HUMAN CAPITAL & ECONOMIC POLICY
Reich, Robert B.
From The Next American Frontier by Robert B. Reich. Copyright © 1983 by Robert B. Reich. Reprinted by permission of Times Books. The sections here reprinted are taken from chapters 10 and 11....
...The United States does have job-training programs, but they are generally restricted to the unskilled...
...In the face of such insecurity, people will seek better lives for themselves and their families only when their situation is truly desperate—as generations of immigrants will attest...
...This policy preference generates large social costs as workers and communities are left stranded within vast pockets of unemployment...
...The vicious circle has closed: As the economy continues to decline, Americans grow more cynical about collective endeavor...
...Flexible machines and teams of skilled workers can...
...But mass transit and day care are becoming some of the first victims of America's economic decline...
...For example, in place of public service jobtraining programs that merely perpetuate dead-end labor, we could provide unemployed workers with vouchers that they could cash in at companies for on-the-job training...
...Just as a tax depreciation now can be taken against machines that are gradually becoming obsolete, the tax code might also permit employers to set aside an annual taxdeductible reserve fund for human capital development, based on the number of workers on the payroll...
...Without the institutional capacity to focus these programs on the competitive performance of our economy as a whole, government policy will inevitably serve the politically strongest or most active industries and businesses...
...316...
...machines can merely repeat solutions already programmed within them...
...In any event, the Reagan administration is cutting back these programs severely: Department of Labor outlays for job-training programs declined to $4.5 billion in 1982 from $7.8 billion in 1981, despite the addition of almost 2 million men and women to the unemployment rolls...
...Subway systems in Boston, New York, Philadelphia, and Chicago are near collapse, plagued by aging equipment, vandalism, and frequent breakdowns and derailments...
...This pattern of "market failures" is complicated by the fact that in flexible-system enterprises the real value of a worker's skill depends not solely on his own training but also on how his abilities complement and enhance the skills of his co-workers...
...The Bell System, for example, spent $1.7 billion conducting 12,000 courses for up to 30,000 employees daily at 1,300 training sites around the country...
...In addition to such direct subsidies, tax incentives could be used to encourage companies to invest in upgrading their work forces and communities...
...With participating companies directly involved, the programs could have a multiplier effect throughout the area, increasing the quality of the regional work force and attracting more sophisticated jobs to the area...
...Unless America moves quickly into a new era in which upgrading and using our human capital become a central concern, however, our future wealth will come primarily from extracting coal, timber, and grain from our lands, from assembling advanced components that have been designed and fabricated elsewhere, and from distributing the resulting products to our own citizens...
...But defense-related job-training and education programs can no longer be relied upon to shift America's labor force into higher-valued production...
...These would be available to any worker who had been employed for more than two years at his present job and wished to upgrade his skills...
...Financial capital formation is becoming a less important determinant of a nation's wellbeing than human capital formation...
...As a result, they, too, have failed to help ease the transition of the labor force to sophisticated-system production...
...The net result of all these programs has been the continued atrophy of the American labor force...
...By 1990, if present trends continue, 22 percent of pension-fund assets will be invested in these ways...
...Meanwhile, the next company neglects developing its own work force, confident that luring qualified workers away from the other firm will be cheaper than setting up its own training program...
...And even these public service jobs have been temporary...
...These steps could overcome bottlenecks and constraints that now retard economic change and also serve to ameliorate the burdens that make change disproportionately painful to certain groups...
...Unlike high-volume production, where most of a firm's value is represented by physical assets, the principal stores of value in sophisticatedsystem enterprises are human assets...
...It does this by, among other things, making interest payments on loans for any investment taxdeductible...
...He is uncertain about how well the investment will pay off for him, and the uncertainty makes him reluctant to spend much of his time or money on learning new skills...
...By failing to appreciate and act on the link between these social programs and future productivity, America is condemning itself to a long and painful economic transition...
...One variation on this theme would feature retraining vouchers...
...For example, companies now have little to lose by laying off their employees during downturns...
