Tales of a New America

by Robert B. Reich

  This chapter recounts the prevailing tale of entrepreneurial heroes and drone workers. Subsequent chapters suggest why that tale is out of touch with our needs and our times.

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  During the early decades of this century the novellas of Horatio Alger, Jr., ignited the American imagination. There were more than one hundred of them in all, selling a total of 20 million copies, with titles like Bound to Rise, Luck and Pluck, and Sink or Swim. They inspired a generation with a gloriously simple theme: In America it was possible to rise rapidly from rags to riches. Each story was essentially the same; Alger, like any successful entrepreneur, knew when he was on to a good thing. A fatherless, penniless boy—possessed of enormous determination, faith, and courage—sought his fortune. All manner of villains tried to tempt him into debauchery or separate him from his small savings. But our hero prevailed on the strength of character and divine providence, and by the end of the story was a wealthy and powerful man.

  Americans at the turn of the century saw Horatio Alger stories personified all around them. Edward Harriman had begun as a $5-per-week office boy and came to head a mighty railroad empire; John D. Rockefeller had risen from a clerk in a commission merchant’s house to become one of the world’s richest men; Andrew Carnegie had started as a $1.20-a-week bobbin boy in a Pittsburgh cotton mill only to become the nation’s foremost steel magnate. Two decades later, when boys were still reading the Alger tales, Henry Ford would make his fortune mass-producing the Model T, and become a national folk hero (and potential presidential candidate) in the process.

  The Alger cosmology presented America with a noble ideal, a society in which imagination and effort summoned their just reward. The story endorsed large disparities in wealth, since riches were the reward for applying yourself, saving your money, and trading shrewdly. The key virtue was self-reliance; the admirable man was the self-made man; the goal was to be your own boss rather than to work for someone else. Andrew Carnegie articulated the prevailing view:

  Is any would-be businessman … content in forecasting his future, to figure himself as labouring all his life for a fixed salary? Not one, I am sure. In this you have the dividing line between business and nonbusiness; the one is a master, and depends on profits, the other is a servant and depends on salary.1

  As the century wore on, however, the popular image of the self-made entrepreneur grew increasingly anomalous within an economy of large publicly owned firms, conglomerates, labor unions, administrative agencies, and defense contractors. His solitary endeavors, propelled by pride, seemed self-indulgent to a society besieged by wars, depression, and inner-city enclaves of permanent poverty. His lack of formal education became a drawback in a system increasingly deferential to professional expertise. His ambition became an object of derision (what makes Sammy run?). His compulsiveness came to be seen as a menace to family life; his radical individualism, a subject of psychological colloquia. Having overvalued the entrepreneur in an earlier era, by the middle decades of the twentieth century we had come to undervalue him.

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  By the 1980s, however, the pendulum had swung again with a vengeance. The entrepreneurial hero was back to close out the century he began. Lido Iacocca, inspired by the words of his immigrant father (“you could be anything you want to be, if you wanted it bad enough and were willing to work for it”),2 worked his way up to the presidency of the Ford Motor Company, from which he was abruptly fired by Henry Ford II, and then lived on to revive Chrysler from default, thumb his nose at Ford in a best-selling autobiography, remake the Statue of Liberty, and be mentioned as a possible presidential candidate. Peter Ueberroth, son of a traveling salesman, worked his way through college, singlehandedly built a $300 million business, then organized the 1984 Olympics, became Time magazine’s Man of the Year, and commissioner of baseball.3 Steven Jobs built his own computer company from scratch and became a multimillionaire before his thirtieth birthday. There were many others: youngsters who gained dizzying sums trading in commodity futures or real estate; professors who struck it rich by selling their inventions or shares in their extracurricular ventures; youthful engineers who reaped great fortunes by quitting their companies and striking out on their own. The new heroes were “fighters, fanatics, men with a lust for contest, a gleam of creation, and a drive to justify their break from the mother company.”4 These were the stories that Americans were telling one another about success.

  Contrasted with these uplifting tales were different sorts of stories about people engaged in stodgy, routine work within structured organizations. Some were blue-collar and unionized; others, the secretaries, clerks, and fast-food servers who filled the service sector of the economy; others, white-collar employees at the lower and middle ranks of businesses, who moved the same pieces of paper over and over. These jobs could be briskly summed up in the “help wanted” sections of the newspaper. These workers’ routines were standard. They had little opportunity for discretion, little need for creativity. People who held these jobs were fungible; someone else could always be found to do the same work.

  Earlier in the century the average American worker had been portrayed as a hero—the “backbone” of America, who kept the wheels of commerce turning. He was an artisan, a shopkeeper, a mechanic, or a farmer, whose diligence and common sense could be counted on. But his counterpart toward the end of the century had neither independence nor unique skill. In contrast to the business entrepreneur, the routine worker often appeared uninteresting and uninterested. He was no villain, but certainly no hero. Nobody with creative spark and entrepreneurial vision would settle for being a cog in a bureaucratic machine. In the new story, unionized workers, a small and shrinking but visible minority of the work force, often appeared to demand ever more wages and benefits for ever less work. Their nonunionized counterparts often seemed to do the minimum of what was expected of them. Middle managers were faceless bureaucrats mired in standard operating procedure. In the tales Americans began telling one another, routine workers were drones.

