Democrats Need to Address Americans’ Economic Unease

Posted May 8, 2007 at 6:09pm

In the latest Newsweek poll, a staggering 71 percent of Americans said they are dissatisfied with the direction of the country. Of course, the Iraq War is a major cause of public distemper, but it is not the whole story. Another major driver is unease and unhappiness over the economy. In some ways, the economic unease is puzzling; after all, unemployment in the United States is only 4.5 percent, economic growth is relatively robust, and inflation remains low. But those indicators that used to correlate strongly with public optimism no longer do so. [IMGCAP(1)]

A job alone no longer means security of employment, health benefits or pensions. Workers see example after example of companies collapsing or going into Chapter 11 (from Enron to Global Crossing to United and other airlines to Delphi), jobs disappearing, or health and pension benefits being cut for workers and retirees alike. Even those who have strong jobs and secure benefits live with insecurity; every year, companies readjust their health benefit plans to accommodate the higher costs — adding to employee out-of-pocket payments, adjusting the benefit terms and changing the available doctors, meaning turmoil and heartburn.

Of course, these changes are a product of a modern, fast-paced, ever-changing globalized economy. Many Americans would like to put the tape on reverse and go back 30 years — but that is not going to happen. Indeed, things will only get more tumultuous.

Alan Blinder, the Princeton University economics professor who was chairman of the Council of Economic Advisers under President Bill Clinton and also served as vice chairman of the Federal Reserve Board, had an insightful essay in Sunday’s Washington Post Outlook section on the likely outcome of the increased offshoring that is an inevitable product of globalization. More and more jobs — high-quality, high-skilled, technical and professional jobs — will end up going to China, India and other countries, where educated, competent and eager English-speaking professionals will be delighted to take them at a fraction of American pay and without the panoply of American-provided benefits.

As Blinder noted, the dramatic pace of technological change means that we are no longer an economy driven by the movement of goods, but by the movement of information. Tax returns do not have to be processed or filled out in Kansas City when they can be done just as efficiently (and much more cheaply) in Bangalore by an English-speaking Indian trained in accounting. X-rays don’t have to be read in Des Moines or Chicago; they can be transmitted electronically to Hyderabad, where a radiologist earning a fraction of his American counterpart can do the job well.

A few years back, I helped supervise a project to create a comprehensive software package for presidential nominees to use to fill out all the disclosure and conflict-of-interest forms. The American software company doing the work could not complete it, and the only place we could go to get it done well and on time was Mumbai. The software engineers there did a great job — and ended up knowing more about the intricacies of the American executive branch nomination and confirmation process than most scholars who teach about it.

It is one thing — and plenty significant — when the jobs going overseas are call centers for airlines or hotels, or billing departments for credit card companies. But when top computer jobs, accounting jobs and medical jobs join them, it will be even more significant politically and economically. And Blinder estimates it could end up being 30 million to 40 million jobs going offshore.

The American social contract for professionals has included the following provisions: Get a good education, learn special skills, do good work, and you will be rewarded with the American dream — a good job, a house, a nice car, good health insurance for the family and a good pension down the road. What happens if 10 million or 15 million of these professionals find, after they have done their part, that the social contract is broken? It will not be pretty.

Blinder notes that not all jobs can be outsourced or offshored; tax returns can but on-site auditing cannot; architecture can but building cannot. So a part of the answer is making sure our educational system is up to the task of training people for the jobs that can and will be done here. But there is much more to be done, and Congress needs to put a lot of focus on these tasks.

One part of it is to keep our edge in technology, through expanded basic research and math and science education. In this area, the Senate, under the bipartisan leadership of Lamar Alexander (R-Tenn.) and Jeff Bingaman (D-N.M.), among others, last week passed the America Competes Act, which adopted recommendations of a National Academy of Sciences task force that Alexander and Bingaman had asked to examine what America needs to do to keep its edge. The act authorized $60 billion over four years to double spending for physical sciences research, sharply expand the number of new and retrained math and science teachers, enhance scientific research grants and invest more in high-risk, high-payoff research. It is a strong start, but more is needed to enhance biomedical research, defense research and other R&D.

We also need to rethink in a basic way our health insurance and pension systems. It is clear that we can no longer afford to maintain indefinitely our jerry-built, employer-provided health system or our patchwork, individualized pension system that is rapidly moving away from any guarantees through defined benefits and toward the more fluid and uncertain defined contribution plans. If employers include the direct burdens of health benefits when they weigh the costs and benefits of keeping a job at home or offshoring it, a lot more jobs will be lost than if the health costs are distributed across the society.

Congress needs now to start considering alternative ways to provide health benefits, including plans like that of California and Massachusetts, and the option introduced recently by Sen. Ron Wyden (D-Ore.). And Congress needs to look at ways of making pensions more portable and more secure. It also is clear that the Social Security defined benefit safety net becomes even more important as worker insecurity grows.

Right now, the Iraq War and assorted scandals are preoccupying Congress and soaking up most of the time and intellectual energy that could be channeled into these important problems. For the country and for their own sake, and to ensure a more enduring majority, the Democrats in Congress need to change all that, and soon.

Norman Ornstein is a resident scholar at the American Enterprise Institute.