1992: As I Predicted, Only Worse

In December 1992, according to Bob Woodward's The Agenda, President-elect Bill Clinton was about to announce Laura Tyson's appointment as chair of the Council of Economic Advisors, when Tyson mentioned she and Robert Reich had debated in The American Prospect whether the nationality of a firm was important. Suddenly recalling the debate, Clinton said, “You know what? You were right, and [Reich] was wrong.” So we decided to ask them now: Bob Reich, were you wrong? Laura Tyson, were you right?

Fourteen years ago, in an article in the Harvard Business Review and a subsequent debate with Laura Tyson in these pages [see “Who Do We Think They Are?” and “They Are Not Us: Why American Ownership Still Matters,” Winter 1991], I contended that large American corporations were losing their national identity by employing people and attracting capital globally. Because we couldn't count on American companies to invest in the productivity of American citizens, we had to rely increasingly on public investment.

Tyson thought the trend wouldn't occur nearly as quickly as I claimed. Besides, she argued, we needed American-based companies to keep America's lead in technology and national defense.

With all due respect to my colleague in the Clinton administration, I think my prediction, if anything, was understated. Toyota is now the second-largest car manufacturer in the United States. Chinese factories account for a large and growing percentage of the manufacturing for American companies, whose back-office work and software design are increasingly done in India. The Commerce Department says 48 percent of U.S. imports are from U.S. companies' operations abroad.

None of this is a serious problem for professional, college-educated Americans -- yet. But a majority of the American workforce is stuck in the local service economy as retail and restaurant workers, hotel and hospital assistants, janitors, cab drivers, child- or elder-care workers, and other low-wage laborers with scant health benefits. The public investment to make ordinary Americans more productive never materialized. Public investment is a lower percentage of the national economy today than it was in 1991.

Fourteen years ago I failed to understand the political logic of my argument. Big American-based corporations, becoming less dependent on the productivity of Americans, would use their muscle to reduce taxes, thereby preventing the needed public investment. I didn't anticipate that conservative Republicans would run up massive budget deficits under the two Bushes in order to make it virtually impossible for the federal government to do much except wage war. And I never imagined that Democrats could be so timid as to let them get away with it.

During the four years I was Bill Clinton's secretary of labor, from 1993 to 1997, the administration was unable to increase public investment. It had to cut the budget deficit it inherited so that Alan Greenspan and his colleagues at the Federal Reserve, plus bond traders on Wall Street, would feel confident enough to reduce interest rates. But even when the economy soared in the late 1990s and deficits turned into large surpluses -- that is, even when we could afford it -- Clinton and the Democrats were reluctant to push an investment agenda. Instead, they admonished Congress to “save Social Security first,” a stopgap strategy that left the surpluses on the table. That gave George W. Bush the trillions of dollars he needed to cut taxes on the rich before plunging the federal budget back into deficit.

The rest is history. And unless we reverse course and make the needed investments, American workers -- even the college-educated -- will be history, too.

Robert B. Reich is co-founder of The American Prospect.

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