By James L. Rodgers
As John Q. Adams said, “Remember democracy never lasts long. It soon wastes, exhausts, and murders itself as there never was a democracy yet that did not commit suicide.”
It can be further said that democracy cannot be inherited but has to be reinvented by each new generation, and the majority needs to have hope and opportunity in order for it to survive.
Many of our economic problems and those in other advanced economies are being caused by long-term structural issues beyond the present recession and the question is, will a strong middle class even exist in the future?
Yes, if we would just get started in investing in what it takes to maintain a balanced and competitive economy. However, as some economists are saying, it may take some fundamental changes in the way our economy works—some of these structural changes are not totally obvious at times.
We need major discussion now as to where we are going and how we are going to get there—it’s not going to just happen if we don’t have these issues being resolved at the highest levels. It will involve government creating the framework for this effort in cooperation with the private sector.
(Author’s note: Nothing in the following should be interpreted as being against people being rich; however, unless our society and economy has everyone sharing in its benefits and growth, it will drop in its ability to compete in a global economy, have more social and crime problems and become less democratic.)
We are moving from what was the industrial age, which created more jobs than it did away with, to the information age, where economists are beginning to think that jobs are only being created at the top and perhaps maintaining some jobs at the bottom. This new age may be doing away with jobs in subtle ways. The result is the rich are getting richer and the middle class is under assault.
This perhaps is an evolving giant structural problem that perhaps has no known solutions at the present time. It’s a problem at both the top and bottom of our society, where we have students ill-prepared to compete in a global society, and we don’t have the fundamental structural framework or incentives at the top to maintain a free enterprise system that will raise all boats.
We are moving into a future that may only benefit those who have the vision, drive, intelligence, education, personality, values, family support, inheritance, wealth, background, ethnicity, athletic ability, appearance, ambition, drive, charisma and/or the connections necessary to be part of an elite top 20 percent—in an increasingly class-based vicarious culture lacking the ability to provide good jobs for many of its people in a competitive global economy.
The remaining 80 percent may increasingly find their opportunities and share of income declining, as it already has for many years. This is not saying that the rich or the top 20 percent are all bad guys or that this is some sort of evil plot. However, many at the top have made sure that they are more than amply rewarded—often earning 200 to 1,500 times or more than an ordinary worker, while their upper incremental tax rates are less than 55 percent of what they were in 1980.
The top 10 percent presently take in half of all income in the United States, and if the trend over the past 40 years continues, this could increase to 70 percent of all income over the next 20 years, leaving only 30 percent for the remaining 90 percent. Since 1980, the top 1 percent has taken in 80 percent of all the new wealth created in the country, and in 2011 they took in 93 percent of all increases in productivity and technology.
The income taken by the top 2 percent could increase over time from the present 24 to 33 percent, where $1 out of every $3 goes to two out of every 100 people. In comparison, only $1 of those $3 would go to the lower 80 out of every 100 people—a staggering level of inequality that could put us on the path to becoming a plutocracy without any illusion of democracy.
The top 400 families presently own more wealth than the lower 150 million people, one family alone owns more than the lower 30 percent of people and the top 2 percent own more than 40 percent. The top 20 percent own close to 90 percent of the total wealth of the country—leaving a little more than 10 percent for the bottom 80 percent of people.
Presently, 90 percent of all gains in technology and productivity go to those at the top in an economy that has embraced and implemented the concept that winners take all. Some, such as heirs and those in finance, healthcare, insurance, celebrities in sports and entertainment and big company executives, earn more in a day, week, month or year than the present value of what most people make in a lifetime. In fact, the six heirs of one family have more wealth than 95 million people in the country combined.
The primary cause of this massive inequality is structural changes created by the information age, tax policy and the apparent major lack of top executive talent that drives their salaries to excess levels. Or maybe it’s just plain greed among powerful people, fascination with rewarding sports figures and celebrities, and long-term economic structural changes, such as the change to a more knowledge-based and competitive global economy combined with an increasingly unprepared and dysfunctional culture.
A root fundamental cause has occurred in the past when automation and outsourcing led to the loss of many jobs in manufacturing. Some of those jobs are now coming back as wages overseas have risen and the cost of transportation has gone up. Moreover, the logistics of supporting production far away is more complicated in a world where complex designs are constantly changing.