...Even America's high-technology industries are filling almost as many dead-end jobs as skill-intensive ones...
...The private sector does provide some training...
...We have higher rates of infant mortality...
...Other social policies (or their absence) have conspired to render much of America's labor force physically immobile...
...This is particularly true if local housing prices are depressed as a result of a plant closing or any other manifestation of local economic decline, while housing prices ii% growing areas of the country are driven up by the increasing demand...
...We enjoy less job security...
...Special government assistance has been available to workers and communities injured by foreign trade—to provide relocation, retraining, and extended unemployment insurance to workers whose jobs have been eliminated because of imports and to aid communities facing economic decline...
...But it is designed to tide people over during temporary periods of unemployment, not to help the large numbers of workers who are unemployable because they have no marketable skill...
...With so much at stake in one's home, the financial and psychological costs of moving are extremely high...
...Prsistent unemployment and pervasive mismatches between skills and job opportunities are symptoms of a basic problem: America's labor force is not participating in the growing segments of the world economy...
...We have organized production in a way that squanders our talents...
...Only 2 percent of Washington's rental units are available for occupancy at any given time...
...Most states also place a ceiling on the amount of weekly benefits that can be obtained...
...The resulting training centers would contract with the participating companies to provide employees with appropriate training and retraining...
...In contrast, between 1972 and 1978 the average salary of electronics engineers increased 33 percent...
...Tax reform might also eliminate the inconsistencies that invite paper entrepreneurialism...
...In West Germany, which has similar programs, the cost per participant is approximately $14,000 per year, once savings from reduced unemployment costs are netted out...
...As communities bid to attract businesses, one city's gain is another's loss, and little or no additional investment occurs...
...These are illustrations of long-term trends that had already begun 15 years ago...
...The result is likely to be a breakdown in cooperation between unions and management, possibly sparking crippling rounds of strikes, which will ensure there will be even less product to spread around...
...The banks would also supply cities and towns in the region with low-interest financing for maintaining and developing infrastructure such as roads and sewage-treatment plants...
...But ideologies resist change, particularly when change seems to threaten people's economic security...
...In short, we are entering a new era of productivity in which the costs, the process, and the return from investments in human capital all are inescapably social...
...But in the short term, several changes can be made at least to slow the decline and reduce the fear and insecurity that fuel it...
...This year pension funds are expected to absorb $11 billion of new corporate debt and most of the new equity issues...
...Once a rental unit is obtained, the occupants are understandably reluctant to leave...
...All told, one out of every three American workers now depends for a livelihood, directly or indirectly, on American industries that are losing rapidly in international competition...
...Since 1973 the increase in employment in eating and drinking places alone has been greater than the total employment in America's auto and steel industries combined...
...Instead of this patchwork, and with no greater expenditure, the federal government might establish regional banks to provide lowinterest long-term loans to industries that agree to restructure themselves to become more competitive...
...the rising incidence of employee theft and insider dealings...
...Here the portion of the pie shared by workers has been declining as inflation has outstripped wage hikes...
...Some of America's most gifted citizens are engaged in manipulating abstract symbols, with no result other than the rearrangement of industrial assets and the replacement of names on organization charts...
...many of bankrupt Braniff's jets now fly the "friendly skies...
...America could take several immediate steps to help shift into higher-valued production...
...On the other hand, education and training costs expected to be incurred for the purpose of preparing employees for new jobs in which they are not currently engaged cannot be deducted from current income...
...But in order to qualify, the family's assets (including house and car) must not exceed $1,000...
...Many unemployed Americans are reluctant to look for work in another part of the country for fear that they will lose the minimal assistance they have...
...Only people can recognize and solve novel problems...
...There are many other ways in which incentives could be restructured to encourage human capital investment...
...and the refusal by many middle-income taxpayers to foot any longer the bill for social services...
...Rent-control laws in many jurisdictions 310 further discourage the unemployed or underemployed from looking for jobs elsewhere since the laws deter private builders from erecting other low-cost housing while allowing rents on existing units to shoot up if the current tenant forays out in search of work in another city...
