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Back to Basics

Greed and spin have replaced discipine and collaboration as the engines of economic growth.

September 06, 1998|David Friedman | David Friedman, a contributing editor to Opinion, is an international consultant and fellow in the MIT Japan Program

In an era of spin, the economy alone promised a no-nonsense world in which fiscal discipline rewarded hard work and talent. True, U.S. industry stunningly remade itself after the 1990-91 recession, decentralizing and boosting product quality to an extent few thought possible. Yet, by the late '90s, as the nation's newfound prosperity pumped an estimated $8 trillion into Wall Street, stock-market hype overwhelmed these economic realities. Financial, media and political elites cloistered in Manhattan and the cappuccino playgrounds of San Francisco, Seattle and Denver recreated, and shamelessly celebrated, the worst of the 1980s' "decade of greed."

Avarice and spin derailed the new economy. Growth largely bypassed major U.S. cities and unparalleled and widespread economic and class inequalities emerged, undermining the collaborative business model that powered prosperity in the early 1990s. Only by returning to the roots of the recovery can the economy correct its excesses.

In the spin economy, Wall Street's narrow-cast opulence was hailed as the harbinger of a high-tech, postindustrial urban revival. Some financial columnists even opined that America's transformation into an economy of hairdressers, lawyers and plumbers explained its new prosperity, compared with misguided nations that thought building things like cars or laptops actually mattered. Amid skyrocketing global poverty, front-page articles described how the country's merely well-off coveted the Gatsby-like lifestyles of the '90s nouveaux riches. "We're facing 25 years of prosperity, freedom and a better environment for the whole world," gushed Wired magazine late last year. "You got a problem with that?"

Truth be told, pivotal and well-established U.S. cities like Cleveland, Detroit, Los Angeles, New York, Chicago and Philadelphia were increasingly superseded by once-peripheral ones like Las Vegas, Phoenix, Atlanta, Knoxville, Orlando and Provo. Employment in the nation's most rapidly expanding economies grew 2.7 times faster than traditional metropolitan areas in the 1980s, but 10 times faster during the 1990s. Fast-growth regions added close to 11 million new jobs since 1980, four times more than in traditional U.S. cities.

These trends were partly obscured by high-profile, inner-city gentrification. Billions were spent refurbishing ballparks, building aquariums or restaurants. Day-tripping suburbanites flocked to places like Baltimore's cleaned-up waterfront and much-lauded Camden Yards, but the city's total employment dropped a staggering 11% since 1990. America's once-dynamic urban economies sprouted yuppies, not jobs.

Instead, growth occurred in upper-class "lifestyle" communities like San Mateo, Denver, Seattle and Portland, and in lower- and middle-class population centers in the conservative South and Southwest, including Phoenix, Atlanta and Las Vegas. Except for smaller boutiques like Austin, Texas, Raleigh-Durham, N.C., or the Silicon Valley, few were high-tech centers.

Despite the wildly hyped "Silicon Alley," for example, less than 3% of New York's jobs were high-tech, about the same as in Las Vegas and Des Moines, and half the ratio of neighboring Newark. Much smaller regions like Dallas or Orange County created far more than New York's 100,000 high-tech jobs. Combined high-tech employment in media-favored San Francisco and Seattle was less than in Fitchburg or Lowell, Mass., and half that of Chicago, Los Angeles and Boston.

While the 1990s economy generated plenty of jobs, it also produced unprecedented regional and class inequality. Most of the yuppie-migration magnets in the Bay Area, Northwest and even rural New Jersey spawned no-growth movements that rapidly boosted property values and kept out the less well-to-do. Sharp divides emerged between the relocated rich, with Wall Street and foreign financial ties, and longtime residents.

Spurred by investor expectations and lured by publicly funded relocation subsidies worth billions of dollars, cost-conscious, downsizing corporate America shifted millions of back-office, supplier and mid-tier production jobs to the country's less highbrow boomtowns. A cadre of well-compensated managers and professionals grew up among the much larger working and middle-class households.

By the mid-'90s, the gap between the economically most privileged 20% and the poorest 20% was as wide in Indiana, Kentucky, Kansas, Tennessee and Georgia as in New York or California. Arizona, which experienced explosive growth, also fostered the nation's most dramatic inequality. Since 1985, incomes for the poorest fifth of the state's families fell by an astounding 37%, and by 20% for the middle fifth, while upper-fifth family incomes rose by 3%. Some 625 U.S. counties now rank among the top fifth in both wealth and poverty; just 55, nearly all small, are home to neither the super-rich nor the destitute.

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