However, now we are seeing technology and automation dramatically affect the service industry, where those who stock your local supermarket or put up displays, for example, don’t go to a local office but receive instructions on the Internet and file financial and other information directly to a remote automated center. Software does analytical tasks and provides reports that used to take a room full of people but who now use iPods, cloud computing and other means of data communication, processing and storage. Soon, many truck drivers may be replaced with trucks that drive themselves—something that I have personally seen at a Nevada test facility.
As a result, the amount of work top executives manage has increased dramatically, so they now control more cash flow with fewer people and make higher profit levels. Thus, fewer share the rewards of a given amount of work or output. In addition, a long-term massive lack of public investment in advanced infrastructure, education and basic or fundamental research to support society and domestic businesses is greatly reducing our ability to compete and is affecting us even now in a slow recovery that will continue to leave many behind or without a job at all.
We need to implement a 10-year plus committed effort to modernize our power grid to a smart grid. The current grid wastes 50 percent of its power input, is not secure against storms or cyber threats and will not support highly distributed solar and wind power systems. Water systems need expansion in some areas or there will be shortages. We need high-speed transportation and many other advanced systems to remain competitive. These upgrades will create jobs and can be done through a public-private organization, similar to that used in other countries such as Canada, using a lot of private money and creativity to develop assets with long-term value.
We refuse to fully fund government during good times in order to reduce debt, and we are not making the critical public or private capital investments that will help create good jobs over the short and long term. Also, we never seem to prevent a problem up-front, such as making sure our educational system works. Instead, we end up spending 10 times or more on the backend—including paying for a world record number of people in prison.
In addition, we lack a broad national vision, plan and strategy for the future (that does not mean picking individual winners or losers), while many of our international competitors do have national strategies that have moved them substantially ahead. This is combined with incredible greed at the top and a me-only culture that is losing the core of its existence—strong well-functioning and prosperous middle-class families with positive and inclusive values.
We set world records in the number of our student dropouts and people on drugs and in prison, as we rarely prevent fundamental or core problems up-front and we refuse to adapt and prepare to compete in an increasingly competitive global economy. We do not have the political or general consensus, or even discussion, of what we need to do to create hope and opportunity for the majority in the future.
In addition, we are not working enough to prevent major problems, such as global warming. In fact, we have people literally fighting to further increase their own rewards at the expense of others, who couldn’t care less about having an inclusive and innovative free-market economy that raises the standard of living for all members of society and minimizes damage to the environment.
They don’t seem to care even about their children’s or grandchildren’s well-being in a future of potentially high social turmoil along with potential water, food and other shortages exacerbated by global warming and a massive growth in the world population to 9 billion people by 2050, increasing the competition for increasingly scarce resources.
The lower 80 percent may find that they will only share in low-paying service or increasingly limited manual-lab jobs, if they can find a job at all. Most will have no opportunity or hope for what used to be called a middle-class life and will live in what essentially will become a third world economy, with massive numbers of people living in despair and poverty—way beyond the 20 percent or 60 million classified as in poverty now (based on international poverty standards) that would be even more except for some moderate government assistance.
The decreasing middle class will cease to be the drivers of a consumption-based economy with those at the top placing increasing efforts on overseas opportunities. As we lose any hope for an actual middle class, with a bell-shaped distribution of income and wealth, our ability to compete in the world will continue downward, as it has over the past many years, and with increasing debt, we could end up with a financial collapse.
Any pretense of a democracy will slowly disappear as people lose faith in a government increasingly controlled by those at the top and special interests. In an increasingly competitive global economy and with increasing automation, what it takes to participate is simply rising to levels that may exclude most people in our country—without major public investment within an overall strategic vision resulting in major changes in direction as a nation. Our economy needs to be driven more by investments, including investment in preparing people to compete in a world economy, and less by consumption.
In our present path, we will not have the technology base, the trained population, the infrastructure, the investment capital, the information and knowledge-based industrial capability and the secure sources of critical supplies to even ensure our military defense in the future, let alone to provide good jobs. We have a default industrial or national strategic plan made of unconnected and uncoordinated policies and programs that are almost designed to destroy jobs—not create them.
James L. Rodgers, BSEE, MBA, is the founder of two successful high-tech national award-winning Arizona companies. Contact him at firstname.lastname@example.org or 480-204-0492.