...For America to enter fully into the era of human capital will require more dramatic changes in the way we organize ourselves...
...Industries of the future will not depend on physical "hardware," which can be duplicated anywhere, but on the human "software," which can retain a technological edge...
...Many of the nation's skilled machinists, electricians, machine operators, and computer programmers also received their training while in military service...
...Lest millions of middle-class homeowners suddenly be impoverished by this measure, however, mortgage interest payments on one's principal residence would still be deductible even for older houses, but the deduction would be limited to, say, $5,000 per year...
...This merely encourages employers to consider their employees as fungible commodities and dis314 courages them (and their employees) from making long-term investments in training...
...But a large percentage of these jobs were dead ends...
...While loans are available for investments in physical capital, many workers are forced to finance their human capital investments themselves...
...Federal programs finance much of this competition...
...Bank directors would be appointed by state governors...
...Indeed, such funds are now America's largest single source of investment, underpinning stock values as individual investors abandon the equity market...
...A survey undertaken in 1964 showed that 18 percent of all nuclear power workers and 45 percent of all licensed nuclear operators learned their skills in the U.S...
...Participating companies within a geographic region might pool their training activities, with each company paying one-half of 1 percent of its payroll costs into a common training fund...
...The program could be financed by a payroll tax paid by employees and employers...
...The clearest example is in labor-management relations...
...There are no programs to retrain people with obsolete skills or those who wish to improve their skills...
...America's economy has come to be based on distinct economic regions, each with its own climate, raw materials, demographics, and special needs...
...The dilemma is that the groups seeking to seize assets from each other are often the very ones that must collaborate if real growth is to occur...
...Production workers now constitute 45 percent of the American electronicsindustry work force...
...It rigidifies old ideologies and engenders a widespread conservatism...
...It spends five times as much on research and development for commercial fisheries as it does for steel...
...Then, when the economy improves, the companies hire back their employees...
...Defense procurement has a powerful effect on the economic development of the nation, spawning entirely new industries, setting the direction for their future development, enriching or impoverishing regions whose economies depend on defense contracts, employing one-third of the nation's scientists and engineers, contributing more than one-third of its total research and development budget, and training a large number of its skilled machinists...
...Given these restrictions and inconsistencies, it is not surprising that only one-half of America's unemployed receive unemployment insurance at any given time...
...This sum is likely to be far smaller than the new productivity benefits that are generated...
...Similarly, American antitrust laws recognize that restrictions on mergers should be relaxed for failing firms, which otherwise might be deprived of the capital they need to regain competitive strength...
...But the fact is that America now is doing little to build new human capital, and the nation is wasting its present stock...
...6 billion in loans and loan guarantees go to the shipbuilding industry, compared to $940 million to the automobile industry...
...The tax code also might reward companies for remaining in their communities by giving them deductions proportional to their length of stay...
...Between 1972 and 1978 their average salary increased by only 7 percent...
...It is true that even if America were to adapt itself to flexible-system production, there still would be some routine jobs to be filled by relatively unskilled workers...
...There is only time enough to make wage concessions and to form political coalitions seeking protection against imports, both of which merely perpetuate the underlying problems or pass them on to consumers and other industries: American society is now rife with other "beggar-thy-neighbor" tactics, many of which are rational from the standpoint of the individual actor but tragically irrational for society as a whole: • the asset rearranging undertaken through conglomerate merger, manipulation of balance sheets, and schemes of tax avoidance...
...The investment of a given proportion of pensionfund assets in regional development banks would help spur the economy and thereby benefit American workers over the long term...
...We will become a nation of extractors, assemblers, and retailers—relatively poor by the standards of the rest of the world...
...Pension funds are rapidly becoming a primary source of industry financing in America...
...Federal housing policies have locked the labor force into stricken communities and regions...
...the unknown could be far worse...
...EDS...
