Business editors seem to have developed an unwritten rule about the phrase "new economy" : it must be preceded by adjectives such as "booming," "prosperous," even "glistening." Tales of newly minted millionaires and ballooning corporate profits suggest that everyone with a paycheck is getting rich. But the gleeful headlines disguise an uncomfortable truth about the new economy: America is suffering from the most pronounced "wealth gap" in decades.
The richest 1 percent of households now control 40 percent of the nation's assets, twice what they had 20 years ago. Not since the vast fortunes accumulated by robber barons and stock profiteers in the 1920s has so much money been consolidated in the hands of so few.
The wealth gap, and its equally severe cousin the wage gap (the growing inequality between high- and low-paying jobs, which largely contributes to the wealth gap) are the focus of three incisive studies released last month. "The Widening Income Gap," released by the Center on Budget and Policy Priorities (CBPP), calculated trends in Americans' incomes between 1977 and 1999. "A Decade of Executive Excess," released by United for a Fair Economy (UFE), studied the skyrocketing salaries of corporate officers in relation to their workers' pay. And the Economic Policy Institute (EPI), a labor-oriented think tank, issued "Tax Cuts No Cure for Middle-Class Economic Woes," an analysis of the wage gap from a tax policy perspective. Though they strike from different angles, all three reports have the same message: The new economy is "glistening" only for a few.
Among the troubling statistics:
The top fifth of Americans are earning 43 percent more than in 1977. The bottom fifth are earning 9 percent less. The richest 1 percent of workers are earning 115 percent more.
Because of inflation, workers earning minimum wage have 20 percent less buying power they had 20 years ago.
If average worker pay had risen at the same rate as CEO pay in the last 10 years, worker pay would be $110,399. Instead, it is $29,267.
The average executive now makes 419 times more than the average blue-collar worker.
Working households in the middle of the economic scale have lost 11 percent of their net worth since 1983. In the same period, lower-middle-class and poor families -- the 40 percent at the bottom of the economic scale -- lost 80 percent of their net worth. The top 1 percent increased their net worth by 17 percent.
What's causing the wealth and wage gaps to grow so sharply?
The sensationalized bull run on the stock market is one factor. Since 1983, the value of the stock market has increased 13-fold, so that $100 invested in 1983 would be worth $1,300 today, calculates Chuck Collins of the UFE. Unfortunately, less than half of the population owns any stocks, and the majority of those who do -- three quarters of stockholders -- have less than $5,000 invested in the market. The richest 10 percent of Americans, who own 88 percent of stocks and 90 percent of bonds, are the ones significantly benefiting from the bull market. And thus, the wealth gap increases.
The loss of well-paid manufacturing jobs also has greatly contributed to the wealth gap. Here, too, Wall Street is responsible, along with the United States' increasingly liberal international trade laws. As corporations search for ways to report higher and higher profits -- the most dependable way to raise their stock price -- they often cut costs by shipping manufacturing jobs overseas, where labor costs are minimal. Not only does this practice create exploitative sweatshop labor in third-world nations, it also puts millions of Americans out of well-paid, middle-class jobs. Since March 1998 alone, 491,000 American manufacturing jobs have been lost to overseas factories because of cost-cutting measures.
Of course, executives' jobs aren't governed by the same cost-cutting rules. Take the case of William Anders, former CEO of defense contractor General Dynamics, whom the UFE named one of the "Top Ten Most Undeserving CEOs of the Decade." In 1991, Anders pulled in an estimated $9.35 million, $2.5 million of which was bonuses for driving up General Dynamics' stock price. Meanwhile, he ordered the elimination of about 30,000 U.S. jobs, many of which ended up in Mexico, where labor costs ranged from 65 cents to $1.50 an hour.
In addition to losing jobs, middle-class workers are rapidly losing health-care and other benefits. The EPI study found that because of benefit cutbacks, 40 percent of middle class workers aren't insured by their employers. That's up from 33 percent a decade ago, a change that indicates a significant plunge in many Americans' quality of life. It also adds to the growing wealth gap, as more middle- and lower-income people are forced to pay medical bills out of pocket.
Coinciding with and likely contributing to the loss of middle-class benefits, wages and jobs is the declining power and membership of unions. Only 13.9 percent of the workforce belongs to a union, a sharp decrease from 35 percent in the mid-1950s. As workers lose collective bargaining power, they have few avenues to challenge those who set their wages.
The funny thing about declining and stagnant wages is that workers today are far more productive than ever before. The average worker produces 12 percent more per hour than he or she did in 1989, helping to more than double corporate profits in the past decade. It doesn't seem so funny, however, when you look at where those corporate profits go -- instead of rewarding workers with higher wages, the money finds itself squarely in CEOs' pockets. Average CEO pay jumped by 481 percent in the 1990s.
According to all three reports, the fact that workers aren't benefiting from their increased productivity is only one reason to lament the growing wealth gap. Both the UFE and the EPI reports note that in an age when money rules politics, highly concentrated wealth distorts our democratic process. "Given the fact that politicians must raise enormous sums of money to get elected," says the UFE report, "the concentration of wealth in the hands of a few wealthy CEOs/campaign contributors throws our democratic system out of kilter. Voters see the ‘wealth primary' all too clearly for what it is, and increasing numbers stay home on election day."
Acute concentration of wealth gives rich individuals and institutions disproportionate power over markets and industries, creating a potentially unstable economy. By pumping billions into a hyper-inflated stock market, investors may be precipitating a significant stock-market recession. For the poor, lower wages and assets have forced a record number of personal bankruptcy filings, placing a heavy tax burden on the rest of society.
Public awareness of the increasing economic injustice has reached a critical mass in many communities, culminating in a variety of protests and initiatives. Two dozen cities and counties nationwide have adopted "living wage" legislation, which forces employers to pay their workers wages that would allow a family of four to live above the official poverty line. A number of shareholder resolutions at publicly traded corporations have linked CEO salaries to worker pay, usually stipulating that a CEO cannot be paid more than 15 or 20 times what the average employee earns.
In the meantime, the new economy will continue to make millionaires out of a lucky few, while passing by the majority of Americans. Business editors will probably ignore this fact, preferring instead to stick by the platitude that John F. Kennedy voiced 39 years ago: "A rising tide lifts all boats." But Kennedy had a different kind of economy in mind, one based on secure manufacturing and agricultural jobs. In today's new economy, the rising tide theory doesn't hold water. Today's rising tide may lift the big, shiny boats with stock-reinforced platinum hulls, but it leaves everyone else swimming for their lives ... or sinking.