11 August 2025

The Why of Work

Recommendation

Dave and Wendy Ulrich’s book about abundance is itself an example of abundance. Dave, a business writer, and Wendy, a psychologist, sweep you up in a tide of leadership ideas, processes, quotations and stories that hammer home a thesis so right and true you might mistake it for common sense: Workers who care about their jobs and understand why they work will exceed your expectations and break the boundaries of their job descriptions. They will better serve customers who, in turn, will bind themselves to the thoughtful firm that produced such an enlightened staff. If this sounds like the yellow brick road, the authors cobble together ample gold paving stones to build a solid path toward fulfilling your firm’s potential. They explain how every person and organization can change for the good, while earning a profit. Along with positive psychology and happiness research, you will find useful grids, summaries and assessment tools to help you shift staid cultures and motivate stale staffers. Some of the advice is soft and general; the authors acknowledge that they skim the surface of various disciplines. Yet when the Ulrichs become specific about how to build relationships or cultivate creativity, they show you concretely how to nurture a firm where business results and human development work together. BooksInShort recommends this book to executives, managers and human resources personnel who hope to serve their customers and the world through deeper service to their employees.

Take-Aways

  • People in an abundant organization “coordinate their aspirations and actions to create meaning for themselves, value for stakeholders and hope for humanity.”
  • Work is more than a way to earn money; it is a way to find “abundance.” To make work meaningful, consider seven questions about why and how people do their jobs:
  • “What am I known for?” Identify your strengths. Help your employees build theirs.
  • “Where am I going?” People’s work should fulfill their needs and the firm’s goals.
  • “Whom do I travel with?” Encourage people to develop warm workplace friendships that add meaning to their work.
  • “How do I build a positive work environment?” Establish a culture of values.
  • “What challenges interest me?” Identify tasks that help people grow and relish work.
  • “How do I respond to disposability and change?” Instill flexibility and resilience.
  • “What delights me?” Understand the need for “creativity, pleasure, humor and delight.”
  • When meaning flourishes and staffers know why they work, abundance follows. People in abundant organizations add value to customers, shareholders and the world.

Summary

The Meaning of Work

Work is a way people earn money, but it’s also a potential launch pad for human development and the exploration of real meaning in life. Work takes up a good chunk of most people’s waking hours. It often defines them. This quest for definition gives leaders the opportunity to connect with their staffers and shape the underlying meaning of their jobs, so they can contribute more of who they are or want to be. However, finding meaning is also another way of finding profit. Meaningful work is inherently good for the people in your firm and it’s good for business.

“When leaders make work meaningful, they help create abundant organizations where employees operate on a value proposition based on meaning as well as money.”

In the workplace, meaning wrestles with tedium, and the outcome matters, particularly for the workers whose quality of life is at stake. Amid the mind-boggling complexity of the modern world, more people are struggling with personal and professional issues, ranging from depression to a lack of connection to their jobs to an off-putting, “me-first mindset.” As a result, “deficit thinking” – a negative sense of pervasive mistrust and self-protection – quickly and easily becomes the workplace’s prevalent mode. Staffers driven by such thinking give less effort on the job because they are filled with stress and fear.

“Great leaders recognize the vital importance of abundance and meaning to everyone in their organization. Including themselves.”

In contrast, meaningful work with a clear, compelling reason for being – a “why” at its core – creates a virtuous cycle. Employees want to do work that matters and aligns with their company’s raison d’être. People care more about work that’s meaningful and they do a better job. They come to relish genuine challenges, on-the-job problems that ask them to marshal real skills and talents. The potentially greater financial rewards of a meaningful work environment are just one facet of an “abundant” organization, “a work setting in which individuals coordinate their aspirations and actions to create meaning for themselves, value for stakeholders and hope for humanity.”

“Abundance emerges from the growing conviction that what we are about ‘makes sense’ – that it contributes to something larger than ourselves and that it is grounded in our deepest values.”

So how do organizations stop being havens for deficit thinking and become “repositories of abundance?” How can you be sure your firm focuses on meaning in good times and bad? It takes leadership, of course, but leadership of a certain stripe. Executives have to acknowledge a responsibility that goes beyond achieving great outcomes. Certainly business results are pivotal, but bosses who understand the importance of the “why of work” will push past their traditional leadership roles and expand on their workforce’s capability to learn, to grow and to hope – in short, they will help their companies become abundant in their service to their staffers and customers.

The “Seven Drivers” of “Meaning Making” Leaders

Leaders “drive the abundance agenda” by asking seven crucial questions of their employees, their organizations and themselves. These questions will challenge your staffers and give you the in-depth information you need to set them up with assignments that matter most to them. These questions become drivers and motivators when they unite individual purpose, organizational goals and customer satisfaction. These queries – and some of the attitudes they address – are:

1. “What Am I Known For?”

