Stagnant Wages and a Shortage of Leadership

A significant amount of the U.S. population is of the opinion that a businessman running for president is a new twist to American politics that had never before occurred. In fact, George H.W. Bush, Jimmy Carter, Harry Truman, Herbert Hoover, and Warren G. Harding were all businessmen, but apparently, only those of us who have studied American politics of the Neolithic era could put the election in context.  The unusual event of the past presidential election was the spouse of a former president running for the presidency, which never happened before.  However, the identity politics of the neo-alt-micro-anti-political class of voters saw the defeat of HRC as an act of massive micro-aggression against whom they considered to be uncaring white elitists and, of course, the neo-targeted neo-political class, who have taken the role as the neo-alt-scapegoat for all that is wrong with government.  I will from this point  attempt to refrain from the ridiculous prefixes that pepper our analysis and make us think that we come off like some highly-trained political analyst, because the optics simply aren’t favorable at this juncture.

 

Ross Perot, a Texas billionaire, ran for president in 1992 and 1996. In his 1992 campaign, businessman Ross Perot was unwilling to follow the advice of his campaign managers; does that sound familiar about any recent presidential candidate? The bulk of the Perot supporters (57%) were middle class working voters, sound familiar? I heard a brilliant Perot speech where Perot said “stop blaming the American worker.”  It was well before the 1990s that the working-class wages, both blue collar and, to some extent white collar wages began to stagnate. When Perot was saying “stop blaming the American worker” he was explaining that American workers had little control of what they produced, that the management was accountable for the performance of American corporations.  As executive wages soared, average workers’ wages stagnated. The computer age, or information age, initiated increases in productivity and efficiency which have been carried forward into the present day. Aside from union leaders, and unions have been in decline since at least the 1980s, who came to defend the working-class as their pay stagnated?

 

Let me explain a bit further about the 1990s.  The 1990s saw the tech boom take off, and the global economy became the universal excuse for why Americans’ pay went down or they lost their job altogether. The American car manufacturers had lost their position as the leader, the American economy was dependent upon foreign oil, and no one could figure out any solutions. The 1970s and the 1980s saw some downturn in the American economy, and blue-collar wages had, for the most part, gone nowhere in those decades. It wasn’t all gloom and doom, though. Executive compensation had risen dramatically, and things like “golden parachutes” where if an executive was fired, they would still receive compensation because, well, they were executives. The executives figured out that they could create contracts that would pay them money even if they left a corporation, or, the golden parachute. Of course, all of this happened as working-class wages stagnated. Who came to defend the working-class as their pay stagnated?  There certainly weren’t any golden parachutes for working-class employees laid off during a business downturn, and the 70s and 80s had their share of downturns.

 

In the 1980s and 1990s, there was no money in small cars, and all of the American car manufacturers knew that.  American manufacturers made some attempts at small cars, none of which were noteworthy. General Motors invested billions and their 46% market share in 1980 sank to 35% in 1989. GM created Saturn “from a blank sheet of paper” and it ran from 1985 to 2009; its intention was to compete with the Japanese car manufacturers, with limited success to be kind. According to the then chairman of GM, Roger Smith: "Saturn is the key to GM's long-term competitiveness, survival and success," that key didn’t unlock the door that was keeping GM from getting market share. Billions in investment by GM yielded only decline in market share. Who came to defend the working-class as their pay stagnated?

 

As the tech boom expanded, more and more data was created, and the digital revolution took hold. The white collar jobs expanded. Where there was before no need for several engineers and software developers, the demand soared.  Meanwhile, wages for average American workers stagnated. Quite intentionally, the demand for hard science workers expanded, as did the compensation, which is a lot like supply and demand, the economic precept of how things are valued. Efficiency and modernization actually eliminated more and more jobs, as machines took over many of the jobs previously held by humans. Who came to defend the working-class as their pay stagnated?

