The new economy's biggest product: an enduring underclass?

The US and its presidential candidates must face the reality that low Wal-Mart prices mean little on low - or no - wages.

The United States of America, circa 2004, offers a fairly straightforward economic proposition. The nation's change from being a maker of things to a seller of things rests on the simple assumption that the consumer is king. And because everyone's a consumer, everyone wins. Cheap imports and competition force producers and retailers to keep prices low, inflation stays down, and everyone can buy a little more - maybe even a lot more.

Viewed from upper-middle-class America, this isn't such a bad deal. Computer help or air-reservation calls may occasionally go through a Bombay call center where someone claiming to be named "Brad" offers heavily accented advice, but overall the gripes are minimal.

Viewed from the Ohio Valley, though, America's economic restructuring seems less like an "everybody wins" proposition than a zero-sum game. Here in the rolling hills that straddle Appalachia and steel country, the picturesque landscape is dotted with towns like East Liverpool, places where vacant storefronts dominate what's left of the downtown and many of the remaining businesses are bars or drive-through liquor stores. They're towns full of boarded-up buildings, empty streets, and people short on options.

Five days a week, Luellen Bozek works at the Homer Laughlin China Company plant, which makes Fiestaware. She's secretary of the local Glass, Molders and Potters Union, and would like to retire soon, but can't because her husband was forced out of his job at the nearby Weirton, W.Va., steel mill two years ago.

"They took his pension and his healthcare away when the union renegotiated," she says.

"[My four children] had to leave. The jobs are gone," Mrs. Bozek adds, referring to the once plentiful factory work. "There's Wal-Mart and the supermarket. That's about it. There are some new hotels and lodges going up, but they don't pay. Round here, there really isn't anything that's going to pay well and you're not going to find benefits."

So anger bubbles up quickly here - about imports and megastores and a political system that seems to have forgotten places like this town of 13,000 on the banks of the Ohio River. It is a testament to the challenges the new economy has created.

Up and down this small stretch of the Ohio, young people have seen their inheritance of well-paying union jobs with good benefits evaporate: The ceramics industry that was, and still is, this city's identity (the high school's team is "The Potters") has cut 500 jobs since the late 1980s. The Weirton steel mill that employed 8,000 in 1984 now employs 3,000 and is soon to lay off 900 more.

What's left behind here, and in places like this, raises complicated questions about the nation's economic direction.

What long-term price will America pay for the restructuring taking place? What's to become of the industrial Tom Joads the system has created - manufacturing employees displaced by a changing economy?

These questions aren't meant to inspire a round of folk songs or odes to dying Rust Belt towns. Change comes in economics just as sure as it comes in anything else. And we've been through these transitions before. The industrialization of the early 1900s led workers into factories, where, with time, wages climbed and benefits improved, setting the stage for the economic growth of the 20th century.

Some say the current transition is no different. They may be right, but 20 years into the transition, the jobs that allow people to lead comfortable lives and create better futures for the next generation have yet to appear. And if they don't soon, America's new economy may have one substantial unintended consequence: a large and permanent underclass.

People have been promising better times here for years. Bill Clinton and Al Gore came in 1992 and won East Liverpool's county, Columbiana. But when Mr. Clinton supported the North American Free Trade Agreement (NAFTA) - a political no-no anywhere in the Ohio Valley - he angered many. In 2000, Columbiana went for George W. Bush by a slim 2 percent.

Now, with Ohio considered a swing state in the 2004 election, Columbiana seems to be a swing county - the kind of place where John Kerry would expect to make inroads this week as he makes a three-day campaign tour through the Rust Belt. And Senator Kerry has a lot to harp on here. Unemployment is near 9 percent. More than 3 million manufacturing jobs were lost in the recession. And the steel industry is fuming at President Bush, who enacted foreign steel tariffs to protect the US industry, then lifted them 16 months earlier than promised.