When you ask yourself this question (or encourage others to ask it of themselves), you venture into the territory of identity and its many side paths. Identity includes a person’s “signature strengths,” values and skills. Staffers with a strong sense of self bring more clarity and energy to their work, and know how to make the best use of their talents. When you understand individual employees, you can more effectively create assignments that will help them flourish, build on their strengths and grow beyond their comfort zones. As a leader, you are also charged with figuring out your organization’s persona and greatest abilities, and aligning individual employees’ targets with the company’s goals to serve your customers better. As you parse the identities of your employees, customers and even your investors, rethink or reinforce your corporate agenda. Do you have the right people in the right jobs? Are the firm’s priorities and capabilities clear? Are you enabling workers, teams and the whole company to work in a unified way to make your corporate identity resonate in the minds of your customers and investors?

2. “Where Am I Going?”

Employees have different goals. The leader who wants to build abundance encourages all employees to link their personal drive to one of four motivational categories: “insight, achievement, connection or empowerment.” Each category leads to very different outcomes. For example, an employee who is interested in insight would be more likely to prefer quiet research than an employee who is interested in empowerment. Leaders must align employees’ proclivities with the organization’s tasks for the good of the whole. At the same time, they must help employees to “satisfice,” that is, to meet “minimal criteria” and to complete tasks “that are worth doing” but may not be worth doing all that well. For instance, at home you might satisfice on yard work to optimize time with your family. Satisficing means achieving a valid “return on time invested” by balancing priorities – putting in maximum effort on tasks that really help the company versus doing the bare minimum of work on tasks that just keep the business running without transforming it. If handled intelligently, satisficing provides “direction and purpose.”

“Leaders invest in meaning making not only because it is noble but also because it is profitable. Making sense can also make cents.”

Leaders should review each of the four motivational categories in light of the whole organization, so they can help it stretch toward the insights, relationships, achievements and connections that create a purposeful, sustainable direction.

3. “Whom Do I Travel With?”

Many leaders who are accustomed to formal corporate relationships are wary about cultivating real friendships at work. Yet people who have even one good friend at work are more engaged and more satisfied. Leaders should pave the way for collegiality. Rethink your “relationship playbook.” Never reject a “request for attention” from anyone in your firm. Reach out to others to generate “meaningful encounters.”

“The work environment outlasts any individual leader in shaping how employees and customers respond to the company.”

This is not just a matter of building seemingly soft skills. You want to ease conflict and cultivate “abundant relationships” because they produce great results. Guide your employees to listen intently so they understand each other. Train them to “restate” information to assure that they’ve processed it correctly and appropriately. Ask them to share their experiences and ideas, and to think about the impact of their actions and moods. As a leader, you may need to force some issues by engineering opportunities for people to get together or by modeling positive interactions. The most difficult step – especially since liability-conscious attorneys often caution clients to avoid apologizing – is creating a climate where people admit they’re wrong, say they’re sorry, take responsibility and rectify their mistakes.

4. “How Do I Build a Positive Work Environment?”

Like the other traits of abundant organizations, a “positive work environment” serves employees and customers and, so it also serves the bottom line. Positive employees get things done and stick around. They draw both customers and investors into the organization’s orbit.

“Organizations that survive in recessions and thrive during recovery will have leaders who consistently offer employees both economic well-being and an abundance of meaning and purpose.”

Foster a positive work environment by exercising humility (this is also known as being a “servant leader”) and making sure that the firm’s values bleed into its daily interactions. Abundance demands promoting service to others over “self service.” This means teaching people to welcome, discuss and vet ideas, and ensuring that they support one another. Leaders should work hard to understand multiple points of view – the employees’, the customers’, and so on – while establishing accountability practices that help people see the precise ways that they are meeting (or not meeting) expectations. Finally, the workspace is a clear articulation of what matters to the organization. How your physical environment looks and functions is a message in itself. Equip it as such.

5. “What Challenges Interest Me?”

To each his own or her own, the saying goes, and the same holds true for challenges at work. Given the choice, each person would select a certain “type of challenge” and a certain set of conditions in which that challenge would unfold. As you learn more about your employees, try to understand the result they desire most deeply.

“Work is a universal setting in which to pursue our universal search for meaning.”

Leaders generally know what they hope to see from a given group, project or individual staff member. They understand each person’s powerful drive to solve problems that matter, and know that every employee has a different definition of a task’s inherent value and appeal. People seek work that is “easy” (not simple, but comfortably within their talents), “energizing” and “enjoyable.” A leader who knows the objectives and results that matter to people can “help employees get what they want, not just what the leader wants.”

