The Limping Middle Class

Here is an excerpt from an article that appeared in The New York Times (September 3, 2011) in which Robert B. Reich shares his thoughts about unemployment and under-employment among those who comprise a shrinking, evaporating middle class. To read the complete article, please click here.

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THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.

When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?

The economy won’t really bounce back until America’s surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.

Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.

During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.

Starting in the late 1970s, the middle class began to weaken. Although productivity continued to grow and the economy continued to expand, wages began flattening in the 1970s because new technologies — container ships, satellite communications, eventually computers and the Internet — started to undermine any American job that could be automated or done more cheaply abroad. The same technologies bestowed ever larger rewards on people who could use them to innovate and solve problems. Some were product entrepreneurs; a growing number were financial entrepreneurs. The pay of graduates of prestigious colleges and M.B.A. programs — the “talent” who reached the pinnacles of power in executive suites and on Wall Street — soared.

The middle class nonetheless continued to spend, at first enabled by the flow of women into the work force. (In the 1960s only 12 percent of married women with young children were working for pay; by the late 1990s, 55 percent were.) When that way of life stopped generating enough income, Americans went deeper into debt. From the late 1990s to 2007, the typical household debt grew by a third. As long as housing values continued to rise it seemed a painless way to get additional money.

Eventually, of course, the bubble burst. That ended the middle class’s remarkable ability to keep spending in the face of near stagnant wages. The puzzle is why so little has been done in the last 40 years to help deal with the subversion of the economic power of the middle class. With the continued gains from economic growth, the nation could have enabled more people to become problem solvers and innovators — through early childhood education, better public schools, expanded access to higher education and more efficient public transportation.

We might have enlarged safety nets — by having unemployment insurance cover part-time work, by giving transition assistance to move to new jobs in new locations, by creating insurance for communities that lost a major employer. And we could have made Medicare available to anyone.

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To read the complete article, please click here.

Robert B. Reich is the former secretary of labor, a professor at the University of California, Berkeley, and the author of  Aftershock: The Next Economy and America’s Future.

 

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Book Review: Andy Grove

Andy Grove

Andy Grove: The Life and Times of an American
Richard S. Tedlow
Portfolio/The Penguin Group (2006)

While reading and then reviewing Richard Tedlow’s previous books, I was soon convinced that he is a cultural anthropologist as well as a business historian. With consummate skill, he creates a richly textured context within which he analyzes various corporate executives. Moreover, his talents as an historian are comparable with those of Joseph J. Ellis and David McCullough. As he explains in the introduction to this book, he interviewed dozens of people about the life and times of Andy Grove, asking each “What would make this book a page-turner for you?” Here are three responses:

“I want to know how he thinks.”
“I want to know how all these decisions really did get made.”
“I want to know all the stuff that he won’t tell you about.”

Tedlow provides answers to these and other questions as he rigorously examines “the life and times of an American” who was born András István Gróf in Hungary (in 1936), to a middle-class Jewish family. In 1956, during the Hungarian Revolution, he left his home and family under the cover of night, immigrating to the United States, and arriving in New York in 1957. He then earned a bachelor’s degree in chemical engineering from the City College of New York and then, after settling in California, he received his Ph.D. in chemical engineering from the University of California, Berkeley in 1963. After working at Fairchild Semiconductor, Grove accepted Gordon Moore’s invitation to become the third employee at a start-up, Intel Corporation (Integrated Electronics), of which he eventually became president in 1979, its CEO in 1987, and its chairman and CEO in 1997. He relinquished his CEO title in May 1998 and remained chairman of the board until November 2004. Of special interest to me is Tedlow’s explanation of why, given Grove’s background, he considers him to be an exemplary American. His reasons are convincing and best revealed within the book’s lively narrative.

Years ago, I read Grove’s Swimming Across and then Only the Paranoid Survive. While reading each book, I wished that I could learn more about the background to his countless adventures in Europe and then in the United States. I was especially interested in knowing much more about those with whom Gróf and then Grove had the closest associations over the years. Tedlow provides all of this information with the skills of a master raconteur. Although I certainly never faced the dangers Grove did, nor will ever achieve what he has, I did (and do) see certain similarities between us other than being born in the same year. For example, his joie de vivre. As Tedlow explains, “He has an insatiable appetite for life’s challenges. The old saying – he lives the life he loves and loves the life he lives – applies to Andy Grove more than to most of us.” Tedlow brings Grove to life as a man who, in Whitman’s words, “is large…contains multitudes.” Tedlow offers a substantial value-added bonus to his discussion of Grove: a rigorous and sometimes riveting examination of the dynamic, sometimes volatile business world during each “inflection point” in Grove’s association with Intel.

Grove’s “life and times” are indeed emblematic of almost 40 years of American business history but, in my opinion, they have even greater significance when we take into full account what this nation has meant to millions of others who — like young Gróf — also had a dream of a much better life, pursued it with courage and determination while overcoming all manner of obstacles, and eventually prospered. He and they remind all of us who were born in the United States that the “American Dream” can become a reality.

Women CEOs: Why So Few?

Herminia Ibarra

Here is an excerpt from an article co-authored by Herminia Ibarra and Morten T. Hansen. To read the complete article, check out other articles and resources, and sign up for a free subscription to Harvard Business Daily Alerts, please visit dailyalert@email.harvardbusiness.org.

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Women CEOs: Why So Few?
Herminia Ibarra and Morten T. Hansen

Editor’s note: Check out the Top 100 CEOs slideshow created by these authors, please visit http://hbr.org/web/extras/100ceos/1-jobs.

Morten T. Hansen

When we studied the leadership of 2,000 of the world’s top performing companies, we found only 29 (1.5%) of those CEOs were women, an even smaller percentage ime, presumably because long-term growth depends on deep industry- and firm-specific knowledge. Do top women have to go outside to move up? Our results suggest women are less likely to emerge as winners in their own companies’ internal CEO tournament.

is Remarkably, this paltry showing by females actually represents some progress. A decade ago only three women headed large public companies in the US; today 15 make the Fortune 500 list. With many of today’s female chief executives of public companies appointed only in the last few years, women have had little time to build their legacies. Of our list of 29, 19 of the women were appointed on or after 2002.

A common explanation for so few women reaching the top is the “glass cliff” theory, whereby women are more likely than men to be appointed to top jobs in poorly performing companies. This was not true in our data: women were no more likely than men to be named CEO in times of tumbling share prices. Moreover, the best performers in our study, male and female, were precisely those who took over troubled firms. Witness Kate Swann, who achieved an impressive turnaround of WH Smith by focusing the troubled bookseller on airport and railway stores.

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Ibarra is the Cora Chaired Professor of Leadership and Learning, Professor of Organizational Behavior, Faculty Director of the INSEAD Leadership Initiative and a member of the INSEAD Board. She received her M.A. and Ph.D. from Yale University, where she was a National Science Fellow. Prior to joining INSEAD she served on the Harvard Business School faculty for thirteen years. She is a member of the World Economic Forum Global Agenda Councils and the Visiting Committee of the Harvard Business School. Hansen is Professor in Entrepreneurship at INSEAD and also at the University of California, Berkeley. Prior to INSEAD, he was a professor at Harvard Business School, Harvard University, for a number of years. His new management book is Collaboration: How Leaders Avoid the Traps, Create Unity, and Reap Big Results, published by Harvard Business Press.

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To read the complete article, check out other articles and resources, and sign up for a free subscription to Harvard Business Daily Alerts, please visit dailyalert@email.harvardbusiness.org.