But Kerry's job may not be so easy. After years of being let down by the political system, voters here have come to view all politicians warily. Kerry, like the Clinton administration, backed NAFTA, says Mark Glyptis, president of Weirton's Independent Steelworkers Union. And even though Mr. Glyptis says he will probably vote and work for Kerry, he views the Massachusetts senator as simply the lesser of two evils.

"It's hard to hear that we're the greatest country in the world and see what's happening here," he says. "What we're seeing is the transformation of our job market." He notes that the recent sale of the Weirton Mill to the International Steel Group will mean more layoffs, but at least the mill will stay open, providing $40-an-hour jobs with benefits for the remaining 2,100 employees.

It's hard not to have a lot of sympathy for what Glyptis and his co-workers are going through. But $40 an hour is a lofty wage for someone without a college degree. And as critics point out, if other countries can make essentially the same product for less, why not buy it? The people in the mills can find work elsewhere and the economy will be more efficient for it.

But the step down these workers face is massive. The restructured American economy has left them with few places to go. Here, where the median household income is $23,000 and the median house value is $42,000, all the talk of the "rise of an information economy" and "high-paying tech jobs" sounds like a pipe dream.

"When the first wave of layoffs and closings hit this area in the '80s, it wasn't quite so bad," says Don Heldman, who once worked in a mill before opening the Outdoor Army Store in what's left of downtown East Liverpool. "Some retired, some could get jobs at other places, the cable company or security jobs, but they never got the benefits again." And now, he says, it's harder. For many, jobs like those at Wal-Mart - yes, there is one in East Liverpool - where the average worker earns around $8.50 an hour, are the best option.

Wal-Mart, America's largest company and private employer, is a case in point in the discussion of the strengths and weaknesses of the new economy. Sam Walton's chain of retail megastores built on the idea of offering the lowest possible price is an icon of thrifty living that pressures stores around it to cut costs, and perhaps wages, to compete.

And price comparison between the local Wal-Mart and the nearby Giant Eagle supermarket shows the store's strength - looking at 10 random staples, Wal-Mart prices added up to a $7 savings.

Bully for Sam! But the real question is whether saving 50 cents on a bag of Pampers or $1.30 on grape juice makes up for the thousands lost in salary and benefits by the people of East Liverpool.

And that may be the long-term prospect for people here - a land of smiling door greeters and low, low prices coupled with low, low wages and poor benefits. (The healthcare offered at Wal-Mart is so expensive that few employees buy in.)

It would be nice to think this is just an unfortunate moment in time - a snapshot of an uncomfortable transition. But if it is, we're still some way from a prettier picture.

Sitting behind her desk, Amy Mabbott, the guidance counselor for the class of 2005 at East Liverpool High School, says her students' problems are deeply rooted. "Our kids are behind from the very beginning," she says. "When they start kindergarten they sometimes don't know their colors or their shapes or nursery rhymes or letters."

Of her students, most of whom are on free or subsidized lunch, 60 to 70 percent will hit the job market with just the vocational training they received at high school.

"Most of what we do is preparing them for service-related fields," Vice Principal Linda Henderson says. "That's where they're going to find the jobs."

Jobs, yes. But the promise of a better life for their children? Probably not.

So where do we go from here? The recession that began in 2001 seems to be ending. In the coming months, the unemployment rate probably will drop and people will talk again about the resiliency of the US economy. But the underlying problems aren't going to go away and the options available for solving them will probably enamor few Americans.

Nationalized government healthcare and some kind of enhanced government retirement plan are not likely to pop up in any serious politician's position papers this year. But a nongovernmental solution would require a repeat of what happened in the 20th century: the rise of unions (this time in the service sector) that would fight for improved wages and benefits. That's something Wal-Mart virulently opposes and most of upper-middle-class America finds distasteful - because, in the end, it means higher prices.

So these issues will simmer on the back burner throughout this campaign. Politicians will talk around them, saying things about how they "believe in the American worker" or that "competition makes us stronger." But whoever takes the White House will inherit an enormous problem.

And in the end changes will have to come, whether from Washington or not. If they don't, the nation will end up pushing a large segment of its citizens into a no-win, no-way-out situation and closing the door on the American dream.

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