US Could Lose Middle Class

Harvard professor says that without better education Americans face two-tiered society. ECONOMY IN TRANSITION

ROBERT REICH is sending America a wake-up call. Dr. Reich, a Harvard political economist, warns that the United States already has overslept. Wages are falling, and 80 percent of its workers are riding a "downward escalator." Tough competitors such as Japan and Germany are gobbling up industries like autos, computer chips, and electronics.

Unless Americans meet this growing international challenge, Reich says the nation could lose much of its middle class. The result would be a two-tiered society divided into rich and poor.

"You already see the bare beginnings of ... a split in society," he says. In the private sector, one of the fastest growing occupations is security guards - to protect the wealth and lifestyles of the rich. In the public sector, the most rapidly growing category is prison guards.

If the trend isn't reversed, it will be "worse than a tragedy," Dr. Reich warns. "It's a potentially politically explosive issue. If we move into a two-tier society, the rich will end up spending more and more of their incomes protecting themselves from the depredations of the have-nots."

Time for new economics

The professor's views are spelled out in his new book, "The Work of Nations: Preparing Ourselves for 21st Century Capitalism."

His thesis: politicians who trumpet old-fashioned economic nationalism or mercantilism are out of date. In Congress, for example, there are mounting calls for protection when American auto companies like General Motors, or computer companies like IBM, lose out to the Japanese.

"This is an absolute red herring," he argues.

Reich says the all-important issue for the 21st Century - the heart of the whole problem - is increasing the skills and educational levels of American workers. If the American people possess the talents, then the ownership of factories and companies is secondary, he says.

For example, look at the computer-chip industry. Does it really matter who owns the companies? NEC, the big Japanese chipmaking firm, now is building its most modern, 4-megabyte chip factory in California. Meanwhile, Texas Instruments, an American company, is manufacturing a huge proportion of its most advanced chips in Japan.

"Which is the most American company? Which one can we rely on ... when the chips are down?" Reich asks.

d put my betting on the companies [building plants] here in America because ... if there should be hostilities, it's what is here, the factories and the talents of the Americans who can do the stuff, that will determine our well-being, not what's abroad. During the Second World War, Ford/Germany ended up making tanks and trucks for the Nazis."

In the auto industry, he points out that Honda has created far more jobs in recent years than General Motors. So which company is helping the US?

The professor argues that both political parties in Washington are wrong-headed.

Many Democrats focus on protectionism by fighting against free trade with Mexico, putting quotas on Japanese imports, resisting foreign takeovers of US firms.

Republicans, meanwhile, cut spending on education and push for lower taxes, thereby ignoring the importance of training US workers and investing in highways, airports, schools, and other public projects.

In his book, Reich explains these historic times in the world's economy:

"We are living through a transformation that will rearrange the politics and economics of the coming century. There will be no national products or technologies, no national corporations, no national industries.

"All that will remain rooted within national borders are the people who comprise a nation. Each nation's primary assets will be its citizens' skills and insights. Each nation's primary political task will be to cope with the centrifugal forces of the global economy which tear at the ties binding citizens together - bestowing ever greater wealth on the most skilled and insightful, while consigning the less skilled to a declining standard of living."

Better job skills needed

Reich estimates only 20 percent of US workers currently have the level of skills and training to meet the challenge of international competition.

He says the US needs a $2 trillion investment over the next 15 to 20 years to bring millions of Americans up to speed. With an all-out effort, as many as 55 percent of US citizens could compete at the international level, while the remainder worked in service industries, such as restaurants and hotels, which are protected from foreign competition.

Excerpts from the interview follow:

What is going to happen in this global economy to blue-collar workers without much education?

The real question you ought to be asking is what has happened to those people because [they] are almost gone. Less than 17 percent of the work force is now your traditional blue-collar worker, down from 35 percent. Those people have seen their real incomes decline. The American economy is simply not producing the $15- to $24-an-hour unskilled jobs in manufacturing that it used to create. And kids coming out of high school cannot expect to get those jobs any more.

What country is having the greatest success in developing its work force?

I would say that Japan, Germany, Singapore, Taiwan: These countries are on the way to developing a high proportion of their work forces as symbolic analysts.

Symbolic analysts?

I call them symbolic analysts. Problem-solvers. Conceptualizers.... Japan is aiming for 35 [percent] to 40 percent [of its population in this category]; Germany, probably the same. Singapore is right now at 15 percent, but moving fast, and probably will surpass us. We're at about 20 percent.

You are a free-marketeer, even though foreign trade has a dramatic, sometimes negative, impact on many Americans.

I've been careful to put an asterisk on 'free marketeer' [because] I see an extraordinarily important role for government investing in the future productivity of the bottom 80 percent. I'm a free marketeer, but I'm also a believer that the public sector has a central role to play.

How would you rate the leadership of President Bush on this issue?

I'd give him a failing grade. Absolutely.

But he favors free trade, as you do.

The free trade part I agree with.

But without any of the public investment in the productivity of the work force, then you have the worst of all worlds. You've got to have free trade coupled with massive public investment in the future productivity of the bottom 80 percent.

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