When I first read “The Work of Nations” by Robert Reich in the mid-1990s I had almost no background in macroeconomics. (1) But in reading it, Reich was able to effectively describe how radically the economic system was changing as a result of Globalization. Reich at the time was Bill Clinton’s Secretary of Labor and a key member of his economic team.
As context, China’s economy in 1991 was $400 billion compared to $6,174 billion for the US. China entered the global trade organizations in 1992. Today China’s economy is $15.6 trillion compared to $23 trillion for the US for 2021. (11)
Between 1970 and 1990 the Japanese stock market went from 2200 to 36,729, a 16-fold increase. In 1989 the Nikkei was still ascending parabolically at 31%; this was the pinnacle of Japanese economic power. However, between 1990 and 1992 the Nikkei went down 52% and has never fully recovered. The “lost decade” became the lost 3 decades… (2)
In addition, NAFTA was passed in 1994 and created the single largest trading block consisting of the US, Mexico, and Canada.
“The Work of Nations” described in real time how the economy was being transformed and explained why it was so important to understand the changes taking place. A few key takeaways when reading it in the mid-90s…
a. trade between countries were key to a growing the globalized economy,
b. corporations working across national borders were the key drivers of this growth,
c. countries needed to improve the skills and capabilities of its citizens for them to participate in this growing environment,
d. “nations no longer had reason to protect, subsidize or support corporations domestically” (ie. no protectionism),
e. society will have to resolve issues around “the majority of citizens losing out in global competition”.
Between 1990 and 2008 global trade volumes went from $3,475 billion to $16,149 billion. However, we also saw US equity markets go from $4 trillion in 1990 to $48 trillion in 2021. (10) Corporate CEO and executive compensations soared as real incomes for the vast majority of Americans stagnated. While many products became cheaper due to trade and economies of scale, real inflation impacted household budgets as the costs of education, healthcare, cars, and housing either met or greatly exceeded the rates of annual inflation. Unions lost membership and power as jobs moved overseas and laws were passed to hinder workers from organizing.
One of Reich’s key points is the importance of continual education and training of a nation’s “human capital”.
“In the high value enterprise, only one asset grows more valuable as it is used: the problem-solving, -identifying, and brokering skills of key people.” He continues, People fortunate enough to have had an excellent education followed by on-the-job experience doing complex things can become steadily more valuable over time, making it difficult for others to ever catch up… this increasing advantage may extend beyond a single generation.” (1… pg. 108-109)
However, in such an environment, inequalities and stratification can grow in a way that not only harms individuals, but society as a whole. Special attention needed to be paid to policies that continue to help all Americans reach their economic potential.
In a recent book titled “Deaths of Despair and the Future of Capitalism”, economist authors Anne Case and Angus Deaton, draw a connection between the passing of NAFTA and its impact on ‘white males with less than a bachelor’s degree’. As a result of offshoring and development of technology and AI, this category of workers has fewer economic options and a rising mortality rate. This is unheard of in the industrialized economies. The fruits of global trade and a lack of government support to help with the transition has injured the American economy. (8)
Income inequality became more divisive as tax laws increasingly benefited the corporations and the wealthy and punished the working poor and middle class. In middle of the 20th century there was a very real sense that our children would have a better life than we did as adults. There was upward mobility, entrepreneurship and opportunity. However, over the past 10 years there has been a growing sense that the economic prospects of our children will not necessarily be better than their parents.
“Addressing inequality is of necessity multifaceted—we have to rein in the excesses at the top, strengthen the middle, and help those at the bottom. Each goal requires a program of its own. But to construct such programs, we have to have a better understanding of what has given rise to each facet of this unusual inequality.” (9)
If Reich were to write a new version of “the work of nations” for today’s era to delineate how today is different from 1990… he would have to examine how the economy has changed and is changing.
- Corporate oligarchy… Citizens United and the role money plays in elections drives economic policies. Such policies affect the rules around safety, governance, purchasing, allocation of resources, and off-loading of corporate risks to society and citizens. (3)
- Robots and AI are changing the dynamics of business and labor. Advances in technology improve profits and efficiency for corporations. It creates on-demand supply chains, targeted marketing for sales messages, improved outcomes for medical procedures, and safer work environments. Robots are redefining how humans relate to work and what makes a “good job”. When people’s roles in a company are being changed, how can families support themselves in an economy where human contributions to labor for many jobs is increasingly assigned a value of zero by corporations? (4)
- Climate change is changing everything. As temperatures increase and the environment is disrupted we have to examine proactively deal with sea level rise and the loss of coastal cities worldwide, we have to build resilience into infrastructure to deal with storms and fires and floods, we have to prepare and accept the reality of climate migration, we have to change the food we eat especially as higher temperatures cut food yields, we need to transition from fossil fuels to renewable and clean energy immediately (and as witnessed at the COP26 meeting in Glasgow in 2021, this will be resisted vehemently by fossil fuel companies and their army of lobbyists). (5)
- Deflation and trade conflict… since the Great Financial Crisis of 2008/2009 and the COVID pandemic of 2020, global growth has been extremely restrained and crippled. (6) Economies struggle with creating real economic growth, let alone growth that leads to an abundance of good paying jobs and healthy and financially secure workers. In 2021 the supply chain system proved extremely brittle, and has led to elevated inflation and supply shortages. Debt continues to build up as central banks enact quantitative easing and zero or negative interest rate policies. It is not clear cut that everyone wins in the global economy, and as a result conflicts arise, like the trade war with China. Central bank experiments in Quantitative Easing and negative interest rates have inflated asset prices… this financial engineering has largely benefitted the 1%, while the 99% of individuals and families in society have been left behind. (7)
This is the current picture of the economy. It is vastly different from the one described by Robert Reich in the 1990s. We need to examine these key issues to generate policies and solutions so that 30 years from now our children can honestly have a real expectation of living a better quality of life then we do currently as their parents.
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2021-131289 exp 12/23
- The Work of Nations, by Robert Reich
- Deaths of Despair and the future of American Capitalism, Anne Case and Angus Deaton