In the last 110 years, three great waves of technological change have
broken over the United States. These bursts of innovation fueled the rise
of manufacturing in the 1890s, mass-production and national corporatism
in the 1940s and 1950s, and high-tech entrepreneurialism and services
in the global economy of the 1990s.
Each of these pivotal moments saw the demise of one kind of economy and
the emergence of another. Each changed the nature of work, the organization
of enterprises, the system of education, the places where people live,
the role of government in promoting economic growth and social justice,
and even traditional conceptions of family and morality. Each spread confusion
and conflict as it struck -- but each ultimately led to vast improvements
in Americans' quality of life.
As economic historian Robert Wiebe has noted: "Americans have responded
to each wave of technological advance in similar stages of protest and
reform: diffuse criticism, attempts to patch the old order, [and] then
efforts to modernize the social and political framework."
That cycle is repeating itself today, only this time at warp speed.
Computers and the Internet are fast becoming ubiquitous at work and at
home. Bureaucratic organizations are yielding to decentralized networks,
not only in the private sector but in the public and civic realms as well.
National economies are being absorbed into a global marketplace open for
business 24/7. Employment is shifting from heavy manufacturing to
new, knowledge-intensive ventures that scarcely existed a decade ago.
These changes unleash tremendous creative energies and faster economic
growth, but they are also profoundly disruptive for many Americans. Faster
job churning, the waning of the promise of middle-class wages with only
a high school degree, and the weakening of unions and the job security
they attained have combined to make the New Economy a more risky proposition
for many American workers.
Our challenge today, then, is essentially no different than the ones
progressives faced in the last two transformations: To renew American
democracy through social and political innovations aimed at resolving
the new set of conflicts and dilemmas posed by these seismic economic
changes.
The Clinton administration caught the wave of change in the early 1990s
and crafted a new economic policy framework to fit the New Economy. Its
economic prescriptions have stimulated robust growth by encouraging the
forces -- innovation, knowledge, trade, and global integration -- that are
propelling America into the New Economy. At the same time, it has begun
the vital work of harnessing those forces to larger progressive goals:
equal opportunity, better schools, universal health care, a renewal of
family and civic life, a cleaner environment, safer streets, a strong
national defense.
This progress, however, is threatened today by forces of economic reaction
on both ends of the political spectrum. As President Clinton's tenure
nears its end, it is critical that Democrats reaffirm their commitment
to developing a new politics and policy for the New Economy. For the history
of technological change over the past century suggests that whichever
party catches today's wave of dynamic and profound transformation will
lead the country for decades to come, while the party that resists and
looks to the past for inspiration will fall behind.
New Economy, New Politics
The two previous technology revolutions not only created a new production
economy, but also gave rise to a new political economy, reordering the
political parties' fortunes and outlooks.
During the transition from the industrial to the mass production economy
in the 1930s and 1940s, Democrats and Republicans held fundamentally opposing
views. Roosevelt New Dealers correctly understood that the rise of large
corporations and a national economy required a concomitant rise of national
government. In contrast, Republicans, dominated by the Taft free-market,
isolationist wing, believed that our new national challenges could continue
to be solved within the confines of the laissez-faire policy framework
developed in the 1910s and '20s.
By the 1950s, however, big corporations and big government had become
a way of life, and Americans had grown used to them. In fact, Eisenhower
saw "big business, labor, professions and government officials working
together in the calmness of a nonpartisan atmosphere." Rockefeller
Republicans and Kennedy Democrats might have differed on the margins,
but both agreed on the fundamentals: Keynesian demand-led growth through
government spending, and a focus on income redistribution, top-down economic
regulation, and centralized bureaucratic government. Indeed, President
Nixon summed up this consensus when he said, "We are all Keynesians
now."
As the old economy reached the limits of its expansion and sank exhausted
into "stagflation" by the late 1970s, the political consensus
that had grown up around it began to unravel. Politics became divided
between those who sought to preserve the New Deal consensus and those
who sought to destroy that governing framework.
The impasse was broken in the 1990s with the emergence of New Democrat
Third Way policies promoted by the Clinton administration. Breaking with
"tax and spend" policies that stressed wealth redistribution,
the New Democrats embraced pro-growth economics centering on fiscal responsibility,
trade and competitive markets at home, public investment in technology
and education, and a work-based social policy.
To be sure, some in the Democratic party cling to the old ways. Some
decry the restoration of fiscal discipline, demanding that budget surpluses
be spent now to pump up consumer demand rather than buy down the national
debt. Others resist efforts to modernize and "reinvent" government,
bring true accountability to our public schools, and replace an archaic
"command and control" model of regulation with flexibility and
incentives for innovation. The left's most serious challenge to today's
economic progress, however, is its campaign to stop trade and global economic
integration in their tracks.
Just as the populists aligned with the Democratic standard-bearer William
Jennings Bryan in the 1890s sought to resist the onslaught of industrialism
and preserve small farms and merchants, the new populists on the left,
whether protesting the WTO in Seattle, opposing genetically modified organisms,
or lobbying against meaningful public school choice and accountability,
also resist the changes stemming from a New Economy. They seek to bring
back the glory days of stable jobs at big corporations; blue-collar manufacturing
(and family farms); strong unions; dominant central cities; big national
government; and a national, as opposed to global, economy. They argue
that the New Economy has failed American workers, leading to declining
wages, increased income inequality, and higher levels of uncertainty and
risk.