“Before you ask, ‘Why aren’t my employees working harder?’...ask yourself, ‘Why are my employees working?’”

When a task aligns with a problem that employees want to solve and with skills they already have, they enter a “zone of opportunity” where they can do great work while feeling good about their jobs. Other factors that affect an individual’s ability to enjoy the benefits of intrinsically motivating work include the environment and the “work condition” (for example, work that is creative or that allows the employee to stretch his or her talents). A boss who is committed to abundance will keep these factors in mind.

6. “How Do I Respond to Disposability and Change?”

A leader intent on building an abundant organization has a very particular attitude about change: Whether change leads to success or failure, it always offers an opportunity to learn. What matters most is “learning agility – the ability to inquire, experiment and extrapolate in flexible ways.” In organizations that prioritize learning agility, individual flexibility and “resilience” become the norm. Resilience has allowed great people, from Abraham Lincoln to Dale Carnegie, to flourish, regardless of the dilemmas before them. Lincoln’s “emotional strengths” included “empathy, humor, magnanimity, generosity of spirit, perspective, self-control, balance and social conscience,” which added up to deep resilience, a necessary trait for strong leaders. Think about your company’s resilience and flexibility. Do your staffers know how to apply lessons learned on the job to many different fields or problems? Do they “turn what they know into what they do?” Do they bounce back from frustrations or disappointments? How well does your organization learn and exceed limitations? How well does it change and grow?

7. “What Delights Me?”

Four elements – “creativity, pleasure, humor and delight” – provide the underpinnings of an abundant organization. When leaders tap into the small things that make people happy on a daily basis, they promote a culture that is undaunted by new ideas, unafraid to cultivate authentic relationships and unwilling to settle for the rigidity that breeds intolerance. When was the last time you wrote a thank you note by hand? Served cookies? Asked people at a meeting to share good news? Laughed heartily with your colleagues? Such small actions cost little – but doing these kinds of things now and then can be very significant, and omitting such nice touches can cost a great deal in lost good will. Inculcate civility – including appropriate dress, language, manners and attitudes – to help people work pleasantly together. Leaders – from boards of directors to CEOs to human resources professionals – set an organization’s tone and maintain its culture. If you do that effectively, you can motivate and inspire employees to do their best in spite of any hiccups.

Bringing All Leaders On Board

Work can be much greater than the sum of its parts – more than the hours you put in and the money you earn as a result. Organizations that cannot fulfill their responsibilities and meet new challenges, or that fall behind in the race to innovate or learn, often are suffering from a lack of meaning. Employees do not know why they are working; instead, they just show up. The firm does not know why it exists; instead, it just plods along. Leaders can and should prioritize “meaning making” throughout their company. People in abundant organizations add value to customers, shareholders and the world, and that’s just good business.

About the Authors

Dave Ulrich, a professor at the Ross School of Business at the University of Michigan and a partner at the RBL Group, has written 23 books. Psychologist Wendy Ulrich founded the Sixteen Stones Center for Growth.


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The Why of Work

Book The Why of Work

How Great Leaders Build Abundant Organizations that Win

McGraw-Hill,


 



11 August 2025

The Supply Chain Network @ Internet Speed

Recommendation

Wade through the technical jargon and dive directly into this deep pool of operational intelligence on the complexities of modern supply-chain management. Fred A. Kuglin and Barbara A. Rosenbaum provide step-by-step guidelines on how to put e-based solutions into effect throughout your supply chain to achieve cost effectiveness (that is, save money). Using the CEO’s perspective, they describe a series of supply-chain approaches designed to address issues like capital requirements and production costs that drive company valuations. The book, which is forthrightly technical, is targeted to the CEO or high-level executive in charge of operations. BooksInShort.com highly recommends this book to this select audience, and commends the authors on their useful mix of charts, illustrations and dramatizations to illustrate supply-chain problems and solutions.

Take-Aways

  • Modern shareholder value is driven by profitable growth, working capital efficiency, cost minimization, tax minimization and fixed capital efficiency.
  • Advanced supply-chain management can minimize capital requirements and costs.
  • You must choose the e-business solutions that address the unique factors that shape stock value in your industry.
  • Supply chains, industries and services are blurring together.
  • You can set up a networked supply chain with a one-to-many link or a hub that links several parties.
  • An e-exchange can help link trade partners trade parts.
  • You can improve customer relations with e-business solutions, such as Web-based catalogs and scan-based trading.
  • In a retail environment, you will undermine profits if you lose customer focus.
  • You can use a war room to increase productivity and deal with a crisis.
  • In a crisis, strong CEOs respond quickly and decisively, seek future opportunities and show they are in control.

