Weekly Briefing

How to survive in a dog-eat-dog global economy

New reports confirm that the trickledown approach is not the answer for NC

Everyone agrees that economic times remain extremely tough in North Carolina. While the Great Recession officially ended years ago, the state’s economic “recovery” has been so painfully slow that, for millions of average people, it’s hard to see much of a difference. Unemployment remains at extreme and unacceptable levels and general prosperity has clearly declined.

So, what do we do? How can state leaders work to bring about real and sustained economic growth that benefits the many (the proverbial “rising tide that lifts all boats”) in an ever-flatter, more competitive and interconnected global economy?

While there are no magic or instant solutions to the problems that confront North Carolina (many of which have been decades in the making) there is a growing body of evidence regarding one overarching strategy that clearly does not work.

It’s called trickledown economics.

The sobering data

The central premise of trickledown economics, of course, is the idea that government can bring about general prosperity by placing fewer burdens on the wealthy. “Cut taxes and other burdens on the rich,” goes the mantra, “and they will invest more in the kinds of economic development that will trickle down to average workers and their families.”

Unfortunately, as two new reports from the N.C. Budget and Tax Center make plainly and painfully clear, this strategy is not working in North Carolina. To the contrary, the reports show that:

  1. Wealthy and profitable corporations are doing quite well in recent years, thank you very much, and
  2. Little, if any, of these new gains are finding their way into the pockets of average people.

Consider the following:

In Going, going, gone: Offshoring, job losses and the North Carolina economy, analyst Allan Freyer reports the following key findings:

  • In the quest for global competitiveness, firms often seek to reduce labor costs by “offshoring,” defined as the movement of production—and jobs—away from relatively high-wage, advanced economies like those in United States to less developed countries with lower wage wages and weaker labor standards.
  • While offshoring has contributed to record corporate profits, the consequences for North Carolina have been the most sluggish economic recovery in 30 years, and the emergence of a two-tier labor market with low-wage jobs and high-wage jobs, but little in between.
  • Offshoring to China cost North Carolina more than 107,000 jobs from 2001 to 2010, and offshoring to Mexico cost the state 26,500 jobs in 2010 alone. Absent these job losses, North Carolina would have almost completely returned to its employment levels before the Great Recession.

In other words, profits are way up, but the people reaping those profits are in no mood to share them with (or trickle them down to) the mass of average American workers. Indeed, the record profits and big incomes of the wealthy are fundamentally premised on not sharing them with North Carolina workers. Rather, they are premised on sending jobs overseas to countries whose lax wage and regulatory standards North Carolina has simply no chance of competing with.

Put bluntly, absent enforceable international standards that would prevent countries from exploiting workers and ruining their own natural environments (or the rise of some kind of heretofore nonexistent social responsibility amongst large corporations and the wealthy), there is just no way that North Carolina can lure back the manufacturing jobs it has lost. We simply can’t give the rich enough in the way of tax breaks and other goodies to make it worth their while.

And even if we could, another of Freyer’s recent studies makes clear that it likely wouldn’t do any good. In Working hard for an economy that’s hardly working: North Carolina’s workers increase productivity, get paid less for first time in 30 years, the analyst reports the following:

  • The economic recovery from the Great Recession is different from any recovery in the last 30 years, as seen in unprecedentedly sluggish job creation and, perhaps most obviously, falling wages.
  • A unique feature of the current sluggish recovery is the productivity gap, in which—for the first time in 30 years—rising worker productivity (a key driver of economic growth) is not being rewarded with higher wages.
  • This productivity gap has contributed to the emergence of a two tier labor market, with growth in low-wage and high-wage occupations, but little growth in between. The result is the worst wage inequality seen in 30 years.

In other words, even though our workers are working harder than ever before, it hasn’t produced a concomitant rise in prosperity. Again, to the contrary, the only real beneficiaries of the rise in productivity are the wealthy and corporations. For most people, incomes and the quality of life are down despite the good times at the top. Trickledown is most assuredly, not working.

A better way

So what do we do? If not trickledown, what approach can state leaders employ to spur a broad-based economic turnaround – especially one that does not abet the development of a two-tiered, “have and have not” economy?

While, again, there are no instant or magic solutions, one option clearly stands out: North Carolina simply must build the education and training infrastructure that will allow our workers to successfully compete with respect to skill levels and the quality of their work. Workers may not be able to work any harder, but they could bring higher skills along with much better education to the table.

Allan Freyer puts it this way in the conclusion of his reports:

“Technology, trade policies, and a global economy have rendered the state less competitive in terms of the labor costs associated with its workers—Mexico and China will always pay lower wages—but given its historic strengths in education, training, and Research Triangle Park, North Carolina unquestionably can compete with these low-cost nations on the basis of labor quality, giving firms the most efficient and highly-skilled workers available….

In order to address these challenges, it is essential for the state to invest in attracting and retaining high-growth and high-wage industries and in workforce development programs capable of preparing workers for these jobs in these industries. Perhaps most critically, the state needs to promote career pathway programs—a series of connected education and training programs and student support services—that enable individuals to secure a job or advance in a skill-demanding industry or occupation.

Put simply, the state should return to the traditional – some would say conservative – American idea of genuinely universal opportunity. Rather than relying upon the top-down, market fundamentalist “philanthropy” of trickledown economics, North Carolina would do much better to radically level the playing field by providing vastly larger numbers of workers with the tools they need to compete in the global economy.

As Freyer’s new reports make clear, North Carolina workers have demonstrated their willingness to work hard. What they lack are the tools to turn that work ethic into a competitive advantage in the global economy. North Carolina policymakers would do well to give them a chance to prove it and abandon the notion that more largesse for and from the top is somehow the solution to what ails the economy.