Back in 1991, in what now seems like a far more innocent time, Robert Reich published an influential book titled The Work of Nations, which among other things helped land him a cabinet post in the Clinton administration. It was a good book for its time—but time has moved on. And the gap between that relatively sunny take and Reich’s latest, Saving Capitalism, is itself an indicator of the unpleasant ways America has changed.
The Work of Nations was in some ways a groundbreaking work, because it focused squarely on the issue of rising inequality—an issue some economists, myself included, were already taking seriously, but that was not yet central to political discourse. Reich’s book saw inequality largely as a technical problem, with a technocratic, win-win solution. That was then. These days, Reich offers a much darker vision, and what is in effect a call for class war—or if you like, for an uprising of workers against the quiet class war that America’s oligarchy has been waging for decades.
To understand the difference between The Work of Nations and Saving Capitalism, you need to know about two things. One, which is familiar to most of us, is the increasingly ugly turn taken by American politics, which I’ll be discussing later. The other is more of an insider debate, but one with huge implications for policy and politics alike: the rise and fall of the theory of skill-biased technological change, which was once so widely accepted among economists that it was frequently referred to simply as SBTC.
The starting point for SBTC was the observation that, around 1980, wages of college graduates began rising much more rapidly than wages of Americans with only a high school degree or less. Why?
One possibility was the growth of international trade, with rising imports of labor-intensive manufactured goods from low-wage countries. Such imports could, in principle, cause not just rising inequality but an actual decline in the wages of less-educated workers; the standard theory of international trade that supports such a principle is actually a lot less benign in its implications than many noneconomists imagine. But the numbers didn’t seem to work. Around 1990, trade with developing countries was still too small to explain the big movements in relative wages of college and high school graduates that had already happened. Furthermore, trade should have produced a shift in employment toward more skill-intensive industries; it couldn’t explain what we actually saw, which was a rise in the level of skills within industries, extending across pretty much the entire economy.
Many economists therefore turned to a different explanation: it was all about technology, and in particular the information technology revolution. Modern technology, or so it was claimed, reduced the need for routine manual labor while increasing the demand for conceptual work. And while the average education level was rising, it wasn’t rising fast enough to keep…
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