Strange as it may seem, a nation once celebrated for its irrepressible optimism now appears to be obsessed by decline. America’s list of complaints seems endless: Real wages are falling. Productivity growth is down. Companies aren’t competitive in global markets. White-collar jobs are no longer secure. The nation’s infrastructure is collapsing. The federal deficit is soaring. The health system is deteriorating. The cities are unsafe. The schools are failing. The gap between rich and poor is widening.
So pervasive is this preoccupation with decline that it has given birth to its own school of thought. Call it “declinism”—the idea that something is fundamentally wrong with the U.S. economy and until it is fixed, America will neither compete effectively in global markets nor provide an adequate standard of living for its citizens.
Why all this concern about decline? One straightforward possibility is that it is an accurate reflection of economic reality. The British, after all, earned a reputation for self-deprecation only after that country’s relative economic decline was well established.
But there is another explanation, more complicated but ultimately more accurate. Declinism may be less the product of actual decline than a response to rapid economic and social change. Change is always disturbing and often perceived negatively, for the simple reason that losers tend to be more vocal than winners. But the changing terms of global competition also represent a particular crisis for the institutions of American society—companies, government, educational institutions, and the like.
The books and reports collected here all shed light on the debate about decline. Some are classic declinist texts that catalogue the supposed weaknesses of the U.S. economy and of American society in general. Others dispute the very idea of U.S. economic decline and present a far more optimistic view of the economy and its prospects. However, none of them fully grasps the real challenges facing U.S. society as it comes to terms with new economic and social realities.
Taken together, these texts suggest that while the popularity of declinist writings says something important about contemporary America, it is not exactly what most declinist authors think. These authors fail to grasp the true significance of the debate about decline.
1. The real issue isn’t decline so much as increased equality among advanced industrial nations.
During the postwar era (and, indeed, for much of this century), U.S. companies dominated the world economy. However advantageous to Americans, eventually that situation was bound to end. Concerns about decline are a symptom of the growing equality among industrialized nations rather than a reflection of any fundamental problem with the U.S. economy itself.
2. The real issue isn’t decline so much as increased social inequality at home.
Another important characteristic of the postwar U.S. economy was the relatively broad distribution at home of the fruits of global economic dominance. This fortuitous combination of easy economic growth and widespread social equality seemed tailor-made to fulfill the promise of the American dream. But the very economic changes that have led to increased equality among industrial nations have also served to increase social inequality within American society. Much of the concern about U.S. economic decline is really concern about the socioeconomic implications of increased social inequality.
3. The real challenge facing American society is not reversing economic decline; it is addressing the social implications of the new economy.
The end of U.S. economic dominance and the rise of social inequality pose a unique challenge: how to reinvent in a radically new economic environment America’s double commitment to economic opportunity and social equality. Ironically, too great a preoccupation with decline may keep American society from getting on with the job.
The Equality of Nations
The version of declinism most familiar to managers can be found in the by-now voluminous literature on “competitiveness.” What different authors mean by the term varies, but the basic approach is the same. First, declinists compare U.S. economic performance with that of the nation’s chief rivals (usually Japan and Germany) and find it wanting. Second, they urge the United States to become more like its competitors—primarily by copying Japanese and European mechanisms for business-government collaboration.
For some typical examples of this kind of analysis, consider two recent reports coming out of the Washington public-policy community: Competing Economies: America, Europe, and the Pacific Rim, a report from the Office of Technology Assessment, and Building a Competitive America, the first annual report of the Competitiveness Policy Council.
The chief measure of competitiveness, OTA analysts argue, is a nation’s ability, under fair market conditions, to “produce goods and services that meet the test of international markets, while simultaneously maintaining or expanding the real income of its citizens.” According to Competing Economies, the United States fails on both counts. Its share of world manufacturing exports has declined in recent decades, while its share of imports has risen. It fails the living standards test because the real wages of manufacturing production workers have fallen since the late 1970s. And while Japanese trade barriers contribute to the U.S. trade deficit with that country, the report’s authors strongly argue that “unfair trade” cannot be blamed entirely for the trends they describe.