 

As the unions declined, as companies learned that they could outsource, use temporary workers, or simply ship the work overseas after they taught the people outside of America to do the work for fractions of the wages of American workers, who came to defend the working-class as their pay stagnated? There weren’t many politicians willing to create legislation, and maybe there couldn’t have been any made anyway. Of course, there are always laws and regulations that favor industries, but if any were passed they didn’t do much good for the workers.

 

America has faced many struggles, both internal and external. If you look at those struggles, there has almost always been a leader, someone who appeared and led their fellow Americans to victory. Ralph Nader came to the defense of the environment. Eisenhower led us to victory in World War Two. Who came to defend the working-class as their pay stagnated? Decades went by, and the buying power of the middle class declined. The middle class got smaller and smaller. Jobs became harder and harder to find and keep, as companies discovered that they could “farm out” the work and use temporary workers. As more and more people lost full-time jobs, more and more were willing to work part-time or temporary just to have some revenue coming in. Who came to defend the working-class as their pay stagnated? Who stepped up to the plate, and suggested that the government make changes that favored paying working-class people better wages? What companies took pride in retaining employees, (working-class employees, not so much executives) stating that people were their greatest asset?

 

Who implemented tax policies to be applied to companies so that they could retain and pay employees’ salaries that were livable? On and on the global economy was a reason that Americans would have to make less money. They (the working class) bought cheaper goods at Walmart, which was a good thing because they weren’t making as much money, and some almost no money at all.  Industries died, and then the middle management were squeezed out as well. Millions of blue-collar and white-collar workers were left out in the cold. There is one theory of economics that you don’t read about, and that is lost productivity. When there are massive layoffs, and workers aren’t working, the products and/or services that those workers would have provided are not contributed to the economy; it is lost productivity. What we could have produced, what products that would have been available were never made, and thus never made available. While it could be said that as an individual, it is not healthy to sit around and think of all the things that you couldn’t have, in economics, it is a serious consideration, because it is what was not contributed to the economy versus what was made and contributed.

 

The executives stood up for themselves. They invented golden parachutes; they invented new methods of payment, such as stock options and other ways to keep the government from taxing their soaring salaries. As executive compensation rose in the 1990s and onward, the IRS began to tax the extraordinary compensation that they and the boards (of which they were members) were voting them. Every time the IRS tried to extract revenue from the executives, they huddled with the accountants and the lawyers and figured out how to get around being taxed. It seemed that there weren’t any meetings about how to pay the working-class employees in ways that would avoid taxes. Of course, the working-class spent their money paying mortgages and car payments, so deferred income from stock options weren’t really in the mix. If you made millions in a year, you could have a few hundred thousand dollars in stocks that wouldn’t transfer to you until certain conditions were met, but that was not an option for the working-class employee.

 

Here’s the bottom line. There could have been legislation that could have made the incomes of the working-class taxed less. There could have been incentives for companies to pay their employees more, giving tax breaks to organizations that chose to remain in the U.S. and pay their employees considerably more than the minimum wage. There are tax breaks for corporations who build factories in certain states, Ohio and Indiana battled each other for a Honda factory. There could have been executives that said that they valued their employees; in fact there have been a few organizations like that now in the twenty-first century. There could be companies that have training programs instead of insisting that the government train their employees, socializing costs, having the government pay for training, while privatizing profits. There may have been a lot of politicians claiming to represent the working-class, but most just offered lip service; I haven’t seen much of any significant results. The word is that some of the skilled-labor hourly jobs’ pay is going up, and that would be a good thing after several decades of stagnation, several decades where no one much stood up for the people who make things and make things work.

