[PEN-L:11942] The Judas Economy

[Louis N Proyect <lnp3@xxxxxxxxxxxx>]

August 24, 1997

Work Hard, Earn Less

Market forces, the authors say, are depleting skilled workers' earnings

By PETER PASSELL

The villains of this book are familiar: overpaid corporate executives,
soulless bond traders, inflation-phobic central bankers, clueless
politicians. So are the victims: members of the late, great American
middle class who must work ever harder to put Junior through college and
tuna casserole on the table.

But the plot does have a twist: The worldwide capitalist revolution of the
1990's, led by a new elite of business school graduates and technologists,
will betray its own. Indeed, the authors argue that global market forces
are already chiseling away at the earnings of highly skilled workers,
assuring that the only real winners in ''The Judas Economy'' will be the
owners of capital.

William Wolman, the chief economist at Business Week, and Anna Colamosca,
a former Business Week staff writer, spin a provocative neo-Marxist tale
-- one that adds a touch of analytic discipline to the apocalyptic vision
of their fellow market basher William Greider, the author of the popular
book ''One World, Ready or Not.'' But while they are right that capitalism
hardly guarantees that good things will come to those who work hard and
study harder, the case for what they call ''the triumph of capital and the
betrayal of work'' is overblown.

Back in the 1960's there was every reason to believe that workers and
capitalists belonged to the same happy family. Postwar growth had brought
with it both rising profits and fatter pay envelopes. But the benign logic
of trickle-down economics failed in the 1980's. The earnings of unskilled
labor fell, even as the economy enjoyed years of prosperity.

What went wrong? Economists point to three factors: stiff competition from
Asia, a flood of immigrants, automation in manufacturing. But most argued
that efforts to turn back the clock on globalization were futile. The only
practical long-term remedy, they suggested, was a combination of heavy
investment in education and border controls that reduced the supply of
unskilled labor.

There are loose ends here. James Heckman, an economist at the University
of Chicago, has pointed out that it would take at least a half-trillion
dollars' worth of productivity-enhancing training to give today's workers
the share of national income that they enjoyed in the 1960's. And even an
effort of that magnitude would leave behind workers who lacked the brains
or the motivation to acquire marketable skills. But the story of what had
happened and what a deeply committed Government might do to repair the
damage more or less held together.

Enter skeptics Wolman and Colamosca, stage left. Global competition helps
to explain the plight of the unskilled, they agree. But they insist that a
generous dose of skills won't solve their problem because educated workers
also face rising competition from foreigners. After all, software
engineers in Bangalore are as competent as their counterparts in Silicon
Valley and are willing to write computer programs for a lot less money.

The converging fortunes of skilled workers around the world is great news
for Indians (and Chinese and Malaysians). But, Wolman and Colamosca argue,
white-collar workers in the West are living well on borrowed time -- much
as handloom weavers rode the crest of mechanization in textile
manufacturing in the 18th century before they too were displaced. The only
enduring winners in the already industrialized countries, they assert, are
the owners of capital and the tiny superelite composed of senior corporate
executives, investment bankers and exceptionally talented entrepreneurs.

There is enough substance to this disquieting argument to make economists
sit up and listen. The technological gap between the developed and
less-developed worlds is shrinking; capital is pouring into Asian
factories that can match the productivity of their Western counterparts.
But there is a major flaw in this case against globalization: the
anecdotal evidence that the wages of skilled workers are under pressure is
just not reflected in the numbers.

Start with the fact that the percentage of total income going into wages
has hardly budged in the past few decades. While skilled workers have
certainly gained at the expense of unskilled, there is no clear trend
toward rising returns to capital at the expense of labor in general. Nor
is there any good reason to believe that projected gains in the
productivity of skilled workers in emerging markets will undermine
American prosperity -- that the worldwide growth in the supply of skills
will exceed the growth in demand.

By the same token, capital and technology are indeed flowing from rich
countries as multinational corporations take advantage of lower production
costs. But the magnitude of these outward flows is very small compared
with continuing rates of productivity-enhancing investment within the
industrialized economies. Hence global economic integration is at least
consistent with a future in which skilled workers in the third world get
rich while those in the first world get richer.

Consistent, yes; inevitable, no. Wouldn't it be worth buying a little
insurance against the Wolman-Colamosca scenario? Maybe. But the authors
don't offer a credible policy for protecting the prosperity of the
American labor force.

Wolman is too good an economist to buy into Perot-style trade
protectionism or the supply-side fantasies that have made tax cuts
Priority 1 for Congressional Republicans. Yet the authors' support for
more aggressive investment in education and physical infrastructure is
weak tea.

Wolman and Colamosca do devote considerable energy to denouncing central
bankers who sacrifice growth in the name of fighting inflation. But it's
hard to see how this applies to the United States, where capital spending
has been strong through the 1990's and the Federal Reserve has allowed
unemployment to dip to the lowest point in a quarter-century.

By definition, free markets dance to no one's tune. For all we really
know, 10 years from now the world will have entered an intractable
depression and Bill Gates will be living on food stamps. But ''The Judas
Economy'' isn't much help in sorting through the risks of global economic
integration or what might be done about it.


Peter Passell writes about economics for The New York Times.

Copyright 1997 The New York Times Company