The OTA concedes that some decline in the U.S. share of international markets was inevitable, given that the United States began the post-World War II economic race as the world’s wealthiest nation. But it puts too little emphasis on this fundamental fact of history. Europe and Japan were bound to catch up, in the process undermining U.S. economic hegemony. Indeed, the United States spent much of the past 30 years making sure that exactly this process took place. U.S. policy objectives, plainly stated, were to fight communism by planting the seeds of capitalism’s success and to expand trade—goals that would presumably benefit the United States. Now that the policies have succeeded, declinists wish to use an entirely different measuring stick to declare them failures.
The OTA analysis is flawed in other ways. It overlooks the fact that the United States has been quietly recapturing market share from its leading industrial competitors in the past five years. The wages of manufacturing workers, meanwhile, are hardly a robust measure of national living standards. Like many declinists, the OTA confuses growing inequality with declining prosperity: real per capita GDP has risen substantially since the late 1970s.
Building a Competitive America presents a more sophisticated version of the same declinist thesis. It starts by adding a number of caveats to the OTA’s definition of competitiveness. Not only must the U.S. economy meet the test of global markets and achieve higher living standards. In addition, economic growth must be domestically financed, sustainable over the long term, and sufficient “to increase the incomes of all Americans.”
The definition is so broad that the Competitiveness Policy Council has little trouble concluding that U.S. economic competitiveness is “eroding slowly but steadily.” But, as with the OTA report, the definition seems carefully constructed to make this gloomy conclusion inescapable. Given the fluctuating fortunes of different sectors, the amount of growth required to raise the incomes of all Americans, for example, could prove very large indeed.
Both reports, however, serve a useful function in pulling together many different strands of the declinist case. Building a Competitive America runs through a litany of familiar problems—the decline in national savings and investment, the “dramatic” deterioration in the balance of payments, the poor quality of much education and training, the low ratios of manufacturing output and civilian R&D in relation to national income, and the loss of U.S. leadership in a “number of cutting-edge sectors.” Yet, at the end of the day, the council’s pessimism is based mainly on trends that are expected to threaten prosperity rather than on hard evidence that much damage has actually been inflicted. It is dangerous to make projections with a ruler. The fact that budget deficits, for example, were such a problem in the 1980s is a good prima facie reason for expecting remedial action in the 1990s. Politicians, like everybody else, must be presumed to have a learning curve.
Even using the declinists’ own standards, it is not so clear that the United States has lost its competitive edge—certainly not so clear as the conventional wisdom of recent years would have us believe. Take manufacturing. The performance of U.S. manufacturing companies has improved noticeably since the mid-1980s, when the competitiveness cry first arose. U.S. companies lead the world in many sectors, including biotechnology, computer software, and aerospace. And the response to the early warnings on competitiveness has actually produced demonstrable results in industries as diverse as steel—which has reemerged as “new steel”—to software—where vaunted Japanese “software factories” have thus far failed to make a dent. In a whole set of industries, some of which were prematurely given up for lost, U.S. manufacturers are staging strong revivals and gaining strong export positions. Very simply, manufacturing no longer provides the unequivocal evidence of U.S. economic decline that perhaps it once did.
And even the economic data offer a more balanced conclusion than that reached by the declinists. On strict economic measures, it is premature to assume that the U.S. is in economic decline. Growth in real GDP and labor productivity did slow substantially in the 1970s and 1980s compared with the period between 1948 and 1973. But the post-1973 slowdown was a worldwide phenomenon and thus not evidence for a unique U.S. sickness.
Indeed, international comparisons suggest that Japan was the only country to gain significant economic ground relative to the United States during the 1980s. And it ended the decade with plenty of ground still to make up.
