The American Dream Is Dead; Long Live the New Dream
Friday, 10 May 2013 00:00By Cliff DuRand, Truthout | News Analysis
(Photo: get directly down / Flickr)The American Dream of upward mobility is dead, thanks to the neoliberal ministrations of capital and government. But a new dream could rise from the mess left by globalization, off-shoring and austerity.
The continuation of the economic crisis of 2008 up to the present has driven home a social trend that has been evident since the late 1970s, the decline of what is usually called "the middle class" and the accompanying American Dream.
The American Dream is the belief that if you work hard, if you are blessed with at least a modicum of ability and have a little luck, you can succeed. That is, you can rise in society no matter how humble your origin to something better in the way of material well-being, economic security, a settled life and social prestige. It is the dream of upward mobility for oneself, or at least for one's children.
As Richard Wolff has pointed out in Capitalism Hits the Fan: The Global Economic Meltdown and What to do About it, this upward mobility was a reality for most citizens of the United States for several generations, from 1820 to 1970. For 150 years, real wages rose. In the quarter century from 1947 to 1973, average real wages rose an astounding 75 percent. But that shared prosperity came to a halt in the mid '70s. In the next 25 years, from 1979 to 2005, wages and benefits rose less than 4 percent. The sustained rise in standards of living had been made possible by a conjunction of historical circumstances, circumstances that began to reach exhaustion by the mid 1970s.
Post WWII prosperity was based on 1. the global economic dominance of the United States; 2. pent up consumer demand from the depression and war years; 3. supportive social programs; 4. some political clout due to a strong union movement that could demand a share of the prosperity; and 5. Keynesian stimulus (military spending, infrastructure development like the interstate highway system, etc.).
Fixing an Overaccumulation Crisis
By the mid 1970s, an overaccumulation crisis emerged, reflected in stagflation, which is simultaneous inflation and lack of economic growth. There were insufficient places to profitably invest all the surplus capital that had accumulated during the years of prosperity. The situation was set forth with unusual candor by former IMF Director Jacques de Larosière. In a 1984 policy address, he said:
Over the last four years the rate of return on capital investment in manufacturing in the six largest industrial countries averaged only half the rate earned during the late 1960s. . . . Even allowing for cyclical factors, a clear pattern emerges of a substantial and progressive long-term decline in rates of return on capital. There may be many reasons for this. But there is no doubt that an important contributing factor is to be found in the significant increase over the past 20 years or so in the share of income being absorbed by compensation of employees . . . This points to the need for a gradual reduction in the rate increase in real wages over the medium term if we are to it restore adequate investment incentives. - Quoted by William I. Robinson in "A Theory of Global Capitalism: Production, Class, and State in a Transnational World"
In other words, in order to ensure "adequate" profits to capital, workers' incomes had to be curtailed.
The policies that made this suppression of incomes possible came to be called neoliberalism, a public ideology represented by President Ronald Reagan in the United States and Margaret Thatcher in England. It involved a withdrawal of government from directing the economy, leaving it instead to market forces. This meant deregulation, privatization of the commons and free trade. And that required weakening the collective hand of workers by an assault on unions and social benefits so as to strengthen the hand of capital.
"Free trade" policies of our political elite were a key part of the neoliberal offensive against labor. Trade agreements like NAFTA promoted the export of entry-level jobs to low-wage countries of the global South. With globalization, beginning in the 1980s, those entry-level industrial jobs that had made mobility into middle-income levels possible were the first jobs to be sent offshore, where they could be performed by low-wage workers in the Third World. For instance, hourly compensation costs in manufacturing (wages plus benefits) amount to $1.50 or less in China, compared with $33.50 in the United States. The Economic Policy Institute has recently calculated that in the last decade alone, US trade with China has cost us 2.7 million jobs.
Globalization was "the fix"
The globalization of capital was the fix that was found for the crisis of overaccumulation. Investment was sent abroad to low-wage areas of the global South where goods could be produced cheaply and then sold to higher-income consumers in the North. By 2008, 48 percent of all sales by the top 500 US corporations were items produced abroad, as can be readily verified by looking at the "Made in . . ." labels on clothing, electronics, automobiles and myriad other consumer goods. Even more ominously, opportunities for investment were opened up by free-trade agreements like NAFTA and later the World Trade Organization (WTO). At the same time, the bargaining power of US labor was curtailed by capital's threat to move production abroad along with a government-endorsed campaign against unions. This restored corporate profits, but stagnated working Americans' wages. The Organisation for Economic Co-operation and Development (OECD) now reports that the United States has the lowest rate of upward mobility of all industrialized countries. It is even seeing downward mobility.
