Global village, but divided planet

One of our local papers here in New Hampshire carried an opinion column last Sunday by Harold Meyerson with the alarming headline of "America's downward slide." In it, Meyerson outlines how the U.S. economy, and our standard of living in this nation, isn't undergoing the familiar up-and-down-but-generally-up pattern, but is actually at the start what promises to be a prolonged decline.

It's a fact-filled column, but I found the most significant one was this: for the first time ever, in the past decade, the income of the average American household was actually less than the prior decade. The numbers: In 1980, it was $42,429. In 1990, it was $46,049. In 2000, it was $50,557. With me so far? But by 2009, it was $49,777, and even at the prior decade's peak (in pre-recession 2007), it was only $50,233. As good as it got for us in the past 10 years, it was better in 2000.

So what to do? Economics is an impossible topic, a discipline where too many variables compete for significance in the hothouse environment of human nature and the marketplace. In getting an MBA, what I learned about economics was that my opinion is just as good as anyone else's, and also that sometimes too much information can get in the way of clarity and utility.

So again, what to do? I think, clearly and plainly, that we're stagnating as a nation because we don't make things like we used to. If you don't create value by making things, you don't have a healthy economy. It all stems from that. We can't survive by selling each other insurance or shopping if in the end no one in the national economy produces anything of value.

For those who think the triumph of the "service economy" is a good and inevitable thing, I have my own statistic for you. In the United States right now, only 11 percent of our Gross Domestic Product is produced by manufacturing. But in Germany, where business leaders have an eye toward long-term strategy and are not obsessed with quarterly profits, 25 percent of their economy is manufacturing. That's more than twice the level of ours. And that's a deliberate choice by German industry as a whole to coordinate economic activity so it's balanced in a way that gives a large segment of the population to benefit from economic activity.

And that's important because manufacturing jobs generally pay higher wages that service jobs (a change from generations ago!), and so more manufacturing jobs = more dough to spend = more economic activity, which fuels all the "add-on" service economy action, both at the business level and the consumer level. But if there's no value-added manufacturing activity in the first place, then the real benefit of any activity accrues elsewhere, and all the follow-on activity stagnates as well. And that's what's happening in the United States.

To see the degree to which this is happening, let's go back to Meyerson's column for another trip the statistics well. How about this? Back in 1977, U.S.-based companies earned 17 percent of their profits from foreign-based operations. In 2006, that percentage had swollen to 48.6 percent. That's an absolutely stunning shift, and I think it's at the root of this stagnation, because so much of the basic work, from manufacturing to now value-added activity such as legal work, is done within another economy, not ours.

People speak of the global village and how we're all interconnected, and perhaps we are in many ways. But despite many breakthrough trade policies, we are still a divided planet when it comes to economic activity. Economies really are divided by national boundaries, and there are winners and losers, and the standard of living of each nation's citizens is closely tied to the ability of its business and government leaders to craft and execute an effective strategy.

Want proof that we're not getting that at present? Just take another look at Mr. Meyerson's statistics. Or your own paycheck.

Or better still, how Meyerson summarized it: "Our economic woes, then, are not simply cyclical or structural. They are also—chiefly—institutional, the consequence of U.S.corporate behavior that has plunged us into a downward cycle of underinvestment, underemployment, and under-consumption. Our solutions must by similarly institutional, requiring, for starters, the seating of public and worker representatives on corporate boards. Short of that, there will be no real prospects for reversing America's downward mobility.

I'm not sure worker representation on boards is a good or even realistic idea, but it's enough to start a conversation that might help. Amazingly, this was published in the Manchester (N.H.) Union Leader, a paper noted for its support of all things to the right. I wonder if they even read this to the end.