  This shift in perception took place despite the fact that most Americans still held jobs that were far more routine than entrepreneurial. Many people aspired to become entrepreneurs, even if their ambitions were limited to selling cosmetics or diet aids door-to-door in the evenings. Many more accepted the idea that the entrepreneurial life was superior to their own, although they held out no realistic hope of changing their condition. Others simply resented their dronelike jobs, and were contemptuous of fellow workers whose own laziness and indifference reminded them of just how bored and disaffected they felt.5

  The important point is that these two stories began to frame the way Americans perceived the operation of the productive system. Much of the political debate over economic policy tacitly or otherwise presupposed the existence of these two categories of activity: entrepreneurial and drone. In the popular mind, people were not fated for one or the other category; the distinction had nothing to do with class. Almost anyone could become an entrepreneur, with enough drive and daring. The economy needed both, of course—creative entrepreneurs to formulate the Big Ideas that would find their way into new products and production techniques, and drones to undertake the routine chores involved in realizing these ideas. But for the economy to grow and prosper, it was presumed necessary to reward people who opted to become entrepreneurs and discipline those who remained drones. Conservative economists sounded the theme: “All of us are dependent for our livelihood and progress not on a vast and predictable machine, but on the creativity and courage of the particular men who accept the risks which generate our riches.”6

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  The question, then, appeared to be one of degree and form: how to reward the entrepreneurs, how to keep the drones in line. Two major lines of reasoning warned against taxing entrepreneurs—directly or indirectly through regulation—to advance collective endeavors. The first rested on a theory of motivation. Entrepreneurs are driven by money; the more money they get to keep, the more energetic their
efforts. And the public would benefit from all the new inventions and jobs created. The second justification rested on a theory of competence. The large profits that successful entrepreneurs generated signaled their superior skill and judgment in the use of money. They had demonstrated their insight and imagination. Thus successful entrepreneurs were ideally suited to decide how to use money for the greatest gain. Assigning anyone else—anyone who had not proven his personal knack for turning a profit—control over part of the entrepreneur’s earnings could result only in a diminution of wealth.

  It should be noted that both justifications were premised on the notion of social return. Profits that inured to the entrepreneur were considered proxies for public benefits, in the form of new inventions and jobs. An elegant economic theory supported this equation of profits with the common good. That these justifications often were articulated by the very same individuals who would be directly enriched by them should not detract from their persuasiveness. History is replete with far less sophisticated reasons for maintaining the wealth of the wealthy.

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  The other theme of the fable stressed the need to discipline those who were content to remain drones lest their importunings cripple entrepreneurial initiative. At most, wages should not exceed productivity. This was a logical requirement: If workers’ wages increased faster than their capacity to create value, inflation would inevitably result. Similarly, it was stressed, resources should be concentrated in the hands of successful entrepreneurs because, beyond their superior competence, they were also more likely than drones to save rather than spend extra money. This view too had a certain logic to commend it: The rich tend to run out of ways of making themselves more comfortable sooner than they run out of money; for poorer souls, the reverse is true. Excessive wage increases during the 1970s were seen to have rendered the United States less competitive in world markets than it would have been had more of that money been invested in new plant, machinery, and invention. How could American firms with workers earning eighteen dollars an hour successfully compete with South Koreans at four dollars an hour, using the same equipment? They could not. Either American workers’ wages would have to match foreign wages, or Americans would have to be better equipped. And it was entrepreneurs who must be induced to supply the equipment. In sum, the public would benefit in several respects if drone wages could be brought under control: inflation would be lower; investment would be higher and better targeted; American competitiveness would be improved.

  The specific tactics for achieving this goal were not openly debated or broadly understood. But they were consistent with the predominant story, and they were generally effective. The key was tightening the money supply. This increased unemployment and dampened workers’ ardor to press for higher pay. In conjunction with high budget deficits, tight money also raised the dollar, making more credible employers’ threats to decamp to other countries where workers were paid in cheaper currencies if the demand of domestic drones got out of line. This approach, begun in the late 1970s, kept a tight lid on average pay and benefits throughout the early 1980s.

  There was a further challenge, however. During the long period of steady growth in the 1950s and 1960s, drones had grown accustomed to staying put. If they were laid off their jobs during recessions, they received unemployment checks from the government that tided them over until the economy cycled up again and their jobs came back, as they always had. But now the perception spread that the same jobs would not be there on the other side of the recession, and companies took steps to cut their work forces, from hourly workers at the bottom, all the way up through white-collar drones at middle levels. This was universally considered unfortunate, but the reigning parable declared its necessity. The conservative disciplinarian had to be hard-nosed. In the tough new world of global commerce, companies could not afford the luxury of loyalty. Operating costs had to be cut, and one of the major operating costs was drone employment.

