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How Is The Economy Actually Helping You?

The American Dream is a powerful idea—but we're letting it become more myth than truth.

How Is The Economy Actually Helping You?

Illustrations: oronin via Shutterstock

By now, you may be asking how we’ve made it this long in this series without talking about the economy. After all, isn’t it our capitalist society that provides the engine for growth and success?

Well, yes and no. No doubt more opportunity is made possible in a system that allows a great idea to flourish. But in looking at whether this is the result of the individual who worked on that idea or the system that allows it to move forward, Americans come down on the side of the individual’s initiative not the systemic greasing of the track.

Only 41% of Americans believe that a "free enterprise system that encourages people to take risks without too much regulation" is essential for achieving the dream. That number drops to 27% when talking to Democrats (compared to 61% of Republicans).

RISING BOATS

It has always been assumed that economic growth is a chief driver for eliminating poverty. It was, ironically, a Democrat who posited that a "rising tide lifts all boats" when it comes to economic growth. Not withstanding that the top tax rate during his time was between 65% to 90%.

For most of modern history, this relationship has held. When the economy grew, so too did wages for those at the bottom.

However, a shift began to occur during the 1970s. According to research from the Economic Policy Institute and as reported in The New York Times, typically when GDP per capita grew poverty declined accordingly. Yet during the period from the 1970s to 2007, while GDP per capita grew 147%, hourly pay for the bottom 20% grew only 3.2%. So for nearly three decades, people living in poverty saw no appreciable increase in their hourly wages.

The tide indeed rose and those with nice boats were lifted. But for people with life rafts, it only resulted in stormier waters that were more challenging to navigate.

There is little doubt that the economy and capitalism in general create opportunities for success that are not available in other systems. Yet we shouldn’t assume that just because we have a better system that it works equally well for everyone.

When you enter the job market, the industries that rise and fall during your prime earning years, shifts in your local economy, the changes in tax policy, industry regulation, all form your own personal economic story.

Just ask a steelworker in Pittsburgh in the 1960s versus one in the 1970s. Or a software engineer who worked at Pets.com during the Internet bubble of the 1990s versus one who joined Facebook during the current surge in the digital economy.

What is your personal economic story? How has your job market been? What wave did you catch or what undertow dragged you under?

Moxie and drive are great, but it helps when you’re going with the tide not fighting against it.

THE PRIVATE SECTOR & THE PUBLIC GOOD

In 1914, Henry Ford shocked the business world by announcing that he was increasing the daily wages of his employees on the line to five dollars a day, doubling the previous amount. At the same time, he would reduce the workday to eight hours, allowing him to add a third shift in the process.

Ford famously justified this action by stating that it was in the best interest of his company if his employees could afford to buy the cars they made. And while newspapers publicized this as an incredible gesture of goodwill, there were legitimate business reasons for the move—including trying to stem labor turnover that was proving very costly to his business.

Regardless of motivation, it was hard to argue with the results. Workers made more and lived better lives. Both the Ford company and its hometown, Detroit, prospered.

Flash forward 100 years. While Ford is expecting to have one of its best years ever, Detroit, undoubtedly, is heading for one of its worst.

This is not to say that Ford is responsible for Detroit’s rise and fall, but what used to be a symbiotic relationship between a company and its hometown is no longer.

Which begs this question: In the age of increased emphasis and sophistication of corporate social responsibility programs, what is a company’s responsibility in its own backyard and how does the condition of a company’s backyard impact its business?

Increasingly we see dichotomies popping up in cities like Detroit, where in the shadow of large corporate headquarters, towns are increasingly left in the cold.

In Cincinnati, Procter & Gamble (P&G) employs thousands of people, generously supports community events, and has an active corporate social responsibility (CSR) platform that is saving millions of lives in developing countries through its extraordinary efforts to provide clean drinking water. Yet in its own backyard, 50% of Cincinnati’s children are living in poverty.

In Silicon Valley, companies like Apple and Facebook are creating not only jobs but also whole industries in which others can prosper. And there is no doubt this has spurred incredible acts of philanthropy, including Mark Zuckerberg’s famous donation of $100 million to help Mayor Cory Booker jumpstart Newark schools in New Jersey. Yet at East Palo Alto High School in Facebook's hometown, the dropout rate is 65%!