Summary

Technology and the Blurring Supply Chain

Today more than ever, CEOs need to use supply-chain management techniques to streamline operations. If you are a CEO or an operations manager, you need to provide leadership to take your company through these technology-driven transformations. Your mission is to increase shareholder value by achieving greater efficiencies with technology. To accomplish this goal, you need to understand both your industry and technology, since in today’s new economy industries, supply chains and services are blurring together.

“The CEO’s job description has changed to one of leadership through technology-driven transformation.”

Five basic measures drive shareholder value: profitable growth, working capital efficiency, cost minimization, tax minimization and fixed capital efficiency. You must choose the e-business solutions that address the unique factors that shape stock value in your industry.

Different strategies for supply-chain management produce different sources of value. For example, to increase productivity in general manufacturing, you can use the "war room" approach. In the retail-consumer field, Web-based catalogs and scan-based trading can contribute to profits. In high-tech, look into networked supply chains or high-tech matrix solutions to reduce the working capital you need. In the automotive industry, e-exchanges can reduce your fixed capital needs. You can reduce costs in the oil and gas industry by using e-exchanges for spare parts. In health care, product life management can be an effective strategy for minimizing the necessary amount of fixed assets.

Opportunity Out of Crisis

When you have to respond to a crisis, you can set up a war room to work out your response strategy. Imagine this scenario: You are the CEO of a manufacturing firm that is having trouble with inventory turnover and high receivables. Your payments to suppliers are delayed and your supplies are becoming more expensive. Then, one of your manufacturing sites has a fire that will close the plant and reduce your production for six months. You know you must respond quickly to shareholder concerns. Already, security analysts are calling to ask how the plant closing will affect earnings; employees are worried about possible layoffs and customers want to know if their orders are going to be fulfilled.

“In many cases, line-item proliferation only serves to confuse the consumer (not to mention the operations staff of the manufacturer). By simplifying the product portfolio, consumer-products companies provide their consumers with clearer choices. They can also build greater brand equity with stronger brand recognition and focused trade spending.”

A war room can help you make decisions by providing an accelerated solutions environment (ASE) where you use technology and related services to think about alternative scenarios. Because you can conduct a fast analysis, you can respond quickly to this crisis. You make plans with your team to optimize your business processes. For your analysis, use intelligent e-business technologies to calculate the impact of various changes in demand. Calculate how those changes affect factory and supply-chain planning. Then, link the results into a series of pro forma financial reports, including P&Ls and balance sheets. In the war room, you can work through a model of this disruption and prepare to deal with its effects. By the time you leave, you know how to respond to all your stakeholders.

“The retail and consumer-products industries have been slow to adopt technology as compared to other industries.”

A war room has a different area for each critical function, such as project management, research, knowledge management, e-business systems and input from external partners and vendors. It also has enough physical room for large group sessions and team meetings. During an operational crisis, remember the eight key principles for dealing with Wall Street, so you can demonstrate that you are in control. Be yourself - if only for the sake of consistency - and be prepared, principle-centered, fact-based, honest, accessible, empathetic and patient.

“The real power of these technological advances is the Web-based data and information synchronization between trading partners from the initial deal to purchase over the scanner to final cash settlement.”

Assemble your war-room team and start planning. Give everyone a description of the crisis and templates for assembling data on the company’s products, markets, operating costs and other information. After the team members gather data in small work groups, reassemble the whole group to discuss conclusions and possible responses. Various types of software can help you analyze this data, such as "Supply Chain Strategist" or "Shareholder Impact Tool." You can use state-of-the-art video-conferencing to share your views or you can use scenario planning to examine different responses, outcomes and cost results. For instance, you might consider outsourcing, new customer-management tactics or e-business strategies.

“The answer lies in tightly connecting sales, marketing and the supply chain. These operating units’ boundaries must become even more blurred to ensure a quick and successful implementation plan.”

The war room response can give you quick results, which you need during a crisis. As a strong CEO, you have to respond quickly and decisively, while you look for opportunities for the future. Weak CEOs often delay their responses and come off as defensive and confused. You can’t hide during a crisis when everyone is looking at you and your company. You have to show that you are responding from a position of strength and control and protecting the value of your shareholders as much as possible.

Retail and Consumer Products

Shareholders in consumer-products firms primarily want profitable growth, which can be undermined if you lose customer focus. In this scenario, envision yourself as CEO of a company that has been so concerned with cost cutting and efficiency that it has lost its connection to its customers. Making matters worse, your largest customer has introduced a private-label product that competes with your best-selling product. What could you do in a situation in which a big retailer that is your major customer has also become your major competitor?

