The paper by political economist Robert Reich, accessibly titled “Why the rich are getting richer, and the poor, poorer”, traces the causes, consequences and effects of rising socio-economic inequality. The paper is focused on mainly examining socio-economic inequality in advanced economies (chiefly the United States), with developing countries mentioned only as far as they play a role in the rising inequality in advanced countries. Reich points out that the main cause of the rising inequality is the increasing valuation of one’s position in industry based on one’s function. The paper tracks the rise and decline of three forms of labor: routine producers, in-person servers and symbolic analysts. The relationship and mutual influence between the three forms of labor is then explored in detail, beginning with external factors that affect all three by contributing to their rise or decline. The biggest external influence is a result of an increasingly globalized world economy: labor outsourcing. Reich argues that the rapid decline of the routine producers (in terms of wages and numbers) causes the rise of the service industry, which is itself declining, albeit slower. On the other hand, demand for symbolic analysts is rising, and with it the industry. Although Reich brilliantly shows the sharp contrast between the three forms of industry, he neither states nor shows conclusively how this is the primary cause of rising inequality in the United States, except for the high earnings of top executives. The increasingly high earnings of top executives have in turn not been conclusively explained in the service industry and symbolic analysts.
Reich refers to the three industries metaphorically as being in boats and vessels, either “sinking” or “rising”. According to Reich, the middle class mostly consisted of the routine producers, who are workers in large high-volume manufacturing industries and factories. Developing countries present cheap and more accessible labor and globalization has made it easier for manufactures to move their factories abroad, where the workers readily work for a fraction of the amount for which an American would work. This has led to production workers declining in the U.S, and the few remaining ones having reduced wages. The decline has led to various demographic and otherwise differentiated groups in society competing for the remaining opportunities in routine production.
Groups who have traditionally found ready employment in routine production, such as high school graduates and drop-outs, are feeling the shock of the rapid change. Naturally, having encountered this block, labor seeks to disperse into other industries, and Reich reports that those who have failed to get employment in routine production have generally sought employment in in-person service industry, where employment they get employment for 20% less income. Although this clearly demonstrates a potential cause of socio-economic inequality, Reich does not explore to what extent the in-person service industry is willing to accommodate the incoming labor from the declining routine production industry.
Outsourcing of labor has made products cheaper and more accessible in remote parts of the world and in developing countries. The laborers in developing countries also get employment whose income is better than what they would otherwise get from their own industries and economy, thereby giving them the capability to purchase the very products that they manufacture. Billions worth of market has opened up in this way, especially from countries in Asia with large populations such as China and India. Outsourcing is therefore revealed to be a double-edged sword, at once leading to the decline of the manufacturing industry in advanced economies and earning the owners of industry even more money. Reich does not explore the perspective of the owners of industry, instead focusing on the plight of the workers. Although the workers in developing countries work for less than American workers would, they do benefit from the pay, and that hardly matters in countries with a lot of poverty. Outsourcing seems to be reducing inequality at a global scale by improving standards of living in developing countries but increasing it within countries. However, since the goods are purchased from the advanced countries, it is not clear if outsourcing is reducing inter-country inequality globally, or perhaps aggravating it.
The in-person service industry itself faces serious competition from labor-saving machinery (automated bank tellers, laundry machines and self-service gasoline pumps, etc.), and a strain is caused by the incoming labor from the declining manufacturing industry. Reich states that, the automation of the older service jobs notwithstanding, the service industry will continue to generate new jobs for a long time. Reich’s explanation of the seeming relationship between the service industry and the manufacturing industry, that “for every disappearing job in the manufacturing industry three pop up for the service industry”, is vague and unconvincing. In what sounds like demurring, Reich states that this is caused by the “seemingly insatiable human desire for personal attention”. A point of contradiction also arises: if for every disappearing job in the manufacturing industry three are created in the service industry, how is the service industry declining with such a prosperous growth? Perhaps the explanation is not to be taken literally, but there seemingly will be more jobs than before if the tripling of the service industry is to be taken literally. Creation of more job opportunities, even if with a 20% less income, would undermine Reich’s explanation of the cause of inequality.
Yet another reason for the decline of the manufacturing industry is the decline of membership to labor unions. Reduced membership means the workers have less influence and authority to play a part in policy implementation and to try and regulate their won incomes. The manufacturing companies are therefore able to reduce wages, and gradually automate their factories by stopping the hiring of more workers and focusing on the purchase of automated machinery.
Reich explores the relationship between demographics and labor resources, noting the decline of the American workforce and projecting a surge in around 2010. Legal and illegal immigration adds to the complexity of the demographics. Reich projects the precipitous rise of the ageing populace. However, he does not go beyond mentioning the statistics, or how this affects socio-economic inequality.
Symbolic analysts comprise of high-specialization professions such as scientists in different fields, engineers, senior executives, artists, film makers, script writers, musicians, public relations specialists, lawyers, investment bankers, political analysts, etc. The rise of this group in the population has rendered the purchasing power of the manufacturing laborers to the economy obsolete. Those in the middle range are scientists and researchers. Reich does not state for how long the symbolic analytics will continue to prosper. The growing accessibility of high-quality education all over the world seems to suggest that American symbolic analytics have nothing special, and the industry could rise in other countries just as easily as it is doing in America. For example, India has a large workforce of IT professionals; therefore this could be expanded into other fields. One phenomenon that could prevent this is that of importing specialized workers from developing countries, but that cannot go on indefinitely, as there will be a point of saturation. The film industries of other countries could rise, mature and become independent of Hollywood. India’s film industry has done this, demonstrating that other countries can do it.
A one-sided view of socio-economic inequality is bound to miss a few, or perhaps a lot, of the factors that contribute to socio-economic inequality. Furthermore, contemporary research shows that globalization is not a cause of the rise of socio-economic inequality, which contradicts with Reich’s view, as outsourcing is a phenomenon that is caused by globalization. Inequality should be addressed in both a global and local context; otherwise there are no foreseeable solutions to the problem. We are only left to analyze it, to read about it, perhaps not seeing the full picture. Reich only explores inequality in a local context; he does not tackle global inequality. He also does not explore the earnings of executives in the emerging industries, only focusing on the declining manufacturing industry. Overall he presents a grim future and does not offer any insight into how the issue can be addressed. Presentation of the problem without any insight at all on how the issue could be addressed is unconvincing as there is no way to judge the correctness and accuracy of the analysis of the issue.