HOW U.S. POLICIES ARE COSTING AMERICAN JOBS

WASHINGTON'S RULES ON TRADE, TAXES, IMMIGRATION AND FOREIGN COMPETITION -

AND THE GROWING CONCENTRATION OF CORPORATE POWER -

ARE MOVING THE NATION TOWARD A DIVIDED SOCIETY.

The Wealth of Nations?
1996 - LET'S SUPPOSE, for a moment, that there was a country where the people in charge charted a course that eliminated millions of good jobs.

Suppose they gave away several million more jobs to people from other nations.

Finally, imagine that the people running this country implemented economic policies that enabled those at the very top to grow ever richer while most others grew poorer.

You wouldn't want to live in such a place, would you?

Too bad.

You already do.

These are some of the consequences of failed U.S. government policies that have been building over the last three decades - the same policies that people in Washington today are intent on keeping or expanding.

Under these policies, 100 million Americans, mostly working families and individuals - blue-collar, white-collar and professional - are being treated as though they were expendable. What was once the world's largest, expanding middle class is now shrinking.

Most significant of all, the American dream of the last half-century - a dream rooted in a secure job, a home in the suburbs, a better life than your parents had and a still better life for your children - has been revoked for millions of people.

U.S. government policies consistently have failed to preserve that dream in the face of growing international competition, often favoring the very forces that shift jobs, money and influence abroad.

As a result, the United States is about to enter the 21st century much the same way it left the 19th century:

With a two-class society - a nation of have-mores and have-lesses.

There are, to be sure, some notable differences from a century ago. In the 1890s, most Americans were struggling to reach a middle-class lifestyle. By the 1990s, an overwhelming majority, having achieved it, were either losing it or struggling to hold on.

In the 1890s, government responded to the prodding of reform-minded citizens and began to slowly create a framework of rules to guide the economy, control the excesses of giant business trusts and their allies, and protect the interests of the average citizen.

By the 1990s, that framework was being dismantled.

One result: The income gap among Americans is widening, with the nation's richest one percent accumulating wealth not seen since the robber-baron era and with the middle class contracting.

Who is responsible?

In a word: Washington.

Or, more specifically, members of Congress and presidents of the last three decades, Democrats and Republicans alike.

Of course, other forces have pushed them - lobbyists, special-interest groups, executives of multinational corporations, bankers, economists, think-tank strategists, and the wheelers and dealers of Wall Street.

These are some of the emerging winners in this changing America.

The losers? Working Americans who have been forced to live in fear - fear of losing their jobs, fear of being unable to pay for their children's education, fear of what will happen to their aging parents, fear of losing everything they've struggled to achieve.

The winners say if you're not a part of this new America, you have no one to blame but yourself.

They say the country is undergoing a massive structural change comparable to the Industrial Revolution of the 1800s, when Americans moved off the farms and into factories.

They say you have failed to retrain yourselves for the emerging new economy. That you don't have enough education. That you're not working smarter. That you failed to grasp the fact that companies aren't in the business of providing lifetime employment. And, they say, it's all inevitable anyway.

It is inevitable that factories and offices will close, that jobs will move overseas or be taken by newly arriving immigrants, that people's living standards will fall, that workers may have to take on two or three part-time jobs instead of one full-time job.

These things are inevitable, the winners say, because they are the product of a market economy, and thus beyond the control of ordinary human beings, and, most especially, beyond the control of government.

Don't believe it.

These things are, in fact, the product of the interaction between market forces and federal policies - laws and regulations enacted or not enacted, of people finding ways to turn government to their advantage.

The policies that are driving these changes range across the breadth of government - from international trade to immigration, from antitrust enforcement to deregulation, from lobbying laws to tax laws.

Today, and over the next two weeks, The Inquirer will examine these policies and their impact on American lives.

Rothbaum, a corporate executive, lives in an exclusive gated community called St. Andrews Country Club in Boca Raton, Fla. Set amid 718 acres of lakes and landscaped grounds, St. Andrews is typical of the luxury communities that many wealthy Americans now inhabit - self-contained enclaves sealed off from everyone else.

St. Andrews has its own 24-hour security patrol, shopping complex, sports pavilion, restaurants and two championship 18-hole golf courses where residents can play after paying a $75,000 membership fee.

Rothbaum lives in a 5,000-square-foot home, with pool and spa. According to the Palm Beach County Assessor's office, the property is valued at $636,000.

Darlene Speer, on the other hand, works two jobs. She's a full-time office worker for a furniture manufacturer and a part-time clerk at a video store in Marion, Va. She lives in a one-bedroom apartment in Marion, a community of 8,500 in southwestern Virginia.

Until 1992, Speer worked in the sewing department of Harwood Industries, a clothing manufacturer that was one of Marion's largest private employers. But in August of that year, Harwood - of which Michael Rothbaum was the principal owner - announced it would close the department. After that, all apparel production was in Honduras and Costa Rica, where labor is cheaper. The company said it was under pressure from retailers to cut costs.

Not that Darlene Speer and her co-workers drove Harwood Industries to Central America with their bloated salaries. After 13 years, Speer was earning less than $9 an hour.

But women in Honduras work for a lot less - about 48 cents an hour.

Before leaving town, the company agreed to pay severance of about $1,200 to each employee. The total for 120 employees, who collectively had worked 1,500 years in the sewing department, amounted to less than one-quarter of the value of Rothbaum's home.

Take a glimpse into the new America of Michael Rothbaum and Darlene Speer.

The Top 1 Percenters
These are the families and individuals with annual incomes that begin at around $182,000 and go up into the tens of millions of dollars - the top 1 percent of all tax-filers. There are 1.1 million of them. Most are doing quite well, some spectacularly well.

They, and the 9 percent below them, are the have-mores of this society.

The average income in the top 1-percent group, according to an Internal Revenue Service study of tax-return data, ballooned from $147,700 in 1980 to $464,800 in 1992 - a jump of 215 percent.

That was three times the growth recorded by the bottom 90 percent of tax-filers, the 101.4 million families and individuals whose incomes range from minimum wage up to about $65,000.

Their average income rose just 67 percent - from $13,200 in 1980 to $22,100 in 1992. Thus, the increase in incomes of the majority of Americans lagged behind the 70 percent rise in the cost of living.

Meanwhile, the income of the top 1 percenters went up three times as fast as the inflation rate.

