Dialog of the Deaf

As secretary of Labor under President Clinton, Robert B. Reich won accolades for his efforts to increase the minimum wage, close sweatshops and eliminate child labor around the world. Now a professor of public policy at the University of California, Berkeley, his most recent book, "Supercapitalism," is a lucid indictment of the political failures that have left American workers at the mercy of free markets. He spoke with NEWSWEEK's Barrett Sheridan about rising inequality and the government's response, or lack thereof. Excerpts:

NEWSWEEK: Do you think we've entered into a "superstar economy," where the top tier gets an increasingly large slice of the economic pie?
Robert B. Reich:
The top 10 or 20 percent is pulling away because of education, job skills and connections. Design, engineering, legal and financial, marketing and advertising, consulting—there are many people in these areas of the global economy that are being paid more and more because demand is larger and larger and there are simply many more customers around the globe seeking these services.

Has globalization made for a world of greater inequity?
The fact of the matter is, all businesses, all firms, every company in the world is now in much more intense competition than ever before. Globalization and technology together have reduced all entry barriers, meaning that no business is safe. There are fewer oligopolies, fewer monopolies, and far fewer companies and executives can get a free ride. That means that the race for talent is bidding up the pay of all innovators and knowledge-intensive professionals and simultaneously driving down the pay of anyone who is fungible, whose skills can easily be replicated elsewhere.

Is the rise in inequality just a symptom of the changing economy--or have our politicians failed us?
In the United States, we have allowed our public education system to deteriorate over the last 40 years, and yet public education is the ladder of upward mobility in America. Our job-training systems are grossly inadequate to the challenge of enabling workers in a manufacturing economy to adapt to an office economy. Our tax system puts a substantial burden on the middle class while allowing hedge-fund and private-equity partners to rake in fortunes at a 15 percent tax rate because regulators or the Internal Revenue Service treat their income as capital gains. Hence we don't have the resources we need to make the investments we need in education training and health care. Most of America's middle class is now reeling under the costs of health insurance, which have been shifted from employers onto employees over the last few years.

Some of these problems are decades in the making. Why haven't they been fixed?
I think we've clung to a set of old mythologies about the power and responsibility of individuals to make it on their own. The novellas of Horatio Alger in the 19th century still provide our national model for how someone deals with work and opportunity. Today people are buffeted by a global economy in ways that they have very little control over. Of course personal responsibility still counts and individual effort is important, but you can lose your job today for reasons that have nothing to do with your lack of effort or failure to be responsible. Entire industries can be wiped out or moved abroad.

Are these policy failures a symptom of our ideological, partisan political culture?
We've been locked in an immovable debate for so long. On the one side are the let-'er-rip free marketers, who cling to the mythological view that the free market will cure all ills. On the other hand are the preserve-and-protect-at-all-costs types who fear globalization and a dynamic market and think it's the job of government to preserve and protect all industries and all jobs, just as they were. As a result of this dialogue of the deaf, we don't have a coalition, we don't even have sufficient public understanding that neither of those dominant positions can possibly hold the answer to our future.

Is there any hope of overcoming the ideological divide?
I remember, as secretary of Labor, when we debated NAFTA, I tried to broker a bargain, saying to NAFTA supporters, "Look, if you contribute to a system of re-employment insurance—job-search assistance, job counseling, wage insurance and extended unemployment benefits--as a condition for getting NAFTA, that would be a great way of spreading the benefits of trade." The NAFTA supporters said, "No, why should we? That would be expensive." I went to the NAFTA opponents and said, "Why don't you stop opposing NAFTA and make re-employment insurance the condition of your agreeing." They said "No, we don't want to provide a fig leaf for NAFTA. NAFTA is a slippery slope leading toward the loss of all our jobs."

And you take that as a sign that the two extremes won't find middle ground?
Washington has tended to facilitate these two parties—let-'er-rip and preserve-and-protect. It's a failure of our politics, it's a failure of leadership, it's a failure of imagination, it's a failure of the public to understand the true nature of economic change. There are still demagogues inhabiting the media on the left and the right, who want to blame foreigners, blame free trade, blame immigrants, blame anything but the reality of global and technological change for the frustrations of the middle class. America can't and won't adapt to this new global reality unless they're told the truth.