Who Stole the American Dream? (11 page)

By the mid-1990s, most CEOs had junked the Old Economy notion that the destinies of labor and management should be linked and that they should share roughly equally in economic and productivity gains. They had torn up the old social contract embodied in the Treaty of Detroit between GM and the United Auto Workers. They had turned their backs on the Great Compression concept of shared prosperity, on the idea of the virtuous circle of growth. Instead, New Economy CEOs were guided by the cold calculus of corporate downsizing and offshoring, a calculus that is guided by one yardstick—short-term profits.

Corporate leaders like Al Dunlap and Jack Welch were able largely to dictate the terms of work and pay to their employees because economic power had shifted so dramatically in favor of management against labor by the 1980s and 1990s. Unlike CEOs in other advanced countries, American CEOs have faced no serious countervailing power to their claim for a growing personal share of company profits.

Inside the corporate family, CEOs and corporate boards have fairly consistently denied shareholders a meaningful role in setting executive pay.
With rare exceptions, such as shareholder disapproval of the $15 million pay package of Citigroup CEO Vikram Pandit in April 2012, corporate boards have mostly ignored or rebuffed shareholders’
views on the issue of CEO pay. For all their proclamations about serving shareholders, business leaders and organizations like the Business Roundtable and the U.S. Chamber of Commerce have lobbied repeatedly against bills in Congress that have sought to give real power to shareholders by making their votes on company proxies legally binding. Even though the financial reform bill passed in 2010 contained a requirement for shareholder votes on executive pay, business lobbyists succeeded in watering down that measure so that the shareholder votes were not binding, but only advisory to corporate boards.

More broadly, the American trade union movement has been in retreat since the 1970s and has increasingly had to bow to terms set by management. Union membership has declined from 27 percent of the private sector labor force in 1979 to roughly 7 percent today. The nation’s most powerful unions in the auto, steel, electrical, and rubber industries saw hundreds of thousands of their jobs exported overseas, massively shrinking their rolls. “Right to work” states in the Sun Belt lured industrial plants to move from the pro-union North and Midwest to the anti-union South, with the promise of laws, regulations, and regional attitudes that were often hostile to union organizing.

Some corporate leaders became aggressive union busters, fighting to weaken and decertify unions, sometimes illegally harassing labor organizers.
The number of illegally fired workers ordered reinstated by the National Labor Relations Board more than tripled from 1970 to 1980. Unions were hurt, too, by determined anti-union campaigns of big employers like Wal-Mart. Republican administrations, in power twenty of the past thirty-two years, have been unfriendly to unions, and over this same period, Supreme Court decisions have
increasingly sided with business.

These trends have left not only union members, but the middle class in general without a voice with sufficient clout to negotiate for moderate, gradual adjustments to technology and globalization rather than instant slashing by Corporate America.

The voice heard and heeded most by business leaders since the 1980s has been that of Wall Street. Big-time investors and Wall Street money managers like Michael Price, who put Al Dunlap in charge of Sunbeam, emerged in the 1990s as the “
terrors” of the corporate boardroom, as
Fortune
put it. In a cover story reporting on the power of money managers,
Fortune
ran a
close-up photo of Price captioned “The Scariest S.O.B. on Wall Street.”

In Wall Street’s new pressure-cooker atmosphere, corporate leaders have been under the gun to shift their sights away from the solid, steady strategies of building long-term value to hot performance in a hurry, and some at the epicenter of the Wall Street maelstrom have worried about its long-term consequences for the middle class.

Stephen Roach of Morgan Stanley investment bank commented that in the late 1990s, the United States was experiencing an enormous—though unrecognized—shift of wealth from middle-class employees of big U.S. companies to the shareholders, mostly the affluent and the super-rich.

“If I were to describe the new rules of the ’90s, it would really probably start and finish with
the power of the financial markets … to really control the destiny, the strategy of the corporation,” Roach told me. “Shareholders get rewarded beyond their wildest dreams, but there’s a cost—through stagnant wages, through downsizing and layoffs, through widening inequalities. Capital wins but at a cost…. The 1990s is the ultimate triumph of shareholders around the world. The worker is pretty much a pawn in the process.”

That was how the New Economy worked—the middle class got squeezed.

THE WORLD OF OPPORTUNITIES
that greeted Pam Scholl coming out of high school in Chillicothe, Ohio, in 1971 was a universe apart from the tough economic world that lies in wait for average high school graduates today.

On the Monday after graduation, Pam went to work full-time for the RCA television tube plant that was opening in nearby Circleville. Pam was a well-organized, gregarious teenager, a five-foot-five bundle of energy with a quick smile. In her senior year, she had worked half-time for RCA as a co-op secretarial student. After her graduation, RCA hired Pam for human relations to help build a workforce that grew to fifteen hundred.

“
I got $1.75 an hour,” Pam recalled. “I didn’t have a car my first year. But about a year later, I bought me a Vega, a new little brown Chevrolet. It was cheap—$2,500. My car payment was $50 a month and I could fill it up for $5, and run two weeks on that. I thought I was hot. I had a new car and I had a job. I was in HR and I met all the guys.”