Comments

Ari Silverstein Added Feb 18, 2017 - 8:05am
The decline of union manufacturing employment was a healthy byproduct of our economic advancement.  Instead of a concentration in blue collar industrial employment our economy became a white collar service oriented economy.  The government could have made the transition a little easier by not imposing all sorts of rules and regulations on union employers, making their work even more costly than it already was.  Essentially, with the assistance of the government, they priced themselves out of a job. 
Jeff Jackson Added Feb 18, 2017 - 9:05am
While I am not strictly pro-union, the unions are largely responsible for the rise of the middles class in America, with the increased wages for the working class. Many corporations would have gladly just paid their executives more and more money, not to mention the ignoring the safety regulations that unions initiated. The "rules and regulations" were meant to protect workers in dangerous occupations like steel mills and around machinery what could kill or maim workers, and often did before those "rules and regulations" were initiated. The "rules and "regulations" came from workers getting killed, maimed and disabled by dangerous working conditions. GM, by the way, had a chart on the value of each body part that could be chopped off.
As for pricing themselves out of the market, as is noted in the essay, the executives keep taking more and more of the profits of corporations, while the average workers get less, or no more than they did decades ago. Management guru Peter Drucker said no more than 2 dozen times the average worker was what execs should make, but that rule has been thrown out the window. The chairman of Chipotle makes $25 million a year. He worked his greedy fingers off when Chipotle had the food poisoning problem, because there is no way in heaven some other firm is going to pay him $25 million a year. Had he not saved Chipotle, his $25 mil ride was over. He almost priced himself out of a job. The execs are too busy taking profits for themselves and insisting on their profound importance while they run companies into the ground, like the recent CEO of J.C. Penny who made 1,700 times what the average J.C. Penny worker made, and ran the company almost out of business. Ross Perot was trying to tell the American executives that they were responsible for the performance of the corporations that they ran. When the team loses, they fire the coach, not the players.
George N Romey Added Feb 18, 2017 - 10:23am
Jeff as you correctly pointed out the new CEO class always wins even when they lose with their lucrative severance packages. The worker class just gets thrown under the bus when management destroys the enterprise.
Jeff Jackson Added Feb 18, 2017 - 10:56am
Exactly- when you can't lose by destroying the company, you have no vested interest in succeeding. They're going to win anyway, while the workers just lose. Rigged game.
George N Romey Added Feb 18, 2017 - 1:53pm
Jeff its all become one big club of Ivy League mostly jerks.  They sit on each other's boards therefore boards no longer practice oversight. Tenure at a company is now frowned upon so few give a damn about where the company will be in five years.  This is the idiot savant class has bestowed upon us.
George N Romey Added Feb 18, 2017 - 2:11pm
Jeff I know a woman here in Miami that just closed her executive search business (2 person shop) that she ran since 1965.  She had been a flight attendant with Pan Am and met a man from Miami and fell in love.  In those days flight attendants could not be married so she was forced to quit.  For a job she went to work for a then job placement agency and fell in love with the work.
 
By 1970 she opened up her own shop specializing in placing high level employees.  For years she loved getting really good people into a great position in a good firm.  By the end of the previous decade that all changed.  Companies no longer cared about experience or quality, they wanted just cheap technocrats that could pound out spreadsheets.  She even tried to get me an appointment but was told that I was way too "overqualified."  She finally shut down her business out of frustration of not being able to place good people anymore.
 
As she told me the other week "stupid, clueless and cheap" are the desired skill sets now.
Jeff Jackson Added Feb 20, 2017 - 6:09am
George what kills me is when HR says they can't find anyone, that there aren't any "qualified candidates." I guess there aren't enough "stupid, clueless and cheap" candidates in the job market. The other thing is that there are ways of seeing who was hired, if you watch the internet closely. I have watched firms hire people whose credentials leave me scratching my head as to how they even got an interview.
Bill Kamps Added Feb 20, 2017 - 6:36am
Jeff, as you suggest there are many  reasons for the US relative decline in the world.  However, one thing that has not happened is a change in the behavior of the rich and politically connected.  They have always looked out for themselves, and they have always feathered their own nest.  This goes back to the times of kings and serfs.  If we are expecting that behavior to change, we might as well be wishing for the  sun to rise in  the west.
 