  Throughout the 1980s American companies pursued a crusade of cost cutting. Unprofitable divisions were sold. Manufacturing was moved abroad, where labor was cheaper. The workplace was automated further, and many routine jobs were taken over by robots. White-collar bureaucrats were sent packing. The new tough attitude resonated in the butcher-shop metaphors of modern management: Companies had to “trim the fat” and “cut to the bone” in order to be “lean and mean.”

  Economic theory broadly endorsed these developments. If fewer workers could produce nearly the same output, then by shedding excess workers, the productivity of each of the remaining ones would increase. Those workers liberated from no-longer-economic activities would move on to other jobs where their labor could be applied more productively. As a result, the entire economy would grow. The model that still informs most economic theorizing holds that this is precisely how economies develop: Layoffs and losses pry workers and money loose from bad economic bets until they settle into the use where they yield the highest return. If circumstances change, the sequence of separation, search, and a new arrangement of resources sets in again. Drone workers are as fungible as money. Keeping them on the payroll out of loyalty is false charity; it makes no more sense than keeping money in a bad investment. Let them go and seek out the niche where they can do the most good, for themselves and the economy. So went the story.

  Presumably everyone stood to gain from cutting excess employment to release drone workers for other pursuits. Consumers would pay less for the goods they bought. The workers who survived cutbacks would each be more productive. The entire economy would be more competitive, less shackled by slack and mismatches. While some workers might have difficulty finding new jobs right away, and might feel anxious and depressed about leaving their former surroundings, the overall gain would far exceed this passing pain. Without such ongoing transitions, it was argued, the economy would stagnate. We would all end up subsidizing one another to remain in jobs where we were no longer needed.

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  The liberal, conciliatory view of work in the economy accepted many of the same assumptions—that the world of work was divided between Triumphant Individual entrepreneurs and everyday workers—but came to different conclusions. Liberals took issue with the prevailing assertive conservatism on how much reward should go to entrepreneurs and how much discipline should be imposed on the rest.

  The liberal quibble concerned degree. Successful entrepreneurs already earned so much that further riches would induce little extra effort. Moreover, while some entrepreneurs were doubtless energetic and creative, many were just lucky; wealth is no signal of superior competence, or a guide to the best stewards of the nation’s future. Liberals also argued that entrepreneurs might be as creative in coming up with expensive new pleasures for themselves as in forging new investments for the economy; the rich may save more of their money than do the poor, or they may not. Even if they did reinvest their wealth, it was argued, the new investment might occur in another nation, or in speculative activities that generated few new inventions or jobs. Together, these arguments convinced many liberals that although economic growth depended upon entrepreneurs, their exertions need not yield such princely sums.7

  The liberal ethos mandated compassion for everyday workers. Unemployment, it stressed, was a grueling experience for anyone. New jobs, at comparable wages, were seldom easy to come by for laid-off workers. When workers could not pay their bills, those who provided them with goods and services found that they could not pay their bills either. Thus towns and cities sank into depression. Property values declined, and the tax base shriveled as workers moved away in search of their economic niche. For these pilgrims in search of their most productive possibility, relocating to a new part of the country was emotionally and financially traumatic. As the community declined, the old homestead fetched a much lower price; houses in more buoyant areas of the nation were correspondingly more expensive. If both husband and wife needed to work to make ends meet, then the search for adequate jobs was doubly difficult.8

 
Liberals also worried about automation. If computers, robots, and the systems that linked the two could reduce even skilled tasks to preprogrammed rules, then eventually all drone jobs (blue-collar and white-collar) might be replaced by machines. And if that occurred, so the argument went, conservative economics would be pushed to its illogical limit: The nation would be capable of producing a great volume of goods and services at low cost, and the handful of workers who remained employed would be wildly productive. But few Americans would have the money to buy the things that were produced.9 Even aside from these objections to the conservative parable of efficiently footloose resources, liberals condemned large differences in the wealth of entrepreneurs and drones as socially corrosive.

  Together, these worries suggested to conciliatory liberals that we should be cautious in rewarding entrepreneurs and disciplining drones. Rather than use employment to deter wage demands that might lead to inflation, we should find a less painful way to curb inflation—perhaps through wage and price controls. Managers should be required to give their workers advance notice of any contemplated factory closing. They should compensate the workers whom they abandon and the communities they leave behind. Cheap foreign goods that threaten the jobs of American workers should be barred, or at least controlled through tariffs, quotas, and restraint agreements. “Dumping” should be prohibited. The government should mandate that a certain percentage of the value of goods sold in the United States derive from American workers. Limits should be imposed on the pace and extent of automation.