One guy she helped was her classmate Mike Hughes. One Sunday afternoon, Pam tipped Mike off to apply for a job the next day. “Mike came in, he took a test and got hired,” she said. “We took just about anybody who was healthy and could lift things.”

“
The early seventies were a good time around here,” remembered Roy Wunsch, for thirty-five years a chemical engineer at the local DuPont plant and, later, the Republican mayor of Circleville. “Living standards were going up. Everyone was growing or expanding—all the local plants.” High school graduates were in demand.

Circleville (pop: 12,000) calls itself “the Pumpkin Capital of the World.” It lies at the heart of the Pickaway Plains, the rich farmlands of south-central Ohio honed smooth by prehistoric glaciers. But despite its small-town façade, Circleville was a magnet for brand-name U.S. corporations because it was close to major transportation arteries.
RCA, DuPont, General Electric, Pittsburgh Plate Glass, Owens-Illinois, and Container Corporation all had factories there. Purina processed the local crops.

So towns like Circleville rode the escalator of American economic growth from the 1970s into the 2000s, and middle-class people like Pam Scholl and Mike Hughes lived the American Dream. Each bought a home, raised a family, and moved up the ladder at RCA, enjoying steady pay, good benefits, five weeks of paid vacation a year, and a company-financed retirement plan. From secretary, Pam rose to a $47,000-a-year job as stockroom supervisor.
Mike got good technical training and promotions. By 2000, he was a senior quality control inspector making $50,000 to $60,000 a year.

“I liked working there,” Pam Scholl said, speaking for both of them. “It was great. I knew everybody. It was wonderful.”

Wonderful, but it didn’t last.

The bottom fell out in 2004, even though the U.S. economy was then on the upswing. Facing lower-cost competition from China, RCA sold the plant to the French firm Thomson, which cut back production in 2003 and finally shut down the plant in July 2004. Mike Hughes sensed it coming: The plant was not bringing in as much raw material as it had during boom times.

Even so, the shutdown was a body blow. Suddenly cast adrift in his early fifties, Hughes could not find steady work. He tried changing careers. With federal displaced worker assistance, he was able to take a year’s course in industrial maintenance. But even that did not lead to a job. Hughes pumped out scores of job inquiries but kept being told that despite his long technical experience at RCA, he wasn’t qualified for entry-level manual labor.

Eventually, he took a night job as part-time custodian at a local high school for $13,000 a year. A second part-time job at a local glass company earned him another $4,000. Only his wife’s public
sector job at Head Start kept Hughes from sinking below the poverty line.

“
What made it difficult for us, we had children coming out of high school wanting to get a college education,” Mike explained. “That’s where my thirty-one years of severance pay went. All of it went to college tuition. I had to choose between my kids’ future and our future.

Talking about his predicament, Mike Hughes put on a brave front, papering over his hurt and anger. “I’ve got a home. I got a good pension. I somewhat lived the American Dream,” he said. “They just cut me off. They cut off the dream.”

At first, Pam Scholl fared better than Mike. She found a job as office and traffic manager for a small American Wood Fibers plant. The pay was good, $47,000 a year,
until
—until they downsized her out of a job in May 2009. Then life went black. By then, she was a single mom, carrying the costs of a home all by herself. For the next eighteen months, the only work Pam could find was three months as a census taker in 2010. Otherwise, she ran through her savings and had to live on unemployment benefits and rising credit card debt.

“The hardest thing is not being wanted—not feeling worthy,” she told me. “I didn’t realize how bad I felt about it, until I got the census job. Even though it didn’t pay that well, it was uplifting to have something to do. I felt like I was contributing to society. The hardest thing is everybody looking at my résumé and saying, ‘What a wonderful résumé you have—all this experience.’ But I
have no job
. I know I have completed over five hundred applications and I have had only four job interviews, all for much less money than I was making.”

Taking tests for public sector jobs, Pam Scholl ran into other people who had been laid off with her at the RCA plant in 2004. Like Pam, they were still hunting for a steady job. “The same 200 people
are there,” she noticed. “We are all taking the test for the same job. The very first test I took was for water meter reader for the city of Chillicothe. That was in June 2009. The job paid $14 an hour, and there were 250 people. The bottom line was, there was not even a job. The job was filled internally.”

A year later, still without a job, she said it was a nightmare not knowing what to do or where to turn. “Oh, it’s horrible,” Scholl told me. “I never dreamed that I would be unemployed for a year. Right now, I am about to sink.” She gave an uneasy laugh that betrayed her anxiety and too many sleepless nights. “
I barely stay afloat between charge cards and unemployment benefits. I have depleted my savings at this point, just surviving…. This terrifies me to death.”

Pam Scholl and Mike Hughes represent a new phenomenon in America: the New Poor. They have become what might be called “middle-class dropouts”—middle-class Americans sliding down-scale, people slipping backward late in life, which is the exact opposite of the American Dream. In six short years, those two fell from the middle of the American middle class, the middle 20 percent of all income brackets, into the bottom 20 percent or barely above it, and their stories mirror wide trends in American society.