OUR CRISIS DEMANDS ACTION NOW

I’m getting ahead of myself. Before Ken and I could grope toward solutions, we needed to see our current crisis as clearly as possible and to break it down into its root causes. This was to be a path of discovery. As we drove home from our breakfast, I thought of Will and Ariel Durant. I’m old school, so rather than searching the web, I went to a shelf for their book The Lessons of History. It was published almost half a century ago but has only grown more powerful over the decades. Their popular histories of Western civilization were founded on their awareness that cultures go through repetitive cycles over the course of many centuries.

We’ve been here before, to put it simply. When an inequality crisis gets too severe, it solves itself in one of two ways: society redistributes wealth through taxation, or poverty gets redistributed through revolution. But higher and higher taxes lead to stagnation and decline. Increased taxation vents the pressure of unrest and decreases inequality in a cosmetic way only for a while. It’s unsustainable. Yet higher taxes are exactly what the French economist Thomas Piketty advocates in his book Capital in the Twenty-First Century.

The second solution leads to unpredictable and often oppressive regimes. Examples abound: the French revolution, the Bolsheviks in Russia (I lived through the consequences of Soviet oppression as a child in a forced-labor camp in Romania), China, Cuba, Venezuela, the Arab Spring, and many more.

Signs of unrest are everywhere now: the Occupy movement, the Tea Party, the angry and restless following behind Donald Trump and Bernie Sanders. These movements thrive on a sense of grievance against the injustice of our economic system. And despite the progress we’ve made since the civil rights era, our inner cities are in turmoil for much the same reason: a dearth of opportunity and the anger that erupts as a result. Ferguson, Cleveland, Charleston, Baltimore. Racial tension was only the most visible driver of these confrontations. Eliminate the economic deprivation of our cities, and those tensions would decline dramatically. Life without hope can lead to violent change.

Finally, the presidential primary campaign of 2016 played out the socioeconomic plight of the majority of Americans. In Donald and Bernie, the discontented found effective messengers. The consequences of that campaign will be long lasting. One hopes real solutions will emerge. One hopes potential violence will be avoided. Business and government must play their roles in the solutions, both independently and together.

But we aren’t there yet. If capitalism can lift millions out of poverty around the world, as it is doing in China, India, and a host of other developing nations, it can revitalize itself here. It built the most affluent and creative middle class in history in America, a population that became the healthiest consumer market in the world. But how can we turn back the clock—or at least reset it?

We’ve been searching for the answer to that question. Ken and I set out to do what I’d done for decades at Young & Rubicam: draw a crisp picture of what was actually happening in the typical American household, simply to understand what we were up against. I wanted to use what we discovered to make a case for action from the private sector to find a way toward sustainable profitability by addressing growing inequality. This time, I wanted to get a fix on the average home budget and how insufficient funds might be taking a toll on it.

In much of mainstream media, talk about income inequality and the shrinking middle class has become second nature. I’ve been hearing it everywhere. But something has been missing in all the sound bites about America’s inequalities. My sense is that decreasing opportunity is the ultimate threat to our free-enterprise system, though this hasn’t been the case for much of America’s history. Income inequality drives inequality of opportunity. The two are totally related. Importantly, they both share the same root causes. It started with how quickly and aggressively American businesses adapted to globalization by succumbing to pressure to move jobs offshore. Next, the business community passionately embraced technology, which eliminated even more domestic jobs. And finally, corporations moved to keep wages, except those for management, almost flat for close to forty years. All these choices have been made without a care for how they affect our society—diminishing the buying power of the American public and eventually decimating America’s middle class.

Philosophically, it’s not hard to ignore inequality. It’s the rule in all aspects of life. We aren’t born equal in any respect other than our rights as human beings and citizens. Diversity means differences, and our unique qualities as individuals derive from a variety of factors. Outcomes depend on desire and effort, a decent education, and a multitude of personal characteristics, none of which are equal. Yet certain kinds of inequality now act as a cage.

In the past, desire to move upward spurred aspiration, not frustrated envy. Lifestyles of the rich and famous were once a matter of vicarious wish fulfillment for most, not hot spots of resentment. Aspirations remained alive back then because a wealthy minority had not yet destroyed prospects for those trying to move up the ladder of opportunity. Concentrations of wealth enlivened the economy for everyone.

Now most people have become stuck. This chronic stasis was something I didn’t fully understand. Ken and I needed to find hard numbers that explained the sense we both had that America was creeping toward a cliff—and maybe discover some ways to change course.