The Bottom 90 Percenters
In 1980, this group accounted for 68 percent of all income reported on tax returns. By 1992, its share had fallen to 61 percent. In dollars, that meant they lost one-tenth of their income.

Meanwhile, the top 1 percent saw their share of all income rise from 8 percent in 1980 to 14 percent in 1992.

Looked at another way, the 90 percent of the people at the bottom transferred 9 percent of their income to the people at the very top.

They transferred an additional 1 percent to those in the top 90 to 99 percent of taxpayers - the 10.1 million families and individuals with incomes between about $65,000 and $182,000. Their share of all income edged up from 24 percent in 1980 to 25 percent in 1992.

Concentration of Wealth
The United States today has the widest gap between rich and poor of any industrialized nation. The inequality is reversing the gains that carried millions to middle-class prosperity following World War II.

How bad is it?

Picture a town called Inequityville that is a perfect miniature version of the United States, a true microcosm of the nation's population and wealth. And suppose that all the wealth in this town amounted to $55 million and consisted of the houses of its 300 families. Here's how it would divide up:

Three families would live in mansions worth $5.6 million each, and 27 families would live in very nice $750,000 houses. The remaining 270 families would live in rowhouses averaging $67,000 each.

In the real U.S.A., the top 1 percent of households controls almost one-third (30.4 percent) of the nation's net worth - that's total wealth, not income. The next 9 percent holds another third (36.8 percent) of the nation's wealth, a Federal Reserve Board study shows.

Put the two together and the top 10 percent of households owns two-thirds (67.2 percent) of the wealth.

The remaining 90 percent accounts for 32.8 percent of the wealth.

Disparity in Income
Over 20 years on the job, how would you like to see your salary go up by, say, 950 percent?

If you had a job in the retail trade, as a sales clerk in a department store making $5,660 a year two decades ago, today you'd be earning $59,400. Or if you were in manufacturing, perhaps turning out switch gears and earning $9,921 then, you'd be making $104,200 now. And if you were in a minimum-wage job 20 years ago, making $2.10 an hour, your hourly pay today would be $22.

Where can you find such lucrative work? You can't.

But that's what those jobs would pay if they'd gone up at the same rate as the salary and bonuses paid by General Electric Co. to its top executive between 1975 and 1995.

When it comes to pay increases, executives of America's largest companies have left their workers far behind.

An Inquirer survey of 20 Fortune 500 corporations - in industries ranging from tractors to computers, from soft drinks to soap - shows that the salaries and bonuses of the highest-paid executives ballooned an average of 951 percent between 1975 and 1995, or five times the inflation rate.

By comparison, the average earnings of more than 73 million blue-collar and white-collar workers across all private industry - from shipping clerks to nurses, from truck drivers to musicians - rose 142 percent, not even keeping up with the inflation rate of 183 percent.

Their average salary in 1995 was $20,559. That's $3,529 less than their 1975 salary - $24,088 when inflation-adjusted to 1995 dollars. And because of growing tax burdens, they were even worse off than that decline suggests.

Contrast that with GE's top bosses. In 1975, Reginald H. Jones earned $500,000 in salary and bonuses. By 1995, GE's chief executive officer, John F. Welch Jr., received $5.25 million.

While the top GE executive's pay rose 950 percent, the number of GE employees plunged 41 percent, dropping from 375,000 to 222,000. Actually, that jobs reduction was even greater than it seems because in 1985 GE bought RCA, which had 119,000 employees.

When they are added in, GE eliminated 272,000 jobs over the 20 years - the equivalent of the entire RCA workforce, plus 153,000 GE workers. The layoffs helped Welch earn the less-than-reverent nickname "Neutron Jack."

Oh, a footnote: In addition to a salary and bonus of $5.25 million, Welch also had GE stock options worth $35 million at the end of 1995.

More Executive Excess
America's corporations paid their top officers $221 billion in compensation in 1992, the latest year for which complete corporate statistics are available from IRS. That exceeded the combined incomes of every working person and family earning less than $50,000 a year in Arkansas, Kansas, Missouri, Oregon, Pennsylvania and Wisconsin - more than 12 million tax-filers.

To better understand those numbers, consider this: In 1975, Alden W. Clausen, then Bank of America's top executive, earned $348,018. That was the equivalent of the pay of 53 bank employees, from janitors to tellers.

In 1995, Richard M. Rosenberg, the bank's chairman and chief executive officer, earned $4,541,666 in salary and bonuses. That was the equivalent of the salaries of 116 more bank employees than for Clausen - or a total of 169.

Or compare salaries in terms of service station attendants. In 1995, Louis V. Gerstner Jr., chairman and CEO of IBM, earned $4.8 million in salary and bonuses. That was the equivalent of 407 gas station attendants' pay.

Gerstner's salary was worth 320 more gas station attendants than his predecessor's pay was worth.

The Federal Tax Burden
At the same time that middle-class family incomes have stagnated or fallen behind, local, state and federal tax burdens have soared, leaving families with less after-tax money to spend.

Take a look at what has happened. In 1955, the personal exemption on federal income tax was $600. For a family of four, that added up to $2,400. Median family income that year was $4,418. So the personal exemption shielded 54 percent of family income from tax.

By 1995, when median family income reached an estimated $39,500, the personal exemption was $2,500, or $10,000 for a family of four. Now the personal exemption shielded only 25 percent of family income from tax.

And there is the matter of rates. In 1955, the top federal tax rate was 91 percent. It applied to all taxable income over $400,000. By 1995, the top rate had been slashed to 39.6 percent, which applied to taxable income over $256,500.

The change in income brackets means that Washington has pushed lower- and middle-income people closer to the top tax rate, and pushed those at the top closer to the middle rates. Seventy-one percentage points separated the bottom from the top rates in 1955; in 1996, it's 24.6 points.

Finally, Social Security and Medicare taxes. Those taxes paid by a median-income family spiraled 3,498 percent between 1955 and 1995. The amount deducted from paychecks rose from $84 in 1955, when only Social Security was withheld, to $3,022 in 1995, when both Social Security and Medicare taxes were deducted.

The Social Security tax is the most regressive levy of all. Because the amount of income subject to tax is capped at a specific figure - $62,700 in 1996 - the more money you make, the lower your effective tax rate.

Taking all these taxes into account, the people in Washington have effectively canceled the progressive tax system. That system, built on the principle that tax rates should go up as income rises, was in place during the great growth years of the middle class.

