Jim Webb, Populist

Jim Webb, the incoming Democratic senator from Virginia, had an op-ed in the Wall Street Journal today:

The most important — and unfortunately the least debated — issue in politics today is our society’s steady drift toward a class-based system, the likes of which we have not seen since the 19th century. America’s top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools; fewer still send their loved ones to fight our wars.

There’s no question that the disparity between the poorest and wealthiest Americans has grown. There’s no question that healthcare costs have risen. But there’s more to the story than the greed of CEOs and Congress.

Manufacturing jobs are disappearing. Many earned pension programs have collapsed in the wake of corporate “reorganization.” And workers’ ability to negotiate their futures has been eviscerated by the twin threats of modern corporate America: If they complain too loudly, their jobs might either be outsourced overseas or given to illegal immigrants.

By “earned pension programs” I think Mr. Webb means defined benefit plans. These are going away because they impose unsustainable risk on employers. As for manufacturing jobs disappearing, here is Bill Waddell of Evolving Excellence:

The fact is that the world’s buyers of machined parts can find a better deal overseas than what you and your compadres [American factory workers] have to offer. You – personally – are not competitive. That is the problem with American manufacturing.

(Make sure you read all of Mr. Waddell’s post, plus this one in which he lays into management just as hard.)

What drives outsourcing? More than heartless suits sticking it to uppity labor. For one, innovative retailers (Wal-Mart, Home Depot) have gained enormous bargaining power vs. manufacturers. At the same time, the percentage of U.S. equities owned by institutional investors (pension funds, insurance companies) has dramatically increased. Institutional investors focus relentlessly on performance, and some would say that they force companies to chase short-term results at the expense of long-term improvement.

Mr. Webb also calls out the well-known escalation of CEO pay. But the CEO job has changed too. Average tenures have shrunk. CEOs face termination for slow improvement, pillory for malfeasance, and criminal liability for reporting errors. Furthermore, CEOs have enormous influence on the performance of a company. Were IBM’s shareholders unhappy to pay Lou Gerstner his millions?

Mr. Webb doesn’t make any specific policy prescriptions. He probably wants to close tax loopholes and do something about illegal immigration. He warns against (or of?) a protectionist backlash that would damage American interests (or the interests of its elites?). Finally, he gives an ominous whiff of “political unrest:”

More troubling is this: If it remains unchecked, this bifurcation of opportunities and advantages along class lines has the potential to bring a period of political unrest. Up to now, most American workers have simply been worried about their job prospects. Once they understand that there are (and were) clear alternatives to the policies that have dislocated careers and altered futures, they will demand more accountability from the leaders who have failed to protect their interests.

There is a clear alternative to outsourcing: better education, increased productivity, and excellence in manufacturing – in short, global competitiveness. The “economic nationalism” with which Mr. Webb is flirting is a very blunt tool. Closing U.S. markets would undoubtedly cause “political unrest” in all social classes of our trading partners – China, India, Russia, the nations of Eastern Europe – which we may not find to our liking.

UPDATE: 1992 Nobel laureate Gary Becker on income distribution (via Percy Walker).

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