In contrast, the right sees in the New Economy a pretext for returning
to the laissez-faire nostrums of the past. Instead of crafting a new governing
agenda to meet New Economy challenges, they have focused their energies
on tearing down the old framework: through budget-busting tax cuts, attempts
to weaken government, and gutting social regulations. They believe, in
the words of James Glassman, a leading conservative commentator, that
"Americans are returning to values and ideas associated with the
Republican Party, which dominated political life from the 1880s to the
early 1930s."
Democrats today should take their cue not from the Bryan populists who
sought in vain to stop economic progress but from the progressives who,
during the presidency of Woodrow Wilson, worked to promote economic change
and harness it to broaderpublic purposes.
The Progressive Case for the New Economy
While the new populists argue that the New Economy is a bad deal for
American workers, it in fact promises to unleash liberating and fundamentally
progressive forces. These include:
Higher wages. Powered in part by the information technology revolution,
the New Economy will enable American workers to see their standard of
living increase the way it did in the three decades following World War
II. We have seen five straight years of strong productivity and wage growth
(over double the rate in the '70s and '80s) across all income levels.
As this level of wage and productivity growth continues, within a decade
we can expect workers to have not only higher incomes but a reduced work
week, expanded vacations, and an overall increase in the time they can
spend with their families.
Better jobs. The New Economy is providing a chance for many workers to
move from work that numbs the mind and strains the back to work that stimulates
thought and affords continuous learning. An increasing share of jobs require
not only more education but also higher technical skills. In manufacturing,
for example, all of the net job loss over the last 25 years has been in
low-skill jobs, as automation and trade have resulted in a more skilled
and knowledge-based manufacturing sector. And service jobs are better
too. The old complaint that workers are losing good manufacturing jobs
only to take bad service jobs is no longer valid. According to a recent
study by Michael Calabrese at the Center for National Policy, the average
job lost in manufacturing in the last three years paid less than the new
jobs added in the service sector.
Liberating work. The New Economy enables workers to shed their old role
as faceless, interchangeable parts and reclaim the independence and dignity
of self-managing workers. As a result, there is a chance to bring about
a democratic revolution in our workplaces, as the lines blur between bosses
and workers and everyone becomes a problem-solver and a stakeholder in
the common enterprise. More and more New Economy companies shift authority
to front-line workers; replace bureaucratic "assembly lines"
with self-managed cross-functional teams; organize work in ways that rely
on workers' skills; and replace elaborate work rules with extensive cross-training,
flexible work assignments, and broadened responsibilities. And as a recent
survey of young workers by the AFL-CIO found, workers want to work in
such environments, even if they have to sacrifice some security.
More stakeholders. The New Economy offers a chance to democratize the
market economy by enabling every worker to become an owner of capital.
In the old economy, stock options were mainly the prerogative of senior
executives. Not any more. In the United States, almost 20 percent of workers
are now eligible to receive stock options and many more own stock directly
through retirement plans.
Empowered individuals. Finally, the New Economy provides a chance to
shift control over vital information from central bureaucrats and technocrats
to ordinary citizens armed with inexpensive computers and the Internet.
It has the potential to give people direct access to medical information
that can help them take charge of managing their own health; to strengthen
the self-governing capacities of our people and communities; and to bypass
professional providers of social services, empowering poor and needy Americans
directly with the information, resources and choices they need to take
control of their own lives.
As the New Economy takes hold, it will be harder and harder for the new
populists on the left to seek a return to the old economy and the old
policies supporting it. An increase in wages across the board, and the
evidence that the entrepreneurial, technological, and global economy is
leading to prosperity, are already taking the wind out their argument.
But it will also be harder for the radicals on the right to sustain their
anti-government stance as we re-engineer government and its critical role
in knowledge investment becomes clear.
A New Economic Policy
If the Democratic Party is to be the party that shapes the New Economy
in the national interest, its most important task is to craft a progressive
economic policy framework that will encourage a new era of faster and
broader growth in Americans' incomes, while at the same time investing
in education, training, and other means to move more working Americans
into the New Economy's winner's circle. A knowledge-based, innovation-oriented
policy framework for the New Economy therefore should rest on six pillars:
1. Fiscal restraint that recognizes that government must live within
its means.
2. Energetic U.S. leadership to expand trade and investment within
a rules-based system of global economic competition.
3. Targeted investments in the new economic foundations, specifically
education, training, and scientific and technological research.
4. An open and flexible regulatory regime that supports growth and
innovation, including policies to support the Internet revolution.
5. Policies to enable American workers to have the tools they need
to navigate, adapt, and prosper in a continually changing economic environment
(e.g., unemployment insurance, portable pensions and health care, and
lifelong learning).
6. Reinvention -- and digitization -- of government to make
it as fast, responsive, and flexible as the economy and society it interacts
with.
If Democrats can embrace the liberating and progressive possibilities
inherent in the New Economy and at the same time adopt policies that support
its growth and help workers prosper and adapt, their party will be in
the majority for decades to come.