“The war room uses an accelerated solutions environment (ASE) that provides technology and services to perform business-process optimization and scenario-planning that take hours, not months, to complete.”

To compete, you must develop outstanding brands that dominate their categories and are priced more competitively than private-label products. To develop these brands, you need innovative ways to renew your customer connections and still keep down costs. Your plan has to link sales, marketing and the supply chain for efficiency and quick response. You must improve branding, develop an improved customer focus and achieve profitable growth. If you improve your sales-to-line-item mix by simplifying your product portfolio, you can give your customer clearer choices and build greater brand equity through stronger brand recognition. You could use customer segmentation to identify your largest customers, you can link to them more closely and identify their needs more accurately. Another strategy is to coordinate activities across enterprises in your supply chain through an Efficient Consumer Response (ECR) approach, through which you improve customer service and reduce system costs.

“When a crisis occurs, the true test of leadership for a CEO and his or her company is the usual result. Strong CEOs respond quickly, decisively and with a vision for opportunity. Weak CEOs frequently respond in a delayed, defensive and confused manner.”

You can also employ e-business solutions, such as Web-based catalogs and scan-based trading (SBT). For example, a Web-based start-up called ViaLink created a Web-based catalog (syncLink) that allows you to create a common database for all your trading partners to use. The database combines item, price and promotion information. This synchronizes everything in the transaction, including the purchase order, shipping order, invoice and payables. Additionally, if you use scan-based trading, you can share critical point-of-sale (POS) data among trading partners to establish a new networked supply-chain process.

“Whatever the CEO’s choice, his or her chances improve significantly with help from procedures like the war room, which signals to Wall Street, customers, communities and employees that he or she is in control and that shareholder value is protected as best as possible.”

Using these high-tech tools, you can take clear steps toward profitable growth, based on understanding your customers’ needs. These steps include simplifying your product line, focusing on your largest, most profitable customers, linking performance measures to customer satisfaction and loyalty, developing strong brands, simplifying pricing and deal structures, and using Internet technology to collaborate with your customers.

Cars, Tech and Gas

Supply-chain management is crucial in the automotive, technology and energy industries to minimize the required amount of working and fixed capital and to control costs - all key shareholder concerns. Some helpful e-business solutions include creating a networked supply chain, using the HightechMatrix system, and setting up e-exchanges among trade partners or to trade spare parts. For example, Dell Computer’s order-to-delivery process minimizes the amount of working capital it needs by reducing inventory. The basic drivers that can help you use your working capital more efficiently (thereby reducing the amount you need) are your cash-to-cash cycle time, days of sales in inventory, inventory turns, accounts receivables and accounts payable.

“The CEO had been so intent on cost-cutting and efficiency that he and the company lost their connection to the customer - both the retail customer and the final customer.”

A better functioning, networked supply chain can cut your costs. You can use different formats. For example, the HightechMatrix Marketplace uses a one-to-many link to provide a variety of value-added services, such as giving customers real-time information on inventory availability. You can also create a private exchange - or hub - linking several parties. Another alternative is to build multivalue chain solutions, such as establishing networked access to all your suppliers and new product designers.

“Efficient Consumer Response (ECR) is an initiative the company has been involved with since 1992 in the grocery supply chain. The objective was to coordinate activities across enterprises in the supply chain, thus reducing costs in the system and improving customer service.”

To increase your working capital efficiency, follow these steps:

  • Identify and institutionalize your customers’ order-to-delivery expectations.
  • Establish timelines for customer payments.
  • Profile and link your order information, so it is visible to your suppliers.
  • Map and transform your networked supply chain activities according to a set timeline.
  • Establish the timelines for paying your suppliers.

For industries that need to minimize fixed capital and costs, e-business can make trade and exchanges more efficient. For example, Autolink.com is a business-to-business Web site for automotive dealers. It provides online employee training, customer relationship management services, mass-purchasing capabilities and an automotive information service. This Web site helps you save money by maximizing return on your assets, providing you with an optimized network, helping you manage capacity and throughput, and linking you to potential ways to outsource non-critical functions.

In the oil and gas industry, where cost minimization is the key to success, e-business technologies - such as an e-based spare-parts exchange - can help reduce the total delivered costs to the final consumer. E-based technology can help you cut processing costs, find opportunities for outsourcing and identify services you can share with others in your industry. All of these are elements of cost minimization.

Operational Efficiencies

E-business solutions can help achieve shareholders’ goals in many other industries. As you employ e-business technology for logistics planning, scheduling and e-fulfillment, you can also have it include the tax implications in each network analysis. This would allow you to identify the taxes affected by supply-chain decisions, such as customs duties, sales or use taxes, property taxes and employment taxes. With this data, you can review tax reduction strategies and set up centralized tax planning.

