Why is the Bush recovery different from all other recoveries? A slump is a slump is a slump, but it's during recoveries that the distinctive features of a changing economy become apparent. And our current recovery differs so radically from every other bounce-back since World War II that you have to wonder whether we're really talking about the same country.
After inching along imperceptibly for quarter after quarter, the economy is, by some measures, roaring back. The annual growth rate last quarter topped 8 percent, while productivity increased by more than 9 percent. To be sure, employment is still down by 2.4 million jobs since Bush took office, but it's finally begun to rise a bit.
And there are some indices that make even the productivity increases pale by comparison. Corporations have been having a bang-up recovery all along, it turns out; they are about to experience their seventh straight quarter of profit growth. The operating earnings of the 500 companies on the Standard and Poor's index, researchers at Thomas First Call in Boston estimate, will rise by 21.9 percent over last year. Who could ask for anything more?
Well, the American people, for one. Since July the average hourly wage increase for the 85 million Americans who work in non-supervisory jobs in offices and factories is a flat 3 cents. Wages are up just 2.1 percent since November 2002 -- the slowest wage growth we've experienced in 40 years. Economists at the Economic Policy Institute have been comparing recoveries of late, looking into the growth in corporate-sector income in each of the nine recoveries the United States has gone through since the end of World War II. In the preceding eight, the share of the corporate income growth going to profits averaged 26 percent, and never exceeded 32 percent. In the current recovery, however, profits come to 46 percent of the corporations' additional income.
Conversely, labor compensation averaged 61 percent of the total income growth in the preceding recoveries, and was never lower than 55 percent. In the Bush recovery, it's just 29 percent of the new income coming in to the corporations.
Someone with an antiquarian vocabulary might rightly note that this is a recovery for capital, not labor; indeed, that it's a recovery for capital at the expense of labor. But we are none of us antiquarians, so let's just proceed.
There are only a couple of ways to explain how the capacity of U.S. workers to claim their accustomed share of the nation's income has so stunningly collapsed. Outsourcing is certainly a big part of the picture. As Stephen S. Roach, chief economist for Morgan Stanley, has noted, private-sector hiring in the current recovery is roughly 7 million jobs shy of what would have been the norm in previous recoveries, and U.S. corporations, high-tech as well as low-tech, are busily hiring employees from lower-wage nations instead of from our own.
The jobless rate among U.S. software engineers, for instance, has doubled over the past three years. In Bangalore, India, where American companies are on a huge hiring spree for the kind of talent they used to scoop up in Silicon Valley, the starting annual salary for top electrical engineering graduates, says Business Week, is $10,000 -- compared with $80,000 here in the States. Tell that to a software writer in Palo Alto and she's not likely to hit up her boss for a raise.
That software writer certainly doesn't belong to a union, either.
Indeed, the current recovery is not only the first to take place in an economy in which global wage rates are a factor, but the first since before the New Deal to take place in an economy in which the rate of private-sector unionization is in single digits -- just 8.5 percent of the workforce.
In short, what we have here resembles a pre-New Deal recovery more than it does any period of prosperity between the presidencies of the second Roosevelt and the second Bush. The great balancing act of the New Deal -- the fostering of vibrant unions, the legislation of minimum wages and such, in a conscious effort to spread prosperity and boost consumption -- has come undone. (The federal minimum wage has not been raised since 1997.) And the problem with pre-new deal recoveries is that they never created lasting prosperity.
The current administration is not responsible for the broad contours of this miserably misshapen recovery, but its every action merely increases the imbalance of power between America's employers and employees. But the Democrats' prescriptions for more broadly shared prosperity need some tweaking, too. With the globalization of high-end professions, no Democrat can assert quite so confidently the line that Bill Clinton used so often: What you earn is a result of what you learn. This year's crop of presidential candidates is taking more seriously the importance of labor standards in trade accords, and the right of workers to organize. But they've got a way to go to make the issue of stagnating incomes into the kind of battle cry it should be in the campaign against Bush. If they're not up to it, I say we outsource 'em all and bring in some pols from Bangalore.
Harold Meyerson is the Prospect's editor-at-large. This column originally appeared in Wednesday's Washington Post.