You did fail to mention spending $3-4 Trillion on wars in Asia that accomplished nothing positive, spending $600 billion yearly on "defense" which is more than the next 10 countries combined, and tax policy that keeps more than a Trillion in corporate profits overseas, instead of it coming back to the US for further investment.
 
The world economy has changed a lot over the past 60 years, and the US has failed to adapt.  Yes a lack of leadership hurts.  We thought we would forever make 35% of world GDP with 5% of the population as we did in 1960.  We still position our place in the world as though we are still that rich.  Do we HAVE to spend 10x what the Russians spend on defense, we cant figure out how to be safe spending less ?  We behave and sound like they outspend us.
 
The world became more competitive, and political leaders, corporate leaders, and citizens, all of us failed to adapt because we thought our place in the world was permanently at the top. The UK thought similarly in the late 1800s.  After many years in decline the UK too late realized they could no longer have armies all over the world, will we also wait until it is too late to realize the same thing ?
 
While we will never again make 35% of world GDP, we can improve our situation if we learn to compete, instead thinking all we need to do is show up.  This will take government policy that aids US jobs, instead of aiding the rest of the world, and it will take a mindset that acknowledges we are competing with workers overseas for whom our minimum wage is an extravagance.  It can be done, but we need to do more than show up.
 
I dont know if Trump can change our course.  I know he has changed the dialog, which is a necessary step.  We see that as various interest groups fight  to keep their piece of a dwindling pie, instead of fighting to make the pie larger.  Right now we look at each other as the competitor, or enemy, when we should be acknowledging that hard working people overseas are our competitors.  As long as the politicians keep us fighting with each other we will not demand that they start doing their job.  Right now the politicians are busy launching multiple committees to look into what the Russians did during the last election.  They will spend millions and accomplish nothing we dont already know, we know they hacked files on various  computers, yawn, so what.  They should be doing their job instead of trying to look busy  chasing ghosts.
Jeff Jackson Added Feb 20, 2017 - 9:07am
Great analysis Bill, and I'm with you all the way. The decline of the U.S. is due to a lack of leadership, and certainly, there are people who have looked out for themselves and screwed everyone else. As quoted in the article, Ross Perot had it right when he said that the leaders were passing blame on the people who, for the most part, had no say in the matter. In terms of low wages, the political class has done almost nothing but look out for one another and the wealthy people that donate money to them. We needed a leader decades ago that could improve the lives of the working class. That leader never came. I don't know if Trump can change things,  but he certainly is hitting the right notes with the working class, and, as a billionaire, who could bribe him? What is amazing is that some people insist that the working class has "priced themselves out of the market" while wages and salaries of other occupations has soared, much of those increases due to the fact that they could arrange to pay themselves more money, not because they were worth it.
George N Romey Added Feb 20, 2017 - 9:35am
Notice executive pay has soared while average worker pay in real terms has declined.  Moreover, new jobs tend to be part time, low pay or gig.  If the future is a bunch of Uber drivers and casual food workers not only the US economy but the global economy is headed for the crapper.  You need customers with money in order to have a healthy market for goods and services.  The idiot savants running our corporations that are turning good paying full time jobs into contract under paid jobs (particularly 1099s) just won't grasp that simple concept.  
Stephen Hunter Added Feb 20, 2017 - 9:36am
Jeff a great analysis of our economic history over the past several decades. 
What I surmise is that the economy is shifting, but we are rejecting that shift. Manufacturing cars is an industry on the way out. Manufacturing anything actually(which is simple to make) is being replaced by robots and/or cheaper labor, and that is happening now and will continue. 
And yes I totally agree that the elite executives have figured out a way to insulate themselves from this reality, at the expense of the workers who made their companies so much money in the past. 
Jeff Jackson Added Feb 20, 2017 - 10:16am
Thanks Stephen, now, what are we going to do about this or what will we insist that that our leaders do before it gets completely out of control is the question that needs to be addressed well beyond the readers of Writerbeat.
Bill Kamps Added Feb 20, 2017 - 11:18am
George, I disagree that the global economy is headed for the crapper, not in the super macro sense.  Yes, Western democracies are in for some trouble, but places like India, China, Russia and much of the third world are doing better than they ever have done. The middle class in these countries are on the rise, at our expense.
 