I wondered whether gross income figures alone really captured what was happening. What was happening with the average home’s budget interested me more. I needed detailed data on how much actual economic freedom American people enjoyed, regardless of how much they were making. What sort of discretionary money did they have left at the end of a week, a month, a year? What were they able to accomplish with that extra cash? What picture of the future did those numbers paint? What quality of life could people now hope to achieve through years of work? Did hard work make for a better life?

I alerted Dave Dorsey, my longtime collaborator, who worked with me on my previous books, and he began studying the issue on his own as I searched for an economist to dig up and make sense of hard data. After a few false leads, I got a tip about a former staffer at the White House, an economist named Andrew Terrell. He’d been writing reports on economic issues and was breaking away from that role to start his own consulting firm. My timing was perfect. Andrew said he would gather as much information as he could immediately, and Dave, Andrew, and I set a date to get together a few weeks later at my family’s summer cottage in Chautauqua, New York, during the August lecture season there. We would have a few meals, listen to a concert or a couple of lectures, go over Andrew’s findings, and determine whether the three of us could bring into focus all the vague conversations about widening inequality.

As an outcome, I hoped we would recognize some actions that might help. All of this may sound like an unlikely mission for someone in my position. But in a way, this is what America is about: mere citizens stepping forward to speak out with new (or old) ideas in a way that helps. It was a big task, but I couldn’t think of a better way to use the talents I’d developed in my career.

Chautauqua struck me as the perfect place to confront the facts about this country’s economic plight. It was what this place was about: starting vital conversations about the most important matters among people from various social backgrounds. In a way, Chautauqua was a microcosm of what I would discover through my research about America as a whole. Once, Chautauqua attracted people from all economic backgrounds as well, but as costs and property values have risen, it’s become more and more a place for the better-educated and successful elements in our society—which isn’t a bad thing. The more fortunate need to grapple with the most pressing issues of the day, as they do here, but it saddens me to see these summer sessions priced beyond the reach of teachers and ministers, for example, who used to be this community’s core constituency. But as I was to discover here, this is precisely what’s happening to the entire country: more and more vital experiences and opportunities are no longer within reach for the majority of the population. Until I sat down and looked at the numbers, though, I didn’t realize how dramatically most Americans have seen their opportunities wither away.

Andrew, Dave, and I knew that the rich were getting richer, and the rest of the country was getting, well, more and more restless about it. When this subject came up, it was polarizing, and I wasn’t convinced that it needed to be. There’s a strident edge that creeps into the voice of someone who objects to how much money folks in the highest percentiles make. I wondered whether we could do an end run around the scolding tone and look at it from a practical perspective.

At this point, you might be thinking, “Tell me something I don’t know. I’m familiar with the current economic stasis. I’ve heard about it, and I saw the anger over it among the followers of Bernie and Donald. What’s new here?”

Well, the reality is that many of the men and women who run our most successful companies don’t really believe in this crisis. They see it as a temporary lull; they believe the market will correct itself. In a way, it was puzzling that Ken and I and others had woken up to the fact that the American system itself was stalled, because the majority of the people in positions of business leadership don’t see it that way. They didn’t need to confront it personally. Everything in our particular set was humming along nicely. Indicators were up: stocks, for the most part; jobs (slightly); and GDP didn’t look especially bad. In other words, our world seemed less troubled by economic stress than did other nations, and we enjoyed this prosperity. We were among the capable, lucky few who had played and won at the American free-enterprise, capitalist game. We had a right not to be ashamed of our success. Our system has always produced a privileged minority of incredibly rich people. And those who accumulated great wealth often recognized their great responsibility to the welfare of others: they started foundations, they created social movements, they advocated for change.

That’s part of the dream: on any given day of the week, many can strike it rich in America and go on to do good things with that money. Traditionally, in business that meant reinvesting in value creation, jobs, and new enterprises to increase income for everyone—and ultimately create a return for investors. That’s more or less the ideal, as it used to work in America. Wealth rises to the top and then, chasing more profits, gets sunk into new ventures, creating jobs and raising wages. It’s a win for everyone.

Now, however, as more and more people get very rich, which used to be a sign of economic vitality, the money is no longer coming full circle. Instead, it’s floating to the top without circulating back into the system. Bright white clouds of wealth amass high overhead, and still we’re waiting for rain. How is this concentration of essentially stagnant wealth impacting the bulk of the American population? What might help soften the parched economic soil of most American’s lives?