Does America Still Work?

Interview with Robert Reich, Secretary of Labor.

He has advocated government incentives to make corporations more responsible to workers and communities.

photo of Robert Reich

Q: By conventional measures the economy is doing pretty well, unemployment is low, inflation is low. There are recent reports that the American middle class isn't doing that badly. Is America as anxious as you've been saying it is?

REICH: In many respects the economy is doing marvelously well. Unemployment is down to 5.4 percent. In fact, we've had twenty months of unemployment under six percent. We don't have any inflation in sight, and we do have eight and a half million new jobs since February of 1993. That's terrific news. But there is a long-term challenge ahead of us. And that long-term challenge has to do primarily with a widening gap that has accumulated over twenty years between people at the top and wage earners at the bottom. A lot of people in the middle are anxious, and they are anxious for two reasons. One, because of the long-term decline in median wages. That's the wage of the person right smack in the middle and everybody below, but also because the rate of job loss that is permanent is higher in the 1990's than in the 1980's. You have two wage earners most families rely on, or they rely on a single wage earner who is the sole parent of that house, and therefore, if one wage is lost, that can mean the difference between making ends meet or destitution. So for a whole variety of reasons, there is genuine economic insecurity out there, even though the economy overall is doing splendidly.

Q: Let's try and nail some things down. Some groups are now saying, wages are not stagnating or falling. They're rising. Some economists are saying, social mobility is terrific. The American dream is as alive and well as it has ever been. Is this true?

REICH: First of all, you've got to distinguish between average wages and median wages, because so many people at the top are doing so well, the average is pulled up. Shaquille O'Neal, the basketball player and I have an average height of six feet. That's because I'm very short. You've got to look behind averages, and you've got to examine what's happening to the little guy. And in fact, with regard to median wages, we see that median wages, beginning in the late 1970's, began to decline for men, they bottomed out recently, median wages for non supervisory workers, for blue collars, also began taking a dive in the late 1970's, also have bottomed out recently. But it means a lot of workers, particularly those without a college education, are doing worse.

Q: Some studies say wages are down, some say they're up, some say social mobility is no good, some say social mobility is terrific. What are you to believe?

REICH: There's no question that people are better off than they were in 1992. There are more jobs. People feel a little bit better about their wages and their prospects. But over the long term, we still have a major problem in this country, and a major challenge, and that is to restore not just job growth but also wage growth. Some people say that social mobility is as great, if not greater, than it was in the 1980's, and that's simply not true. In fact, a lot of evidence points to the fact that it is harder to move upward if you are near the bottom or in the bottom twenty or thirty percent.

Q: Even in the 1990's under the Clinton administration, despite a long economic expansion, despite low unemployment, we aren't seeing the wage increases that we used to see in typical economic expansions of yesteryear. What's going on?

REICH: Wages for Americans in the top twenty percent of earnings are doing quite well. If you're in the top five percent, you are doing extremely well. If you're in the top one percent, you are doing better than the top one percent has done probably in fifty or sixty or seventy years. But if you're in the bottom twenty or thirty or forty percent, you're not doing well. If you don't have a college degree, you're probably having a harder and harder time making ends meet. We're seeing a wider disparity in this country in wages and earnings. Also in benefits. Health benefits. Pension benefits. If you're near the bottom, in the bottom third or the bottom half, your benefits are also eroding.

Q: In the meantime, CEO's are certainly in the top one percent.

REICH: The salaries they pay themselves are extra-ordinarily high.

Q: Are they making too much money?

REICH: I think it's not good for a company in terms of its own bottom line to allow too great a gulf to open up between the compensation of the boss at the top and everybody else. Because what is it that holds a company together, that makes the average worker feel that he or she is part of an enterprise that they have a common fate, that it is necessary to put in the extra mile to make sure that that company works? It's the sense that everybody is working together, that there is not too great a gulf between people at the top and people at the bottom. The best companies in this country, the best companies, try to encourage a sense of teamwork, of common enterprise, of everybody in the same boat together. You cannot do that if the CEO is earning 140 times what the average worker in that company is earning.

Q: Your own Council of Economic Advisors has been telling us recently that things aren't as bad as the media have been saying, that in fact the American economy is producing good jobs, and they're implying that wages are going up. Is that true?

REICH: The eight and a half million net new jobs added to the American economy since February of 1993 are good jobs. They pay better than average. But the 116 million existing jobs have been splitting. They've been splitting for almost twenty years between a few paying better and better but a larger number paying worse and worse.

Q: But in truth we don't know that much about those eight and a half million jobs, do we? We don't really know the wages those eight-and-a-half-million-net new jobs are paying.

