An economy without a spine

Robert Kuttner

June 01, 1993|By Robert Kuttner

CALL it "The Invertebrate Economy."

In today's economy, almost nothing is very reliable for very long. A generation ago, people could take jobs in large, stable companies, or public agencies, with some confidence that the employer would stay put.

Cities and towns, in turn, had some confidence that their tax bases would not evaporate.

Middle-class families, whose health insurance typically depended on the breadwinner's job, could trust that their coverage was secure year to year.

Companies planning to invest overseas knew that an English pound would equal $2.80 for more than an overnight, and that their banker would not go bust.

The economy, of course, was not frozen. Companies continued to innovate. The stock market fluctuated. Some industries did relocate -- such as the textile migration from New England to the South beginning in the 1950s.

And some towns experienced serious economic dislocations.

But there was not today's dizzy sense of everything being up for grabs all the time. Bankruptcies, to take another indicator, ran at one-tenth of the present annual rate of nearly 100,000 per year.

Why is today's economy "invertebrate" like a jellyfish? And what made yesterday's economy "vertebrate"?

A generation ago, there was more regulation. The old regulated industries -- airlines, the phone company, banks, truckers -- were not subject to today's ruthless competition to cut prices and wages, though there was still competition on the basis of quality.

That meant, at the very least, that the company didn't have to worry about staying in business. It meant, in turn, stable and rising wages and less risk of mass layoffs. It meant that high-rolling executives did not face the temptation of betting the entire company on high-risk speculative mergers, acquisitions and purely financial gambles.

Indeed, regulation prohibited entire categories of transactions, such as those that led to the hostile takeover craze of the 1980s, and the savings and loan blowout, both of which had disastrous economic effects.

In addition, the Pentagon was a much larger factor -- in the 1950s and 1960s it consumed half the federal budget.

Pentagon contracts, whatever their other deficiencies, provided businesses with a steady customer, workers with a steady wage, and communities with a steady tax base.

Unions were a lot more powerful. By negotiating "master contracts" requiring the same wage scale throughout an industry, unions forced companies to compete on the basis of technical invention, and not by cheapening wages.

Moreover, strong unions meant that higher productivity translated into increased worker purchasing power.

And finally, there was far less global trade, hence less foreign competition and less shifting production to countries with very low wages. That, in turn, gave both companies and workers a security absent in today's porous economy.

In theory, the lack of a spine makes the economy supple, flexible and free of distortions in price. Presumably this must make the economy more efficient -- since prices are freer to fluctuate and more "accurately" reflect supply and demand.

Indeed, today's invertebrate economy is closer to the free market utopia. But why, then, is growth slow and living standards stagnant? I would suggest that, taken to an extreme, a spineless economy begins to resemble a "dystopia" -- a utopia in reverse -- because the inefficiencies caused by the sheer chaos begin to overwhelm the efficiencies caused by the more flexible prices and wages.

Like it or not, we are in a brave new world of temporary employment, shifting organizational forms and general impermanence. A minority of people may "thrive on chaos," as the title of a recent book had it, but the entire economy cannot. If that is true, what can be done to restore the balance that once existed?

First, if we are to have a jellyfish economy, we can at least take away some of the sting. If workers can't count on the same employer for a lifetime, they need health benefits, retraining opportunities and pension benefits, not based on their employment with a particular company but as citizens.

Second, we need to help the labor movement reinvent itself, so that all of the burden of these abrupt transitions don't fall on individual employees.

Third, we need selective re-regulation -- at least of industries and financial institutions that are too important to allow high rates of speculation and corporate failure.

Fourth, if we are to have open trade, it at least should be reciprocal and conditional on wages in poor countries rising with worker productivity, so that the entire global economy does not degenerate into an auction to lower wages.

Fifth, while Pentagon spending should reflect only defense purposes, we can duplicate some of the old economic benefits with civilian public works and technology contracts.

Bill Clinton should consider all of this carefully -- for in today's invertebrate economy he is the ultimate temporary employee.

Robert Kuttner writes a column on economic matters.

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