...Some new jobs also have been created in the shoe, textile, and tanning industries, but many of these have gone to illegal immigrants (an estimated 6 million of them are now working in the United States), who work for subminimum wages in order to compete with workers doing much the same tasks in Southeast Asia...
...Perhaps more significantly, so many jurisdictions now offer these inducements that they largely offset one another...
...But even if they all were to be successfully implemented, they would not be a panacea...
...At most, the program reaches only the hard core of America's poor...
...In 1981 American firms spent more than $30 billion on courses for their employees, affecting about 6 percent of the labor force...
...If adequately funded, both sorts of programs would allow workers to search for work within a large radius of their homes...
...Already America's gross national product per person (a crude measure of economic wellbeing, to be sure) is lower than it is in several other industrialized countries...
...Firms seeking to diversify or to develop new products in an effort to regain competitiveness seldom, if ever, base their location decisions on the financial lures offered by needy communities—such as tax abatements, low-interest financing, or transportation facilities, most of which are made possible by federal grants...
...The process of long-term decline, once under way, has a self-perpetuating quality...
...But like unemployment compensation and job training, these "trade adjustment" programs have been disconnected from the process of industrial change in America...
...On the contrary, the resulting mergers have often meant closing or relocating the failing firm's facilities, with no provisions for labor or community adjustment...
...Financial capital is highly mobile...
...The National Defense Education Act of 1958, inspired by Sputnik, provided lowinterest education loans, teacher training, and funds for doctoral research...
...Incentives to invest in human capital differ fundamentally from incentives to invest in physical capital because human capital invest311 ment and the productivity that flows from it are necessarily social...
...Employment in finance, insurance, and real estate has increased substantially, but most of the new jobs in these industries also have been in low-level clerical and sales positions...
...Private capital markets now focus narrowly on an individual company's bottom line...
...Most community and regional development programs have been similarly irrelevant to real economic progress...
...This is roughly half the cost of higher education in America...
...The skills, knowledge, and capacity for teamwork within a nation's labor force will determine that nation's collective standard of living...
...The Reagan administration has also targeted trade adjustment assistance for substantial reductions...
...If unemployment insurance rates were directly pegged to a company's employment history in this way, companies would have more of an incentive to maintain their work forces intact and to invest in their long-term development...
...Mass transit and day care represent other failed opportunities for helping American labor shift into new production...
...The companies would help in the design of these programs...
...Administered by the Department of Labor and far removed from such forums as the Treasury, Commerce, and the office of the U.S...
...America has no mechanisms to shift its work force out of unemployment and dead-end jobs into the kinds of flexible-system industries where Americans can gain and maintain competitive advantage while preserving or increasing their real incomes...
...When productivity gains flow over time from an integrated working unit, it makes no sense to depend wholly on individuals' cost-and-return calculations to set the level of human capital investment...
...It is not available at all to people who have not yet entered the work force...
...where the ceiling is low, as in New York, Texas, and California, workers who before had held relatively high-paying jobs may have to get by on only a small fraction of their previous salaries...
...The future prosperity of America and every other industrialized country will depend on their citizens' ability to recognize and solve new problems, for the simple reason that processes that make the solution to older problems routine are going to be the special province of developing nations...
...Within these regional economies, public and private investments are inextricably linked...
...Pension funds now hold $12 billion in foreign securities and another $13 billion in real estate...
...The government would provide matching funds...
...One out of every five unskilled manufacturing jobs in America is in the textile industry...
...Unemployment insurance is the main public program for Americans out of work...
...And as corporate managers harden their positions in the face of declining profits, they are apt to resort to hostile counterstrategies: hiring consultants to "bust" their unions...
...Generous credit assistance to homeowners (available through the Farmers Home Administration, the Federal National Mortgage Assistance Administration, and the Veterans Administration), coupled with tax breaks (in the form of mortgage interest deductions and the ability to "roll over" proceeds from the sale of one's old house to purchase a new house without paying any tax on the transaction) have transformed the nation's housing stock into many middle-class Americans' primary form of savings...
