Opinion

Chrystia Freeland

America’s two-speed economy

By Chrystia Freeland
July 7, 2010

A sunny July day in Aspen, Colorado, with Dvorak’s Symphony Number 8, courtesy of the Aspen Music Festival, lilting in the background, is a pretty good definition of the American dream.

Yet one of the most interesting threads running through the conversation Tuesday, the first full day of the Aspen Ideas Festival (underwritten in part by Thomson Reuters, where I work) is the fear that America’s days as the land of opportunity, particularly for the middle class, may be numbered.

The first warning came at 7:45 am – a typical start for the wonkish crowd assembled here – from Michael Splinter, CEO of Applied Materials. Splinter was full of Silicon Valley enthusiasm for his company and its prospects: “it very much is the frontier … this really is rocket science.”

But he wasn’t nearly as cheery about the state of his nation. Asked by moderator David Bradley, chairman of Atlantic Media and one of the festival’s hosts, how many of his employees would be in America if he were starting with a blank slate, Splinter said just 20 per cent. “90 per cent of our sales will be outside the U.S.,” he said. “The pull is to be close to our customers. The challenge is how to get jobs in the U.S.”

Splinter said he was worried about America’s deficit and the tax increases he believes will inevitably be required to pay it off. He was tough on the Obama administration – even though he is among the favored CEOs who have been invited to the White House to offer advice.

Splinter had good things to say about corporate sessions with the President. He said that behind closed doors CEOs “were quite honest” in expressing their views, and that the president was “forthcoming.” But, asked a visibly frustrated Splinter, “what are the results?” He wants more R&D spending, a better educational system and – the familiar CEO lament – a more pro-business attitude from Washington.

Yet Splinter’s critique contained its own contradictions: on one hand, he called on the government to spend more on R&D and education, but his chief complaint was that “frankly, our tax rate is not competitive” and that it was likely to increase.

The prospects for the American dream were addressed directly in an afternoon session which asked “Is America Still the Land of Opportunity? Taking a Hard Look at the Middle Class.” This was one of the day’s hot tickets: An overflow crowd spilled into a picnic-style sprawl on the carpet at the back of the room and in the aisles – one sign we were not in New York or Washington.

For the question asked in the afternoon session, Arianna Huffington had an unambiguous answer: “the upward mobility that has been at the heart of the American dream is a mirage for millions of Americans,” she said, especially for the millions of unemployed, or underemployed.

Coming from the dynamic diva of the Huffington Post, that verdict wasn’t much of a surprise. What was interesting was how her views were echoed by the other panels, and how, together, they told a story of a two-speed America, in which one group is flourishing, while another part of society is falling behind.

Journalist and Newsweek columnist Ellis Cose pointed out that the dividing line between the two Americas is starting to cut across racial lines. He is studying black Harvard MBAs and has found that they are confident that their future and their childrens’ future is bright.

Tom Wilson, the CEO of Allstate (another underwriter of the festival), made the essential — and brave — point that the fates of American business and American society may be starting to diverge. “I’ll get them [workers] anywhere in the world,” Wilson said. “It is a problem for America, but it is not necessarily a problem for business. I have workers in Belfast, I have workers all over the world. American business will adapt.” Like Splinter, Wilson urged more investment in education.

What frightened me most about today’s discussion was a possibility endorsed by Ron Brownstein, political director of Atlantic Media, and the panel’s moderator, that America’s two-speed economy may not be anyone’s fault (as Huffington insisted it was) but might, instead, be the inevitable consequence of the twin revolutions of globalization and technological change.

Wilson was certainly right about one thing: one of the great success stories of our age is how dynamically American companies have adapted to globalization and the technology revolution. But, as Huffington pointed out, the political consequences of a two-speed America might not be pretty: “America cannot be America without a middle class … we will become Brazil and all live behind gates to protect our children.”

The irony of this thread in today’s discussions, of course, was that most of the people who steadfastly turned their backs on the sunny alpine meadows in favor of geeky debates in lecture halls are members of the America which is winning in the world of globalization and technological change.

The festival’s crowd is an earnest and studious elite. Mercedes Benz, another conference underwriter, had such a hard time getting takers to test drive its cars that I overheard one rather desperate company representative offering her zippy convertible as a shuttle-bus –- and that is surely one of America’s saving graces.

One other small sign that the fabric of American middle class culture may not be fully rent. Ideas festival-goers were offered the sorts of foods you would expect the health-conscious-outdoorsy, super-elite to consume: protein-enriched smoothies, non-alcoholic wine (all the health benefits, none of the fun!), edamame and celery sticks to dip into peanut and almond butters. But the sell-out nosh? Hot dogs.

