The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity

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9780743237536: The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity

After two consecutive elections in which Democratic candidates failed to turn clear economic advantages into electoral victory, a debate is raging over what the Democrats should donow. The narrow, red state-blue state argument between chest-beating populists and soulless centrists offers the answer to neither the country's economic future nor the political future of the Democrats. In The Pro-Growth Progressive, President Clinton's longest-serving national economic advisor, Gene Sperling, argues that the best economic strategy for our nation -- and the best strategy for progressives whether they be Democrat, Republican, or Independent -- is to pursue policies that are both progressive and pro-growth, that promote progressive values of upward mobility, fair starts, and economic dignity as well as embrace markets and innovation.
Sperling describes how both parties offer the American public impoverished choices: Democrats in the-sky-is-falling party too often pretend that the way to promote progressive values and expand the American middle class is to slow the pace of the global economy, stop all outsourcing, and intervene in the market. Republicans of the don't-worry-be-happy party hold fast to the bankrupt vision that the best thing for economic growth is the smallest government possible, and have made the conservative deficit hawks of the 1990s an endangered species. But The Pro-Growth Progressive is neither an all-out assault on the Bush agenda nor a partisan call for Democrats to move further left. Both conservatives and progressives have to accept hard truths about the limitations of their approaches. Drawing on his years of policy experience, Sperling lays out a third way on the issues that are dominating the news and Bush's second term: social security, ownership, globalization, and deficit reduction. He explains the policy alternatives that respect the power of free markets while giving government a role in ensuring that the markets benefit all working families. Focused and timely, The Pro-Growth Progressive offers a realistic vision of free enterprise and economic growth in which government can improve education, reduce poverty, and restore the country to fiscal sanity.

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About the Author:

Gene Sperling is a Senior Fellow at the Center for American Progress. He was President Clinton's National Economic Advisor and Director of the National Economic Council from 1997 to 2001 and Deputy National Economic Advisor from 1993 to 1997. Mr. Sperling recently served as a top economic advisor to the Kerry-Edwards presidential campaign. He is a columnist and commentator for Bloomberg Business News and a contributing editor for the DLC's Blueprint Magazine, serves as director of the Center for Universal Education at the Council of Foreign Relations, and has been a contributing writer and consultant to the television show The West Wing. He has appeared on Meet the Press, Face the Nation, This Week, Good Morning America, Nightline, and CNN's Late Edition, and is a frequent contributor to NPR. His articles have appeared in The Atlantic, Foreign Affairs, The New York Times, The Washington Post, Inc. magazine, Financial Times, Foreign Policy, and others.

Excerpt. Reprinted by permission. All rights reserved.:

Chapter 1

Growing Together in the Dynamism Economy

In the 1990s, a new economic era was created when a period of intense globalization collided with an information technology revolution. Yet precisely defining a "new" economy is less important than understand-ing the nature of the change. I believe a more descriptive label is the "dynamism" economy. Of course, dynamic change in market economies is hardly new. The mid-twentieth-century economist Joseph Schumpeter identified the process of "creative destruction," positing that a healthy market economy is continually moving forward, replacing old capital, old industries -- and existing jobs -- with more productive alternatives. Yet, what feels most "new" for average citizens is the breakneck speed at which the increased globalization, rapid technological advance, and the explosion of the Internet are putting fierce competitive pressures on the economy and accelerating change not only in products and services, but also in entire job categories and industries.

Markets are moving to what would have been considered an ideal of global efficiency in which producers can look anywhere for the place, people, and technology to produce a good or service as cheaply and efficiently as possible. Thanks to the Internet, consumers can instantaneously compare the price and quality of almost every good and service produced in the world and choose the one that best meets their needs.

In 2000, about half the companies that had comprised the 100 largest industrial firms in 1974 had either gone bankrupt or been taken over. Between 1970 and 1990, the rate at which companies fell out of the Fortune 500 quadrupled. It is as if the search for the best product, service, or input went from a regional athletic competition to a never-ending global economic Olympics in one generation. Yesterday's champion is less secure, and as new products and services redefine the market, profit margins drop.

Dell Computers, the last major PC maker to manufacture in the United States, typifies this Olympic-level competition. Dell's factories attract awe and intense scrutiny for streamlined production. According to the New York Times, "Designers give one another high-fives for eliminating even a single screw from a product, because doing so represents a saving of roughly four seconds per machine built -- the time they've calculated it takes an employee, on average, to use the pneumatic screwdriver dangling above his or her head." Dell rates each of its suppliers each week in a cutthroat search for better, cheaper parts. The result is that today it takes a single worker only five minutes to build a PC; a task that took two workers fourteen minutes only five years ago.

Nokia, the world's largest cell phone maker, is acclaimed for its efficient supply chain -- managing 60 billion parts a year from more than 29 countries -- but has found that in the new global marketplace, efficiency is not enough. In 2004, it saw its market share drop from 35 percent, where it had been for five years, to 29 percent when it fell behind in the fashion-driven market for flip-phones, color screens, and camera phones. Nokia responded by slashing prices and retooling its supply chain to be more responsive to operator networks. It sped development, moving more quickly from concept to commercial application, introducing 35 new models in 2004 and 40 new models in 2005. Nokia is now leading the next wave of "cool" phone technology using third-generation networks that were first introduced in the United States in 2004 -- releasing one phone that can hold up to 3,000 songs and another that can capture as much as an hour of video.