...In effect, this would be a kind of reverse depreciation—recognizing that the social benefits of remaining within a community (and the social costs of leaving it) often increase with the duration of a company's stay...
...Other citizens are unemployed or working in deadend jobs that are sheltered from international competition...
...One avenue of reform would be to allow interest deductions to be taken only for the purchase of new assets or the modernization of old ones...
...But a substantial part of this investment has been unrelated to America's human and economic development...
...Firms that accepted the vouchers would have half their training costs paid by the government, for up to three years...
...Planned cutbacks in Medicare will only heighten this fear...
...Seventy percent of them (outside government) were in services and retailing...
...Public employee pension-fund assets now exceed $200 billion...
...Broader training would render employees much more marketable, and therefore require that the firm pay them a higher wage in order to retain them...
...Similarly, a region's special problems—traffic congestion, inadequate sewage treatment, disposal of toxic wastes, water shortages—are largely a function of the regional pattern of industry...
...Many states and localities have used these job-training programs to hire people they would have hired anyway...
...And there are wide variations among the states in eligibility and benefits...
...308 The vast majority of these programs, however, provide training in narrow jobs or in processes unique to the company rather than in broadly applicable skills There is an obvious reason for this...
...Under this rule, mergers and acquisitions would not qualify for tax deductions...
...The potential social benefits flowing from investment in a regional economy have not been 315 considered in these investment decisions...
...As part of its responsibility, the board would each year recommend to Congress and to the president what changes should be made in programs that may be retarding national economic development...
...They do such things as assemble integrated circuits, stuff circuits into printed boards, and transfer silicon wafers from ovens to acid baths and electroplating tanks—unskilled and tedious work...
...Navy...
...Some of these bonds and stocks could be made available to union pension funds...
...America displays great ingenuity in revitalizing its old physical assets: a Procter & Gamble factory that once made the ill-fated Pringle's potato chips now produces Pampers...
...moving factories to other states or countries...
...Medical insecurity discourages people from searching for new jobs in locations far removed from family and friends who might sustain them in time of hardship...
...almost all these jobs are sheltered from international trade...
...Xerox opened a $75 million training and management center, training 12,000 employees a year...
...The only job-training programs with direct ties to the nation's economic development have been conducted by the Defense Department...
...exorbitant salaries and bonuses provided to executives in America's largest companies...
...While private investors have dumped more than $20 billion worth of stocks since 1978, pension funds have increased their equity holdings by a greater amount...
...For America's poor, it takes a long time to obtain adequate accommodation...
...Like any other insured entity, the former company would be deemed a relatively bad risk and would pay accordingly...
...But businesses that have been granted such antitrust immunity have not been required to accept even limited responsibility for their workers or communities...
...In practice, these programs have provided workers with little more than extended unemployment compensation...
...Across America, money that used to remain within regions is now pouring out...
...In all these ways America is inadvertently accelerating its economic decline...
...more than half the nation's locales have been deemed eligible for urban development action grant programs administered by the Department of Housing and Urban Development...
...They are oriented primarily toward "public service" jobs rather than toward new jobs in the private sector...
...most of this growth has been at the expense of financial institutions, mainly in small towns...
...Few or no benefits attach to these jobs...
...Public welfare, in the form of Aid to Families with Dependent Children, is of little help...
...But they reap no advantage from keeping their former employees or from utilizing the infrastructures of their former communities...
...But it seems a safe guess that among the millions of Americans now locked into dead-end jobs, there are vast numbers whose latent talents and untapped capacities for learning could be put to far more productive uses...
...When a person decides how much and what kind of training to get, he is usually ill-informed about the value of a certain skill since that value is determined in the context of a job...
...Many companies are too small to provide their employees with adequate training and retraining...
...the political demands for tariffs, quotas, and bailouts to protect companies against foreign competitors...
...Few firms are so generous (or foolish) as to want to bid up the wages of their work force in this way...
...Any worker unemployed longer than three months would be eligible...
...Their consequential retreat into egoism merely accelerates the decline since collaboration is the only way to reverse direction...