There is no shortage of reasons as to why the chasm between company and community grows. In a global economy, the idea of a "company town" seems quaint. When corporations have stakeholders across the world, it tries to maximize impact in different ways that logically take it outside of its HQ footprint.

Clearly, there are companies who are making significant investments in their own backyards, or who establish foundations that serve as their proxy for doing incredibly important work there. Individual lives are being improved, just not enough of them.

It seems as if we are ripe for the creation of a new type of corporate NIMBYism (also known as "Not In My Backyard"). Child poverty? Not in my backyard. High dropout rates? Not in my backyard. Our town going bankrupt? Not in my backyard.

Are there more opportunities for the win-wins of Ford’s act in 1914? Or are we destined to see our companies do great things for the world, but less for their neighbors?

What if more companies developed a backyard strategy that resulted in a similarly virtuous circle to what Ford created in 1914? Can P&G end childhood poverty in Cincinnati? Can Facebook and Apple drive up graduation rates in East Palo Alto? Can Ford save Detroit?

Maybe, maybe not. But these are resourceful organizations with incredibly talented people who strive to make a difference. And it sure would be exciting to watch.

HAPPINESS IN DOLLARS AND SENSE

Moving up the corporate ladder and feeling "up" in your life are two entirely different things that sometimes can feel as if they are mutually exclusive. There is no doubt, at the most basic level, that money can buy happiness. We should all be able to relate to how difficult it would be to "be happy" and secure while constantly struggling with finances or mired in poverty.

Yet studies show there is a law of diminishing returns once you get to a certain point in the income curve. Somewhere around $80,000 people stop feeling happier with the more money they make. Realizing that this is a national average in some places where the cost of living is considerably higher, the number would rise slightly to accommodate. We are still left to ask ourselves, if this is the magic number, why do we invest so much of our time chained to a desk or logging overtime when neither appreciably impact how we feel about our life?

THE PRODUCER AND THE PLUMBER

A friend of mine, who is a top earning television commercial producer, once shared this story with me. He himself is constantly struggling with balancing the increasing demands of his job with his desire to be there for his family and friends. He spends two hours everyday commuting. He often has to work long hours and travel for weeks at a time. Granted, he loves his job. He gets to work with amazing people and travel all across the globe. And he is one of the best at what he does. Loved and respected by his peers and across the industry.

Yet he often finds himself scrambling to get home to make his son’s baseball game or daughter’s play. One day after showing up late to a game, he started to think about the town’s plumber. You see, the plumber was his son’s baseball coach, a job my friend would have loved to have, if his schedule allowed. The plumber has more flexibility than he does. And while my friend undoubtedly makes more money than the plumber, the plumber still lives in a nice house in the same town and sends his kids to the same great school. People in town love the plumber. He is a great guy, runs a good business and is there when people in town need him. Not just to fix a leaky faucet but to coach their kids, help a neighbor, support the community.

You tell me: Who do you think is richer, the producer or the plumber?

INEQUALITY MATTERS…SORT OF

The gap between the rich and the poor is growing and with it comes huge implications related to influence and who makes the rules in our society.

Yet, at the same time, a disproportionate amount of our time and attention has been focused on the top end of the spectrum. We are outraged over the rich getting richer. Yet very little time has actually been given to examining the plight at the very bottom and what exactly we need to do to create more opportunities for the poor.

In talking with Sendhil Mullainathan, he puts it this way, "Let’s say a person is making $20,000 a year and another person is making $150,000. The income inequality is $130,000. If we are able to reduce the income of the top earner to $125,000, we have decreased income inequality. But what have we done for the person at the bottom?"

In essence, he’s suggesting that we’re asking the wrong question. It is not how do we decrease income inequality but how do we increase opportunity at the bottom?

WHY WE NEED TO SEE THE DREAM

The American Dream is powerful in many ways and for many reasons. As more than one person told us in focus groups conducted as part of our project, "Without the American Dream, there is no America."

But perhaps its greatest purpose is to help provide focus. Both for individuals who envision something better for themselves, and for our leaders who must see through the macroeconomics to the real people behind the numbers.

"There's a tendency to talk about the American economy and its performance in terms of GDP," said Pulitzer Prize-winning author Hedrick Smith. "When you're talking about the American Dream, what's useful, even though it's amorphous to some people, [is focusing] attention on what we're delivering to the individual."

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