The State and Local Burden
Taxes at the state and local level fall hardest on middle-income taxpayers. That is true whether it's state income and sales taxes or local real estate and excise taxes.

Overall, the local and state tax burdens have doubled in the last 40 years. In 1955, they consumed 12 percent of wage and salary income. By 1995, it was 23 percent.

If median family income had gone up at the same pace as state and local taxes, 50 percent of all families today would earn more than $95,000 a year. In reality, only 4 percent do.

To understand the regressive nature of such taxes, consider the sales tax, which is levied in all but five states.

Suppose your state sales tax is 6 percent. If you were a median-income family earning $39,500 in 1995 and bought a Ford Taurus for $18,000, you paid $1,080 in sales tax. Your effective tax rate, or tax measured as a percentage of your income, was 2.7 percent.

If the family across town that earned $2 million purchased a BMW for $40,000, they paid $2,400 in sales tax. Their effective tax rate: One-tenth of 1 percent.

In other words, as a percentage of income, the median-income family is paying sales taxes to support local and state government at a rate 23 times greater than the millionaire.

Twenty years ago, the average hourly compensation - wages and benefits combined - of workers employed in U.S. manufacturing plants was higher than that of workers across most of the industrialized world.

No more.

In 1975, the compensation of U.S. production workers averaged $6.36 an hour, compared with $6.35 for Germany, $6.09 for Switzerland, $4.51 for Austria, and $3 for Japan, according to a Bureau of Labor Statistics study.

By 1993, the U.S. average compensation of $16.79 an hour had been eclipsed by Germany, where wages and benefits reached $25.56; Switzerland, $22.66; Austria, $20.20; and Japan $19.20.

For the European Union as a whole, hourly compensation in 1993 averaged $18.48 - or $1.69 above the U.S. rate.

Fading Dream: A Home
Beginning after World War II and through the 1950s, '60s and '70s, successive generations achieved the American dream of owning their own home.

During the 1980s, home-ownership among those 34 and younger, when people traditionally buy their first house, declined. It fell from 43.8 percent in 1980 to 39.6 percent in 1990.

In the 1950s, the largest home builder in the Philadelphia area - indeed, in the country - was Levitt & Sons Inc., which created Levittown, a planned community of 17,000 homes in Bucks County. Built for an emerging middle class, the houses were priced so that half the families in the area could afford to buy one.

In the 1990s, the largest home builder in the region is Toll Brothers Inc., which builds houses that sell for $210,000 to $400,000, a price range that excludes most families earning less than $65,000 a year.

Based on the latest state income tax data, about 10 percent of working families in Philadelphia and the four surrounding Pennsylvania counties can afford a Toll Brothers house; 90 percent are priced out of the market.

Nowhere to Turn
Over the years, American families have achieved or maintained their standard of living by exercising, one after another, a series of options.

More women joined the workforce, often to bolster family income.

Families had fewer children.

College-age and young adults returned home to live with their parents, saving on costs and sometimes even contributing to household income.

And families began to live on credit cards.

In the 1950s, Americans, prudently, kept their overall debt loads below the amount of their paychecks. In 1950, total consumer debt - mortgage and installment loans - amounted to $96 billion. That represented 65 percent of total wage and salary income of $147 billion. In 1960, consumer debt rose to 98 percent of wage and salary income.

By 1995, that figure had climbed to 166 percent. Americans now are nearly $2 in debt for every $1 they earn.

As might be expected from such rising debt loads, another set of numbers also has shot up smartly - personal bankruptcies.

They climbed from an annual average of 183,700 in the 1970s to 373,300 in the 1980s, and then soared to 811,100 so far in the 1990s. That's an increase of 342 percent over the 1970s (the population increased only 20 percent).

Now, families are running out of options.

Down, Out and Angry
For this new America of lagging earnings, a widening gap in incomes and wealth, a falling standard of living, and a bleak future for children and grandchildren, you can thank Washington.

On a more personal level, the grim statistics reinforce the feelings shared by many working people but seldom voiced beyond family and friends.

In Inquirer interviews conducted over the last two years with scores of white-collar, blue-collar and professional workers, the picture of the new America is decidedly downbeat. From Washington to Los Angeles, Chicago to Biloxi, the moods ranged from mild pessimism to hopelessness.

One after another, workers talked about how their standard of living is dropping, how there is little job security, how loyalty to a corporation counts for nothing, how it is impossible to set aside money for their children's education, and how the strain of both parents working is putting stress on families.

These are hard-working people, steeped in traditional American optimism and values, who once believed everything would turn out all right but now have doubts.

People like Jody Meyer of Eden Prairie, Minn.

Meyer, married and the mother of three, produced brochures and promotional videos for 17 years for Prudential Insurance Co. in Minneapolis until 1994, when she and 1,500 coworkers were dismissed in a cost-cutting move.

Like anyone who loses a job, Meyer experienced a "sense of loss" and a feeling that the company, which is America's largest insurance firm, just "didn't care." But she soon rebounded and went into business for herself, arranging and catering weddings and parties. "I do a little bit of everything," she says.

It was difficult getting started, but her husband's salary from a courier service carried the family through. Meyer's new business gives her more flexibility to be with her daughter and twin boys. But, in a theme heard over and over, Meyer said she earns less than she made at Prudential.

Jody Meyer worries about what is happening to the middle class.

"I have a feeling that we're going to start seeing some real critical movements throughout the country," Meyer said. "When you have to have people working two and three jobs, 24 hours a day, the stress levels in the family are so great that I am very concerned.

"I don't know how much more the middle class - supposedly we're middle class - are going to be able to withstand before you start seeing drastic problems. It is harder and harder to maintain decent physical and mental health, general wellness."

Harder yet for her to deal with is the feeling that the situation isn't getting any better.

"I don't see that we're making great strides in any direction that would ease some of this," she said. "I just see everybody scrambling. Literally everyone is tapped out. I have a lot of neighbors who are middle management, who have gotten laid off. . . . It's really scary. It's not even the American dream anymore. We're just striving to make it. . . .

"I don't foresee anything with the letter W, for wealth, in our future. I question Social Security - if it's even going to be there. I question whether my [pension] will be there. All those things you thought were there, you're just not so sure they're going to be there."

Others interviewed were more bitter. The steady erosion of good jobs, forcing down living standards, is building resentment and anger.

