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By Root 740 0

than we are, to become the world’s leading biotechnology center. Biotech is expected to produce new products that will create millions of jobs in the next decade. In the past decade, Germany, where the sun shines on average as much as it does in London, soared past the United States to become the world’s leading nation in the production and use of photovoltaic cells.1 How? With government subsidies and targets. A study by Deutsche Bank found that even allowing for the costs of the economic subsidy, the Germans had a net gain of 300,000 new jobs. Based on our much larger population, if we had adopted Germany’s policy, we would have produced more than one million jobs. If you take into account our greater capacity to generate solar power, we could have created twice that many.

Let’s begin with a look inward, comparing where we are now with our performance in the last half of the twentieth century. After World War II until 1980, the bottom 90 percent of Americans consistently earned about 65 percent of the national income, and the top 10 percent earned about 35 percent, of which 10 percent went to the top 1 percent. That was enough income inequality to reward good ideas, successful entrepreneurs, and the best CEOs and enough equality to build the world’s largest middle class and give hardworking poor people a chance to work their way into it. From 1981 to 2010, these numbers changed a lot, as the bottom 90 percent’s income share fell from 65 to 52 percent, and the top 10 percent’s rose from 35 to 48 percent, with almost all those gains going to the top 1 percent, whose income share increased from 10 percent to more than 21 percent. For the first seven years of the last decade, as median income decreased, the top 1 percent claimed around 60 percent of the gains. How did that happen?

Things began to change in the 1970s, as the United States faced more foreign competition from lower-wage nations in basic manufacturing, from Japan in consumer electronics and automobiles and from Germany in sophisticated machinery. The oil embargo led to a surge in the price of oil and other petroleum-based products, increased inflation, and further weakened jobs and depressed salary increases in the manufacturing sector, as did the decline in union membership among private-sector workers. Slow growth with high inflation, called stagflation, along with the Iran hostage crisis, helped Ronald Reagan defeat President Carter and ushered in chapter one of the antigovernment era.

In the early 1980s, the inflation threat ebbed, thanks to the stern policies of the Federal Reserve chairman, Paul Volcker; increased productivity resulting in part from the deregulation initiatives of Presidents Carter and Reagan; and the large infusion of low-cost consumer goods from overseas. By 1983, with the majority of President Reagan’s tax cuts in place and a big buildup in defense spending under way, we were into permanent deficit spending, an ongoing stimulus that was reinforced by the growing reliance of consumers on credit purchases. Meanwhile, manufacturing, facing stiff competition, grew more productive, meaning fewer workers were required to produce the same output, and the United States didn’t generate new manufacturing jobs by increasing exports of new high-end products. So more of our new jobs were coming in the service sector, where wages and benefits in general are lower than in manufacturing.

In the 1980s, Wall Street and many large corporations embraced what was then a new idea—that publicly traded companies’ first and overwhelming obligation is to their shareholders. Until that time, most people thought a corporation, which receives limited liability and other privileges under the law, owed an obligation to all its stakeholders, including shareholders, employees, customers, and the communities of which they are a part. This “shareholders first” philosophy created an ironic situation: A corporation was now supposed to be run primarily for the benefit of the shareholders, who have the biggest interest in its short-term profits but the smallest stake in