U.S. Sliding to Third World Status

DAVID M. GORDON is professor of economics at the New School for Social Research in New York.

Consider this urban scene: In New York, down the block from our house in a gentrifying neighborhood, a five-story walk-up is being renovated. A crew of immigrant workers is wielding shovel and hose to mix batches of cement by hand on the sidewalk in front of the building. No cement truck delivering ready-to-pour concrete. No portable, rotating mixer for mixed-to-order batches. Instead, the laborers use techniques of the early 19th Century. In the financial capital of the Western World, primitive techniques redolent of a backward Third World country are back in use.

This scene illustrates for me a more common fear as I survey the terrain of the U.S. economy: It appears that we are sliding rapidly down the slippery slopes to conditions and dynamics more evocative of a Third World than an advanced economy.

But these are merely fears. Let’s see if we can translate these casually empirical impressions into somewhat more useful observations.

In the current global context, several leading features seem to best characterize trends in less developed capitalist Third World economies. These economies tend to display:


* Dramatically increasing inequalities in income and wealth;

* Chronic foreign trade deficits (with heavy reliance on agricultural and raw materials exports);

* Stagnant productivity growth;

* Vast surplus pools of low-wage and relatively unskilled workers;


* The existence of a large underclass with few regular ties to the formal market economy;

* Relatively high rates of infant mortality, and

* If and where their political systems are formally democratic, phlegmatic or declining popular participation in their political processes.

We are, by all relevant standards, an advanced capitalist economy, one of the wealthiest and most powerful in the world. But the dominant trends in the U.S. economy during the past 10 years appear to have been moving us steadily in directions more reminiscent of backward economies.


Let’s take the above list of seven features characteristic of less developed economies and examine the U.S. economy by each of those criteria in turn.

There is little debate about the prominence of the first trend: Inequalities in income and wealth have intensified dramatically in the United States since the mid- to late 1970s. Kevin Phillips, the respected conservative political analyst, reviewed this dynamic in his recent book, “The Politics of Rich and Poor,” writing: “We are talking about a major transformation. Not only did the concentration of wealth quietly intensify, but the sums involved took a mega-leap. The definition of who’s rich--and who’s no longer rich--changed as radically during the Reagan era as it did during the prior great nouveau riche periods of the late 19th Century and the 1920s.”

Nor is there much debate about the second trend. Since the late 1970s, we have had a chronic foreign trade deficit in the United States that steadfastly refuses to disappear. And, echoing a kind of primary-product trade dependence characteristic of developing economies, we would be in much more serious trouble, indeed, if it were not for our net trading surplus in our two major “cash crops"--agricultural products and military hardware.

To some degree, the third and fourth trends go together. One of the most important sources of tepid productivity growth in the U.S. economy involves the relatively increasing reliance by U.S. companies on low-wage labor. Here, the comparison with Third World economies is particularly salient.


When so many low-wage workers are walking the streets it is often less costly for firms to substitute labor for capital, compensating for their primitive production techniques with plentiful supplies of low-cost (and usually low-skilled) workers. The firms may profit, at least in the short run, but this low-wage production regime imposes heavy costs on its employees--and, perhaps more significantly, on future generations of U.S. workers and consumers alike who must bear the burden of declining relative productivity and living standards.

The fifth trend is particularly troubling. Like the residents of slums in Mexico City, Sao Paulo or Calcutta, those members of the “underclass” enduring ghetto life in many U.S. cities have been cut loose by the larger society, left to founder while the more affluent classes frolic.

The sixth trend especially tarnishes our image as the leader of the Western World. With rising relative poverty in many urban and rural areas, more and more infants in the United States are born into unhealthy environments. Infant mortality rates represent the tip of that iceberg. And there, by the late 1980s, we had fallen back to the relative levels of recently industrializing countries: In 1989, 15 countries, including all of our leading economic competitors, had lower infant mortality rates than the United States; we were tied with Greece and Spain, and we were barely ahead of Cuba.

Finally, more and more people choose to abstain from the U.S. political process. There are many explanations of trends toward declining citizen participation in elections.


One common and apparently plausible account links declining participation rates to the failure of the government and both major political parties in the United States to address the sources of eroding standards of living among vast portions of the population. This is equally an explanation that is often applied to many developing countries.

Maybe because I live in New York, I am unusually sensitive to glaring, Third World-like disparities between the homeless and the high-living, between the desperate and the decadent. But these are national trends of considerable breadth and power, not confined to any single metropolitan area.

Can they be reversed? There are many steps we could take to begin to arrest our slide toward the profile of developing economies. But first we would need to decide that we care, that we actually wanted to reverse that slide.

It would appear that most of the wealthy and powerful in this country, as in many Third World countries, couldn’t care less. How long should we continue to allow those who are sitting pretty to play such a dominant role in setting our national priorities?