James R. Rude of Chatham, N.J., who lost his job as a computer programmer when foreign workers were brought in to replace his department, says corporate America is killing its own market by eliminating the jobs of the people who buy its products. Like many of those interviewed, Rude is skeptical of the stories he reads about the robust American economy.

"I can tell you what's happening," he said. "You got low mortgage rates, yet houses aren't selling. The middle class is scared. They are afraid they're going to lose their jobs and won't be able to keep their house and keep their cars.

"So, basically, big business, by making [big] profits, is good to their stockholders, but they are taking the greatest market and destroying it. They sell their products and services basically to Americans, and they are cutting their own throats. Those quarterly profits look great now. But what will they be like five years from now?"

Most of all, workers are angry about the loss of control over their lives. At work, they appear outwardly docile. Inside, they seethe.

These are not members of any right-wing militia. They are not members of any hate group. They are ordinary people from a cross-section of society. They are factory workers and college graduates. They are Democrats and Republicans, although increasingly they are distancing themselves from both parties.

Consider the observations of three workers, who reflect a largely silent but growing sentiment.

A factory worker in Kansas: "Are we just going to keep lowering our standard of living? When that happens, nobody is going to have money to put food on the table. Then you are going to see a revolution, because people are not going to be able to feed their families."

A former teacher in Illinois: "The level of hostility and anger and frustration is astonishing."

A factory worker in Pennsylvania: "There's going to be bloodshed before we get out of this."

Washington Stacks the Deck
How did the most emulated society of the 20th century reach a point where average citizens talk quietly and matter-of-factly of revolution and bloodshed?

It has come about gradually, the result of policies and decisions that, taken together, have stacked the economic deck against middle America.

Pick a government policy, or a corporate business practice that is encouraged or abetted by a government policy, and it's likely to be working against the average American.

Foreign trade and imports. Immigration. Taxes. Deregulation. Antitrust. Mergers and layoffs. Retraining.

In years gone by, the federal government crafted and implemented policies that encouraged the growth of a healthy, broad-based middle class.

No more.

Trading Away Jobs
The government's trade policies are ostensibly intended to create jobs for Americans making products for export. Instead, they've had the opposite effect. They have wiped out jobs and driven down wages.

That's because Washington policymakers have given foreign producers essentially unrestricted access to the world's richest consumer market - the United States - without insisting upon the same access in return. Indeed, the government has actually subsidized foreign access to the American consumer. This, while our trading partners, like Japan, have maintained tight controls over their own markets.

Not surprisingly, imports have soared, far outstripping exports. In 1996, the United States will record its 21st consecutive merchandise trade deficit - a record unmatched by any other developed country. By year's end, cumulative trade deficits since 1976 will add up to $1.9 trillion.

More significant, because of all those imported products, 2.6 million manufacturing jobs in the United States have been wiped out since 1979.

Immigrants and a Labor Glut
At the same time that trade policies were creating a surplus of laid-off manufacturing workers and managers, Washington rewrote the immigration laws, leading to a record flow of immigrants into a domestic job market that already was unable to create enough high-paying jobs.

At current levels, legal immigration in the 1990s will dwarf every previous decade in American history. No other industrial country has allowed in so many workers in so short a time, depressing wages and living standards.

So far in the 1990s, the number of immigrants has been the equivalent of adding 13 new cities to the U.S. map - another Philadelphia; Boston; New Orleans; Fort Worth, Texas; Kansas City, Mo.; Portland, Ore.; Tucson, Ariz.; Atlanta; Cincinnati; Buffalo, N.Y.; Louisville, Ky.; Newark, N.J., and Des Moines, Iowa.

On top of those 6.8 million immigrants, Congress made it possible for employers to bring in foreign workers, often at salaries below those of American employees. Add 2 million more people to the labor force, competing for a declining number of good jobs.

The Fall of Labor
As corporations have gained more power, influence and size, trade unions - which once served as a buffer to corporate power - have declined, both in members and political influence. Whatever your attitude toward unions, three trends overlap in this century:

The rise of labor in the 1930s and '40s coincided with enactment of federal safety-net programs - from Social Security to unemployment compensation to the minimum wage. Its continuing strength in the 1950s and '60s paralleled the growth of a broad-based middle class, which for the first time expanded to include blue-collar workers.

Conversely, the decline of labor in the '70s, '80s and '90s - union membership fell from 35 percent of the workforce in 1955 to 14 percent in 1995 - mirrors the decline of the middle class.

So do strike statistics. With corporate mergers and layoffs, unions have had to concentrate on saving jobs, not striking for higher pay. During the 1950s, unions averaged 352 work stoppages a year. That dropped to 283 in the 1960s, then held steady at 289 in the 1970s. The number plummeted to 83 in the 1980s, and to 38 in the 1990s.

The number of workers involved in strikes has fallen from an average of 1.6 million a year in the 1950s to 273,000 in the 1990s.

Caught in the Tax Trap
Tax policy over the last three decades has worked steadily against the middle class. Along with the transition to a more regressive tax system has been another form of wealth-shifting: transfer of much of the corporate tax burden to individuals.

America's largest and most powerful businesses now pay federal income tax at a fraction of the rate they once paid.

To understand the magnitude of the tax shift, consider this: If corporations paid federal income tax today at the effective rate paid in the 1950s, the U.S. Treasury would collect an extra $250 billion a year - more than wiping out the federal deficit overnight.

The top corporate rate in the 1950s was 52 percent. Today it's 36 percent.

Rise of the Influence Peddlers
To sway policymakers and members of Congress to their point of view, U.S.-based multinational corporations and foreign companies hire high-priced Washington lobbyists - usually former government officials who have access to the people in power.

A revolving door of Washington insiders, who go from government jobs to lobbying work and back again, has given insiders - and those who hire them - enormous influence over government decision-making. Working Americans have no comparable representation.

How effective is the corps of lobbyists who work for foreign interests?

In 1970, Japan, Mexico and South Korea fielded 41 registered agents to lobby Washington on their behalf. By 1995, their ranks had swelled to 118 - an increase of 151 percent.

During that period, imports from the three countries increased by 2,900 percent - from $7 billion to $210 billion.

If supporters of the minimum wage had enjoyed the same lobbying success with Congress and the White House, the lowest-paid worker in America today would earn $48 an hour.

Technology: Future of Work?
Not all U.S. job losses, obviously, have been caused by imports, immigration or corporations seeking bigger profits. Technology, too, has eliminated jobs.