...Also, empirical evidence suggests that companies do respond to wage subsidies by increasing employment as well as by reducing their rate of price increases...
...Since 1975, 1.2 million American workers have received cash payments under these programs, totaling $4 billion...
...In 1981 cash benefits totaled $1.5 billion, but the training budget was only $17 million...
...Taken together, changes like these would constitute a modest start toward a dynamic economy...
...And the demand for day-care facilities is far outrunning their availability...
...One out of every six jobs in the American economy now depends on the automobile industry...
...America's publicly financed job-training programs do not prepare even the unskilled for real careers...
...The Era of Human Capital Above all, a false choice—the free market versus central planning, business culture versus civic culture—has prevented us from understanding the central importance of human capital to America's future...
...Specialized machines and unskilled workers cannot adapt easily to new situations...
...It invests less in human capital than it would if it could somehow ensure that the workers would stay on and apply their new productivity to benefit the firm...
...Not everyone is capable of maintaining precision machinery, developing software, or participating on a problemsolving team...
...Even individual workers are apt to underinvest in their own training...
...The government now has no way to monitor the aggregate impact of these programs on particular industries...
...Altering the ideological lenses through which many Americans have come to view government, business, and the economy will be difficult...
...All too often, when a company fails, its plant and equipment are quickly redeployed, but its workers are—in effect—scrapped...
...Whatever form these programs might take, the government programs flowing to businesses cannot be redirected to economic adjustment unless government has the institutional capacity to view all its programs in light of the nation's long-term economic health...
...In Washington, D.C., alone, 13,600 housing units have been converted to condominiums in the last five years...
...The majority of Americans in jobs like these are unprotected against an incapacitating accident, a heart attack, an illness, or a sudden layoff...
...They will worsen, 312 unless we act deliberately and strategically to speed the movement of capital and labor into higher-valued production...
...Six states and the District of Columbia provide benefits that extend slightly beyond 26 weeks...
...Programs like these would quickly pay for themselves...
...Insecurity born of the fear of sudden, arbitrary, and unanticipated loss—whether of job, home, or health— does not inspire people to new productive feats...
...The banks would finance themselves by issuing government-guaranteed bonds and shares of stock...
...America's fragmented and expensive system of health care causes many Americans to fear that a debilitating illness will use up their savings and impoverish their families...
...Government programs that promote certain industries or businesses amount to 13.9 percent of the nation's gross national product...
...Money market funds have grown to more than $200 billion, from only $11 billion at the end of 1978...
...All these programs, in turn, helped ensure a well-trained work force, which contributed to America's economic development well into the 1960s...
...It also promotes needless unemployment...
...Of course, before we were to launch on any one of them, we would want to know a great deal more about its likely effects on business strategies and possible substantive or administrative difficulties...
...They cannot offer lenders an interest in their more productive future selves as collateral against a training loan...
...To the contrary, insecurities like these discourage risk-taking and constrain adaptability...
...The preeminence of human capital in sophisticatedsystem production gives new urgency to the old problem that markets alone fail to generate enough investment in human skills...
...in the other 25 states it also applies to two-parent families in which the principal wage earner is unemployed...
...By 1979 they were earning $4.52 an hour, or about $9,000 a year...
...The vouchers could be cashed in at universities or accredited training facilities, which would be reimbursed by the government...
...An alternative scheme would be to make companies' payroll contributions to the unemployment insurance system depend directly on the extent to which their former employees have been forced to use the system in the past...
...Wages do not increase with experience...
...For example, program eligibility standards have been drawn so loosely for grants from the Commerce Department's Economic Development Administration that 80 percent of American communities are now eligible...
...These programs have been reduced in recent years, as more defense resources have been channeled to advanced weapons systems and other sorts of military hardware...
...The program also would create incentives for companies to locate in high-unemployment, low-skilled regions, the work forces of which would collectively represent a substantial subsidy...
...Yet only 36,000 workers have obtained any training, and only 4,000 have received job search allowances...
