"Money On My Mind" is a monthly column by Jay Mandle. The views expressed here are those of the author, (not necessarily those of Democracy Matters or Common Cause), and are meant to stimulate discussion.

May 2006
By Jay Mandle

New technologies have transformed the global economy. They are responsible for the industrial revolutions that are occurring in Asia that have brought millions of people out of poverty. They have also raised economic productivity in the developed countries. In contrast to this positive consequence, in countries like the United States new technologies have damaged the economic position of people who possess limited educational attainment.

There are two problems here. First, because the new technologies have enabled corporations to relocate overseas, their employees find themselves in competition with industrial workers in poor countries. A corporate threat to move or outsource means that United States workers often have no alternative but to accept reduced wages. Second, workers with low levels of formal education are at a disadvantage in competing for newly created high-paying jobs. Computerization has reduced the demand for the skills they do possess. The new technologies, that is, have produced a strong tendency towards growing income inequality. The bargaining strength of workers with less than a college education has been weakened, while those at the top of the educational and social hierarchy have benefited.

This is unfair. Justice requires that the economic progress that new technologies represent not hurt those with little formal education. The growth in income inequality that is occurring throughout the developed world – but most dramatically in the United States - is evidence that the cost of technological progress is being unjustly paid for by people at the low end of the income distribution.

But it is not only what is going on at the bottom of the income distribution that is fundamentally unfair. What is occurring at the top is also a source of outrage. There has been an explosion of income among chief executive officers of United States corporations. In 1978 chief executive officers of corporations in the United States earned 35 times more than the average worker. By 2000 they earned 300 times the average pay.1

No other developed country has experienced such a growth in CEO compensation; nor can it be justified using economic theory. The economists Ian Dew-Becker and Robert J. Gordon concluded that only about one-fourth of the increase that has occurred could be explained on the basis of CEO performance. The rest was an outright gift. Dew-Becker and Gordon declare that what is at work is a “scratch my back model” in which “an exclusive class of CEO’s …determine each other’s pay with relatively few market constraints.”2

The harmful growth in income inequality caused by technological change, however, can be corrected. Its unfairness could be minimized, if not alleviated altogether. Active labor market policies to help vulnerable workers in the transition to the new economy are essential. So too are policies that allow them to survive as they make that transition. Wage insurance and health insurance are needed, in addition to training. For those who cannot make the transition, programs for early retirement are required. Furthermore the conflicts of interest identified by Dew-Becker and Gordon in the determination of CEO compensation should come under increased supervision and control. Indeed it is precisely because most other developed countries have adopted such policies that their income inequality has grown much more slowly than in the United States.

What is remarkable about the political dialogue in the United States is that none of this is actively being debated. The issue of economic fairness is simply not on the political agenda. As Bill Moyers has written, “astonishing as it seems, scarcely anyone in official Washington seems to be troubled by a gap between rich and poor that is greater than it has been in half a century….Equality and inequality are words that have been all but expunged from the political vocabulary.”3

What accounts for this absence is that the very people who finance the political system in the United States are the ones who are its beneficiaries. Those CEO's who have engaged in the back-scratching that has been so rewarding for them are the same people who underwrite political careers. To ask them to finance candidates who would curb the excesses in CEO compensation is to ask for something that is very unlikely. More probable is an acceleration of the growing inequality. Indeed, instead of reversing the drift to inequality, the tax code has recently been changed to benefit the rich.

We are not going to stop the introduction of new technologies. And we should not attempt to reverse the spread of industrialization. But we do not have to accept their negative effects. Unfortunately, however, the funders of our political system have no interest in resolving the problem of how to achieve technological innovation and globalization without inflicting damage on people who have done nothing to deserve such a fate.

There may be no clearer example of how private funding of elections incapacitates the political system from addressing important issues. Here the conflict of interest between what the society needs and the interests of wealthy funders is explicit and direct. What this means is that before we can address the issue of technological fairness we will first have to reduce the role of private wealth in the funding of election campaigns.

1. Lawrence Mishel, Jared Bernstein , Sylvia Allegretto, The State of Working America 2004/2005 (Ithaca: Cornell University Press, 2005), p. 214.
2. Ian Dew-Becker and Robert J. Gordon, “Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income,” (NBER Working Paper Series, Working Paper 11842 (2005), p. 57.
3. Bill Moyers, “The Fight of Our Lives,” in James Lardner and David A. Smith (eds.) Inequality Matters: The Growing Economic Divide in America and its Poisonous Consequences (New York: The New Press, 2005), p. 3.