To achieve better fixed-capital efficiencies - a priority, for example, in the healthcare industry - you can use a networked supply chain and a product life-cycle management (PLM) strategy. With this PLM approach, you first set your business strategy, create a system to manage knowledge, align the people in your organization, create effective business processes and develop an infrastructure for technology.

The particular e-business solutions you want to use depend on your company and industry, since the applicable shareholder drivers and types of network systems will vary. However, whatever your industry, these e-business technologies will help you better manage your supply chain and find increased efficiencies in your operations, while minimizing costs, taxes, working capital and fixed-capital, and promoting more profitable growth.

About the Authors

Fred A. Kuglin is vice president of the Supply Chain Operations practice of Cap Gemini Ernst & Young U.S., LLP. He has worked for more than 20 years in the areas of strategic planning, network optimization, process reengineering and overall supply chain management. He has held senior posts with Frito-Lay, Inc. and EDS/A.T. Kearney. Barbara A. Rosenbaum is a director with Cap Gemini Ernst & Young’s Global Supply Chain service line. In addition to more than 20 years of supply-chain consulting and industry experience, she has served on the faculties of John Hopkins University and Loyola College, published numerous articles and served as a contributing author of two books.


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The Supply Chain Network @ Internet Speed

Book The Supply Chain Network @ Internet Speed

Preparing Your Company for the E-Commerce Revolution

AMACOM,


 



11 August 2025

Aftershock

Recommendation

Politicians and pundits like to blame Americans’ excessive debt for plunging the economy into recession in 2008. But middle-class earners had a good reason for borrowing: Their incomes have dropped since 1980, during a period when the US economy’s gains increasingly went to the wealthy. According to former US Secretary of Labor Robert B. Reich, the only way out of the doldrums now is to redress that imbalance and help the middle class resume its role powering the economy. In this book, Reich explores the dire consequences of failing to get workers back to work. Without seeming particularly worried about stirring controversy, he offers his suggestions for restoring the “basic bargain” of shared prosperity: People work and the government supports good jobs backed by a “safety net” of public services. BooksInShort recommends Reich’s sobering review to those studying ideas about what’s broken and how to fix it.

Take-Aways

  • America’s working middle class powered the “Great Prosperity,” 1947 to the late-1970s.
  • But economic gains since 1980 largely accrued to the wealthy, while the middle class struggled to stay abreast.
  • Globalization and high-tech advances meant lost jobs, less saving and more borrowing.
  • To “cope” with their reduced purchasing power, middle-class people worked more hours and more women went to work.
  • Free market policies loosened safety nets like unions and unemployment insurance.
  • Wealth does not trickle down enough to keep the American economy productive.
  • “Full employment” fuels the consumption that the US economy needs to recover.
  • Focusing on the “financial economy” led politicians to ignore the “real economy,” which was harmed by job loss and the ensuing drop in consumer demand.
  • Government must restore the “basic bargain” that keeps the middle class productive by “giving workers a proportionate share of the fruits of economic growth.”
  • Failure to do so may result in more political upheaval and extremism.

Summary

The Rich Got Richer...

Excessive consumer borrowing in the US gets the lion’s share of the blame for the crash and subsequent recession in 2008. True, massive mortgage lending at low rates did contribute to the speculative bubble in real estate, but “high debt is a symptom rather than the cause” of the recession. The growing income disparity between the rich and the middle class is really at fault. Middle-income wages failed to keep up with a growing economy; in fact, “a larger and larger portion of the economy’s winnings had gone to the people at the top.” Borrowing became the only way for most Americans to maintain their living standards.

“The problem was not that Americans spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them.”

Income levels historically have swung from concentrations of prosperity among the richest to more even distributions among the working and the wealthy. At the beginning of “modern American capitalism” from 1870 to 1929, wealth consolidated at the top. After the Great Depression and, later, after World War II, prosperity spread around to lift almost everyone. But by the late 1970s, incomes began to coalesce again at the peaks, leaving the poor and middle classes with a smaller share. At that point, “the double whammy” of globalization and technological advancement began to cut into US jobs. Rather than secure the working person’s “safety nets” of education and unions, politicians removed such safety nets based on their belief in deregulation and in the power of the “free market” to redress the loss of jobs and wages. This increasing income disparity explains the slow recovery following the 2008 recession and presents a “social and political predicament” that augurs “upheaval and reactionary politics” if not addressed.