Hardly an industry has escaped the revolution in computers. Tasks that once required dozens of workers now are done by one person at a terminal.

The process of machines replacing human labor is hardly new. But in the past, when a new technology replaced an older one, often more jobs were created than were eliminated - when airplanes replaced passenger trains, for instance. That's not happening today.

What is also different: Many of the jobs being eliminated aren't casualties of changing technology or obsolete industries. We still use telephones, hammers, screwdrivers, paper clips, ceiling fans, notepaper, toys and windshield wipers. We still wear shoes, dresses, pants, shirts, sweaters, skirts and coats. We still watch television, listen to radios and play stereos.

None of these products has become obsolete, like the buggy whips and steam locomotives of old. What's obsolete in the new American economy is the people who make them.

These and other things we buy increasingly are made outside the United States.

But isn't high technology the answer? Haven't entire new industries sprung up to provide jobs, so we no longer need the manufacturing plants that are being shipped offshore?

Well, take the computer industry. The writing and production of software programs and the manufacture of computer hardware have created thousands of new jobs. Twenty-five years ago, there was no Microsoft Corp., the software developer whose operating system controls the workings of most personal computers, a company that employs around 16,000 people.

But already, the United States is facing challenges in high-tech jobs from developing nations, whose governments are targeting technology and whose technicians work more cheaply.

To be sure, the demand for computer systems analysts and scientists in the United States has grown steadily, from 359,000 in 1985 to 933,000 in 1995. But in a workforce of 116.6 million people, those jobs represented just eight-tenths of 1 percent of the total.

Meanwhile, other computer industry jobs already are in decline. The number of workers in computer production and related jobs has fallen from a high of 298,000 in 1988 to 189,000 in 1995.

Jobs That Might Have Been
All these and other changes are adding up to a great power shift - away from employees and communities, and toward corporations and shareholders.

It used to be, under the old implied social contract, that when times were good, workers prospered along with company executives and stockholders.

Under the new economic rules, corporations lay off employees in good times, as well as bad; close plants at will; subcontract work out to shops where salaries and benefits are less; export jobs to low-wage countries; bring in foreign workers, who will work long hours for lower pay; and influence government policy along lines that serve their interests exclusively.

It is not just employees who have been hurt by these corporate and government shifts; small companies and industries also have borne the brunt.

Take a look at one segment of one small industry - flower growers. In 1971, there were 1,525 commercial growers of standard carnations in 36 states. They dominated the U.S. market.

As cheaper imports flooded the country, the number of domestic growers dwindled to 95 in 1995 - a falloff of 93 percent. The growers appealed to the government to limit imports, but were turned down. Today, foreign growers control the American market, accounting for 88 percent of all such flowers sold. The result: loss of thousands of American jobs.

Or consider the disappearing autoworker. Over the last two decades, 40 percent of the hourly production and skilled workers at the Big Three auto plants have vanished. From 1978 to 1995, the GM, Ford and Chrysler workforces shrank from 667,000 to 398,000 hourly employees.

Not to worry. As Washington and Wall Street are quick to point out, new jobs were created throughout the country to replace the old. Why, employment by Wal-Mart alone has increased by 2,890 percent in less than two decades.

In 1978, Wal-Mart had 21,000 employees. Last April, the company announced from its Bentonville, Ark., headquarters: "Wal-Mart's U.S. employment has climbed to 628,000 - roughly the population of North Dakota - or one of every 200 civilian jobs."

In short, Wal-Mart has roared ahead of GM, Ford and Chrysler as a major American employer.

There are, to be sure, several significant differences. First, 30 percent of Wal-Mart's workers are part-time; the Big Three autoworkers are full-time.

As for pay, a GM assembler earns $18.81 an hour in wages; a tool and die maker, $21.99. Most Wal-Mart employees earn a dollar or two above the minimum wage, $4.25 an hour.

Then there's the matter of benefits. The autoworkers have a guaranteed annual pension. The Wal-Mart employees do not. The autoworkers receive fully paid health care. Wal-Mart part-timers receive no company-paid benefits and full-time workers must pay for part of their health insurance.

Beyond the jobs eliminated, there are the jobs that should have been created - but weren't.

It used to be that a new invention created jobs for American workers for decades to come. More than a century ago, in 1882, Western Electric Co. became the sole manufacturer and supplier of telephones for the American Bell Telephone Co., later AT&T.

In 1905, Western Electric moved its main manufacturing facility from Chicago to Hawthorne, Ill., on the city's outskirts. Over the next seven decades, the Hawthorne works - which included more than 100 buildings - turned out telephones and telephone equipment. It provided jobs for as many as 43,000 workers at a time, since all phones used in the country were made in the United States.

Then came cellular phones. Within a few years of their introduction in the mid-1980s, most cellular phones were made in other countries, including those that carried the AT&T and Bell labels. The drain of phone-manufacturing jobs overseas had its impact at Hawthorne, and, in 1986, it closed.

A chief reason for cellular phones going offshore: U.S. government policies that lowered tariffs on imported products. That encouraged companies to manufacture in lower-wage countries and ship the phones back here.

In 1990, sales of cellular telephones in the United States reached 1.9 million units. Imports totaled 1.3 million units - or 68 percent of those sold. By 1994, virtually all cellular phones sold here were made abroad.

The manufacturing jobs that once provided a middle-class lifestyle for Americans now went to foreign workers. Between 1990 and 1994, imports of cellular phones from South Korea rose 446 percent, from 247,038 to 1,349,691. Imports from Mexico spiraled 1,836 percent, from 27,259 to 527,708. And from China, they shot up a whopping 11,428 percent, from 6,245 to 719,905.

All that job loss is from a single industry. When viewed across all manufacturing, the loss of jobs that should have been but aren't is staggering.

If the percentage of the workforce employed in manufacturing was the same as in 1956, there would be an extra 20 million high-paying jobs for people who make things with their hands.

It was not supposed to turn out this way. Global trade was supposed to benefit American workers by stimulating exports and creating jobs. But let's look at the scorecard on recent trade with just one country - Mexico.

When NAFTA - the North American Free Trade Agreement - was proposed in 1990, supporters insisted it would lead to vast U.S. sales in Mexico.

Said George Bush in 1991: "I don't have to tell anyone . . . about Mexico's market potential: 85 million consumers who want to buy our goods. Nor do I have to tell you that as Mexico grows and prospers, it will need even more of the goods we're best at producing: computers, manufacturing equipment, high-tech and high-value products."

