The Job Hunt

The two-tier economy seems more of a reality in the America of today than it has in almost a century.
June 2004
William Fulton
By William Fulton  |  Columnist
Director of the Kinder Institute for Urban Research at Rice University and former mayor of Ventura, Calif.

One of my mentors, the late Cornell planning professor K.C. Parsons, used to have a succinct two-word description for the business of economic development. He called it "buying jobs."

In depressed Upstate New York, where he taught and where I grew up, he wasn't wrong. As long ago as the 1950s, when a factory threatened to leave, the towns began to pony up subsidies: free land, free buildings, tax rebates. If the subsidy got deep enough, the company stayed. If we were outbid by the aggressive, no-union Carolinas, the company left.

In time, the game stopped working. Not only were New York and Massachusetts outbid by Carolina, but Carolina was outbid by Texas, and then Texas was outbid by Mexico and Latin America. No amount of subsidy in the world could compete with low wages. This was good in a certain way. It forced the Northern cities to face the reality of economic transformation, and it began building a middle class in low- wage locations such as Mexico.

But now America's Northern and Southern cities are in the same boat when it comes to manufacturing jobs, and the fledgling Mexican middle class is being undercut by China, Eastern Europe and other parts of Asia. One of the reasons Wal-Mart, the world's largest company, has come to be vilified is because its business model is based on the worldwide "race to the bottom." Goods are made by the lowest-paid workers in the world and then sold by the lowest-paid workers in the United States. Americans love a bargain, but we also love to hate the business owners who make the bargains possible. The two-tier economy seems more of a reality in the America of today than it has in almost a century.

These days, other middle-class service jobs are also getting shipped overseas--even ones that used to be required for local businesses. The biggest medical group in my town now ships dictation to India every night when the doctors go home--and has transcriptions back the next morning by the time the doctors arrive at the office. Indians are well educated, they speak English and the 12-hour time difference is perfect.

In many cases, the tax system works against the creation of middle- class jobs. In the beachfront area of California where I now live, the game is to buy tax revenue, not jobs, and that only fuels the two- tiered economy. It's bad enough that the median home price is more than $500,000, and the average retail wage is $25,000 a year. On top of that, California's Proposition 13-driven tax system has created low property taxes and placed cities in competition for sales taxes. There is a clear cause and effect here. Local officials have every motivation to stimulate creation of more high-end houses and more retail stores with low-end jobs, and that very simply is because those are the two things that bring in tax revenue.

Maybe the United States will become one big Holland, living off of its investments around the world or--at least in a place such as coastal California--one big Monaco where the rich play and somehow find a place to house the people they need to provide them with service. For individual communities and the economic development practitioners who serve them, however, this creates a tough dilemma with moral dimensions. Maybe economic development is still a business of buying jobs, but which jobs? At what price? Can good jobs be retained when the world is engaged in a race to the bottom? And are the bad ones you can get worth the cost? In other words, is it okay to buy into the two-tiered economy and get as much of it as you can? Or should you try to bend that trend to benefit your town?

There's an assumption embedded in economic development--indeed, in the whole business of American community-building--that we citizens can control our destiny. It's part of the whole can-do approach in the United States: If we have a vision, and we can muster the resources, we can do anything. We may need the help of our state or federal government, or we might need to create business or civic alliances, but nevertheless there is a sense that if we put our minds and bodies to the task, we can achieve just about anything. Somewhere in the world there is money, there are natural resources, and there are markets. If we can find all those things and put them together in the right way, our communities can succeed.

Even in the context of the global race to the bottom, this is still true. We can understand markets, we can understand money, we put things together to get the best possible result. But it's disconcerting to think that the best possible result might not be as good as it used to be. For those who can afford a million-dollar house, or who can somehow have a satisfying life on $12 an hour, maybe things will be okay. But for the rest of us, the standard economic development formula may not work anymore.