is that Reich's style of economics--which relies on anecdotes rather than
statistics, slogans rather than serious analysis--cannot do justice to the
diversity and sheer size of this vast nation. In America anything that can
happen, does: Strangers kidnap children; mathematicians become terrorists;
executives find themselves flipping hamburgers. The important question is not
whether these stories are true; it is whether they are typical. How do they fit
into the big picture?
Well, the big picture looks like this: Both the
number of "good jobs" and the pay that goes with those jobs are steadily
rising. The workers who have the skill, talent, and luck to get these jobs
generally do very well. Only a relative handful of "good job" holders (which is
to say only a few hundred thousand a year) experience serious reverses.
America's middle class may be anxious, but objectively, it is doing fine.
The people who are really
doing badly are those who do not have good jobs and never did. Those with lousy
jobs have seen their already-low wages slowly but steadily sink. In other
words, the main victims of (to use another of Reich's phrases) the "new
economy" are not the few thousand managers who have become hamburger flippers
but the tens of millions of hamburger flippers, janitors, and so on whose real
wages have been declining 1or 2 percent per year for the last two decades.
Does this distinction
matter? It does if you are trying to set any sort of policy priorities. Should
we, as some in the administration want, focus our attention on preserving the
jobs of well-paid employees at big corporations? Should we pressure those
companies to stop announcing layoffs? Should we use the tax system to penalize
companies that fire workers and reward those that do not? Or, instead, should
we fight tooth and nail to preserve and extend programs like the Earned Income
Tax Credit that help the working poor? It is disingenuous to say we should do
both: Money is scarce and so is political capital. If we focus on small
problems that make headlines, we will ignore bigger problems that don't.
So let's give Joe Stiglitz
some credit. No doubt his political masters allowed him to downsize the issue
of downsizing at least partly because they believed that good news re-elects
presidents. Sometimes, however, an economic analysis that is politically
convenient also happens to be the honest truth.