The Organization for Economic Cooperation and Development (OECD) has devised a way to compare GDPs among nations by using “purchasing power parities” to compensate for differences in domestic costs. Comparisons based on purchasing power parities are more realistic than estimates based on market exchange rates.
OECD analysts calculate that as of 1990, Japanese per capita GDP was only about 82% of that of the United States. The difference mainly reflects the superior quality of U.S. housing, distribution systems, and other nontradables. As for the leading European nations, they gained ground against the United States during the 1970s but failed to make significant headway in the 1980s. After adjusting for internal purchasing power, the most prosperous European nation at the time, West Germany, ended the decade with living standards about 85% that of the United States.
While the data designed to prove America’s economic decline are of mixed quality, there is nevertheless an intellectually interesting link between global competitiveness and decline. This is the intersection explored by MIT economist Lester Thurow in Head to Head, his latest offering on the subject. Thurow makes two related claims. First, changes in global competition are bringing the United States into more direct confrontation with its main economic rivals than was the case in the past. Second, the new rules of global competition put “Anglo-Saxon” capitalism at a distinct disadvantage.
Until recently, Thurow argues, all global competition was “niche” competition, an economic game in which every player provides something different and, as a result, everybody wins. For much of the postwar era, high-wage products in other developed countries were usually low-wage products in the United States. Imports rarely threatened good jobs. Similarly, U.S. exports were not perceived as threatening in Japan or Germany. As Thurow puts it, “The United States exported agricultural products they could not grow, raw materials they did not have, and high-tech products, such as civilian jet airliners, that they could not build.”
But now that all of the advanced industrial nations—in particular, the three giants of the United States, Japan, and the European Community—are starting from approximately the same level of economic development, each country or region wants the same industries to ensure that its citizens have the highest standard of living. The list of “critical” industries is familiar: microelectronics, biotechnology, advanced materials, telecommunications, civilian aviation, and computers and software. Global competition is no longer “niche” but “head-to-head.” And in head-to-head competition, somebody must lose.
This argument has a superficial plausibility. It is certainly the kind of thing one hears frequently during testimony in front of congressional committees. But industrial sectors like biotechnology or computers are not monolithic; more than one country can succeed in each. Indeed, the most likely outcome of future global competition is that none of the Big Three will gain overwhelming dominance in any of the head-to-head markets. Instead, a variety of companies from different countries will carve out segments of each market. And these companies need not be restricted to currently developed countries: Russia and India, for example, might both do well in computer software.
But clearly, Thurow’s concern is less the prospect of “head-to-head” as opposed to “niche” competition than the fact that the United States is fundamentally ill-suited to play by the new rules. In Thurow’s version of economic reality, what is really head-to-head are two versions of capitalism, what he terms “Anglo-Saxon” and “communitarian.”
In Thurow’s view, the contrast is stark. Anglo-Saxon capitalism glorifies the individual. It emphasizes independent entrepreneurs, large wage differentials, profit maximization, hostile takeovers, and rapid labor turnover. By contrast, the communitarian capitalism that has evolved in Japan and continental Europe puts much greater emphasis on teamwork, corporate loyalty, and collective social responsibility. To a much greater extent, the individual is subordinated to the group.
“Because of their different histories and present circumstances,” writes Thurow, “both of these players are going to be infusing the capitalist economic game with strategies very different from those found in the Anglo-Saxon world.” Thus the United States must learn from Japan and Europe because the new rules of the game will favor their more interventionist approach.
The OTA report, the Competitiveness Policy Council study, and Thurow all see a big role for government in fostering competitiveness. For example, the council calls for a new federal agency (perhaps a strengthened Department of Commerce) to assess the outlook for different key economic sectors, especially those requiring “critical technologies”; to set out “visions” of the desired path of development; and to monitor the activities of competing governments and companies. In an effort to show how the United States lags other countries, Thurow describes Japan’s efforts to promote particular technologies and sectors. He also draws attention to Europe’s “alphabet soup of cooperative R&D projects,” such as the ESPRIT, JESSI, and EUREKA programs. In the real world of the twenty-first century, he concludes, “defensive industrial policies are unavoidable.”
