Future Still Holds Wealth of Opportunities
The most important question you can ask about the executive pay figures in Business this Sunday is not how much did the boss make, but can any boy or girl aspire to become boss?
In other words, is this still the land of opportunity? Or should we start labeling it the American Pipedream?
That’s a burning question today as figures emerging from the 1990 census show a widening gap between upper-income and lower-income families. Last week a Congressional Budget Office memorandum declared that top brackets enjoyed almost all the income gains of the 1980s--although some economists disputed the CBO arithmetic.
Still, the ominous figures are only snapshots of income at particular moments. More important are the unanswered questions of mobility: Were many Americans able to move up the income ladder in the 1980s as the number of families grew by 21 million and total income grew $830 billion? Did the younger generation have more opportunities overall than their parents?
The answer is that we may be doing better than we think, but the evidence is surprisingly sketchy.
Studies are being done at the Census Bureau, at the CBOand at the Urban Institute , a Washington think tank that reportedly is finding that poorer people enjoyed upward mobility in the 1980s.
If so, that squares with a study by Richard Steckel, economics professor at Ohio State University. Steckel found that more people move up out of poverty in any 10-year period in our own time than were able to do so in the mid-19th Century. And new people are moving into the upper brackets too, according to Forbes magazine’s list of the richest Americans, which is now 10 years old. Only 171 of the original 400 listed in 1982 appeared on the magazine’s list last year; 57% of the richest are newcomers--including William H. Gates, the founder of Microsoft, who became richest of all with $6 billion in stock only in the last few years.
Americans, particularly, are interested in such questions because the chance to do better materially is a central part of the American Dream. Yes, we have social gradations based on money. But as one financial expert puts it, “That’s cheaper than a House of Lords”--meaning more productive and less divisive than a class system based on parentage and blood lines.
So it’s important that we understand what’s really happening and what policies would be best to keep the system open.
There’s no doubt that incomes of factory workers, office clerks, corporate execs and rock stars are more unequal these days than they were years ago. Incomes have been diverging for more than 20 years. According to a study titled “The Great Compression” by Claudia Goldin of Harvard and Robert Margo of Vanderbilt University, the most equal income distribution in U.S. history occurred in the years 1940-1950--during World War II and after.
The war’s demand for unskilled labor and the fact that poorer, less-educated Americans received training made things more equal. Then, postwar demand for mass-produced goods made jobs for all in unionized mills and factories. By contrast, there is a tremendous premium paid for some skills today as the world moves into a post-industrial Information Age. “There is a true increase in the inequality of earning power,” says economist Joel Slemrod of the University of Michigan.
On one level, that means Madonna and Michael Jackson can get enormous pay because their images are sold globally, not just in one country--as were the performances of, the 1940s.
On another level, the rewards for Information Age skills are formidable. Ross Perot opened a business in 1962 showing people how to get more out of their IBM computers. He needed no capital, was profitable from the first week and today is worth $2.2 billion--and running for President.
Even more significant is that virtually all the people who started with Perot became millionaires; the business he runs today compensates employees mostly with stock and incentive pay. Such companies are very egalitarian--any boy or girl with intelligence, education and drive can be on a permanent fast track.
That’s the point--the new economy rewards intelligence, education and drive. But it is hard on those without them, reducing wages for ordinary factory or office work--even in an advanced country like the United States.
And so it has the potential to leave some people behind. People left behind do not go away, as the fires of Los Angeles revealed.
The way out of the inequality dilemma, say smart people like Perot, is to give more employees a chance in the new economy through education and training--financed by a more progressive income tax if necessary.
That’s why smart boards are now closely monitoring executive compensation. Their intent is not merely to reduce pay for the brass, but to encourage the spread of incentives to all employees.
If this country can develop the potential of more people, it can remain the land of opportunity for all.