REICH: We have reason to believe that those are better than average paying jobs because most of those are managerial, professional and technical jobs -- the fastest-growing segments of the job market, which is one reason that the wages of the college graduates, particularly those with specialty skills, are going up. That's where the demand is.

Q: On the other hand, the median wages of some of these groups has been going down.

REICH: White collar workers in the 1990's found out that they too are vulnerable. Not just blue collar workers. In the 1980's blue collar workers began to feel the pressures of the new economy, a dynamic economy, in which the old, high-volume, standardized, stable mass-production system would give you a job for life. Well, they started losing ground. Nobody paid much attention to them because perhaps the media, the professional elites in this country, don't really hear necessarily in a very systematic way from blue collar workers. But in the 1990's, even white collar managers, middle level managers and some senior level managers, started to feel the heat. And once everybody started to feel the heat, then everybody started talking about it.

Q: We've spoken to some companies that are doing a good job. Master Lock, Harley Davidson, Chrysler. They're adding jobs. They're reopening plants or they're expanding existing plants. They're paying pretty good wages. Why aren't all American corporations or many American corporations doing what Harley, Master Lock and Chrysler are doing?

REICH: There are two major reasons why all companies are not valuing their employees, treating their employees as assets to be developed instead of as costs to be cut, even though it makes sense for the bottom line. Reason number one has to do with the fact that some companies simply haven't made the change from high-volume, standardized, stable mass production to more high-value production, in which you are worried about value for individual customers, quality matters, it's necessary for people in the shop floor to come up with innovations. And when companies make that change in organizational structure, they almost necessarily have to start investing in the skills and the dedication and the loyalty of their employees. Otherwise, how did they make it? There is simply no other asset that can give you that kind of value. There's a second reason, however, why companies find it so difficult to move toward high-value production in which employees are truly the key asset of the company. That has to do with who the top managers are. Now, remember, a lot of the people at the top got there when command and control over big, hierarchical organizations was the way things were. They were promoted because they were good at being the font of all wisdom and daring and insight. And issuing commands, and issuing controls and making sure that everybody followed their directions. They didn't get there because they were good at creating in their company a huge team of people with a common sense of destiny in which workers at the front line were truly valued.

Q: Master Lock is doing pretty well at this. Harley Davidson is doing pretty well. Chrysler is doing well. They seem to be doing it on their own. Why do you need any help from government for that?

REICH: A lot of companies are still having difficulty making the transition from high-volume production, in which basically economies of scale were how you made money, employees were just fungible, they were like pieces of equipment, to high value production, in which you have to use employees as assets, they are your key assets, because it's through their innovation, through their teamwork, through their dedication, that you come up with new ways of improving quality, new ways of serving customers. Now, why are companies having such difficulty with that transition? I think partly because people at the top, after all, were recruited and promoted in the old system. Where the people at the top were the font of all wisdom and daring and insight. They came up with all the ways of getting ahead. They commanded and controlled a huge organization. They were, in a sense, bureaucrats. The new kind of organization demands a very different kind of leadership, demands a leadership that understands that everybody in the company is a potential asset. The responsibility of the company is to make those assets as valuable as possible, to make people as valuable as possible. Now that's a very different mind-set.

Q: But we talked to three CEO's who are doing very well at just what you're discussing. And they say, we don't want any government help. We're fine on our own.

REICH: Never underestimate the potential power of the bully pulpit. A President can bring the spotlight of public opinion to bear upon corporate practices which are exemplary, which value employees, which are making money for shareholders, and can equally bring the spotlight of public opinion to bear on companies that are being less responsible, treating employees as essentially disposable pieces of machinery.

Q: In your mind, are the Chryslers, Harleys and Master Locks of the world proof that valuing the employee works?

REICH: There is a lot of proof out there that valuing employees, treating them as assets, works to improve the bottom line. Now, is there enough proof out there to convince every chief executive officer? Particularly every one that came up through the old system in which CEO's were the font of all wisdom and daring and insight? And employees were costs to be cut? It's going to take some time. It's going to take an attitudinal shift. It's going to take the spotlight of public opinion on what works.

Q: You think corporate streamlining has just gone too far?

REICH: I think re-engineering or restructuring or downsizing or rightsizing or whatever you want to call it, it's basically firing, has gone way too far. Employees, as I've talked to them across the country, feel that they are not respected, they are not valued, they are worried about their jobs. They simply feel that the company is no longer loyal to them. Why should they be loyal to the company, they ask me. Why should I go the extra mile? Why should I care?

Q: You think they've lost trust in their companies, in their managers?

