THE AGE OF ANXIETY
The campaign debate over economic anxiety is veering off into the wild blue yonder. Business-bashing and tariff threats are replacing balanced budgets and tax cuts. With the economy barely growing, the rhetoric could do real damage. The bond market is already throwing a fit, and the dollar is swooning.
There's no question that a lot of people have serious economic problems, to which Pat Buchanan is giving voice. Behind all the glorious statistics that show the U.S. doing just fine, thank you--low unemployment, low inflation, booming profits, and lofty stock prices--there are millions of families struggling to get by, with everyone but the dog out working. The voters attracted to Buchanan haven't had a real raise in 20 years, and even white-collar professionals are being downsized from their corporate perches. Some 11% of all college-educated men lost their jobs from 1991 to 1993. Downward mobility is a constant threat, if not a reality, for people who grew up thinking betterment was their birthright. Just about everyone has a sister, father, child, or neighbor who was laid off recently. No wonder people are edgy and insecure.
Much of Buchananism is the worst sort of isolationism and scapegoating. His campaign repudiates the values of an expanding entrepreneurial society for the crimped vision of a defensive America hemmed in by tariffs and electric fences. But Buchanan has struck a chord: Many people are suffering as the U.S. undergoes a wrenching transition toward becoming a high-tech, globally competitive nation. Even if he fades after his surprising third-place finish in Arizona, many of the problems Buchanan has focused national attention on will remain.
Economic anxiety may be the natural state of a society in transition, but there are steps to take without turning the U.S. into a xenophobic autarky. Here they are:
-- CEOs should share the gains. They should copy IBM, which just boosted merit pay and bonuses by 8%. With profits up 38.2%, CEO Louis V. Gerstner Jr. shared the wealth generated by the higher productivity of all the company's employees. A new BUSINESS WEEK/Harris poll shows that 95% of the public believe companies have responsibilities to their employees and communities that go beyond making profits. That may be. But companies can best fulfill their social responsibilities by paying for performance and training their employees. In the past four years, with profits booming and productivity high, wages have barely risen. The time has come to share the wealth. IBM, Nucor Corp., and other companies are offering their employees a real share of the gain. Stock options, bonuses, and variable merit pay that reach to the lowest rungs of the company are the way to do it.
-- CEOs should share the pain. CEOs are perceived as the enemy by a frightening number of Americans (page 64). It was a delusion to believe that chief executives could express indifference to the pain of layoffs without paying a political penalty. It was hubris for CEOs to award themselves huge pay packages when their employees' wages stagnated. Boards would do well to penalize poor leadership and strategy. Equity and fair play are critical values in American life, and there is political danger in tampering with them.
-- Government policy must boost human capital. Tax incentives are currently geared to increasing bricks and mortar, not knowledge. In an Information Age, this whole system of incentives is archaic. There are accelerated depreciation taxes, R&D tax credits, and a whole host of other carrots to promote building things, but few tax incentives for improving knowledge and skills. The federal government spends billions on retraining programs, few of which are effective. Take the money, turn the programs into training vouchers, and give them to individuals and companies, who are close to the job markets. For youngsters, getting into college is critical. With college the defining wedge between haves and have-nots in America, tax incentives, such as expanded IRAs, for tuition should be considered. Already, two-thirds of all high school graduates go on to some kind of college or vocational program, double the rate of the '70s. More aid would help the most needy.
-- Boost growth. Of all the things that should be done to increase wages and curb inequality, nothing is more important than simply raising the economic growth rate. The solution to economic anxiety is not to redivide scarce jobs and opportunities, but to expand them. For 100 years following the Civil War, as America moved from agriculture to industry, the economy grew at 3.4% annually and wages doubled every 35 years. Each generation did better--until the '70s, when economic expansion slowed to 2% and average wage growth stopped cold. That extra margin of lost growth would have relieved a lot of economic anxiety. With inflation low and productivity high in manufacturing and probably services, there is room for raising growth to at least 3%. Getting back to basics by cutting government spending, regulation, and taxes would be a good first step. Running monetary policy to allow for faster economic growth would be a solid second.
America needs optimism to breathe the air of democracy and opportunity to redeem its belief in individual merit and mobility. With its new competitiveness in world markets, its superiority in information-based industries, and its creative, heterogeneous population, the U.S. stands to make the next 100 years as much of an "American Century" as the past one. It will take action from corporate leaders, a change of incentives from Washington, and faster growth to cure the current economic anxiety. But these are remedies that can work--and not destroy the open society.