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The Unfinished Agenda

Secretary of Labor Robert B. Reich

Council on Excellence in Government
Washington, DC

January 9, 1997

I will leave office in a few days and can't resist a last word.

There is a temptation at a time like this to revel in accomplishments, and there is much to celebrate. As we all know, nearly 11 million jobs have been added to the economy over the past four years and most of them have paid above the median wage. The rate of unemployment remains relatively low (we don't have December's figures yet, of course), and there is still no sign of accelerating inflation. This Administration has overseen an increase in the minimum wage to nearly 10 million working Americans, an expansion of the Earned Income Tax Credit, the passage of the Family and Medical Leave Act, and improvements in the protection and provision of worker pensions and health care.

But there are other times and other places for the celebration we've surely earned. Today, I want to focus on the work that remains to be done. These words must not be misconstrued as negative; I am basically upbeat about our country's future. My comments are meant as a reminder that we must continue to press forward on the agenda which the President has so clearly articulated.

The unfinished agenda is to address widening inequality. Over 15 years ago, inequality of income, wealth, and opportunity began to widen, and the gap today is greater than at any time in living memory. All the rungs on the economic ladder are now further apart than they were a generation ago, and the space between them continues to spread. We worked to reverse this in the first Clinton administration, with some real success. Incomes have become less unequal, partly because more people are employed and they're working more hours, and because elderly retirees are doing better. But earnings inequality among full-time adult wage earners has continued to widen -- right up to the third quarter of l996, the most recent data we have. This is not a statistical fluke. It has nothing to do with how we measure changes in productivity or prices.

How should we respond? There is one short-run imperative: First, and least, do no harm. As we reclaim mastery of our economic destiny by imposing control over the federal budget, the ultimate test is not simply whether the deficit reaches zero, but whether it does so in a way that, at a minimum, does not worsen inequality in America. The ultimate test for reform of Social Security and Medicare is not merely whether the trust funds are replenished, but whether they are replenished in a way that doesn't encourage the healthiest and wealthiest among us to opt out of these insurance pools. Nor should these reforms disproportionately increase payroll taxes or premiums for lower-income workers.

But beyond the immediate issues of the day, how should America deal with this long- term trend that threatens to blight an otherwise promising future? There are three unhelpful reactions: Denial, resignation, and silence.

Some deny that inequality is increasing. Simply said, they are wrong. But rather than try to refute their arguments here, I will add a technical appendix to this speech which those of you who are interested in pursuing may consult.

Some are resigned to it. They view widening inequality as the byproduct of structural changes in our economy -- most notably technological advances and global economic integration, both of which tend to reward the well-trained and penalize those with the poorest education and skills. The same phenomenon is occurring the world over, they say. Nothing can be done about it. We must adapt to this inevitability.

They are wrong for a different reason than are those who deny, but the consequence of resignation is the same. They're wrong because the evidence of other countries and, even more important, of our own country's history shows that inequality rises and falls with the choices we make, that we are not powerless to decide what kind of future we will have. And they are wrong because we are not merely an economy, but also a culture. It has never been economics alone that defines America. If we choose, as a culture, to push back against the economic forces that would otherwise divide us, it is within our ability to do so. And the consequence of choosing otherwise -- by pretending that the choice is not ours to make -- is to cease being a society.

Silence is perhaps the most insidious response of all, because it erases the issue from the national mind. Inequality is widening slowly enough that absent a sudden or dramatic event which automatically galvanizes public concern, we are able to avert our eyes and talk about other things.

Here is where I drop my mask and stand revealed as a conservative. My concern with inequality is driven, I'll confess, by a conservative conviction that the future must keep faith with the direction of America's recent past, my own past. In the America of my youth, we were growing together. We still had a long way to go to overcome racism and sexism -- and still do -- but the remarkable thing about the first three decades after World War Two is that prosperity was widely shared. Most people in the top fifth of the income ladder saw their real incomes double and so did most people in the bottom fifth. Broadly shared prosperity -- the assumption that we were all in this together -- highlighted and fortified something about the character of America that was the envy of the rest of the world.

As we cross to the next century, the conservative in me insists we carry some precious baggage from the past. We need to carry with us the implicit social compact that, for nearly half a century, gave force to the simple proposition that American prosperity could include almost everyone.

This implicit social compact had three major provisions.

The first pertained to the private sector. As companies did better, their workers should as well. Wages should rise, as should employer-provided health and pension benefits, and jobs should be reasonably secure. This provision was reinforced by labor unions, to which, by the mid-l950s, about 35 percent of the private-sector workforce belonged. But it was enforced in the first instance by public expectations. We were all in it together, and as a result grew together. It would be unseemly for a company whose profits were increasing to fail to share its prosperity with its employees.

The second provision of the social compact was social insurance through which Americans pooled their resources against the risk that any one of us -- through illness or bad luck -- might become impoverished. Hence, unemployment insurance, Social Security for the elderly and disabled, Aid to Families with Dependent Children, and Medicare and Medicaid.