...In 1980, 40 percent of the job trainees were unemployed after leaving the program...
...As of now, the tax code rewards corporations and individuals for rearranging assets and speculating on their future value...
...by 1979 they were earning an average of $48,000 yearly...
...And because these production workers compete directly with workers in Taiwan, South Korea, and China, their pay is low, and declining in real terms...
...But America is sadly neglectful of its human assets...
...Another 13 weeks are available under a federally mandated scheme applying to states where unemployment has been particularly severe...
...It ultimately will depend on the quality of U.S...
...The code confuses economically sterile transactions and productive investments in new wealth...
...The eagerness of Western bankers to recycle petrodollars to Poland and other high-risk countries is evidence enough...
...By foisting their payroll expenses onto the states' unemployment insurance funds, they reduce their fixed costs...
...The problems of worker and community adjustment are exacerbated by other public policies...
...In half the states the program is available only to single-parent families...
...Regional development also could be promoted through regional-based training programs...
...The nation's stock of low-cost rental housing units is decreasing rapidly...
...The accumulated funds would be used for retraining and upgrading the work force within a certain number of years of their being set aside, or else the deduction would be lost...
...More than 10,000 area residents are now on the waiting list for public housing...
...Thus the tax code biases firms' incentives against staying put...
...Because companies cannot force their workers to remain in their jobs and pay off the investment in increased productivity, no firm spends as much on human capital as it should (and would, if it could only reap the full benefits...
...private employee funds, $450 billion...
...True, the economy performed extraordinarily well during the last decade in terms of creating 21 million new jobs for the surge of young people and married women who entered the labor force...
...Major business investments ripple throughout a region, fostering skills, spinning off new innovations (consider "Silicon Valley" around Stanford University and Route 128 around Harvard and MIT), and spawning networks of suppliers that are dependent on the region's major industries...
...The government now gives $445 million in tax breaks to the timber industry and $2 billion in subsidies to the dairy industry, but offers no special encouragement to the semiconductor industry...
...A firm contemplating worker training knows that some employees, once trained, will leave the company...
...Thirty percent of the new jobs (employing more than 7 million people) were in eating and drinking places (mostly as waiters, waitresses, cooks, and kitchen helpers), health services (hospital orderlies and attendants), and business services (typists, clerks, messengers, deliverymen, security guards, low-paid salesclerks, cashiers, janitors...
...And even if he could be certain of the future value of investing in his own human capital (in terms of increased earnings), he may not be able to afford a year or two of training in new skills...
...In 1980, $6 billion of $11 billion in jobtraining money was spent on public service employment...
...If a company's practice was to lay off many of its employees every time there was a downturn in the business cycle—shifting the carrying costs for its labor "stock" onto the community —its unemployment insurance premium would be substantially higher than that of an identical company that had kept its workers employed...
...It also breeds divisiveness as each group discovers it can preserve its own standard of living only by appropriating a portion of another group's declining wealth...
...Other changes could be made in programs that use business subsidies to attract investment to various regions of the country...
...Ellipses indicate where passages have been skipped within a chapter...
...A survey of laid-off workers who had exhausted their unemployment benefits revealed that only 20 percent had received counseling, only 8 percent had received job referrals, and only 7 percent job training...
...Nor would commodity futures, paintings by old masters, or real estate...
...Those who cannot afford to own their homes are often even more trapped...
...Other policies—tariffs, quotas, marketing orders, price supports, bailouts, federal loans and loan guarantees, subsidized insurance, and special tax breaks—also affect the pattern of industrial development...
...Firms in declining industries can typically take a tax loss on the plant and equipment that they leave behind, treat the cost of moving their headquarters as a deductible business expense, and take advantage of accelerated depreciation and tax credits for their investments in new plant and equipment elsewhere...
...The lesson is that unaided market forces lead workers, like firms, to underinvest in human capital...
...The fragmented administration of welfare and unemployment insurance, imposing different requirements and offering different benefits in every state, itself has discouraged mobility...