The “Basic Bargain”

The US economy needs the purchases generated by a working middle class. The basic bargain is clear: A virtuous financial circle of decently paying jobs leads to demand for goods and services, generating employment and consumerism. When economic problems break that circle, government support should temporarily fund the economy to reinstate jobs and create demand. This would stimulate recovery and maintain the core fact that the US must keep its middle class productive by “giving workers a proportionate share of the fruits of economic growth.”

“The fundamental economic challenge ahead is to lift the means of middle-class Americans and reconstitute the basic bargain linking wages to overall improvements.”

As Mark Twain once quipped, “History does not repeat itself, but it sometimes rhymes.” Bear that in mind as you reflect on how policy makers’ understanding of the Great Depression enabled them to prevent 2008’s “Great Recession” from worsening into a depression. But they ignored the underlying cause of both crises – increased concentrations of wealth in the hands of a few.

“None of us can thrive in a nation divided between a small number of people receiving an ever larger share of the nation’s income and wealth, and everyone else receiving a declining share.”

Middle-class incomes have stagnated since the 1970s and started dropping in 2000, yet the US economy has grown immensely since 1980. If every American had shared in that growth equally, each person would be “60% better off.” Soaking up this excess, the ascendant rich invested in a relatively “limited range of assets,” sending stocks and real estate soaring. Simultaneously, to maintain their shrinking living standards, the middle class saved less. Savings rates of 9% to 10% in the 1950s fell to 2.6% by 2008 – and people borrowed more. “Household debt (including mortgages)” increased from 55% in the 1960s to 138% in 2007. If the growing economy’s financial returns had gone more to the poor and middle classes, and less to the rich, borrowing would not have reached “unsustainable” levels, and the stock and real estate bubbles would not have materialized.

“At what point does an economy imperil itself politically, as large numbers conclude that the game is rigged against them?”

Wealth does not trickle down sufficiently to keep the US economy running smoothly. Despite conspicuous consumption on lavish mansions, fine art collections and yachts, the rich don’t spend nearly enough of their money to create the “multiplier effect” of generating enough jobs for the lower classes. What the rich don’t spend, they invest in speculation, which leads to the boom-bust cycles so prevalent in recent decades. While politicians focused on the “financial economy” by cheering a climbing stock market, relying on Wall Street to lead the economy and bailing out banks, they ignored the problems of the “real economy” – the failing middle class and the drop in consumer demand – which have more far-reaching effects on the US’s economic stability.

“The Great Prosperity”

For 30 years after World War II, Americans’ wages grew steadily; yearly household incomes went from $25,000 to $55,000, with the middle class enjoying proportionately more of that increase. Productivity kept the US economy humming, and government supported jobs and workers by legislating overtime pay, unemployment insurance, Social Security, Medicare and Medicaid. With that safety net, Americans had the “peace of mind and security” to enjoy their earnings. Subsidized mortgages and tax deductions on mortgage interest made owning a home a reality. The government-funded national highway system connected those homes to job sites while cutting transportation costs. Improved access to higher education through public colleges and the GI Bill for returning veterans helped more people advance. Everything from transistors and lasers to computers and the Internet – all developed under government aegis – contributed to affluence and innovation. High marginal tax rates didn’t hinder investment and growth in the 1950s.

“An economy functioning well below its capacity is a terrible waste of all our resources, especially of our people; a society riven by resentment is potentially unstable.”

But by the late 1970s, while productivity continued to surge, jobs and wages fell behind in the wake of globalization and “automation.” In fact, “America has lost at least as many jobs to automated technology as it has to trade.” Outsourcing to cheaper labor markets took repetitive work from the US, and left behind jobs that paid less than the old ones. But rather than step up to maintain its side of the bargain, government began diminishing the safety net. By 2007 unemployment insurance took care of only 40% of those without jobs. Tax cuts for the wealthiest and tax havens for corporate earnings cut government funding of infrastructure and social services. Firms began to lay off people, and to shift risk and expenses onto workers through increasing health care costs and diminishing pensions. Even more ominously, “Washington deregulated Wall Street while insuring it against major losses.” The federal government “turned finance – which until then had been the servant of American industry – into its master.”

“Three Coping Mechanisms”

Most Americans not only accepted the situation but also supported the free market ethos against government interference. A “loss of generational memory” meant that modern Americans have little or no experience with great poverty or great prosperity. The middle class is facing its financial travails by using three coping mechanisms:

  1. “Women move into paid work” – Education and new social mores enabled women to climb the career ladder just as women had to go to work to shore up the family income.
  2. “Everyone works longer hours” – When their wages proved inadequate, people worked more. Americans averaged 2,200 hours annually at their jobs, more than Europeans and the Japanese. A US household now works “a full 12 weeks more than...in 1979.”
  3. Americans “draw down savings and borrow to the hilt” – By 2007, Americans “owed as much as their entire after-tax income.” The savings rates dropped to 2.6% in 2008. And credit was available everywhere: Credit cards, student loans and mortgages on spiraling home values kept economic reality at bay, at least until the 2008 crash.
“America cannot succeed if the basic bargain at the heart of our economy remains broken.”