Comments
28 comments so far | RSS Comments RSS

The way to save the American middle class is to bring back all the jobs that have been outsourced. American corporations should be forced to hire American workers, not allowed to call themselves American corporations, but then send all the work to India and China while they shaft their American employees. If they want to outsource, then they should move their whole corporation overseas!

Posted by Silver Fang | Report as abusive
 

The moderator should have asked this elite group, who is concerned about deficit and higher taxes on businesses, just how it would put forward a budget to accomplish their objectives. To this end, I offer a website for these geniuses of American Capitalism to demonstrate how it can be done.

http://crfb.org/stabilizethedebt/#

I agree that we need to improve our educational system, but we also need to create jobs in this country, rather than sending them offshore.

 

The problem for America is the same faced by the entire world: it’s leaders take advice from economists who have turned a blind eye to the consequences of ever-worsening overpopulation. Burned long ago by the seeming failure of Malthus’ theory of overpopulation, economists have sworn to never revisit the subject. A pity, for if they did, they might come to understand that as population density rises beyond a critical level, per capita consumption begins to decline. Since per capita consumption and per capita employment are inextricably linked, rising unemployment is inescapable.

Nations with extreme population densities – like Japan, Germany (indeed the whole Euro zone), South Korea, China and a host of others face three choices: either manufacture for export in order to gainfully employ their bloated labor forces, rely upon deficit spending to mask the effects of unemployment, or endure crushing poverty.

All have chosen the first option (and the second), relying on the U.S. to soak up the world’s exports and relying upon deficit spending the mask the effects of steadily worsening unemployoment. The result has been an enormous, unsustainable imbalance of trade that nearly collapsed the global economy, and crushing debts that now threaten to collapse national economies.

For decades the U.S. has held at bay the effects of its trade deficit, now a cumulative $10 trillion since its last trade surplus in 1975, through deficit spending and through a series of economic bubbles like the dot com boom and the recently-burst housing bubble. Now the chickens have come home to roost.

There is no escape from this economic decline that doesn’t begin with the use of tariffs to counter-act the role of population density disparities in driving global trade imbalances. The ultimate solution is for all nations of the world to implement population management strategies that return population densities to sustainable, pre-critical levels at which the supply of labor is back in line with demand. For the U.S., such a strategy must begin with dramatic cuts to both legal and illegal immigration to match the rate of emigration, removing it as a factor in population growth.

 

Assuming the US falls into economic depression in the coming months, what should Americans do to prepare themselves financially, emotionally, and spiritually…? Will this depression help make a better America for our children…? How can we as Americans take advantage of the coming economic depression to make our lives better in the long-run…? These are the new questions readers are now pondering…

 

Typical recessionary end-of-the-worldism. Please ignore.

Posted by gotthardbahn | Report as abusive
 

As long as credit is scarce for small businesses, the American Dream isn’t what it used to be.

Posted by yr2009 | Report as abusive
 

USA should
-incentives to build up Co.’s workforces here.
-prevent HUGE retail big-box chains (Walmart) from pushing out established small local stores everywhere.
-Slowly but surely and intelligently raise Tariffs.
- stop 2 long wars, and convert military factories into making peaceful high-tech stuff.
-invest more in education, reduce cost of going to college

Co. should
1. educate your own workforce from within.
2. build factories here so people literally have a place to work besides low-paying (McDonalds) retail/service sector types.
3. embrace “trickle-up instead of trickle-down.

Posted by Mark T Jepson | Report as abusive
 

“Yet Splinter’s critique contained its own contradictions: on one hand, he called on the government to spend more on R&D and education, but his chief complaint was that “frankly, our tax rate is not competitive” and that it was likely to increase.”
The terminal problem for the United States is the desire, by a large segement of the population, for the government to provide for and to fix things. This desire is of course coupled with a desire to not have to pay for it (i.e taxes).
I believe that is called entitlement and it will be the ruin of the USA. Splinter defined it prefectly; I want the government to do more, but don’t raise my taxes.

Posted by mike | Report as abusive
 

Interesting article Chrystia, thanks for sharing thoughts from the event.

I would love to hear from the CEOs what they believe the government could do to lure them to bring jobs back to the US; tax breaks, tax incentives for each job transfered back to US, etc? Or are we at the point where the wages in other countries just too low to ever return?

Trickle down economics only works when the corporation take that money and reinvest local growth, not lower wages off shore IMO.