One point emphasized by Thurow is indisputable. After half a century of nearly single-handedly setting the rules for global economic competition, the United States now has to settle for more equal trade terms with other countries. We are fast moving into a tri-polar world in which Japan and the European Community will wield at least as much power as the United States.
But to jump from this reasonable conclusion to the more radical one that America’s entrepreneurial strengths will not underpin continued economic leadership in the twenty-first century is a large leap. Ironically, while U.S. declinists argue that the United States can prosper only by emulating its more communitarian competitors, the ideological trend throughout the rest of the world is running in favor of markets and individualism—in other words, in favor of “American” rather than “Japanese” or continental “European” values.
To take just one example, leaders in Japanese business and education today are busily studying major changes to their “communitarian system” to rectify what they perceive as serious shortcomings that diminish creativity, individual expression, and innovation—elements they regard as essential to competitive success in the future.
As for Thurow’s call for new experiments with traditional industrial policies, they would probably do little harm. But such policies have actually played a smaller role in securing Japanese and European industrial success than declinists have claimed. And given political and cultural differences between U.S., Japanese, and European societies, it is worth asking whether such mechanisms can be readily transplanted to U.S. soil. For instance, the ability of Japanese bureaucrats to set priorities for industry reflects their elite social standing as the brightest university graduates of their generation. It is more difficult to imagine U.S. executives heeding the advice of career civil servants in Washington.
Reading these texts, there is an unmistakable sense of an even more important subtext: the real issue may not be economic so much as psychological. The rise of Europe and Japan has contributed to widespread feelings of economic and cultural insecurity in the United States.
Many Americans grew up simply assuming that U.S.-made products were and would continue to be the best in almost every industrial sector, an assumption that could remain true only until other countries began to prosper. And the new reality was made even more painful psychologically when the Japanese so swiftly and unambiguously came to dominate automobiles, an industry that correlates so closely to the American sense of self.
Americans are one of the only—if not the only—people in the world who imagine themselves to have a global mission. Successful competition from other nations threatens this sense of national uniqueness and destiny. The rise of equality abroad not only pushes Americans to make painful adjustments to their identity in the world; it also requires them to look at the condition of things at home. And that, in turn, produces more discomfort and more ammunition for the declinists.
The Inequality of Citizens
In the economy of nations, society is growing more equal. In the economy of the nation, it is becoming more unequal. Interestingly, the same economic forces are at work in both realms, but with dramatically different outcomes. It would be wrong, however, to equate rising social inequality with economic decline. Quite the contrary: increased inequality is really the result of new kinds of economic growth, the long-awaited shift to the information economy. Indeed, if there is anything remarkable about the transformation of the U.S. economy and its attendant impacts on social status, it is how poorly prepared the nation is to deal with it.
Two recent books capture this dilemma of change clearly. They take diametrically opposed views on the question of America’s decline. And yet, curiously, they share similar shortcomings.
America: What Went Wrong? is a collection of newspaper articles by Donald L. Barlett and James B. Steele, both of whom are veteran investigative reporters at the Philadelphia Inquirer. Barlett and Steele raise valid concerns about growing social inequality. But their relentless focus on America’s ills results in a stereotypical example of the declinist genre.
Each angry chapter focuses on a different element of America’s new inequality. The reader learns how tax reforms have favored the rich, how the proportion of Americans qualifying for health insurance and occupational pensions is declining rapidly, how jobs are being exported to Mexico and, worst of all, how the top 4% of Americans are now earning as much as the bottom 51%.
The authors conclude that federal policies in the Reagan-Bush years have accelerated the “dismantling of the American middle class”—leaving U.S. society at an historical turning point comparable with two others in its past: 1913, when a wellspring of discontent led to America’s first progressive income tax, and 1933, when disillusionment with laissez-faire economics led to the New Deal. The bleak contrast between “private gain for the few and hardships for the many,” write Barlett and Steele, now argues for comparably sweeping social and economic reform.
