A recent study done by Marco Cagetti of the Chicago Fed, illustrates that among members of the Organization For Economic Co-operation and Development, otherwise known as the OECD, the United States holds the most uneven distribution of income and wealth. A disproportionate spread of wealth is an issue citizens of the United States understand very well as this issue has made headlines and gained notoriety recently with the Occupy Wall Street movement.
A certain economist, Joseph Reich, discusses the causes and effects of this uneven distribution of wealth in America as early as 1991 in his essay “Why the Rich are Getting Richer and the Poor, Poorer. ” Reich’s essay was not only relevant when written over a decade ago, but also remains pertinent to the current economic status of America today. To portray the relationship between the rich as they continued to gain wealth and the poor as they continue to decline economically, Reich utilizes a metaphor of three different boats rising and sinking with the tide.
Reich describes the first boat in his metaphor by stating that, “the boat containing routine producers is sinking rapidly” (Reich 422). The theme behind this metaphor is that the demand for production workers is rapidly decreasing. At one point in time, production workers were in high demand, and paid very well as a result. The introduction of more inexpensive alternatives such as the international market and state of the art machines resulted in many of the production workers losing their jobs, and subsequently being forced into extreme poverty.
The international market allowed corporations to find other workers around the globe who were willing to do the same amount of work as their American counterparts at a fraction of the cost. Many businesses choose to move production to whichever country has the cheapest laborers, such as AT&T who has moved assembly lines from Louisiana to Singapore and then finally to Thailand (Reich 423). The common cause for change in all three locations of production was the willingness of the workers to do the same work for significantly cheaper than the location before them.
The constant pursuit for cheaper labor among the corporation owners significantly increased their profits, but at the same time negatively impacted the workers of the factories. Many American production workers became unemployed due to foreign individuals enthusiasm to work for such cheap amounts. The outcome that ensued resulted in a drastically widened gap between the rich corporation owners and the poor production workers. Another factor that contributed to the deterioration of the production worker’s economic state is the introduction of state of the art machinery.
The new machinery was beneficial to the owners, because it allowed the productivity in their factories to increase exponentially. In addition, it allowed the human laborers to be replaced with technological robots. These machines were able to do the work of the producers, at twice the speed and without any pay. This was very beneficial for the factory owner, but unfortunate for the producer. This in turn enhanced the poverty gap. A specific instance illustrating how new technology was replacing human workers can be seen by examining the Nippon Steel mill in the late 1980s.
A new $400 million cold- rolling mill was built, which cut the time to produce a coil of steel from twelve days to about one hour and only required a small team of technicians to run. As a result of this new mill, two of the old cold-rolling mills were closed, and hundreds of workers were laid off (Reich 427). The replacement of human labor with technology had numerous benefits for the corporation owners. Instead of dealing with labor unions and production workers constantly seeking higher wages, and health benefits, only a small team of workers was now needed to operate the robots of the factories.
Although the owners significantly benefited from the replacement of workers with robots, it left hundreds of individuals unemployed and stricken with poverty. The second boat of Reich’s metaphor consists of in-person servers which are “sinking as well, but somewhat more slowly and unevenly” (Reich 428). The in-person server occupations perform tasks for other human beings on a daily basis. Such jobs include cashiers, bank tellers, gasoline pumpers, fitness trainers, and many other jobs that focus on human interaction.
There is much competition for in-person servers because they have to compete with the vast number of former manufacture workers who lost their job, high school dropouts, as well as legal and illegal immigrants. In the early 1980’s if any of the 2. 8 million manufacture workers who lost their jobs were rehired to an in-service job, they were on average paid 20 percent less (Reich 428). This intense competition for such jobs ensures that the wages will remain low.
Most in-person service jobs are paid around minimum wage, and with so many people fighting over the same jobs, there is no need for the business owners to increase wages because they can easily find another individual to do the same work for cheaper. Furthermore, the wide variety of jobs for in-person servers inhibits their ability to form labor unions or influential lobbies. Without any labor unions or lobbies, there is no one to fight for their job security, increase of wages, or health care benefits. Consequently, this allows the rich to keep the cost of their labor exceptionally low, concluding in the increase of revenue.
The final boat involved in Reich’s metaphor is “the vessel containing America’s symbolic analysts” (Reich 431). This boat is quickly rising as worldwide communication becomes increasingly efficient. Comprised of individuals who manipulate the thoughts of others, the individuals on this boat are in extremely high demand, and very wealthy. Such jobs of the symbolic analyst include corporate executives, musicians, actors and actresses, civil engineers, business consultants as well as many other highly profitable professions.
Corporations seek out these individuals to aid them in their respective business ventures. Reich illustrates how in-demand these symbolic analysts are when he states, “If the strategic brokers in General Motors’ headquarters refuse to pay a high price for a new means of making high-strength ceramic engines… Honda or Mercedes-Benz are likely to be more than willing” (Reich 431). Unlike the production workers and in-person service jobs from the previous two boats, the symbolic analysts are the ones in control over their monetary gains.
If the symbolic analyst is not satisfied with what one corporation will pay for their invention, there are numerous amounts of other corporations who would be willing to pay the expensive sum sought after by these individuals. Another instance where the symbolic analyst is highly sought after can be seen in developing nations hiring successful American civil engineers to instruct on the building of roads and dams. Along with rising demand of the advisement and inventions that the symbolic analysts behold, compensation is also at an all time high.
The process of the rich getting richer and poor becoming poorer is an inevitable process that will not change course any time soon. Joseph Reich’s theory on the poverty gap is still a relevant theme today. Robert Liedman from the newspaper Foreign Affairs discusses this issue in his article, “Why the Rich Are Getting Richer. ” Liedman points out a 40 year trend in America that portrays the inflating incomes at the very top, while the middle and lower class incomes tend to be very stagnant. The portion of overall income of the top one percent has increased from roughly eight percent in the 1960s to about 20 percent as of 2011.
This trend will not change course because the small elite group which owns such a large percentage of the money in America, also possesses a prominent political voice and power. The increasingly exposed middle and lower class lack the representation and means to change the economic inequality of the upper elite class because the government is mostly comprised of these wealthy individuals. With a government that seems to reinforce these trends it seems unlikely that things will change in the near future. Therefore, the poverty gap that already exists will only continue to enlarge and the process of the rich getting richer is inescapable.
Cagetti, Marco. “New Economist. ” Wealth Inequality in the United States -. Chicago Fed, 8 Nov. 2005. Web. 05 Nov. 2012. <http://neweconomist. blogs. com/new_economist/2005/11/wealth_inequali. html>. Lieberman, Robert. “Why the Rich Are Getting Richer. ” Foreign Affairs. Foreign Affairs, Jan. 2011. Web. 05 Nov. 2012. <http://www. foreignaffairs. com/articles/67046/robert-c-lieberman/why-the-rich-are-getting-richer>. Reich, Joseph. “Why The Rich are Getting Richer and the Poor, Poorer. ” A World Of Ideas. Ed. Lee A. Jacobus. 8th ed. Boston: Bedford/St Martins, 2010. 422-435. Print.