THE UPSIDES AND DOWNSIDES OF THE DYNAMISM ECONOMY

This fierce competition drives a never-ending focus on improving quality and efficiency and lowering prices for consumers. Many experts on competitiveness argue that one reason the U.S. economy outperformed Europe and Japan in the 1990s was that our open competitive economy put more pressure on businesses to modernize and innovate. Research by economist Martin Baily and the McKinsey Global Institute confirms that the intensity of competitive pressure in the U.S. economy drove a widespread adoption of technology across broad sectors of our economy, as even traditional bricks-and-mortar firms were forced to incorporate cutting-edge innovations to stay ahead. Competition kept average prices for consumer goods in the U.S. to only 21 percent above the lowest world prices, while prices exceeded global lows by 38 percent in Germany, 61 percent in the United Kingdom, and 102 percent in Japan. Productivity, which had averaged an anemic 1.5 percent over a twenty-three-year period from 1972 to 1995, has now averaged 3.1 percent from 1995 to 2004.

Yet the same competitive pressures generate wider economic anxiety. Previously, the threat that global competition would lead to downward pressure on a worker's wages, force her out of a job, or even decimate her entire industry was limited to a clearly identifiable portion of our workforce -- mainly factory workers in globally traded manufacturing industries. As globalization and technology now allow consumers and producers to scan the globe to maximize efficiency in everything from accounting to machine-tool production, the very forces that bring efficiency and lower prices raise new concerns about whether armies of new workers from China or India will eliminate jobs and force wages in the United States down for decades to come. Many fear that these trends will hollow out middle-class jobs and that the only workers who will not be vulnerable to this dramatic increase in global labor arbitrage will be either the super-educated and very hard to replace, or those in jobs that require a physical presence in the United States and are not subject to automation -- construction, cutting hair, and restaurant service.

These new concerns cloud today's economic debate. Often in politics it is easy to identify opposing interests: environmentalists versus loggers; union leaders versus corporate management; uninsured working parents versus small businesses struggling to keep health care costs low. Today's conflicts are far more nuanced and complex. Individuals can hold conflicting opinions in their many roles as consumers, workers, parents, and community members. As a consumer and parent, a low-income mom wants to make her money go as far as possible at Wal-Mart, but as a neighbor and worker she fears that Wal-Mart is driving down wages and forcing other firms to cut back health care benefits. The member of Congress may want to pursue greater economic ties with the country his parents emigrated from and yet fears that a new trade agreement could hurt workers in his district.

Clearly, consumers benefit from the low-cost products and services that global competition provides. But if that competition also reduces wages it could leave consumers with less buying power. From a worker's perspective, it may seem obvious that a dynamic economy poses a threat in the form of greater dislocation, but the same competitive pressure can also be the source of the next wave of good high-paying jobs for American workers in the industries of the future. For a concerned global citizen, the market openings and foreign investment that can shake up old, illegitimate, and corrupt power structures in developing countries can also be used -- at least temporarily -- to exacerbate income inequality and enrich an illegitimate status quo.

These tensions require deep, honest exploration that does not easily fit within any right-left, pro-globalization-anti-globalization perspective. Too many on the right side of the political spectrum approach these challenges of the dynamism economy with an unhelpful ideological presumption that less government always leads to higher economic growth. And too many on the left start with the presumption that restricting competition to protect jobs or ensure wages and benefits can be counted on to help working families in the long term. We are left with a deficit of serious discussion on policies that both respect and even embrace the power of markets while ensuring that growth does not come at the expense of our progressive values.

Consider the debate over outsourcing in 2003 and 2004. In speeches I used to say we had a two-party system on outsourcing: the "Sky Is Falling Party" and the "Don't Worry, Be Happy Party." Neither really examined the realities of the dynamism economy and the legitimate needs and anxieties of workers. The Sky Is Falling Party disproportionately blamed outsourcing for job loss while giving the impression that policy could easily restrict market behavior and companies could protect U.S. jobs. The Don't Worry, Be Happy Party trivialized the concerns of workers at risk and failed to see that the lack of government policies to spur job growth, increase competitiveness, and cushion devastating dislocation was partly responsible for the economic pain and legitimate worry of an increasing number of workers and communities.

My solution was a third-party movement on outsourcing -- the Humility Party. The platform would recognize that because outsourcing is primarily a function of unstoppable forces such as the spread of global information networks rather than trade, there was no way to completely eliminate it without hurting long-term U.S. job growth. With hundreds of millions of new middle-class consumers coming into the world economy, we should be confident that in the long run America will win more than it loses from an open global economy. Yet the Humility Party would admit that we do not know for certain that global labor competition will not present a serious problem for American workers in terms of lower wages or dislocation in the future.

The Humility Party would ask hard questions: What practical options do we have between simply assuming greater globalization will lift all boats, and resorting to self-defeating protectionism? How can we lower the cost of job creation in the United States, in light of global labor market competition? Can we u...

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