Barlett and Steele’s claim of a sharp rise in social inequality during the 1980s is certainly borne out by the data. The decade saw the first substantial increase in income and wealth differentials since the egalitarian remaking of American society in the 1930s and 1940s, when New Deal policies and wartime taxation flattened the distribution income. Calculations by the Congressional Budget Office indicate an extraordinarily uneven distribution of the fruits of recent growth. The richest 1% of families appear to have accounted for 70% of the increase in average family incomes between 1977 and 1989. The richest 20% took more than 100% of the growth, while the bottom 40% lost ground. If the figures are adjusted for the declining size of families over the decade, the top 1% still accounted for 44% of the average gain.
Federal Reserve figures for wealth concentrations paint a similar picture. By 1989, the richest 1% of American families—all of whom were millionaires, at the least—owned 37% of the net worth of all American families, compared with 31% in 1983. The share of the bottom 90% declined slightly from 33% to 32%. Many Americans have thus lost out in recent years, despite a tolerably good overall economic performance.
But while Barlett and Steele effectively catalogue the breakdown of social equality in American society, they provide little insight into the economic forces behind it. Divorced from this all-important context of economic change, the resultant shifts in wealth that the authors describe seem inexplicable.
As Barlett and Steele imply, some of this increased inequality was the product of bad decisions by policymakers, but it was mostly the result of deep-seated economic changes. The pressures imposed by technological change and by global competition mean that the unskilled in rich countries can earn no more than the unskilled in poor countries. Barlett and Steele fail to explain how these forces can be resisted without impoverishing the whole economy.
One way to put the flaws of Barlett and Steele’s book into perspective is to turn to The Seven Fat Years by Robert L. Bartley, editor of the Wall Street Journal. To read Bartley’s description of the state of the U.S. economy after Barlett and Steele’s is to feel as if one has just landed on a different planet. From Bartley’s vantage point, talk of decline is quite simply ludicrous. Rather, the 1980s was a decade of glorious economic and political achievement, a veritable belle epoque.
Bartley tells a story of unprecedented economic expansion. By July 1990, when the Reagan boom finally fizzled, nearly eight years of rapid economic growth had lifted gross national product by an impressive 31%. During this period, the United States had added to its productive potential the equivalent of the entire West German economy. And it had created more than 18 million jobs, providing employment for baby boomers and for a fresh wave of immigrants. Contrary to the claims of the doomsayers, many families benefited. Living standards, as measured by real personal disposable income per capita, rose nearly 20%.
Nor is America’s success to be measured purely in materialistic terms, argues Bartley. By the end of the decade, the United States had also won an ideological victory, with American conceptions of democracy and the market economy rapidly gaining ground in eastern Europe, the Soviet Union, and throughout the Third World.
Of course, just as Barlett and Steele’s anger needs a bit of seasoning to make it palatable, Bartley’s celebrations have to be taken with a big dose of salt. The economy’s underlying performance in the 1980s was less impressive than he thinks. The Reagan boom was partly a rebound from two back-to-back recessions in the early 1980s. It reflected an increase in hours worked as more women entered the paid labor force. And it was fueled by staggering levels of borrowing by individuals, companies, and the federal government. To a degree unprecedented in this century, growth was borrowed from the future: the economic stagnation that characterized the first three years of the Bush presidency was the price of this profligacy. And the strength and durability of the present recovery remains uncertain.
Nevertheless, Bartley does have his finger on something important: Some sectors of the economy were remarkably dynamic during the 1980s. The decade saw the unleashing of powerful new forces. Entrepreneurship blossomed in the United States in a way that hadn’t been seen in half a century. New start-ups combined with the dismantling of stagnant conglomerates unlocked economic opportunity in a host of industries. That much is true.