These coping mechanisms no longer work: Child care costs are becoming greater than the incremental pay a two-income household enjoys, you can work only so many hours in a day, and easy credit is long gone. The jobs filtering back into the economy pay less; for instance, Ford recently added 1,200 new employees at one plant at half the pay of existing workers. So people are “deleveraging” by paying off or abandoning their debts, and baby boomers will need to postpone, if not renounce, retirement, adding another strain to an already stretched job market.

“No Return to Normal”

Economic tensions naturally manifest in political and social unrest, and these tensions could threaten American democracy. Politicians and pundits exhort people to make do with less, but a “lower standard of living” could undermine the consumer economy, even though some alternative voices speak of the value of living more simply. Cutting back is painful, however, and rising expectations of a better future for yourself and your children die hard. Research shows a 1.3% increase in suicides “for every 1% rise in a state’s unemployment rate.” Furthering the anxiety are obvious comparisons to the improving lot of the rich: Wall Street banks have returned to profitability and again are paying extraordinary bonuses. As the middle class retrenches, the have-nots cede quality education, health care and public services to the haves.

“The central challenge is...to rebalance the American economy so that its benefits are shared more widely in America, as they were decades ago.”

While Americans’ traditional aspirations to join the upper classes so far have kept them from rising up against the establishment, mounting evidence of a “rigged game” by the rich could translate into revolt. The growing perception that Wall Street’s bailout benefited only Wall Street and that shadowy Washington lobbyists wield sinister influence to push corporate interests raises mistrust. Populist anger grows as increases in sales and property taxes, which fall unfairly on the middle class, make up for income tax cuts for the rich. Suspicion and rage gain political footing in the rise of more conservative movements, and “prolonged economic stress could open the door to demagogues who prey on public anxieties in order to gain power.”

“A New Deal for the Middle Class”

Addressing the income imbalance means reinstating the basic jobs bargain. Some policy changes that could accomplish that goal include:

  • Instituting “a reverse income tax” – To begin to remedy income equality, pay “wage supplements” on a sliding scale to those earning less than $50,000 annually. The Earned Income Tax Credit provides such a boost for low-wage earners. Have those making more than $50,000 but less than $160,000 pay a tax rate of 10% or 20% on all income.
  • Levying “a carbon tax” – Taxing carbon dioxide output would give firms reasons to reduce greenhouse gas emissions, develop alternative energy sources and increase “aggregate demand.” The taxes would partially offset costs of the reverse income tax.
  • Setting “higher marginal tax rates on the wealthy” – Those earning more than $160,000 annually would pay 40% taxes on all income, increasing to a top rate of 55% for those with incomes of more than $410,000. The new tax structure would earn more than the existing tax system, combining with carbon tax revenues to pay down the national deficit. And history shows that higher taxes on the rich don’t deter growth.
  • Establishing “a reemployment system rather than an unemployment system” – A temporary “wage insurance” would ease job seekers into taking work that pays less than their old jobs, partially and temporarily making up the difference. A “severance tax” on companies that lay off workers would cover this and the costs of retraining employees.
  • Creating “school vouchers based on family income” – Giving families education credits in inverse proportion to their income would force competition among schools and improve educational choice for lower-income families, ensuring job access for future generations. The program would include early-childhood education.
  • Granting “college loans linked to subsequent earnings” – Students could choose between free public colleges and loans for attending private colleges. Graduates would reimburse 10% of their earnings for 10 years to support public education and student loans, especially for those in lower-paying but essential fields like teaching or nursing.
  • Providing “Medicare for all” – Offering everyone subsidized health care would save from $58 billion to $400 billion annually because of Medicare’s lower administrative expenses and extensive bargaining power with drug companies and health care providers. Extending coverage to every citizen is not that big a stretch. Almost 50% of Americans now enjoy some public health care via Medicare, Medicaid, the Veterans’ Health Administration or the federal health care program for government employees.
  • Extending “public goods” – Free access to “public transportation, public parks...public museums and libraries” cuts pollution, creates jobs and adds to “quality of life.”
  • Getting “money out of politics” – To counteract large firms’ influence on political decision making, political donations should go into “blind trusts” so officials won’t know who financed them and for how much. “The quid would be severed from the quo.”

About the Author

Robert B. Reich, a professor of public policy at the University of California, Berkeley, served in three presidential administrations, most recently as Secretary of Labor under Bill Clinton.


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