Perhaps the most telling sign that our country is headed for trouble is the phenomenon of the shrinking middle class. Once the hallmark of America’s promise, America’s middle class was dealt a serious setback last year against the backdrop of the imminent death of the domestic automobile industry.
In the past, America’s salvation rested on the flexibility of its people and economy to adapt to a changing environment. If it is to continue flourishing, the American people must now be equipped with the means to adapt to a changing world. We can’t turn back the clock and fashion the American economy of the 21st century in the nostalgic image of the post-World War II economy.
Our nation has faced these upheavals before: The family farm that was once our backbone gave way to “farming conglomerates,” mega-corporations that transformed the landscape of America’s heartland. In the place of formerly bustling mid-western towns came mechanized factory farms staffed primarily by machines and immigrant laborers.
As the number of family farms dwindled, the manufacturing sector became the driving force for middle-class achievement. From the 1940s until the 1970s, a person with a solid high school education could expect to earn a living that would afford him a home, a car, and a comfortable retirement by the age of 65. A college education was a bonus that relatively few could attain, but it wasn’t necessary in order to live a productive and comfortable life.
All of this began to change in the 1970s, as large numbers of new entrants to the workforce came on board. The social upheavals of the 1960s broke down barriers to women and minorities who had been previously excluded, by law and custom, from middle-class jobs and educational opportunities. For the most part, this was a good thing, as new talent and energy became available to America’s corporations. But as America opened up, so did the world. Advances in transportation and communications technology, as well as the growth of a robust international trading system, greatly reduced the distance between far-flung corners of the globe.
While globalization had its benefits — among them drastically reduced costs for manufacturing and sourcing labor and raw materials — it also had its drawbacks. Foremost among them is that the American work force, once prized for its productivity, ingenuity, and efficiency, has lost its appeal. In the face of competition from countries with no unions or labor laws, the protections America once afforded its workforce began to restrict the nation’s ability to produce the cheap commodities that currently glut the global markets.
American industry initially responded by increasing automation and mechanization. Consequently, in the 1980s, the American automobile industry, then on the brink of disaster, shed much of its work force and made major investments in retooling itself. But increased mechanization meant decreased ingenuity and inspiration: Machines are great imitators but poor innovators.
Meanwhile, our competitors in Asia evolved a highly competitive corporate culture, one that rewarded innovation. We missed the boat.
The party was over, in reality, by the early 1990s. But we had another trick up our sleeves: financial leverage. The credit boom meant that, even as Americans were earning less in real dollars for the same work, they could still afford the trappings of success — a new car, a new home. Only this time, rather than buying their car with cash and paying off their home in ten years, Americans began racking up unheard-of debt.
Car companies were able to survive the shift in the economy, and it looked as if things could go on like this forever. Detroit may have been falling behind other countries in its manufacturing prowess, but its foray into the credit sector kept them afloat. Soon, General Motors’ financial arm, GMAC, became more profitable than the company’s manufacturing arm.
The recent financial crisis brought reality crashing down, and the credit corporations were caught flatfooted. In today’s climate, the product, not just the deal, once again matters. And so Detroit is now faced with the daunting task of having to build cars that people want to drive, rather than offering them deals they just can’t refuse. It remains to be seen whether we can again rise to the challenge.
America cannot recreate Detroit of the 1950s. It cannot roll back globalization. The overextended credit-card debt and overleveraged home values of the late 20th century will not create the good life in the 21st century. America must adapt to the changing economic environment with new technology, global competition, and financial responsibility. We as individuals must educate and retrain ourselves to be nimble and adapt to this changing economic world, rather than looking back to some golden era of the long-gone past.