REICH: Trust is one of the most fragile commodities in any organization, in any culture, in any society. Once trust is abused, once it's lost, it is very hard ever to regain it. And yet trust is the social glue that keeps organizations together. Employees who trust that management is going to be there for them, who trust that if the company does well, they also are going to do well, those employees are going to go the extra mile. They're going to be innovative, they're going to look for ways of making the company more successful. They're going to feel that one of their primary responsibilities is making that company profitable. But I'll tell you something, and I've seen it all over this country. Employees who don't feel that the company is going to be loyal to them are not going to go the extra mile. They are fundamentally distrustful.

Q: Are they more distrustful now than they were twenty years ago, when you were beginning to write about these subjects?

REICH: I have picked up as I travel around the country more distrust even over the last three and a half years, a greater degree of distrust. More and more employees, workers, average working people I talk to around the country say to me, I'm on my own. I have to look out for number one. Look out for me. The company's not going to look out for me. I'm not going to do one extra thing for this company that I don't have to do. Why should I be loyal to this company? Why should I go the extra mile when this company is treating me and other employees like we are disposable pieces of machinery, where there's no loyalty on the other side. Now, those are the companies that are losing ground. They will lose ground over the long term. Sometimes when =I walk into factories or offices or retail establishments, I administer what I like to call my pronoun test. I ask the first person I find, tell me about this company. And if they use the pronouns "we" or "our" in describing the company, I know that there is a kind of bond there, an affinity. There's a sense in which that employee feels that his or her destiny is bound up with the future of the company. And I know it's one kind of place. But if they use the different pronouns -- "they," "their" -- in describing the company, I know there's a distance. The employees don't feel that it's their company, and it's going to have a very different result on the bottom line.

Q: Not too long ago, you wrote a piece in The New York Times suggesting that maybe corporations should be given tax breaks for hiring workers, retaining workers. Is that the role government should play?

REICH: The first role of government in terms of corporate responsibility is to act as a kind of cheerleader. Using the bully pulpit. Using jawboning. Bringing the spotlight of public opinion to bear on the companies that are doing it right, and occasionally the companies that are doing it wrong. Now, beyond that, should there be tax breaks? Well, you know, we have tax breaks for companies to come into disadvantaged areas, enterprise zones, empowerment zones, we have tax breaks for research and development and for investments in equipment and machinery, should there be tax breaks for more and better investments in employees? I think it's an important question.

Q: Senators Kennedy and Bingaman have recently come out with some proposals about giving tax incentives or encouragement to corporations to adopt more aggressive hiring practices. Is it possible the Clinton administration will endorse any of these?

REICH: The President is open to any good idea, and again, we have tax breaks for investments in equipment and machinery, and research and development, and tax breaks for companies moving into disadvantaged areas. Should there be tax breaks for companies that invest in their workers to a greater degree? Or companies that bring their workers on as part owners? Well, it's an important question. We have not fully evaluated it. But the first step, clearly, is to use the bully pulpit, which the President has been doing.

Q: You talked about the pronoun test. Do we have a new social contract in America between workers and management? Is the old social contract breaking down?

REICH: There used to be, thirty years ago, forty years ago, an implicit social contract, and although it was never written down, it was understood. It was enforced partly by unions, when thirty-five percent of the wage force was unionized, that was not an insignificant enforcer, but also by public norms. And that social compact was, if the company was doing better and better, workers could be reasonably assured that they would have their jobs, and also that they would see better wages and better benefits. Now that old social compact has come apart. Now we have the specter of companies doing better and better and better, and yet some companies, not all by any means, but some companies pushing wages down, pushing benefits down, abandoning communities, breaking all of those implicit contractual terms.

Q: Will it correct itself without some kind of government encouragement?

REICH: The optimistic view is that, gradually, companies will see the light, that they will understand that the only way they can really make money over the long term is if they treat their employees as assets, if they invest in their training, if they bring them in as partners, if they value them, and also if they value the communities that they live in, because after all, employees and communities are where their customer is ultimately coming from. Good will is very important to the bottom line. Now that's the optimistic view. The pessimistic view is that even over the long term, companies may not fully do what is in the interest of society because investments in employees and investments in communities will never be fully returnable to just the shareholders. There is also a societal stake in all of this. And the true pessimist would say we're never going to get companies to take the long-term view anyway.

Q: And where do you stand on that spectrum between optimist and pessimist?

REICH: On Mondays and Wednesdays, and Fridays, I'm very optimistic. The other days, cautiously pessimistic.

Q: But is job retraining working to your satisfaction?