Posted by Mike Dehm | Report as abusive
 

So, if the american middle class is unemployed or under-employed and if the middle class will move from being middle-class to “poor” in the future, who will consume the goods and services that these companies are selling? Will all these companies including applied materials and allstate entirely start serving the middle-classes of other countries? Its funny to hear ““I’ll get them [workers] anywhere in the world,” Wilson (allstate) said. “It is a problem for America, but it is not necessarily a problem for business. I have workers in Belfast, I have workers all over the world. American business will adapt.”
So, in looking allstate’s market, it does not seem to serve markets outside of the US currently! So, is allstate going out of stateside in the future and serve only other countries? How is this just America’s problem and not a business issue? “We are NOT in good hands”!!!

There is another contradiction here. For the question to the Michael Splinter, CEO of Applied Materials, “how many of his employees would be in America if he were starting with a blank slate, Splinter said just 20 per cent. “90 per cent of our sales will be outside the U.S.,” he said. “The pull is to be close to our customers”. So his market is outside of the US as well. Why would this company need tax-breaks, R&D spending and government support in the US if 80% of his employees and 90% of his customers are outside the USA?

The solution lies with the middle-class uniting together and working ourselves out of this problem. Consume less, buy american products, save more and don’t fancy products and services that don’t enhance our lives! Savvy?!

Posted by J.Seagull | Report as abusive
 

Doesn’t surprise me about the hot dogs. Americans are junk-food junkies. When my wife’s turn to provide coffee and refreshments following our church service, and in addition to the cookies, she opted for some of the same healthy alternatives: hummus, edamame, and even celery and carrots with ranch dip…and nobody bothered to eat them. Of course, the cookies were all gone though.

Posted by Paul W | Report as abusive
 

the people Freeland wrote of have their definitions of success..we have ours..we’ll survive without theirs…God bless ‘em and good bye..(maybe India will feed them, or Africa maybe ? bye,bye to the so-called “super-elites” she writes about..)all this was preventable..but now..

Posted by gramps | Report as abusive
 

Our primary competitive problem is our labor cost and this is a direct result of unions. When competing with the rest of the world, the premium that can be paid to our labor cannot exceed their increased production in comparison to workers in other countries. Unfortunately, however, the premium often greatly exceeds the increased production and thus companies move production off-shore. Much of Western Europe has the same problem. But governments on both continents are weary to address this since organized labor, representing governmental and private employees, is highly “organized” and the members vote. So all of us who are not in organized labor end up subsidizing this excess premium, through taxes and/or deficits and/or inflation.

Posted by RJMSPB | Report as abusive
 

Hey guys, all this corporate (BS) rhetoric is all well and fine BUT instead of THEM moving their businesses overseas why not be truly patriotic/caring American citizens and KEEPING JOBS HERE!!! I’m all for a decent profit for all owners of companies but when it comes to the NOW very survival of our NATION isn’t it about time that those individuals really prove to all of we “AMERICANS” that THEY care more about their own “brothers & sisters” instead of indecent profits (lowest bottom-line)? How many BIG coporations have we “BAILED OUT” and what thanks do WE get? Essentially spitting in our faces!!!

Posted by Middleclassman | Report as abusive
 

Like mike, I don’t understand this statement: “but his chief complaint was that ‘frankly, our tax rate is not competitive’ and that it was likely to increase.” Is Michael Splinter referring to our individual income tax rates, or corporate rates? Neither are “not competitive.” The top rate on personal income taxes is 35%; it has been under 50% for 24 years. 1964-1981, it was 70% – double what it is today – and somehow we survived. We were paying for the New Deal and the Great Society, and we believed it was worth it. Through the Fabulous Fifties, until it was lowered to 77% in 1963, it was…..are you ready for this? NINETY-ONE PER CENT! And somehow, we survived. So the next time some corporate money-monger yells about high taxes, use a little history on him!

Posted by JCMaustex | Report as abusive
 

I grew up in a country with a prosperous minority living behind guarded gates. In my analysis back then, an export-driven economy meant (for my native country) that nationals were not strong consumers, therefore powerless before the business and government sectors. The political ramifications of a weakened middle class for America are dire. Along with their consumption power, the bulk of Americans will lose power as globalization shifts jobs and markets to the rest of the world. It’s a spiral that leads to a weakened American democracy.