...AT&T's pension fund alone is up to $31 billion...
...But as capital markets have become national and even international, bank lenders and institutional investors have become almost oblivious to these linkages...
...trade representative, where tariffs, quotas, and bailouts for industry are formulated, worker adjustment programs have been encumbered by administrative problems of determining whether imports are to blame for job loss and of deciding where workers should relocate and for what jobs they should seek retraining...
...In the era of human capital and flexible-system production, failing to recognize this and to respond with the right mechanisms to supplement the market means stifling the sources of future economic growth...
...Defenserelated education programs spawned new skills: the GI Bill following the war enabled 7.5 million veterans to attend college or technical school...
...There is almost no job security...
...In any event, companies are now spending about the same amount on training per employee that they spent in 1969—even though the need for such training is much greater now that America's competitive position is in jeopardy...
...But these programs have been unrelated to the goal of long-term economic growth...
...Because new weapons technology is so specialized, the training that is provided has tended to be less broadly applicable to civilian occupations than before...
...People who feel insecure want to keep what they have, even at the cost of some hardship and discomfort...
...It crosses international borders with the speed of an electronic impulse...
...The public response to this problem has been a welter of local tax abatement schemes, industrial development bonds, urban development action grants, and Community Development Administration loans—all spread so widely and so thinly across the land that their net effects cancel one another out, burdening taxpayers and granting companies pure windfalls that fail to influence location decisions...
...One small step toward a more strategic and more publicly accountable approach to national economic policy, therefore, would be to establish a public board to monitor these programs, perhaps located in the White House's Office of Management and Budget...
...and as a practical matter, every community in America can offer low-interest loans financed by federally subsidized industrial development bonds...
...politics (a subject to which we will return...
...For one thing, the real value of these offerings constitutes, at most, a very small fraction of the costs of starting and operating a new enterprise, particularly when compared to factors such as 309 prevailing wage rates, the availability of workers with particular skills, access to raw materials and suppliers, and local energy costs...
...International savings are flowing around the globe to wherever they can be put to use...
...Bus systems in other major cities are experiencing periodic shutdowns because of insufficient funding...
...Only when an entire industry faces collapse—as is now the case with automobiles, steel, and rubber —do labor and management begin to recognize their common interests, and by then it is usually too late for affirmative change...
...But through combining their efforts and receiving additional public funding, training programs could reach a scale that would make them worthwhile...
...The tax code now provides incentives leading in just the opposite direction: companies that wish to desert their workers and communities in pursuit of greener pastures now can deduct their costs of moving as a business expense, write off the plant and machinery left behind, and obtain tax credits and accelerated depreciation against new plant and machinery purchased at the new location...
...Coverage is limited, providing only a fraction of the worker's previous earnings (usually one-half) for only 26 weeks...
...But a nation's store of human capital is relatively immobile internationally, apart from a few high-flying scientists and engineers...
...Workers' skills are not upgraded to fit them for flexible-system production...
...Since World War II the military has trained generations of Americans...
...Other social policies also are rendering the nation's labor force less adaptable...
...Most of these new jobs in the American 307 economy—in menial occupations sheltered from international trade or in low-paying assembly operations in direct competition with foreign workers—have no future...
...The tax code, for example, effectively subsidizes capital mobility, but not the use of unemployed labor or underused public infrastructures...
...The virtue of such a program is that it would match 313 training to specific industrial needs and, by ensuring that companies themselves finance part of the training, help target program funds to firms that are serious about employing the newly trained workers...
...They could be accomplished by merely altering the mix of tax incentives and subsidies flowing to American business, which now encourage paper entrepreneurialism and historic preservation and discourage investments in human capital...
...Our average life expectancy is lower than in 14 other industrialized countries, and our unemployment rate higher...
...To reverse this policy preference, the tax code might permit companies to claim tax benefits for retraining their older workers for new jobs...
...Trying to recoup, unions demand catch-up raises, only to find that other unions do the same, generating another round of inflation...
Vol. 30 • July 1983 • No. 3