REICH: Job retraining is not yet working to my satisfaction. It's working much better than it was in 1992. We pushed the training toward employers, toward real jobs that are out there. We've modeled programs around community colleges, which are the great unsung heroes in this great transformation of the American workforce. But we still need to consolidate all of these job training programs. We need to give people vouchers so they can get the training they need, if they lose a job, when they need it. And we also have to give people tax breaks, a $10,000-a-year tax break for a family for education and training, that's what the President is proposing, and low-interest loans. In other words, get it out of the federal bureaucratic system and empower people to get the training they need under the terms and conditions they need it, with good information about what to train for.

Q: Will the jobs be there once they get the retraining?

REICH: Jobs will be there, but you cannot expect any longer to be able to train for a particular skill and have that skill forever. What you need to train for these days is in the basic competencies underlying a particular area of technology or a particular career. And from that point on, you have to use those competencies to continuously upgrade your own knowledge.

Q: We talked to a couple of workers, a woman who got a job at Master Lock. I can't tell you how happy she is about it. Another gentleman who is now working as a repair person at Chrysler after having lost his job a few years ago and lived through very difficult times there, enthusiastic. Their enthusiasm is boundless, really. Can these workers who are getting rehired by companies who are doing it right, can they breathe easy? Can they relax?

REICH: Nobody can breathe completely easily in this new jobs environment because job security is a thing of the past. This is a dynamic economy. Nobody can be absolutely sure that they will keep their jobs. But they can at least breathe easier if they have skills and continuously upgrade those skills so that they can get a new job if they lose this one. If they have pension portability and health care portability so that if they lose a job, they are not suddenly in trouble, and their family is not suddenly endangered. Again, education and training, health care and pension portability, and then at the bottom, a minimum wage and an earned income tax credit that at least guarantees you, if you fall off the cliff, you will not hit rock bottom.

Q: Why has the administration so vehemently supported the minimum wage this year?

REICH: The President proposed a minimum wage increase in 1992 during the campaign, and then when health care reform was on the table, when there was a possibility that employers would be providing health care for all employees, we felt that we didn't want to add an additional few pennies to payrolls. But the minute health care was no longer viable -- and that very ambitious health care plan, as you recall, did not get enacted -- we went back and proposed, in January of 1995, an increase in the minimum wage, and we've been fighting for that for the last year and three quarters. Hopefully, we will get it because Americans at the bottom, twelve million of them, deserve at least a livable wage.

Q: Critics say many of them will lose jobs because companies can't afford to pay them the minimum wage.

REICH: The minimum wage is heading toward a forty year low if you adjust for the real purchasing power of a dollar. Now, in 1938 this country decided we'd have a certain minimum standard in terms of no child labor, minimum wages. We'd have an absolute floor, and we also established some rudiments of health and safety at the workplace. Now, if you believe in those minimum requirements, you've got to say to yourself, we're heading to a forty-year low. We've got to at least make sure that people who work full-time don't live in poverty.

Q: Is the reason the administration has been pushing the minimum wage because it's an election year and it's turning out to be a good issue?

REICH: The President proposed, formally, a minimum wage increase in January of 1995. Not a month ago. Not six months ago. Fifteen months ago, and we have been fighting for it for fifteen months. We almost got a vote in the Senate in November of 1995. We came within just a few votes, but we had to have sixty votes to overcome cloture, to get cloture. I think that there is a chance now because we're nearing the end of the term, and over twenty House Republicans have turned their tails on their Republican colleagues and joined with us.

Q: Is the administration worried about corporate responsibility? If not, then why has the administration called for a conference of CEO's to discuss corporate responsibility?

REICH: It's very important to continue to put the spotlight of public opinion on those companies that are doing it very well, that are showing the rest of corporate American and the rest of America that you can not only do well by employees and do well for your shareholders, but the two are entirely consistent. In fact, there may be no way to do well by shareholders over the long term unless you are valuing and investing in employees.

Q: Do corporations then have a greater responsibility than just making profits?

REICH: Companies have a primary responsibility to make profits for their shareholders if they are public companies. But the question is, how do you do that and how do you do it over the long term? The only way to do it in this new dynamic economy in which value for customers determines whether you're profitable, is by reaching and developing your most precious asset. And that most precious asset, where all of the ideas are going to come from, all of the innovations are going to come from, all of the extra effort that makes the difference between success and failure in the marketplace is going to come from, your employees. Your workers. Often your frontline workers. Every other company can get access to the same capital markets, can buy the same equipment and machinery, can go anywhere around the world to get very cheap labor if it wants to. What's the one competitive resource that no other company can easily replicate? What's going to give you as a CEO a long-term competitive advantage? Uniquely? It's your workers. It's their dedication, their loyalty, their skill, their insight, their capacity to work together. That is your competitive advantage. And if you don't know it, you are in trouble.

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