Said Frank D. Kittredge, president of the National Foreign Trade Council, in 1993: "The last point I think we cannot miss . . . is the competitive advantage in the Mexican market that NAFTA gives to United States manufacturers. Talking about tilting the playing field, it really tilts the playing field in favor of U.S. manufacturers."

Said the New York Times, in a 1993 editorial: "NAFTA would lower Mexican tariffs by a lot and U.S. tariffs, because they are already low, only a little. That means the price of U.S. goods in Mexico will fall enough to make U.S. exports more affordable to Mexicans. . . . NAFTA will raise U.S. exports."

Proponents pointed to a U.S. trade surplus of $4.9 billion with Mexico in 1992 as evidence of the benefits of expanded trade with Mexico. "Already, we sell far more to Mexico than they do to us," The Philadelphia Inquirer editorialized on Sept. 15, 1993.

President Clinton urged congressional approval in a Sept. 14, 1993, speech: "I believe that NAFTA will create a million jobs in the first five years . . . NAFTA will generate these jobs by fostering an export boom to Mexico. . . . In 1987, Mexico exported $5.7 billion more of products to the United States than they purchased from us. . . . That $5.7-billion trade deficit has been turned into a $5.4-billion trade surplus for the United States. It has created hundreds of thousands of jobs."

Well, how goes the export boom with Mexico?

The widely touted trade surplus with Mexico evaporated after NAFTA was approved in 1994. By the end of 1995, the United States recorded a $16.2 billion merchandise trade deficit with Mexico. Indeed, the U.S. trade deficit with Mexico was greater than with all of Western Europe ($15.2 billion).

Exports to Mexico have gone up, from $41.5 billion in 1992 to $46.2 billion in 1995, an increase of 11.3 percent. But, in a story that has been repeated over and over in U.S. trade policy, imports from Mexico rose five times faster - going from $40.5 billion in 1992 to $62.4 billion in 1995, an increase of 54 percent.

Not everyone in Washington, of course, subscribed to the policies that are costing American jobs. Many who supported them acted out of good intentions, actions that have had unforeseen consequences. But, collectively, these decisions are causing a relentless erosion of the middle class.

The policies were sold to Americans with the promise they would create jobs and provide consumers with the broadest choice at the lowest price.

Rep. David Dreier, a California Republican, put it this way during congressional debate on NAFTA in 1993:

"Now, what is the goal of implementing a free-trade agreement like this? It is to help the consumer gain the ability to purchase the best-quality product at the lowest possible price."

But if price is the primary consideration, American workers lose.

Thus, if foreign workers earning 50 cents an hour can produce a shirt that sells for much less than those made by Americans earning $4.25 an hour, under such a policy, the United States would import the cheaper shirts and U.S. workers would forfeit their jobs.

Left unsaid is this: A society built on the economic principle that the lowest price is all that matters will be quite different from one built on the principle that everyone who wants to work should receive a living wage.

The first - the bottom-line society - will be filled with retail clerks, warehouse helpers and janitors earning little more than minimum wage. The other society will have skilled tradesmen, craftsmen and professionals earning a middle-class wage.

Consumers may not realize that's the true cost of the cheaper imported shirt - in lost jobs and a declining American standard of living.

A New Kind of Job Sharing
Jim Rude learned about the bottom-line society the hard way.

Married and the father of two children, Rude is a computer programmer. After 18 years at Blue Cross of New Jersey, he went to work in 1989 at American International Group Inc. (AIG), one of the world's largest and most influential insurance companies.

Rude, working out of AIG's Livingston, N.J., offices, was one of several hundred programmers. The data-processing division, with worldwide operations, was a booming enterprise for programmers, a case in which global business generated jobs for Americans.

The pay and benefits were good, and Rude, at the encouragement of his superiors, started working toward a master's degree in computer science under a program in which the company would pay part of his tuition.

"Everybody says you need more education and I decided to make the effort and go for an advanced degree," he said.

By the fall of 1994, Rude was only a few credits away from earning his degree when his continuing education - and his job - suddenly came to an end.

To the astonishment of Rude and the 250 others in AIG's computer operations, the company announced it was dismissing them in two months. AIG had hired a subcontractor who would employ programmers from India, then being brought into the United States by the thousands to fill high-tech jobs.

Suddenly, professionals were losing their jobs just like blue-collar workers before them - but with a notable difference: The blue-collar jobs disappeared when production work moved offshore. Now, white-collar workers were being replaced by foreign nationals brought here to do the work.

It was all part of a U.S. immigration program engineered in 1990 by the Republican Bush administration, a Democratic-controlled Congress and businesses with ties to both parties.

The businesses had used the threat of global competition to extract permission from the government to bring in foreign workers for specialty jobs.

Next to losing his $64,000 salary, the worst part for Rude was having to train the people who were taking his job.

"We were told two months before our last day that we were leaving as of a certain day because we were going to be terminated," Rude said. "And for that two months, we had all these people coming over from India and we had to train them. And we were told, 'If you don't train these people, you will be terminated on the spot and you won't get your severance package.' "

In December 1994, Rude and his fellow programmers were out of a job. As incomes fell, so did their standard of living. Rude was unemployed nearly two months. When he landed a job, it was at roughly half his AIG salary.

He became a recruiter placing programmers with companies. Since starting the new job, he has increased his income to $37,000 a year - or $27,000 less than he made before.

Rude says AIG did what all large corporations are doing: "Big business today, if it can find a way to save a few bucks, they'll do it. The bean counters are running these companies anymore. Anything they can do to make their quarterly projections, they do."

As for the decision to replace its programmers, AIG issued a statement saying it had decided to assign the work "to outside contractors. In the company's judgment, the increasingly variable labor content of this work makes it impossible for AIG to efficiently staff this effort internally."

Getting the Advantage
Not everyone at AIG has fared badly under the new economic rules. Some have profited handsomely from such bottom-line decisions: Maurice R. (Hank) Greenberg, for one.

Greenberg, 71, is chairman and chief executive officer of AIG. From an office near Wall Street, he presides over a business empire of 34,500 employees in more than 100 countries, with revenue of $25.9 billion in 1995 - more than the gross domestic product of entire countries such as Bolivia, Ecuador, Guatemala, Panama or Uruguay.