However, where Barlett and Steele focus on social inequality and ignore the underlying economic trends, Bartley is obsessed by the need to lower taxes and increase rewards for entrepreneurship. He is quite unmoved—indeed, uninterested—by the grossly unequal distribution of the spoils of growth. It is indisputably the case, for example, that the new economy puts a premium on education and that therefore the dividing line in sharing the spoils of economic change cut against those with less learning. It is also true that, to the extent that financial engineering produced a huge amount of new wealth in the United States, the gains fell disproportionately to those who, by profession, education, position—or criminality—gained admittance to the charmed circle.
Because Bartley rarely faces these issues, the lessons he draws are polar to those of Barlett and Steele. But in their own way, they are just as simplistic. “The keys to growth are evident,” writes Bartley. “Keep taxes low, especially the marginal rate of taxation. Keep spending under some control. Keep the currency stable. Keep markets open. Do not censor price movements, a form of communication. Seek free exchange over the broadest section of the world. Let entrepreneurs compete.” The gloom of the investigative reporter is replaced by the triumphalism of the editorial-page ideologue.
From the Ground Up by Inc. magazine writer John Case offers a way out of this no-win choice. The book is a guide to the companies and the business logic behind the new entrepreneurial economy that developed in the United States during the 1970s and 1980s. Case clearly demonstrates that the real issue isn’t economic decline so much as the social implications of profound economic change. He understands—in ways that neither Barlett and Steele nor Bartley do—that the economic and social challenges facing U.S. society are tightly interconnected.
Case’s starting point should be familiar to just about any manager: the old economic world dominated by big companies, stable markets, and relatively unchanging product technologies. In 1954, the Fortune “500” industrial companies employed 8 million people—about half the manufacturing work force—and their sales amounted to roughly 37% of GNP. Year by year, sales and employment rose steadily so that by 1969, the largest 500 companies employed close to 15 million people—nearly 75% of the manufacturing work force—and had sales equivalent to 46% of GNP.
In the late 1960s, Case recounts, John Kenneth Galbraith celebrated the giantism of the corporate economy in The New Industrial State. The rise of large companies, he argued, reflected not merely the greater efficiency of large plants but also the advantages of being able to control all aspects of the economic environment. “The size of General Motors” wrote Galbraith, “is in the service not of monopoly or the economies of scale but of planning. And for this planning…there is no clear upper limit to the desirable size.”
Of course, small companies continued to exist in the big-company economy, but they were inconsequential compared with the dynamic and technologically sophisticated big corporations. Indeed, Galbraith derided the small entrepreneur as a figure forever confined to the margins of economic life.
Then came the economic turbulence of the 1970s—undermining both Galbraith’s theories and many of the big companies he based them on. High inflation, increased global competition, and a speedup in technological change shattered economic stability. Big companies proved too rigid, sluggish, and bureaucratic to adapt quickly to the changing economic environment.
By 1979, the sales of the largest 500 companies were equivalent to 58% of GNP, but employment had stabilized at 16.2 million. During the 1980s, big companies took a beating. Size spelled vulnerability, not control. Predators bought companies for their break-up value; many companies collapsed under the weight of their own inefficiency. By 1989, employment at the top 500 companies had shrunk to 12.5 million; sales were only 42% of GNP.
For those affected by the turmoil at America’s largest corporations, these changes were traumatic. Millions lost secure and lucrative jobs. But Case understands in a way that many declinists do not that the decline of the old economy dominated by big companies does not necessarily spell the decline of the U.S. economy as a whole.
