Growing wealth concentration threatens to end American opportunity as we know it
The American creed of equal opportunity is in danger of becoming Hollywood fiction. Wealth concentration, manufacturing's demise, and technology eliminating jobs are destroying upward mobility. We must invest in education, training, and R&D. We must also pay for it.
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While the top 1 percent of Americans held 8 percent of all income in 1975, by 2012 they held 22 percent.Skip to next paragraph
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Much of this wealth is concentrated in the so-called super-elites of finance, who claimed 40 percent of all corporate profits at the time of the 2008 crash. The “winner-takes-all” access to global markets is another key factor.
At the same time, American manufacturing has dropped to less than 12 percent of GDP from about 24 percent over the past two decades. Nearly a quarter of those jobs were lost as a result of trade with China. (Through a series of policies that invest in skills and training while trimming benefits to make them sustainable, Germany has retained a competitive manufacturing base of 24 percent of GDP that is the key pillar of its middle class prosperity. China is one of the biggest markets for its machine tools and well-known engineering prowess.)
As Eric Brynjolfsson and Andrew McAfee argue in their recent study, “Race Against the Machine,” the spread of digital technology throughout the economy, reorganizing nearly every pattern of work, has increased productivity enormously while not adding new jobs. The “ghost of the ATM machine” haunts the white-collar middle class.
Meanwhile, as Nobel laureate Michael Spence has documented, 90 percent of the 27 million jobs created in the US in the last 20 years have been in the low-wage “non-tradable” sectors of retail sales, health care, and government service.
The great danger to the American creed of opportunity is that this combination of wealth concentration, industrial demise, and technological displacement will lead to a closure of upward mobility. As the plutocrats seek to defend their privileges through the political influence of money and perpetuate their elite status by monopolizing access for their children to the Stanfords, Harvards, and Princetons of higher education, everyone else will be shut out from ever getting to the top.
Without doubt, American entrepreneurial energy will seek to break through this tendency toward closure by the plutocrats at the top. Government policies that provide incentives (like Germany) to retain or expand manufacturing in the US are also critical to stemming the growing income gap.
But, as all economists agree, the key variable in income differentials is the level of education. Only a highly skilled and imaginative workforce will be able to harness the digital revolution’s creative-destructive dynamic so that high-paying jobs follow rising productivity.
Investment in education, training, research, and development, however, will require wresting resources for the future from an economy not only skewed toward the plutocrats well positioned to protect their interests but also weighed down by the present costs of past promises through Medicare, Social Security, and other benefits.