This is part of the reason for our relative struggles.   Other countries have figured out how to make steel, TVs, and cars, it is not just the USA making these things.  Why  not ?  the technology is 50-60 years old, so why shouldnt it be possible to make in less developed countries ?  How long did we think we could keep that  advantage ?
 
The advantages we SHOULD have, we are not exploiting.  We should have the best infrastructure, the most educated work force, and most business friendly environment.  In fact many people in the USA think we HAVE the most business friendly environment, and many think we HAVE the most educated work force, neither is currently true, though we are still pretty high on the list.
 
The problems are fixable.  We have more advantages than any other country, at least any other large one.  We need to start exploiting those advantages competitively.  At least Trump is the first President I can recall who realizes we are competing in the world, is willing to admit we have lost a step, and wants to wake people up to the fact that we need to do something about it.  Admitting there is a problem is the first step towards doing something about it.
 
We are seeing our allies are nervous about the "put America first" idea.  Why shouldnt we put ourselves first ? you think the French are putting other countries first, or the Germans or the Chinese ?  That doesnt mean we have to destroy these other countries, we just have to stop being a pushover and stop helping these other countries at our expense.
 
The Europeans spend more than 3x what the Russians spend on defense, why cant they defend themselves ?  They aren't failing for lack of spending, the question is what are they spending that money on ? tanks or fancy meals ?  If they had more tanks and jets than the Russians, they would feel plenty safe.  The Russians wont invade with nukes, they will invade with tanks, and troops, like they did in Ukraine.
 
 
Stephen Hunter Added Feb 20, 2017 - 11:22am
Yes Jeff, but I believe that the thinking has to start at grassroots level, and somehow in some way influence how the leaders lead. 
I choose to believe that we are all interconnected at a quantum level in some way, and creative thinking(as opposed to tribal rhetoric) does permeate into society, it just takes some time. 
Jeff Jackson Added Feb 20, 2017 - 11:46am
Bill, I agree we have a "competitive advantage" that we are not using. We have assets that we are not using, and have generously shared our technology with countries like China. Before we showed China how to make things, they were lucky if they could sell us firecrackers. Consider that before we built factories and showed China how to make things, there was no way they could have created the aircraft carriers of the space program they now have. Yes Bill,we need to stop showing everyone else how to do things and start doing things for ourselves and our people.
George N Romey Added Feb 20, 2017 - 12:50pm
Bill the question is will China, India, Mexico and Brazil raise wages so that their workers can also become consumers?  That is not what's happening now.  Why do you think China is building huge white elephants-to keep people employed and avoid social unrest. Otherwise their economies are tied to the success of the US and Western Europe.
Mircea Negres Added Feb 20, 2017 - 2:56pm
Jeff, I remember when Ross Perot ran for president back then. At the time I thought he was out of touch with the times. It took me many years of thinking that about the man, until I read a book about how he got some of his executives at Texas Instruments and Arthur "Bull" Simons (former U.S. SF officer and leader of the Son Tay raid) to go into Iran to rescue some of his workers who were being held hostage by the Khomeini government because the company had the temerity to demand payment for services rendered. I changed my mind about him afterwards, but often regretted not paying closer attention to what Perot had to say when it mattered, though to be fair, I was a teenager in 1992 and really had little understanding of the world, to say nothing of the American socio-economic situation. Nice post, sir. 
George N Romey Added Feb 20, 2017 - 3:26pm
Perot was dismissed as a loon because of the way he talked about NAFTA.  I was in business grad school from 1992 until 1996. The academic belief was that companies would open markets not exploit them for desperate workers willing to work for near slave wages in the most awful of conditions.  Perot was trying to ring an alarm bell that no one understood, and that was companies were going to transfer and move the means of production not the means of market.
 
