Equitable Growth in Conversation: Robert Solow

July 20, 2017
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Equitable Growth in Conversation: Robert Solow

“Equitable Growth in Conversation” is a recurring series where we talk with economists and other social scientists to help us better understand whether and how economic inequality affects economic growth and stability.

In this installment, Equitable Growth’s Executive Director and Chief Economist Heather Boushey talks with Robert Solow, institute professor, emeritus, and professor of economics, emeritus, at the Massachusetts Institute of Technology; Nobel laureate in economics; and a member of Equitable Growth’s Steering Committee.

Boushey: Thanks so much for joining this conversation, Robert. My first question is: What do you see as the three most important issues for the U.S. economy right now?

Solow: I think that the first two are the inequality issue, and I say two because there’s the numerical inequality, meaning the inequality of size and distribution of income, and then there’s the size and distribution of wealth and what to do about that. Is there any prayer for a more progressive tax system? Our current system is becoming less progressive as we sit here and eat, and so, could we make the tax system more progressive?

The second issue, I think, is the broader concept of equality. One of the things I’ve learned from the election is the sheer disaffection of so many, so many people. And I think part of that is that a lot of people feel that they’re being treated like dirt and they’re disaffected. They feel no responsibility for the enterprise they work for. I saw a New Yorker cartoon, maybe 15 years ago, of a man behind a desk obviously interviewing a possible hire, and the man behind the desk says, “We offer no loyalty at all, but we don’t expect any.”

And that is one of the things, I think, we need to think about. I don’t know whether policymakers can think about this, but they ought to be thinking about it. How do we restore some kind of representation of labor in firms?

Do you recall what Clark Kerr said?

Boushey: A name I’ve heard, yes.

Solow: Clark Kerr used to speak of the main product of collective bargaining not being wages but being what he called a web of rules. Standards of behavior. Who could do what to whom and who couldn’t do what to whom. I’d like to find some way of enlarging and improving the way workers, wage earners, are represented in their firms. Unions used to do that, but even with the best will in the world, you could not restore the trade union movement. If it’s true, what we all think, that the nature of workers changed, that people who work for many employers in different industries, and different occupations, really have changed, then neither the craft union nor the industrial union is the right policy vehicle.

But of course, the online workers that everybody talks about are the prize case in this. They never have contacts with their employers, who change from day to day, and they have no contact with the other people who work for that employer.

Boushey: Yes. It’s hard to organize these kinds of workers.

Solow: There’s no shop floor, but for the online worker, it’s clear who the boss is. The boss is the one who pays, as usual.

So what’s the correct, valid form of representation they could have? How could we do something about their voice and about the web of rules in which they operate? Or something about retirement for people who don’t have a single employer for any length of time? What is the right form of representation? I don’t really think it’s having someone on the board of a corporation. It might matter, but it can’t be the whole thing. I think that you need some kind of substitute. Maybe you need a substitute for the shop floor. How can you be part of a group that you never see, never communicate with or anything like that?

It’s that part of the inequality issue that I think doesn’t attract enough thought, and I don’t know how to go about encouraging that. Who would be good at it? Or what happens in other countries?

Boushey: I think it would be interesting to see how economists think about a labor market in the absence of unions. Is there any way to really make the argument for why this is important? It would be interesting to see more research that helps set that stage.

Solow: Maybe. But maybe it’s sociologists or social psychologists, though I do think the economics of this is important because the object here is not merely to make people feel good but to make them feel effective and be effective in pursuing their own interests.

So that, to me, is part of the inequality issue. It’s not so much a quantitative inequality, it’s a fact that the relationship between the boss and the bossed is getting more and more biased toward the boss, and that makes people feel unhappy.

Boushey: The test is really whether or not you are forced to laugh at the boss’s joke.

(LAUGHTER)

Solow: That’s good.

Boushey: Right?

Solow: That’s sort of the test about whether or not you have any freedom.

Boushey: Yes. It kind of sums up how I think people feel. If you don’t even have the right to not laugh at the boss’s jokes, it’s because you just don’t have any power.

Solow: And you have no status. You’re a replaceable object and, of course, the laws and statutes are now full of regulations and legislation that work against the organization of workers in firms. And the other thing that makes me think this is important is that business firms react or overreact to the possibility of union organization. You may remember a couple of years ago, the UAW proposed to try to organize a Volkswagen plant in Kentucky. And the Volkswagen people said, “Well, we won’t resist. Go ahead and see what you can do.” And you could hear a sharp intake of breath all over the business world in this country. What are these people saying?

I was once on the board of a for-profit organization, and when the possibility of a union came up, they panicked. They absolutely panicked. They thought that two days later they would lose all control of the firm, which can’t be right because we lived for some years with unions in this country, and companies made pretty good profits through much of that time.

Boushey: People still got rich.

Solow: So I think that there’s a real problem here, but maybe it’s more of an intellectual problem than a policy problem at the moment. But policymakers could at least relax some of the ridiculous regulations that stand in the way of employees acting on their own and in their own interests that would be worth trying.

Boushey: What’s the third most important issue for the U.S. economy right now?

Solow: Well, those are the two that really engage me. I think the third thing is nothing new. I think we’re simply ignoring the climate change issue too much. It’s so silly talking about this since it’s all going the other way, you know?

Boushey: The politics?

Solow: The politics. Not only the politics, but the policy. I read in The New York Times this morning—I don’t have a cell phone, so I don’t get my news that way—that the Environmental Protection Agency is firing scientists from its Science Advisory Committee and proposes to replace them with representatives of the industries being regulated.

Boushey: States need to just keep working at it. California, New York, they have to be at the forefront.

Solow: Changing the subject, economists are now having discussions every day about whether we’re at full employment in the economy now. When is the last time you ever saw a really tight labor market, where employers were scrambling to get workers rather than workers scrambling to get jobs? I do not know what the distribution consequences would be if we had a seller’s labor market. Now, I’m as alert as anybody to all the possible inflationary consequences and what-not, but there could be a good couple of years in there anyhow of more full employment.

Boushey: Yes. What we saw in the late 1990s. Incomes rose at the bottom. And we didn’t have inflation.

Solow: We were lucky in the ‘90s.There were a lot of accidental things helping to keep down inflation, such as health maintenance organizations that were holding down health costs and some other costs as well. But today, it would be so interesting to try for real full employment again. But it’s so amazing to me, the asymmetry of it. As soon as any firm says, “We’re having trouble finding skilled machinists,” that hits the newspapers. But if a skilled machinist says, “I’m having trouble finding a job,” that doesn’t seem newsworthy at all.

Boushey: That’s a very good point. I was on an email thread this week about full employment with a bunch of economists debating whether we’re there and how close we are, and yet the employment rate is still low. It’s great to be having this debate. Are we there yet? How close?

Solow: Yes, except that I’m afraid the answer will be “yes.”

Boushey: Bob, thanks so much for sharing lunch with me and covering all of these topics today. It was very stimulating.

Solow: You’re welcome, Heather, and thanks for lunch.

(Why?)

Category: In Conversation

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