Greenberg is one of the 100 richest men in America, with a net worth estimated by Forbes magazine at $1 billion. He has a Manhattan apartment bordering Central Park and an ocean-front condominium on Key Largo in Florida.

Since becoming head of AIG in 1969, he has earned a reputation as one of America's most abrasive, cocky and aggressive corporate executives.

Once asked to sum up his business philosophy, Greenberg answered: "All I want in life is an unfair advantage."

Among his advantages has been instant access in Washington.

For example, the company lobbied for - and won - a special provision in the Tax Reform Act of 1986 exempting certain of its operations from a crackdown on foreign tax shelters.

If you pick up a copy of the Internal Revenue Code, you can read the custom-tailored tax law written for AIG.

It states, in part, that this section of the new tax law will apply to everyone except "any controlled foreign corporation which on August 16, 1986, was a member of an affiliated group (as defined in section 1504(a) of the Internal Revenue Code of 1986 without regard to subsection (b)(3) thereof, which had as its common parent a corporation incorporated in Delaware on July 9, 1967, with executive offices in New York, New York . . ."

AIG was incorporated in Delaware on July 9, 1967, and has its executive offices in New York.

That little provision and a similarly arcane clause written for another big insurer - Cigna - were worth an estimated $20 million to the two companies. They would have been obliged to pay that much in taxes had not a friendly, but anonymous, member of Congress' tax-writing committees inserted that exemption into law.

In any event, 1986 was not the first time that AIG helped write the tax laws. In 1976, the company was the prime beneficiary of a section in the Tax Reform Act that exempted AIG and other large insurers from taxes on some of their offshore operations, saving them millions of dollars.

In the wake of AIG's replacing its U.S. computer programmers, 1995 proved an especially good year for Greenberg. His salary and bonus totaled $4.15 million. That worked out to $80,000 a week, or more than the average AIG programmer earned in a year.

Greenberg also held unexercised stock options valued at $23.6 million and owned 10.7 million shares of AIG stock worth $1 billion or so.

Let's review: In 1995 Jim Rude, a certified member of America's solid middle class, saw his earnings fall 42 percent. Maurice Greenberg saw his AIG stock more than double in value, as he solidified his membership in America's Top 1 Percent Club.

No Middle Ground
What has complicated the debate about the nation's economic course is that most policy issues are cast in either/or terms.

Either you're for free trade, or you're a protectionist. Either we should throw open the doors to immigrants, or keep out foreigners. Either you want government off business' back, or you favor shackling American companies with onerous regulations. Either you're for lowering taxes, or you're for soaking the rich.

Absent from the debate is serious talk about the need for a middle ground - for a balance between the interests of corporations and of employees, between unrestricted trade and controlled trade, between preserving the nation's historic tolerance of immigrants and protecting American workers from a glut in the labor force.

And there is a middle ground - just as there is for all human behavior.

Yet for their own reasons, partisans cast these issues as either/or, and they're portrayed that way in the media.

Because there's no middle ground, the doors have been flung open to imports - often made by workers whose wages are counted in pennies - eliminating American jobs.

Because there's no middle ground, the progressive income tax - designed so that the very rich would pay their appropriate share of the cost of government - has been gutted.

And because there's no middle ground, the notion that government has a vital role in the economic direction of the country has been shoved aside. Either you believe in unfettered private enterprise, or you believe government should run the economy. Government always loses that argument.

But casting the issues so rigidly ignores what the federal government can do, and has done, to bolster the economic well-being of average Americans.

Throughout much of this century, government played a critical role in the development of American society - protecting the powerless, curbing the excesses of business, and creating a regulatory framework to safeguard the health and welfare of its citizens.

Equally important, the federal government has assured opportunities, evened out the economic playing field, and tackled issues that neither Wall Street nor the market deemed significant.

It was the federal government that spurred the greatest wave of homebuilding in American history after World War II with the Federal Housing Administration program to ensure mortgages for emerging middle-class families.

It was the federal government that created the student aid program after World War II, enabling millions of servicemen and women to attend college.

It was the federal government that built the interstate highway system, linking towns, rural areas and cities.

It was the federal government that initiated development of the computer, the machine that has transformed everyone's life.

And it was the federal government that financed the technology and underwrote the early costs of the Internet, the global information superhighway that is projected to become a $79 billion-a-year business by the turn of the century.

Another Company Moves Offshore
All of which brings us full-circle to Marion, Va., and the men and women who once worked for Harwood Industries and who lost their jobs, thanks to U.S. trade policies.

Marion is in the heart of what Virginians call the Mountain Empire, a region of lovely rolling hills, pleasant valleys and gentle streams. It is a place where jobs have never been plentiful. But small manufacturing facilities, especially clothing plants, have dotted the countryside along Interstate 81, providing jobs for area people.

For more than half a century, Harwood Industries, a maker of men's pajamas, robes and casual clothing, was one of the fixtures of the Marion economy. It employed several hundred seamstresses, cutters, warehousemen, packers, mechanics and office workers.

By national standards, the pay was never good. In 1992, the average for women in the sewing department was $6.75 an hour, roughly $14,000 a year. But Harwood did have a health plan, the women were close to family and friends, and it provided steady work.

Until Aug. 31, 1992. That day, Harwood announced it was closing the sewing operation, eliminating 120 jobs.

In a statement all too familiar to American workers, officials said they regretted the decision but that it was "necessary because we were not competitive on most products." The company said it planned to keep open a distribution center and office; but they, too, were phased out over the next 18 months.

For years, Harwood had been shuttering plants in the United States and, under pressure from retailers to cut costs, shifting production offshore - first to Puerto Rico, then Nicaragua, and finally to Honduras and Costa Rica.

The Marion employees had watched as the company closed other plants. They knew the signs did not look good. Yet the layoff still came as a shock.

"It does something to your self-esteem," said Ann Williams, who closed out her 20 years at Harwood working in the office. "You don't get over it. I don't know anyone who has really gotten over it. We all knew we hadn't been singled out. Everybody had been let go. But you still take it personally."

For Darlene Speer, the shutdown hurt, both personally and financially. "I loved my job, but after the way they treated us at the end, I was almost glad to get out of there," she said. "We all worked so hard. They didn't close it because of our work."

Speer, who is divorced and the mother of two grown children, ultimately wound up with two jobs, with a furniture maker and a video store. Together, she said, the two equal roughly what she earned annually at Harwood.