Posted by Free Thinker | Report as abusive
 

Dear RJMSPB,

You’ve gotta be kidding about “UNIONS” nowadays being the cause of all our financial problems! Even Ostriches know that UNIONS only represent 9% of the entire U.S workforce, and you’ve got the temerity to tell me that that’s the main stumbling block?
GET REAL! Even realistic union types realize that they have to “give-back” agreed upon “management/labor” signed contracts!!! It’s not Unions causing any of your aformentioned
gripes, look at the wholesale/jobbers drastic price-gouging as of late, look at the cost of “Health-Care”, look at the drastic INCREASES in government spending, look at ALL the “off-shoring” going on!!! It’s NO LONGER ABOUT UNIONS being the “Boogie-Men” it’s about individuals like yourself who criticize others for not being as FORTUNATE AS YOU!

Posted by Middleclassman | Report as abusive
 

Mr Sahit Muja said “The worldwide special interest government’s policies heavily favor transfer payments and war expenditures, within an economy’s generally anchored by low paying service jobs, consumer credit, an unregulated banking industry and inflated housing prices.
The symptoms of the worlds economy are undeniable, plain to see, a economy increasingly dependent on massive deficits, foreign dependency’s, and an inflationary money supply”

Mr Sahit Muja said “The world’s economy will definitely improve if the government’s encourages successful businesses rather than punishing them with more taxes. The economy will improve if the government’s stop spending trillions of dollars that we don’t have and balance the budget. The world must be led and managed by a leader’s who really understands the economy. Bailouts for private companies usually mean that failing companies receive taxpayer money, while their more successful competitors do not”.

” Does that make any sense? In the real world, investors seek to put their money where it is most valuable; that is, in companies that succeed, not those that fail. In the alternate world of government bailouts in which lawmakers spend taxpayer money rather than their own, failure is rewarded and success is punished. World need new tax system a 10 percent flat tax like in Albania”.The Albanian economy has done very well under Prime Minister Sali Berisha, and government policy has been key. These economic gains are a big part of the reason he win re-election in 2009. Billions of dollars are currently being invested in all sectors”.

Albania announced that there was a 42 percent increase in the number of tourists in 2009.
The Albanian economy had the best growth in Europe last year, and this trend is expected to continue this year as well. Foreign investments in Albania have increased 59 percent in 2009

The Albanian government under Prime Minister Berisha, has created an excellent environment to attract investors to Albania. Special emphasis was paid on constructions of roads and improving infrastructure. The efforts on improving the legal system to protect investors also proved significant. Also that many Western European companies have chosen to escape the high taxes in Europe by investing in Albania as the latter offers the best tax system in Europe with a 10 percent flat tax”.

Mr Sahit Muja said “Government spending is like throwing gasoline on the smoldering fire. The only thing it can do is make it worse. The damage is done and it will take time to rebuild. Fix the specific things that lead to the damage occurring. Then adopt the same financial approach that a family would take after their house has burned down and they didn´t have insurance. You don´t run up the credit card bill any more than absolutely necessary and you cut all extravagances from your life. Otherwise, it will take you a lot longer to recover from the financial disaster”.

“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving.The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it”.
Mr Sahit Muja said “World have so much wealth in human and natural resources, food, water, energy, forests, oil, natural gas, gold, metals, cooper, aluminum, iron ore, chrome ore. World have everything we need to have a prosper live for any human in this planet.
Why world is so poor? why big economies like Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom and the United States of America don’t help the world.

Mr Sahit Muja said “More than 840 million people in the world are malnourished-799 million of them are from the developing world. More than 153 million of them are under the age of 5.
6 million children under the age of 5 die every year as a result of hunger. Of the 6.2 billion people in today’s world, 1.2 billion live on less than $1 per day”.
Sahit Muja
President & CEO
Albanian Minerals
http://www.albanianminerals.com

Posted by Ambani | Report as abusive
 

Many of you guys are angry at these global companies for out-sourcing their labor, and demand they keep more jobs in the US, the problem is, as many people have stated, the increased labor costs will make them uncompetitive in the global market. So this is obviously a structural issue and I happen to agree with the quote that these are ‘the inevitable consequence of the twin revolutions of globalization and technological change.’ So I think the solution, or maybe I should say a part of the solution, is counter-balancing social change, and I think this will probably happen naturally (though some kind of guidance could maybe make the change smoother and faster…). As for what that social change will be, well I’m not sure, but it would be nice to see a way for local economies to become competitive with the global economy, maybe through some new social norms or pressures that affect our perceived value of buying local.

