Pulitzer Prize-winning journalist Hedrick Smith talks with the Opportunist’s Managing Editor Leslie Stone about his latest book, his provocative predictions for the middle class and his ideas on how we can reclaim the American Dream.
During his 50-year career, Hedrick Smith has reported on history as it happened—from the front lines of the civil rights movement, the Vietnam War, the Middle East conflict and the cold war, as well as six presidential administrations. In 1971, as chief diplomatic correspondent for The New York Times, he was a member of the Pulitzer Prize-winning team that produced the Pentagon Papers series. In 1974, he won the Pulitzer Prize for international reporting from Russia and Eastern Europe. His Emmy Award-winning documentaries for PBS have included such varied topics as terrorism, Wall Street, Soviet perestroika, Walmart, Enron, tax evasion, educational reform, health care, the environment and jazz legends Duke Ellington and Dave Brubek. He has also written seven books, including The Russians (his best-selling account of life inside the Soviet Union) and The Power Game (an inside look at the intricacies of the nation’s capital).
The theme of his life’s work has been about seeking solutions for America’s systemic problems—not just talking about them. His latest book, Who Stole the American Dream?, is an historical treatise that illuminates how and why economic and political imbalances have gradually yet relentlessly squeezed the middle class over the last 30 to 40 years. It also challenges America to find its way “back to common ground, to rise above the economics of selfishness and the politics of partisan advantage and revenge, and to rethink the bonds of a people committed to building a strong common destiny.”
“This is a reporter’s book that began with a reporter asking questions about how America went from having a middle class that shared in the wealth and growth, who exercised political power through the civil rights movement, the women’s movement and the environmental movement, to one in which the middle class is stuck in a rut and not sharing any economic gains or political power,” Smith says. “How did we move from effective bipartisan politics where opponents could fight and disagree and yet stand together when there was a major problem with taxes, health care or the cold war? The structural problem goes way beyond the politics of the country.”
Opportunist: People are quick to point a finger of blame at the left or the right, but your book reveals that failings by both sides of the political aisle have contributed to America’s economic downturn.
Hedrick Smith: I wasn’t particularly interested in pointing fingers—I wasn’t even thinking about political parties—I just wanted root causes. I knew they existed from the reporting I had been doing in making documentaries for PBS and the previous books I had written. The problems we experienced in 2008, 2009 and 2010 originated way back. I am just sick of the political posturing where people say ‘the deficit went up on his watch’ or ‘the debt went up on his watch.’ I began with a different goal.
Opportunist: What inspired you to become a journalist?
Hedrick Smith: The whole notion that journalism is a public service to tell people the truth as objectively as possible. Nobody is perfectly objective, of course, but it was something that appealed to me greatly. As a high school student I was interested in history and the famous American journalists William Allen White and Lincoln Steffins. White, former editor of the Emporia Gazette in Kansas, was a progressive Republican from the era of Teddy Roosevelt all the way through the 1930s and an important force politically. Steffins was a muckraker in the early 20th century. Like White, he pointed out flaws in the American system. One was from the right, and one was from the left—and they were important voices demonstrating how good journalism and accurate reporting and analysis could improve America and make the government and the economy and society work together. That is an idea that embedded into me at an early age. Also, my grandfather was a Chicago attorney who late in life wanted to become a country newspaper editor like White. I remember my mother telling me stories about him and so there was family influence and early reading, and just my own direct journalistic experience.
Opportunist: You have certainly told many truths in Who Stole the American Dream? It ought to be mandatory reading for all U.S. high school students. Did you learn anything new while researching the book?
Hedrick Smith: Yes, I learned a lot. I tended—like a lot of people—to believe that most of the big policy changes started under Ronald Reagan in the 1980s but I learned that it was actually under Jimmy Carter in the 1970s. I was the Washington bureau chief of The New York Times in the late-1970s, and I had not seen the trends and the way in which history moved. We often cannot see trends while we are living them. That’s why historians are important. They help us understand things that we did not get at the time.
One of my sources, Harvard Business School professor Jay Lorsch, told me he found the book ‘illuminating.’ I asked him how he could have learned from me when he was a business professor at Harvard and he said, ‘The way you put it together, the way you told the story … I saw and understood things differently. I was surprised at relearning and [rethinking] the developments and trends that I thought I knew.’
Opportunist: Your book talks in depth about stakeholder versus shareholder capitalism. Are today’s corporations too focused on short-term profits?
Hedrick Smith: One of the biggest shifts that has taken place in the United States in the last 30 years—and which has had the biggest effect on economic inequality in the country and the stagnation of living standards—is the shift in business thinking from stakeholder capitalism to shareholder capitalism. When we read about CEOs in the 1950s, ‘60s and ‘70s—people like Charlie Wilson of General Motors or Reginald Jones of General Electric—we see they had a real sense of stewardship and responsibility to balance the interests of the various stakeholders. The shareholders, the managers, the workers, the suppliers, the creditors, the customers and the communities in which businesses had factories or plants or outlets—all these people had a stake in the company. It’s not just morally sound and fair, but also smart business. It goes back to Henry Ford, who in 1914 originated the idea of paying a $5 per day wage. He figured that if he paid his workers $5 a day they could afford the Model T cars his company was producing. Corporations paying people well generates good, strong consumer demand and they can afford products. When you build new plants and hire new workers, you start the virtuous circle of growth. That way of doing business generated a great era of growth from 1945 to 1975.
