The Contemporary World, 1974 to the Present (Overview)

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During the 1970s Americans became preoccupied with questions of economic well-being. Despite the fact that the United States still possessed the world's largest gross national product, a fear of decline overtook American culture. The public had lost confidence in New Deal policies that valued stability and equitable distribution of wealth over opportunities for growth and upward mobility. Concerns over prosperity became the guiding force in American politics.

In the 1970s Presidents Gerald Ford (19741977) and Jimmy Carter (19771981) responded by initiating a policy of deregulation, which was an effort to minimize government intervention in the market economy. While the initial efforts of deregulation were applied to government's relations with businesses, the logic of deregulation extended to government intervention in the economic lives of individual citizens. Presidents Ronald Reagan (19811989), George Bush (19891993), and Bill Clinton (1993) all sought to diminish the influence of the federal government over the economy. The result has been a public policy designed to permit every business and every citizen to succeed or fail without government intervention.

A reassessment of the definition of monopoly has been key to this process of deregulation. Presidential administrations began to tolerate consolidations in industry. Congress abandoned the assumption that monopolies are only safe when they are regulated as a public utility. The federal courts became reluctant to interfere with market forces. The result has been a revolution in economic competition.

The elements involved in reconstructing the relationship between government and business came together in the antitrust prosecution of American Telephone and Telegraph (AT&T). Until the initiation of this case in 1974 the government had supported AT&T's monopoly over both local and long distance telephone service and encouraged its dominance over research and development of telephone technology. In exchange for high profits on long distance service, AT&T guaranteed affordable local service to every household and state of the art technology. In 1984 the federal courts reversed this arrangement and separated AT&T long distance from its local service providers (the "baby bells"). Since the AT&T decision other public service monopolies, most notably in the electrical generating industry, have been forced into open competition.

While breaking down public utility monopolies, the government became more tolerant of corporate consolidation. As a result corporate mergers in industries as varied as banking and oil refining have constructed business enterprises of a power and efficiency not seen in America since the nineteenth century. A small, regional bank in North Carolina (National Bank of North Carolina) was unchallenged in its transformation into the fifth largest bank in the United States (First Union). The unification of Mobil and Exxon resulted in a coordination of production that rivaled Standard Oil Corporation before Taft's (19091913) administration's antitrust prosecutions.

This acceptance of large scale corporations has been accompanied by a consistent policy of deregulation of industry. New Deal regulatory policies, which guaranteed reasonable corporate profits in exchange for an end to destructive competition, fell under attack and disappeared within a generation. The restrictions of the Glass-Steagall Act (1933), which were designed to promote banking stability and prevent the concentration of capital, were abandoned. Limits on interest rates, mergers, and establishment of new branches were eliminated. Successful American banks became better capitalized and could provide customers with a wider range of services; unsuccessful banks disappeared, with some spectacular collapses in the savings and loan industry. The airline industry, once protected by a Federal Aviation Administration's system that traded high passenger fares for strict controls on distributing profitable and unprofitable markets, was thrown open to competition with the Airline Deregulation Act of 1978. While air fares, fell new airlines emerged and the service to major airports expanded. Scheduling delays increased, airlines went bankrupt, and service to small cities diminished. This pattern of deregulation extended to agricultural production. Like the banking and airline industries, agriculture had benefited from the New Deal policy of guaranteeing profitability in exchange for limits on competition. The federal price support mechanisms of the Department of Agriculture limited the production of key commodities and prevented food processing industries from also owning farms. The Freedom to Farm Act of 1996 eliminated those restrictions in an effort to lower federal subsidies and promote greater efficiency on American farms.

Although the general pattern of government-business relations has been to dismantle regulation of business activity, a notable exception has emerged in the area of environmentalism. Since the establishment of the Environmental Protection Agency in 1970, the government has expanded its authority over standards of air and water pollution, introduced the concept of environmental clean up as a precondition of further industrial development, and curbed development in fragile ecological zones. The American public has accepted the idea that the general need for environmental safety outweighs corporate profit interests.

Deregulation and the reassessment of monopolies were designed to improve efficiency. As industries were forced into higher levels of competition, they had to become more productive. Improvements in productivity could be achieved by either introduction of new technology or a more effective use of labor. However, as corporations were adjusting to this new climate of regulation, they were suddenly hit by the disruptive impact of the embargo by the Organization of Petroleum Exporting Countries (OPEC). During the 1970s OPEC raised the price of crude oil, more than doubling the average price of energy in the United States. Corporations were forced to spend more money on energy, leaving less for the purchase of new technology or wage packages that would raise worker morale. The economic pressures felt by businessmen were also experienced by workers. The increasing cost of gasoline and home heating fuel raised the cost of living at a time when wages stagnated. The net result was frustration for managers, workers, and consumers.

Not only did the OPEC price shocks damage the patterns of corporate investment, they illuminated important weaknesses in the American economy. Businessmen in Germany and Japan adopted computer and robotics technology in the 1960s and early 1970s. By the mid 1970s American factory managers realized they needed to catch up, but were reluctant to modernize when rising energy costs had depleted their profit margins. German and Japanese firms were poised to challenge American corporations in their own domestic markets.