Stagnant wages have been with mankind for most of history. Wages began to rise with the industrial revolution and rose every decade, including the 1930s, until the year 1978.  The stagnation of wages was from a multitude of factors-technology and automation, moving from economic policy that was inflation focus rather full employment driven, the manic level of mergers and acquisitions, outsourcing and insourcing, surging of executive pay at the expense of worker pay, short term rather than long term focus, lost of union membership and workers fooled into thinking education was a guarantee to economic success.   Easy to get debt has and still does mask just how bad the problem has become.
Jeff Jackson Added Feb 20, 2017 - 3:43pm
It's funny how time heals all wounds and wounds all heels. Perot was right in so many ways. I think Trump is sort of a reappearance of Perot, but of, course, there are some differences. Yes, China and all of the others that have taken away U.S. jobs are now facing revolt because of low wages and poor working conditions. It is only a mater of time before the workers in those countries demand their rights and the right to fair wages. When that comes, when there are no more Third World countries to exploit, the people who brilliantly exploited those countries will be right back where they started, except with a workforce that hasn't had the experience or has the organizational knowledge that they would have had if the jobs stayed in the U.S.
George N Romey Added Feb 20, 2017 - 3:56pm
Jeff you already see the lack of quality in management.  CEOs that are running businesses on a crappy business model (like exploiting cheap labor) or no clue on how to lead others.  They sit behind closed doors with their realms of spreadsheets produced by uninspired, unmotivated and uncaring masses plotting their hoped next bigger thing.  Look at the number of companies that are going public that have never been profitable and state there is no forecast of profitability in the near future.  Look at the growth in the payday lending, pawn shop, credit repair business. Or the growth in companies that employ ex middle managers to stock store shelves or promote products in retail stores.  Does this sound like a solid economic future to anyone?
 
We are losing our competitive edge because more and more our businesses delivery less and less of value to society.  An overpaid CEO thinks because he/she has a squadron of $12 an hour part time workers telling shoppers why they should buy a certain dog food or lap top that he/she has somehow found entrepreneur nirvana.  No the glut of desperate workers in this country means he/she can exploit them.  There is no real value in that business. Business built upon crap.
Bill Kamps Added Feb 20, 2017 - 4:43pm
George the third world is raising wages, they are much higher now than 20-30 years ago.  What they are very slow to do is creating environmental laws, and OSHA type laws to protect not only their environment, but the world environment.  This of course would  raise their costs, and put things on a more level playing field.  When we build factories over there, we should be insisting that they raise the standards for what is acceptable conditions. 
 
Jeff, China almost has a working air craft carrier, but lets be real, no one has anything like one of our Nimitz class carriers, and the capabilities that it has.   We have 13 of them, and the Chinese almost have kind of sort of one.  Not that they aren't trying and wont eventually get there.
 
But in the big picture, yes you are correct, what are we getting in return when we put car plants in China, or factories to build our iPhones?  At least Trump has raised the issue that we SHOULD be asking for something in return, instead of just kissing their asses.  Its not enough to just have access to their market, we need our trading partners to sometimes give us a quid pro quo.
George N Romey Added Feb 20, 2017 - 4:50pm
Bill we kiss their ass because it benefits the money class.  Also while wages have gone up very few Chinese or Indians can afford a shiny new Iphone leave alone a shiny new Buick.  The issue is that if their wages approach that point they are no longer are financially competitive. Remember having production over there adds costs and some difficulty.  From what some in business have told me doing business in China is not easy.  There is no regulatory protection. Workers and supervisors often have little ability to make good decisions. Quality control is a constant issue.  
 
What will keep production there for years is the already millions invested in plant and equipment.  Companies aren't going to simply leave all that behind.
Jeff Jackson Added Feb 20, 2017 - 5:22pm
And if Trump gives them tax breaks, they will build and they will come. Give them an incentive to stay.