Witness the decline in entry level wages. From 2001 to 2008, entry-level pay for high school graduates declined by 4 percent. For college graduates, the decline was 7 percent. For example, when my son graduated in computer networking from a community college in 1997, his first job was with Sylvan learning Center. Fifteen years later, his son graduated from a university, and a classmate got the very same job - at exactly the same salary of $37,000! Allowing for inflation, Sylvan now gets a university graduate for less than it used to pay for a graduate of a two-year program.
In recent decades, the economy has grown, and there was a gain in total wealth. But where did it go? From 1983 to 2008, total GDP grew from $6.1 trillion to $13.2 trillion in constant 2005 dollars. The unequal distribution of the total wealth gain during this period is revealing. The wealthiest 5 percent of American households captured 81.7 percent of the gain. The bottom 60 percent of households not only failed to share in the overall increase, they suffered a 7.5 percent loss. Some of what the top 1 percent gained came directly from that bottom 60 percent.
Downward Mobility
Between 2001 and 2008, entry level wages declined 7 percent for college graduates and 4 percent for high school graduates. Entry into middle-level incomes is becoming more difficult.
Previously it had been possible for a young man just out of high school to get a good-paying unskilled job in a unionized factory, buy a house in the suburbs, with a federally-insured mortgage, and send his kids to college with government-supported student loans. This was a common road to the success promised in the American Dream. Millions achieved that coveted upward mobility. Under the illusion they were no longer working-class, they thought of themselves as a new class in the middle, somewhere between the poor and the rich - a middle class. It is neoliberal globalization that has now blocked that road for more and more people. For the first time in generations, the next generation has a lower standard of living than their parents.
Entry point to the middle class
With the offshoring of manufacturing, the industrial regions of the northeast and the Great Lakes were transformed into a Rust Belt. United States manufacturing employment peaked in 1979 at almost 20 million and fell under neoliberalism to about 11.5 million in 2010. Today, 80 percent of the world's industrial workforce is now in the global South. Most of it used to be in the United States. This is in no small measure the result of corporate policies over the last 30 years - policies encouraged by our political leaders - to offshore those low-skilled industrial jobs that used to be the entry point to the middle "class" for many. That may create the conditions for middle "classes" in Brazil and China, and even in Mexico, but it shrinks the middle "class" in the United States, pushing people's living standards downward. Basically, capital is destroying the middle "class" at home and reconstituting it in parts of the global South.
As less-skilled industrial jobs were offshored, at first, in the '90s, we were told by Robert Reich, labor secretary in the first Clinton administration, that to remain competitive in the global economy, US workers needed to upgrade their skills. We were told the new economy would be the new road to the American Dream. We are still being told that. But offshoring of jobs has not been limited to low-skilled assembly line work. Corporate capital has discovered that any job that can be done by computers can be done anywhere in the world and consequently will be done wherever the cheapest workers with the requisite knowledge can be found. So the knowledge-economy jobs are now also being offshored to countries like India. The knowledge workers there will work for far less than in the United States. And many of our college graduates today are saddled with heavy debt and unable to find work.
As a result of public and corporate policies, there has been wage stagnation for the past 30 years, even as worker productivity rose sharply. This is shown clearly in the following graph.
Capital took the bulk of productivity gains (shown by the upper pink line) over the 1993-2006 period by holding wages down (shown by the lower blue line). But then with the 2008 financial crisis, median family income declined further, by nearly 10 percent. Overall, as incomes have declined, corporate profits have soared.
For a while, wealth appeared to increase for average citizens because of inflating real estate values. But the financial crisis of 2008 wiped out that fictitious wealth. Median family wealth in 2010 was the same as it had been 20 years earlier.
It is important to understand that the undermining of the American Dream came at the hands of capital and government working in collusion. It is corporate capital's unquenchable thirst for profit and political leaders' eagerness to assist them that is destroying that dream. It is not blind economic forces operating with the inevitability of natural law, but the conscious policies of CEOs and political leaders that replace upward mobility with downward mobility. Political leaders, Democrats and Republicans alike, embrace Charles Wilson's adage that "what's good for General Motors is good for America." What truth might once have been embraced by this identification of the national interest with corporate interest has long since been invalidated by the globalization of capital.
This is a central point in my book Recreating Democracy in a Globalized State. Corporate-led neoliberal globalization has transformed nation-states into what I call globalized states, that is, states that serve the interests of transnational capital above the interests of national populations. This tendency is strong in both states of the global North, like the United States, and global South, including Mexico. This has resulted in a limitation of sovereignty and of the possibility for democratically-shaped national policies. Increasingly, the countries' fates depend more on powerful transnational corporations rather than on their own people.
Support for neoliberalism bipartisan
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