By the end of the 1970s the American economy was mired in stagflation (simultaneous high unemployment and high inflation). Despite efforts to improve productivity through deregulation, American manufacturing continued to be eclipsed by competition from Japan and Germany. Public morale continued to falter as consumer costs remained high, wage rates stagnated, and longterm unemployment became common place. Once the epicenter of the American economy, the urban strip that began in Chicago and followed through Detroit, Cleveland, Pittsburgh, and to Philadelphia became known as "the rust belt."

Reaganomics emerged as the political solution to this problem. The process of deregulation begun under Presidents Ford and Carter was supplemented by the adoption of an aggressive antiinflation policy and a decision to push money into the private sector through severe cuts in federal taxes. The Reagan and Bush administrations argued that deregulation, combined with lower taxes, would improve productivity. Clearly businesses would benefit from such a policy, but advocates of Reaganomics also argued that the benefits of improved productivity would "trickle down" to workers and consumers.

The Reagan and Bush policies coincided with important technological breakthroughs. Just as businesses were encouraged to restructure and invest in new processes, major innovations were made, including the development of desktop computing and high speed digital transmission.

The adoption of new technology made American corporations more effective competitors in the world economy. Without federal curbs on the formation of monopolies, corporations could absorb rivals and divest unprofitable subsidiaries. These more powerful corporations sought to enlarge their operations in foreign markets. To support these corporate efforts, the United States government negotiated to eliminate tariff barriers. The most successful of these negotiations resulted in the North American Free Trade Agreement (NAFTA), which was designed to stimulate commerce among the United States, Canada, and Mexico.

The experience of American corporations had important ramifications for the American labor force. During the 1970s American business increased its use of parttime and temporary workers. This trend was particularly profitable for employers; wage costs could be lowered, and, in addition, benefits such as health insurance and pension plans could be dropped. The increasing reliance on parttime and temporary workers continued into the Reagan-Bush years. This pattern held important implications for worker-management relations.

The traditional power of labor unions rested in manufacturing. However, poor productivity in the 1970s triggered layoffs and forced unions to focus on the equitable distribution of remaining jobs in unionized plants. Workers with little seniority were pushed out of union jobs, often into service sector work or self-employment. The adoption of new technologies during the Reagan-Bush era reduced the number of employees needed in manufacturing and continued this process of moving workers away from unionized shop floors.

The movement of workers out of a collective bargaining process weakened organized labor. The leadership of the large national organizations such as the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) called for prudence and cooperation with management for the protection of jobs. But increasing numbers of workers participated in spontaneous strikes to protest the adoption of new technologies or proposals to utilize part-time or contract workers. Because they did not have the full support of the national union leadership, these job actions had limited success. This weakness of labor authority in the workplace was magnified by changes in federal policy toward labor. The National Labor Relations Board, the federal agency that supervises management-worker relations, became more sympathetic to business concerns. During the Reagan presidency this skepticism toward labor interests solidified, as demonstrated by the federal intervention against striking air traffic controllers in 1981.

Without strong labor unions to defend worker interests, market forces became the predominant factor in setting wage rates and working conditions. Skills that were useful to the reorganization of American business earned high wages and generous benefits packages. Computer literacy was one of the most sought after qualities of workers. Those who clung to older standards of training risked being left behind as the economy was transformed.

An important divide emerged in the American standard of living. The distribution of American wealth concentrated in the hands of fewer people. According to the U.S. Bureau of the Census, in 1993 the richest 20 percent of the American population controlled 46.2 percent of the wealth (as compared to controlling 40.4 percent in 1967). This gain of wealth among rich families occurred at the expense of the bottom 60 percent of the American population. Higher salaries and the added benefits of annual bonuses and stock options raised incomes for those Americans in the upper 20 percent of the population. These higher rates of earning were augmented by substantial tax cuts in the 1980s and 1990s, which permitted the wealthy to retain a larger share of their income.

Families that were not wealthy began to compensate for their diminishing earning power by working more. These families became increasingly reliant on pay checks from both the husband and wife. An income study done by the U.S. Bureau of the Census demonstrated that families with two members in the paid labor force experienced a .76 percent improvement in their annual incomes between 1970 and 1993. On the other hand, families with only one income experienced a decline in their standard of living. Families in areas where jobs were more plentiful benefited most from this pattern. Geographical patterns of poverty were magnified because the distribution of jobs was not even. During the 1970s and 1980s most new jobs were created on the East and West Coasts. In addition, jobs were more likely to be created in suburban areas. Those living in the suburbs of Washington, D.C., or San Diego found a different set of opportunities than those living in Detroit or rural Wyoming.

The desire to lower taxes and free money for investment spurred a search for government spending cuts in the 1980s and 1990s. Welfare reform became a primary objective. Politicians first limited the dollar amounts granted to poor citizens, and then the length of time for eligibility. As federal support for welfare, public health programs, and housing assistance diminished, the poor witnessed a diminishing quality of life.

The push for efficiency and productivity has carried mixed consequences. National chain stores like Walmart have provided lower prices to consumers, but have driven out locally based businesses. The introduction of computers and robotics in manufacturing has saved companies from bankruptcy, but has reduced the number of bluecollar jobs. Extraordinary wealth coexists with grotesque poverty. The gross national product of the United States is still the envy of the world, but the landscape of the American economy has completely changed.

See also: Airline Deregulation, AT&T, North American Free Trade Agreement (NAFTA), OPEC Embargo, Savings and Loan Failures


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it's the economy, stupid.

james carville, clinton presidential campaign manager, 1992

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