"But you can't look back," she said. "I've gone ahead with my life. And, for the most part, I'm happy. But I'll tell you, it's hard to start over."

Nancy Anders, who worked in the sewing department for 25 years, recalled how she'd felt such a sense of responsibility toward the job. She went to work regardless - "when I was sick, when my family was sick," she said. At the company's request, she even went to Nicaragua in the late 1970s to help train new employees at a plant Harwood had built there.

Anders spent six weeks showing Nicaraguan women how to operate sewing machines. At the time, she didn't think much about it. She felt sorry for the people, who were so poor. It was only years later, reflecting on the trip, that she realized she'd been "training them to take our jobs but didn't know it."

"I was bitter at first," she said of the closing. "But the more I thought about it, I thought, 'If they don't want me, then I can find a job somewhere.' "

Eventually, Anders did find one.

"I have a good job now," she said. "It's a part-time job. I'm Wal-Mart's people-greeter, and I love it. And I think I'm the best people-greeter Wal-Mart's got."

Smiling and upbeat, Nancy Anders has gone on with her life, even though she earns less and must pay for health coverage.

Yet for her, the greatest loss can't be measured in dollars and cents. Harwood's closing cheated her out of a chapter of her life.

For 25 years, she'd gone to festive dinners hosted by employees when workers retired. On these occasions, employees chipped in to buy the retiree a finely crafted oak rocking chair made at a nearby furniture factory.

It was a lasting gesture of affection from those who stayed to those who were departing, and the rocking chair came to symbolize not only a life of leisure but also a kind of closure to a life of working at the Harwood plant.

"I went to the retirement dinners for 25 years and I couldn't wait to retire so I could get one of those great big rocking chairs," she said. "I just dreamed about that day. That was my goal, getting that rocking chair."

When Harwood announced the closing, Anders knew there would be no retirement dinner, no rocking chair.

"I went home that night and I cried," she said. "My husband thought I was crazy being so upset over a rocking chair. He said, 'Go get one.' I could have bought the rocking chair. But it wouldn't have meant the same after all those years. I missed getting that rocking chair almost as much as I hated to lose my job."

Wendell Watkins, a Harwood vice-president and the last manager of the Marion plant, said the company regretted the closing but had no choice.

"We have always manufactured private-label goods [for department stores] who can shop the world and get the best price they can," he said. "Now, that's great for the U.S. consumer and they are the real beneficiaries. Our major customers always insist on having the lowest price. They tell us, 'We'll bring it in from the Orient if you can't do something to match the cost.'

"I think we did a great job of keeping it open as long as we did . . . but we just could not compete with the competition we had to meet and pay U.S. labor prices."

Watkins said he knew the closing was hard on employees, but he felt it was the right decision - not just for Harwood but for the nation as a whole.

"As much as this has hurt my industry, it is my belief and feeling that our government is going about this in the correct manner," Watkins said. "I think that they have to write the industry off and go for high-tech and let the less-expensive labor countries produce the apparel and other things.

"I know it has hurt a lot of people, but it is also helping a lot of people in the long run, the consumers."

Fulfilling the Social Contract
When Harwood shut Marion, the company ceased to manufacture in the United States. The gradual move of its plants offshore was complete - two to Honduras, one to Costa Rica.

For many American apparel-makers, Honduras has become the country of choice in recent years. The Central American nation of 5.3 million people has been highly successful in attracting U.S. plants because of cheap labor, no taxes and a solicitous government.

American companies that manufacture products there in specially created export zones are exempt from all import and export duties, from currency charges when they ship profits back to the United States, and from all Honduran taxes - a "Permanent Tax Holiday," as the Honduran government describes it.

Best of all, they are exempt from U.S.-style wages.

The minimum wage of the Honduran factory worker, according to that government's statistics, is 48 cents an hour, including benefits - or about $25 a week in take-home pay.

Even by Latin American standards, that's low.

Mexicans who work in American plants on the border now earn, on average, $60 a week - three times the average pay of Hondurans. And Mexican wages, of course, are only a fraction of the $7 to $8 an hour that a U.S. worker would be paid.

For all the talk about the need to be "competitive," there is no way a plant in the United States paying minimum wages and no benefits could compete with a Honduran plant where the pay is 48 cents an hour and where profits are exempt from taxes.

Not surprisingly, many American companies have moved some operations to Honduras in recent years. The list includes such familiar names as Sara Lee, Bestform, U.S. Shoe, Fruit of the Loom, and Wrangler. One of those, Sara Lee, announced plans in the summer of 1996 to acquire Harwood.

Harwood was one of the first to capitalize on Honduran incentives; its first plant was built there in 1980.

Having successfully transferred all of Harwood's operations abroad, Michael Rothbaum, who then was the company's chief executive officer, subsequently offered some words of advice to American manufacturers who might be considering a Caribbean operation.

After first warning that the process was not easy - think of it "as if you were starting a plant on the moon," he wrote in a trade journal - he then assured them it was worth it. If "approached correctly, the savings in labor costs can be significant."

Rothbaum went on to paint a picture of the average worker:

"Caribbean employees work longer hours, from 44 to 48 per week, and they travel further to work, sometimes two hours by bus each way. Some also attend school at night. For many, the only decent meal they get each day is the one served in your cafeteria. Also remember that Caribbean employees are younger than your domestic workforce. The average age in a Caribbean plant may be 19 to 20.

"Medical care as we know it is not available, and people come to work when they're sick - because that is where they may find a doctor or nurse. To a great extent, you, the employer, must compensate for these differences in conditions through the social contract you make with your employees in order to achieve acceptable performance."

If Rothbaum believes U.S. employers must enter into a social contract with their Caribbean employees, it is just such a contract that their abandoned employees in the United States believe has been broken - by cutting off jobs, wiping out benefits, lowering their standard of living.

And the outlook for a long-term social contract in countries such as Honduras isn't good, either, if history is any guide.

Harwood's first offshore plant was in Puerto Rico. When wage rates rose there, the company moved its apparel production to a lower-wage country, Nicaragua. But after political upheaval there in the late 1970s, Harwood relocated to Honduras and Costa Rica.

One longtime Harwood employee at Marion, Garney Powers, after noticing how the company kept moving from one developing country to the next to cut costs, said he once asked a Harwood manager if there was any chance, as wages rose in developing countries, that Harwood might shift some of its manufacturing back to the States.

No way, the manager told him.