The third provision was the promise of a good education. In the 1950's our collective conscience, embodied in the Supreme Court, finally led us to resolve that all children, regardless of race, must have the same -- not separate --educational opportunities. For an ever-larger portion of our population, we also offered schooling beyond 12th grade. The GI Bill made college a reality for millions of returning veterans. Others gained access to advanced education through a vast expansion of state-subsidized public universities and community colleges.

It is important to understand what this social compact was and what it was not. It defined our sense of fair play, but it was not about redistributing wealth. There would still be the rich and the poor. It merely proclaimed that at some fundamental level we were all in it together, that as a society we depended on one another. The economy could not prosper unless vast numbers of employees had more money in their pockets; none of us could be economically secure unless we pooled risks; a better-educated workforce was in all our interests.

In recent years, however, all three provisions of the social compact have been breaking down. Profitable companies now routinely downsize. As the Bureau of Labor Statistics has shown, layoffs in the current expansion are occurring at a higher rate even than in the expansion of the l980s. The corollary to "downsizing" and "down-waging" might be called "down- benefitting." Employer-provided health benefits are declining, as co-payments, deductibles, and premiums rise. Defined-benefit pension plans are giving way to 401(k)s without employer contributions, or to no pensions at all.

The widening wage gap is reflected in a widening benefits gap. Top executives and their families receive ever more generous health benefits and their pension benefits are soaring in the form of compensation deferred until retirement. Although they have no greater job security than others, when they lose their jobs it is not uncommon for today's top executives to receive "golden parachutes" studded with diamonds.

The second provision -- that of social insurance -- is also breaking down. We see evidence of this in who is being asked to bear the largest burden in balancing the budget -- disproportionately the poor and near poor, whose programs have borne the largest cuts. The President is intent on rectifying this, particularly those aspects of the new welfare legislation which reduce food stamps for the working poor and eliminate benefits for legal immigrants.

Unemployment insurance now covers a smaller proportion of workers than it did twenty years ago -- only about 35 percent of the unemployed. This is due in part because states have competed to reduce the premiums they charge businesses, and thus been forced to draw eligibility rules ever more tightly.

In fact, the entire idea of a common risk pool is now under assault. Proposals are being floated for the wealthier and healthier among us to opt out. Whether in the form of private "medical savings accounts" to replace Medicare, or private "personal security accounts" to replace Social Security, the ultimate effect would be much the same: The wealthier and healthier would no longer share the risk with those who have a much higher probability of being sicker or poorer.

The third part of the social compact, access to a good education, is also under severe strain. This Administration has expanded opportunities at the federal level -- more Pell grants and low-interest direct loans for college, school-to-work apprenticeships, proposed tax breaks for education and training. But there are powerful undertows in the opposite direction. As Americans increasingly segregate by level of income into different townships, local tax bases in poorer areas simply cannot support the quality of schooling available to the wealthier. De facto racial segregation has become the norm in large metropolitan areas. And across America, state- subsidized higher education is waning under severe budget constraints and its cost has risen three times faster than median family income. Young people from families with incomes in the top 25 percent are three times more likely to go to college than are young people from the bottom 25 percent.

America is prospering, but the prosperity is not being widely shared, certainly not as widely shared as it once was. During the last four years we have made progress in growing the economy. But growing together again must be our central goal in the future.

Why is the social compact coming undone? Is it because we no longer face the common perils of Depression, hot war, or cold war, and no longer feel the same degree of interdependence? Or is it that in the new global economy we no longer are as dependent on one another? Or is it because the wealthier among us are no longer under a "veil of ignorance" about their likely futures, to use the philosopher John Rawls' phrase, and know in advance that a social compact is likely to require they subsidize others rather than to improve their own well-being?

Perhaps some of each. But there should be no doubt that, unchecked, the disintegration of the social compact threatens the stability and the moral authority of this nation. It threatens to strip away much of what we love about America and render our country little more than an arid economic unit. And needlessly so. Because it is within our power to restore the culture of broadly-shared prosperity. But the bridge to America's future must first traverse the chasm of inequality.

I'm leaving the Administration because I have two young teenage boys who are growing up all too fast. I don't want to miss it as they cross into adulthood. But neither do I want them to live their adult lives in a nation divided between rich and poor. And I don't believe most parents want to bequeath to their children that kind of country. What I want is the opposite of class warfare -- it is a reaffirmation of our heritage that Americans must not be walled off from each other by class divisions.

As we congratulate ourselves, justifiably, for renewed growth and a diminished deficit, we must recognize that our circumstances allow us to take up the unfinished agenda. Our circumstances allow it, and our consciences compel it. The President now poised for his final term of public service harbors the same convictions as the young man I came to know in our student days. His agenda is not merely economic growth and not merely fiscal discipline -- vital though they are -- but the restoration of shared prosperity.

There is much to celebrate about America. The future is filled with possibility. But there is no escaping the underlying moral question, which is also a political one. Are we, or are we not, still in this together?

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