At the same time big companies were shrinking, a new generation of small companies was growing. From the Ground Up is best as a tour of this new industrial landscape and the kind of companies that flourish in it. Some are high-tech start-ups in new sectors like computers and semiconductors. Case chronicles the rise of companies like semiconductor-equipment manufacturer Novellus Systems, and MasPar, a designer and manufacturer of massively parallel computers. Others are new, growing companies in traditional sectors heretofore dominated by corporate giants—for example, “mini-mill” steel companies like Nucor, American Steel & Wire, or Raritan River Steel. And still others are small family-owned “job shops” resembling nothing in Galbraith’s model. One of the most intriguing stories in Case’s book is that of Kennedy Die Castings, a small family-owned business in a thoroughly unglamorous industry. During the 1980s, Kennedy used new technology (including a cutting-edge die-casting method licensed from a German manufacturer) and a team-based organization to meet the growing demands of its customers for better quality and just-in-time delivery. In the process, the company increased its sales fourfold.
Far from being on the margins of innovation, such companies exploit the latest technologies, employ highly skilled workers, and utilize sophisticated managerial and financial techniques. According to Case, they are “leading their larger competitors into new markets rather than following them.”
Case believes that this new entrepreneurial economy has been the source of remarkable economic opportunity. And yet, he is no triumphalist, in large part because he recognizes that this economic transformation has serious social implications. “The economic stability that Americans once took for granted,” Case writes, “[is] gone.” The large corporations that formerly dominated the economy can no longer provide it. Neither can the new companies, where employees are unlikely to be protected by unions or to enjoy long-term job security. Increasingly, security depends on merit, hard work, technical skills, and perhaps most important of all, the ability to learn and adapt to fast-changing environments.
But this represents a social as well as a business challenge. Case’s metaphor for this challenge is walking a tightrope: combining the dynamism of an entrepreneurial economy characterized by high levels of innovation and technological change with “social programs that provide people with a measure of financial security” and allow them to participate fully in a more fast-changing and fluid economy.
“In the future,” writes Case, “our job as a society will be to cultivate, and learn to take advantage of, the opportunities provided by our newly dynamic entrepreneurial economy—and to mitigate both its excesses and its probably chronic instability.”
Reinventing the American Compact
How one understands America’s “decline” is important; that understanding shapes the actions that need to be taken. For example, those like Bartley who celebrate American success in the 1980s the loudest are more than content to stick with the status quo; they would like to see the economic policies and politics of the 1980s return for a sequel. Those like Thurow who worry about decline would like to see the United States make colossal changes, starting with a redefinition of the national economic and social compact to resemble that of Germany or Japan.
But if the reality is neither triumphant success nor spiraling decline but rather radical and unsettling change, then a third course seems more appropriate. Instead of ignoring change or trying to transplant the policies of other nations, the United States needs to accept the changes under way at home and then tailor initiatives to them.
Industrial policy, for example, may offer the greatest benefits not by focusing on big companies and emergent technologies but by providing routine support services to the hundreds of thousands of small and midsize businesses likely to form the future backbone of the U.S. economy. These emergent companies, which are critical to the economic vitality of the United States, and whose operating styles and models may represent the evolutionary path that actually prevents the United States from declining, nevertheless often need simple things: advice on relevant technological change; assistance in reaching foreign markets; help with training; and, on occasion, subsidized financing for risky ventures or timely expansion.
At the level of the individual, there are also opportunities for policies that can offer a new kind of security in a world where change seems to be synonymous with insecurity. For instance, social services—health, pensions, unemployment benefits—are currently based on the assumption that most people will enjoy secure employment with large companies. But those days are over. “De-layering,” “right-sizing,” “reengineering,” and a host of other terms express the fact that even the most paternalistic companies are now cutting their employees loose as a part of the operating requirements of the new economy. Job-related benefits and social services must be redesigned to deal with greater personal economic instability and the growing reluctance of companies to bear social costs.
Nowhere is this requirement to redefine past practices more pressing than in the field of education, a point made with convincing clarity by Ray Marshall, a former secretary of labor, and Marc Tucker of the National Center on Education and the Economy, in their book Thinking for a Living. If there is a place in the United States where economic opportunity and social equity have historically met, it is in the nation’s schoolhouses. Education has been America’s ladder of opportunity, the tool that has allowed one generation after another to climb higher. Until today. As the authors observe, the nature of work has changed, but the nature of education hasn’t. The greatest step that the United States can take to reconnect economic growth and social equity is to reconfigure education so that, once again, the learning that goes on in school matches the emerging needs of the economy.