Posted by wisdomseeker | Report as abusive
 

America prospered in an era of abundant resources, allowing the wealthy greedy brown-nosed elite to allow the majority of people “beneath” them to party at bountiful banquet tables. Now, with not so abundant resources, the lower-crust of society is crawling around under empty banquet tables, eating table scraps thrown to the ground by the upper-crust minority. What are the elite complaining about these days? Well, for one thing, the lower-crust are taking up valuable land space that could be allocated to sprawling country estates that would make English manors look like tiny tract homes by comparison. Visions of an America with just one percent of its present population, with estates the size of valleys surrounded by mountains and serviced by high-speed helicopters, such are the fantasies of those who put up with the rest of us.

Posted by DisgustedReader | Report as abusive
 

America can no longer support the 310 million that live here. We have the most read general life, home foreclosure and job hunting stories on the web at http://storyburn.com

Posted by STORYBURNeasy | Report as abusive
 

Dear Ambani,

Your facts are correct, but there in lies the problem! If everybody on Earth lives to a “ripe-old-age” then what happens to US??? The Earth’s resources are being stretched to the limits as I type, more people means MORE people pro-created, which means more mouths to FEED, which means we’re approaching the “melt-down” point of human-exsistence. There are ALREADY “water-war” type conflicts globally, famine is a VERY REAL POSSIBILITY! Rapid transmissions of diseases our medical people know nothing about nor can control! I’m NOT religious-person by any stretch of the imagination but I follow global problems on a daily basis and it “SCARES THE CRAP” out of us!!! Nobody wants to play “GOD” but how many “people is enough???”.

Posted by Middleclassman | Report as abusive
 

My dad, may he RIP, was prophetic. Twenty five years ago he saw that our middle class American life styles were out of balance with the rest of the world. Add to that our educational system that is not keeping pace. When India has more honor students than we have students how do we compete? There is no miracle cure for living with expectations of upward financial mobility, but not being the best educated to compete with the rest of the world. It ain’t going to happen….

Posted by sahuntree | Report as abusive
 

Look to the banking cartel around the FED along with their string of pro-”globalization” economists who claim that we’re better off under this new global world! I beg to differ! Please compare standards of living with 10 then 20 years ago and see for yourselves what has happened to the middle class world-wide! How is it possible for people to live much worse off under this new system, than under communism in Eastern Europe for example? Or why has famine and disease in Africa increased if we were so much better off now? There are consistent rumours out there that the global elitists are employing Maltusian theories and trying to reduce the world population. It is a well orchestrated plan that has been going on for many years and we’re only seing the first signs…Please read: END THE FED by Ron Paul

Posted by pesheff | Report as abusive
 

No worries — prosperity is right around the corner — it’s all good…

Posted by mckibbinusa | Report as abusive
 

some good comments some so so. The middle class as a diminishing force is a new idea to me. Makes sense though.
Companies going out of the US for its labor force illustrates their main goal – profit. cheaper is cheaper.
However Mr. Shahit Muja made some very thoughtful points about wealth and why persons go hungry in this world – thoughtful but very naive. I am thinking of investing in Albanian minerals though. That caused some thoughtfulness on my part.

Posted by mactn | Report as abusive
 

This sums it up:
http://www.youtube.com/watch?v=pKv6RcXa2 UI

Posted by MontyDiego | Report as abusive
 

American CEOs are sitting on record amounts of cash on their balance sheet. Most US companies do not expect to spend any of their cash according to a recent survey. (http://www.ft.com/cms/s/0/56e5f858-8228 -11df-938f-00144feabdc0.html)

Sitting on mountains of cash is the worst use of capital. Period.

By holding on to all this cash, American companies are anti-American, anti-jobs, and anti-shareholder. (http://www.businessweek.com/news/2010-0 2-11/jobless-suffer-with-corporate-cash- climbing-to-1-19-trillion.html)

They should be investing in the business or new products, or they should pay out dividends, or they should buy back their own stock.

Anything but sitting on the cash. All of the other uses of the cash would help the economy. It would also help their businesses.

The Association for Financial Professionals, surveying corporate financial planning executives in May, found that 80 per cent of groups expected their cash holdings to expand or stay the same over the next six months, contrary to expectations that cash could soon be used to fuel a further growth economic spurt.

Why don’t you call American CEOs out on being bad for business by sitting on all this cash? I can hear the “sucking sound” as holding all this cash sucks out all of the stimulus and more by holding on to cash.

This is corporate America’s dirty little secret about how UN-American they are — even in a time of economic crisis. They are not serving shareholders by sitting on this cash.

Posted by socialecon | Report as abusive
 

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