talented professionals are left with the routine drudge work. Still, the example of CEO pay shows how changes in institutions and norms can lead to rising inequality—and as we’ve already seen, international comparisons suggest that institutions, not technology, are at the heart of the changes over the past thirty years.
Since the 1970s norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics.
Consider, for example, the fate of the unions. Unions were once an important factor limiting income inequality, both because of their direct effect in raising their members’ wages and because the union pattern of wage settlements—which consistently raised the wages of less-well-paid workers more—was, in the fifties and sixties, reflected in the labor market as a whole. The decline of the unions has removed that moderating influence. But why did unions decline?
The conventional answer is that the decline of unions is a result of the changing structure of the workforce. According to this view, the American economy used to be dominated by manufacturing, which was also where the most powerful unions were—think of the UAW and the Steelworkers. Now we’re mostly a service economy, partly because of technological change, partly because we’re importing so many manufactured goods. Surely, then, deindustrialization must explain the decline of unions.
Except that it turns out that it doesn’t. Manufacturing has declined in importance, but most of the decline in union membership comes from a collapse of unionization
Why, then, isn’t Wal-Mart unionized? Why, in general, did the union movement lose ground in manufacturing while failing to gain members in the rising service industries? The answer is simple and brutal: Business interests, which seemed to have reached an accommodation with the labor movement in the 1960s, went on the offensive against unions beginning in the 1970s. And we’re not talking about gentle persuasion, we’re talking about hardball tactics, often including the illegal firing of workers who tried to organize or supported union activity. During the late seventies and early eighties at least one in every twenty workers who voted for a union was illegally fired; some estimates put the number as high as one in eight.
The collapse of the U.S. union movement that took place beginning in the 1970s has no counterpart in any other Western nation. Table 5 shows a stark comparison between the United States and Canada. In the 1960s the U.S. workforce was, if anything, slightly more unionized than Canada’s workforce. By the end of the 1990s, however, U.S. unions had been all but driven out of the private sector, while Canada’s union movement was essentially intact. The difference, of course, was politics: America’s political climate turned favorable to union busting, while Canada’s didn’t.
I described in chapter 6 the centrality of antiunionism to Barry Goldwater’s rise, and the way opposition to unions played a key role in the consolidation of movement conservatism’s business base. By the second half of the 1970s, movement conservatives had enough political clout that businesses felt empowered to take on unions.
| Table 5. Percentage of Unionized Wage and Salary Workers | ||
|---|---|---|
| United States | Canada | |
| 1960 | 30.4 | 32.3 |
| 1999 | 13.5 | 32.6 |
Source: David Card, Thomas Lemieux, and W. Craig Riddell,
And once Ronald Reagan took office the campaign against unions was aided and abetted by political support at the highest levels. In particular, Reagan’s suppression of the air traffic controllers’ union was the signal for a broad assault on unions throughout the economy. The rollback of unions, which were once a powerful constraint on inequality, was political in the broadest sense. It was an exercise in the use of power, both within the government and in our society at large.
To understand the Great Divergence, then, we need to understand how it was that movement conservatism became such a powerful factor in American political life.
8 THE POLITICS OF INEQUALITY
For six years, from 1994 to the end of the Clinton administration, a Republican Congress and a Democratic president waged a bitter power struggle. The impeachment drama of 1998 is the event most people remember. But the government shutdown of 1995, which was about matters of state rather than personal behavior, was more revealing. It was openly a fight about different visions of government and society.
The shutdown occurred primarily because Newt Gingrich, the Speaker of the House, was trying to impose a plan that would sharply cut Medicare’s funding[1] and, equally important, give healthy seniors an incentive to drop out of Medicare, undermining both the program’s universality and its financial base. In effect Gingrich wanted to subject Medicare to slow death by strangulation. Gingrich had enough votes to get his plan through Congress, but he didn’t have the votes to override a presidential veto. So he tried to force Clinton’s hand by denying the federal government the funds it needed to keep operating.
Now, a federal shutdown doesn’t literally mean that all federal offices are locked up and closed. About half the federal workforce stayed on the job, and the most essential services were maintained. But the rawness of the event was still remarkable: Republicans were willing to play chicken with the government’s ability to function in their drive to take down one of the pillars of the U.S. welfare state.
As it turned out, Gingrich had misjudged both Clinton and the voters. Clinton held firm. The public blamed Gingrich, not the Clinton administration, for the standoff, and the Republicans eventually backed down. Clinton’s impeachment three years later, which seems otherwise a bizarre event, is best understood as Gingrich’s attempt to take revenge. The 1995 shutdown demonstrated just how partisan American politics had become—and unlike the impeachment the 1995 confrontation showed what the partisanship was really about.