Under shareholder capitalism CEOs believed the highest possible return should be to owners and investors, by and large the people in the top 1, 2, 3 or 4 percent. That’s where returns were going and that contributed to the division and inequality. There was tension between corporate profits and workers’ wages. Stock prices were being run up in order to pay dividends to the investor. CEOs were motivated to hold down wages and reduce the benefits paid to workers. This created wedge economics—a wedge in the middle of the American economy where the top gains and the bottom loses. As a result, incomes of the top 1 percent have grown 11 percent while wages of the 99 percent at the bottom dropped 0.4 percent. It’s unbelievable and divisive economically and politically—and damaging. There is no high consumer demand because nobody has money to spend.
Opportunist: How can businesses return to the so-called virtuous circle, where corporate leaders pay their workers well, which in turn will generate robust consumer demand and help the economy?
Hedrick Smith: We need national debate about the way the spoils are divided. We have to talk about this. Some business leaders are starting to talk about it. Next month I will be joining [Klaus Kleinfeld], former CEO of the German electrical company Siemens and now CEO of Alcoa, at The Conference Board for a roundtable discussion on stakeholder capitalism. Germany is still practicing stakeholder capitalism and The Conference Board thinks it is good to have somebody else talking about it. We must talk more about getting back to this idea, and remind people that this is America and it produced a great society and economy for us before. We need to correct a number of public policies that foster divisions of income and level the tax field for businesses. Businesses that work in America and try to pay their American workers are taxed at a full 35 percent while those who move their business abroad are taxed at a lower rate.
Opportunist: We have seen some of the worst excesses and greed in recent years. What can be done to rein it in?
Hedrick Smith: There is a lot of loose rhetoric flying around about what to do, and practical politics are languishing while politicians are posturing. We need a tax on financial transactions—particularly the exercise of stock options, which is a principal vehicle for paying CEOs astronomical salaries. If they want to get paid that way we should tax that vehicle much more heavily to raise the minimum wage, which has not kept up with inflation or average wages. People say if we raise the minimum wage it will destroy business, but 19 states have already raised wages beyond the minimum and they are doing OK. Raising the minimum wage helps bring a floor up under the wages of the middle class and puts upward pressure on other wages.
The U.S. Census Bureau reported in 2011 that, adjusting for inflation, the median wage of the average male worker in 2011 was the same as it was in 1978. In fact, it was just a fraction lower. That is three decades of going nowhere.
Opportunist: That’s a hard pill to swallow.
Hedrick Smith: The most telling numbers relate productivity to wages. That relationship is the source of our entire living standard. Over the last 40 years productivity was up 80 percent while the wages and benefits of average workers went up only 10 percent. There was tremendous growth in productivity but little growth in income. More women entered the workforce, but male workers weren’t going anywhere in terms of their pay. We have rewarded the rich and super rich tremendously while returning very little to the middle class. It’s going to be terrible when these people move into retirement—the baby boomer generation is facing poverty in retirement.
Hedrick Smith: Yes, we can get it back. But we are going to have to get off our couches and get out of our cynicism and start believing in our own capacity as individuals to make America better.
Opportunist: Forgive my cynicism, but sometimes it seems the average American is more interested in the latest ‘Dancing with the Stars’ lineup than in the state of the country.
Hedrick Smith: As long as Americans are more interested in reality TV … [than] speaking up for and organizing for things that are important to them—whether it’s leveling the tax codes, raising minimum wage or making health care available at reasonable cost … they will continue to have lives that don’t measure up or reach the American Dream. They will be in terrible shape when they retire. It’s partly because of the way the system operates, but the middle class needs to get politically active between elections—not just during elections. There are a whole lot of issues middle class America can get engaged in. Our own history shows that when people fought for civil rights and for a cleaner environment and better protection on health care and food safety, they got it. Washington responded. People are passive and think what difference does it make? or Washington doesn’t listen to people like me. If that’s the case, they aren’t talking loud enough. Have Americans done their job when they vote? Yes, but they have to go to work right now—lobbying Congress to make sure budget cuts don’t fall on the programs that take care of the people in the middle class and the lower half of the economic spectrum. A myriad of programs are going to get cut: health care, Medicaid, student loans. The middle class must get active, vocal and be heard in Washington. That means taking direct civic actions.
Opportunist: You suggest that over-spending on defense has contributed to our economic imbalance. For example, the United States spent $200 billion more on defense in recent years than it did during the cold war—even adjusting for inflation.
Hedrick Smith: Historian Paul Kennedy called it ‘Imperial Overstretch’ [in The Rise and Fall of the Great Powers]. It’s one of the characteristics of great powers—reaching for more power and exercising more military action overseas. It occurred in 16th-century Spain and 19th-century Britain. We aren’t talking only about the wars, though. We still have about 1,000 bases around the world—some of them golf courses by the way. Nobody is really expecting another war in Europe at this time, so bring ‘em home. Some of our retired military leaders have the most accurate perception. President Dwight Eisenhower, commander of the Allied Forces, said: ‘To amass military power without regard to our economic capacity would be to defend ourselves against one kind of disaster by inviting another.’ That’s not to say we don’t need a strong defense—but why build bridges in Baghdad instead of Baltimore or highways around Kandahar instead of Kansas City? It’s guns versus butter. We can spend money at home to make the country more competitive or throw money around the world with questionable results. We also need to generate more incentives to bring American production back from overseas.
Opportunist: What about our trade with China, now that it has a new leader, Xi Jinping?
Hedrick Smith: Companies moved to China because it offers more subsidies and pays companies to move plants there. China gives companies land, utilities, roads and everything they need to build big plants. Some of these tax breaks are legal and some are not. No one has really taken the Chinese on. We must keep pressure on China to raise its currency value, which the Chinese are deliberately keeping low. American exports to China are expensive, which makes it harder for us to export. There are a number of steps, and it will take awareness and conscious intent and political collaboration.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area. Follow her on twitter at @les7989
Visit Hedrick Smith Online - http://hedricksmith.com