To trace the evolution of this problem, Marshall and Tucker go back to the roots of American education, pointing out that the U.S. high school system was created at the turn of the century primarily to meet the needs of the Henry Fords—that is, the pioneers of mass-production manufacturing. The assembly line and related innovations achieved huge increases in productivity by organizing the work-place according to the scientific principles of theorists such as Frederick Winslow Taylor. The essence of Taylorism was to break work down into numerous simple tasks that could be performed easily by people with little formal education. Workers were expected to perform the same task numerous times until they achieved “machine-like efficiency.”
In this economy, factories were organized so that the bulk of workers did not need to think. Thinking was the preserve of managers. Workers needed only to be able to follow simple written and oral instructions and exhibit obedience and discipline. It became the job of American education to provide those attributes. “In the space of less than two decades,” write Marshall and Tucker, “the American educational ideal shifted from schools whose purpose was to secure for some students real intellectual mastery of the core academic curriculum to places that would help almost all students adjust to the roles they would assume in later life, in particular their vocational roles in the developing industrial economy.”
Whatever else one may think of this definition of education, the results proved enormously successful. Driven by the mass-production system—and the matching educational system—the United States overtook the United Kingdom and Germany to become the world’s leading economy. Between 1900 and 1920, wages rose fivefold, the value of production sixfold. The United States rapidly created the largest middle class the world had ever seen.
But global competition and new technology are overthrowing the assumptions beneath mass production and, simultaneously, the lessons taught in American classrooms. In the new economy, say Marshall and Tucker, a worker not only needs to think but also must “bear the primary responsibility for quality control, for production scheduling, for his or her own supervision… The future now belongs to societies that organize themselves for learning. What we know and can do holds the key to economic progress, just as natural resources once did.”
Since the flaws of schools mirror those of old-style businesses, Marshall and Tucker argue for reforms similar to those introduced by America’s best managed companies in the 1980s. They say public school systems have to be “de-Taylorized.” This means treating teachers like professionals, rather than blue collar workers, and investing heavily in their skills and personal development. It means liberating schools from many unnecessary bureaucratic controls. And it means creating new organizational cultures in which teachers become fully accountable for student performance.
The poor performance of many high schools, argue Marshall and Tucker, reflects the absence of either performance standards or incentives for attaining them. The only students that have an incentive to work are the small fraction aiming for elite colleges. Marshall and Tucker would change this by introducing a series of different examinations, starting with a Certificate of Initial Mastery for 16 year olds, loosely based on European practice. Progression to college, employment, or skill training would be dependent on student performance in these exams: rewards would be linked much more closely to effort than in the present system. As professionals, teachers would be granted much greater flexibility in teaching methods, but their remuneration would be linked to student performance. Like employees in business, educators would face the discipline of a bottom line.
One can disagree about the practicality of some of Marshall and Tucker’s proposals. Still, their emphasis on institutional reform, performance standards, and incentives seems right. They offer something important to Americans for whom neither the pessimism of the declinists nor the euphoria of the triumphalists accurately reflects the texture of daily life in the United States today.
America, which has always worshipped at the altar of the new, is now caught up in an economy that is profoundly new. The changes that are taking place are so deep and sweeping that they challenge the compact that has long stood as America’s promise: the offer of unparalleled economic opportunity tempered by a commitment to broad social equity. It is the challenge to that compact that has alarmed middle-income Americans and given rise to the myth of declinism, rather than decline itself. The best way to begin tackling growing social inequality is by reshaping education so as to give more Americans the skills they need to meet the new demands of a new economy. That is the first step in reforging America’s unique social compact.
Credit byHarvard Business Review