The Reich stuff

The Reich stuff – response to article by Robert Reich in this issue, p. 24

Rose Batt

Within the Clinton administration, Secretary of Labor Robert Reich has been the strongest voice on income inequality and the dislocations caused by economic change. He has dissented from Washington’s widespread worship of government deregulation and privatization, pointing out problems posed by globalization and technological change. Almost alone among administration officials, he has emphasized themes that others have shunned as smacking of “class warfare”: the rich are getting richer, most of us are getting poorer (or working harder just to keep even), and yes, there is something we can do about it.

Part of Reich’s basic analysis makes perfect sense: technological change and the globalization of markets have increased the demand for the production of high quality, low cost goods — which in turn requires a more highly-skilled workforce. The increased demand for skill has led to growing inequality between high-income educated workers and the rest who fall farther and farther behind.

But there are serious flaws in Reich’s view of the world, which spill over into his policy recommendations. He goes astray with three assumptions. First, he overstates the global mobility of business. Reich’s vision of footloose, constantly shifting “global webs” of business is a compelling one. But as Harvard Business School’s Michael Porter and other analysts have pointed out, internationalization does not eliminate the importance of activities rooted in particular places. The most successful businesses have “home bases” where they interact closely with suppliers, customers, and competitors, constantly learning and fueling innovation.

Reich’s notion of a rootless business world has led him to abandon industrial policies designed to aid particular places and industries, which he advocated ten years ago. But in fact, such industrial policies have proven important in both Europe and the United States.

Second, Reich accepts the march of technology and markets as inevitable, ignoring the important ways in which corporate strategies and political battles shape the direction of these changes. At the firm level, for example, choices of work organization determine how technology is used, and in turn the demand for skills. On the one hand, firms can compete by creating “quality jobs” that require worker creativity and problem solving, as in the familiar examples of Saturn or Japanese human resource practices. On the other hand, firms can use the same technology to reduce the skills needed for production jobs. In machine tools, firms can incorporate computer programming into the jobs of most machine operators, or they can reserve that decision making for a handful of experts, while deskilling the bulk of jobs.

Redesigning work to create quality jobs accompanied by high investments in training requires a long-term business strategy. But U.S. financial markets continue pressuring firms to look for short term solutions — rewarding high quarterly profits and dividends. Cost-cutting is the easiest way to meet such bottom-line requirements. In firm after firm — including so-called leaders of the “high skill, high wage approach” such as Xerox, IBM, and US West Telecommunications — downsizing and reengineering have swamped worker participation, job enhancement, and union-management collaborative strategies. Though Reich has bashed government-subsidized “corporate welfare,” he has proven reluctant to criticize corporate strategies.

Finally, Reich also errs by simply equating high skills with high wages. Though Reich, to his credit, has steadfastly advocated a higher minimum wage, his plan for boosting wages beyond this floor leans heavily on skill training. But as economists Lawrence Mishel and Ruy Teixeira of the Economic Policy Institute have pointed out, despite increasing skills in the United States over the last 20 years, average wages have fallen — reflecting workers’ diminishing bargaining power. True, those with higher skills (especially those with college degrees) earn more than those without, but it does not follow that if everybody gains more skills, all will enjoy a higher standard of living. Greater competition among technically trained workers may well lead to falling incomes for them also.

Given these problems in Reich’s understanding of the economy, his employment policy solutions fall far short of what is needed to create a new economy of good jobs. In addition, he appears to have checked some of his own progressive impulses in order to fit within Clinton’s agenda. The results are disappointing.

At the June, 1995 World Congress of the International Industrial Relations Association in Washington, for example, Reich offered a four point labor policy: free trade, government support for small business “entrepreneurship,” expanded education and training, and the minimum wage. As at other times, Reich failed to give even a nod to the role of strengthened labor law and unions in negotiating the terms of workers’ roles in the new economy.

Following Reich, a senior official from Canada’s Human Resources Department, Harvey Lazar, detailed a much more expansive active labor market policy of “jobs with justice,” including expanded technical training, a revamped public employment and placement system, and establishing 21 industry-union-government councils to address structural adjustment issues.

Free trade and publicly-supported training will not guarantee good jobs. In fact, the Clinton administration’s promotion of free trade and deregulated markets helps firms to continue competing using the low wage path. NAFTA is the best-known example. Another example is Clinton’s current support for “fast track” deregulation of local telephone service. The Labor Department has failed to even enter that debate, although evidence of the potential danger to labor already exists. Over the last decade, dereguration of long distance service led AT&T to eliminate 60% of its non-management workforce, and surviving workers had to relocate an average of 2.5 times between 1984 and 1992 (see “Hitching a Ride: Labor and the Perils of the Information Highway,” Dollars & Sense, July/August 1994).

In the end, Robert Reich’s policy proposals come up short. Nonetheless, he is the best we’ve got in the Clinton administration. He is willing to tell truths about the economy that no one else in the administration dares to, helping to spark much-needed debate. It’s up to unions, community organizations, and others around the country to take that debate beyond where Reich leaves off.

Rose Batt, a D&S associate, teaches labor relations at Cornell University. Chris Tilly teaches public policy at the University of Massachusetts-Lowell and is a member of the D&S collective.

COPYRIGHT 1995 Economic Affairs Bureau

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