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How the States Can Help Revive the American Dream

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When President Clinton tapped Alice M. Rivlin to be deputy director of the U.S. Office of Management and Budget, he got not only an eminent economist--the first director of the Congressional Budget Office and a former president of the American Economic Association--but also a scholar with an intriguing plan for Reviving the American Dream. In her recently published book by that name, Ms. Rivlin suggests that states, not the federal government, should have authority over the areas included in a "productivity agenda'' of reforms for revitalizing the economy. Education and job training are among these areas. Below are excerpts from the book's concluding chapter:

By Alice M. Rivlin

The greatest impediment to reviving the American dream is that Americans have lost confidence in their ability to control their own destiny. A nation long noted for its "can do'' spirit--for self-assurance often bordering on cockiness--has become mired in pessimism and self-deprecation.

It has become fashionable, indeed almost obligatory, to predict decline in America's economic strength and stagnation in its standard of living. Those who view with alarm often voice inconsistent fears. They worry that America's manufacturing jobs will be lost to low-productivity countries like Mexico or India, where unskilled peasants are willing to do repetitive jobs for little money. At the same time, they predict that the United States will be unable to keep up with high-productivity, high-wage countries like Japan and the members of the European Economic Community, whose workers are more skilled, factories more automated, and transportation systems more efficient than America's.

Frustration and foreboding about the economy have erupted in popular anger at the political system, especially at the federal level, but few believe that public officials will take steps to reverse the gloomy economic outlook. Again, attitudes are inconsistent. People blame Washington both for excessive interference with private initiatives and for failure to provide economic direction and leadership. They criticize Congress and federal executives for being out of touch with real people and not caring what ordinary citizens think. At the same time, they castigate officials for being too political and doing only what is popular with voters. Pundits bemoan lack of leadership, while predicting that Americans would reject any potential leader who asked them to make sacrifices or work hard to improve future performance.

To visitors from less favored parts of the world, all this defeatism and self-criticism must seem both mystifying and counterproductive. There are no objective reasons for such discouragement about America's economic future, unless the low expectations themselves become self-fulfilling. The United States has enormous natural and human resources and a stunning record of performance and creativity. Americans still have the world's highest productivity and standard of living. The challenges facing the American economic system today are not especially daunting compared with challenges that it has met in the past or that face many other economies today.

Americans responded vigorously to economic collapse during the Great Depression and strengthened their economic institutions in the process. They geared up rapidly for unprecedented levels of production in World War II and sustained the long, costly effort to contain Communism for more than four decades. The American economy over the years has proved extraordinarily resilient in absorbing and training millions of new workers over fairly short periods--including waves of immigration, migrants from farm to city, the large baby-boom generation, and an influx of women. Industry and communities have adapted to life-changing new technologies, including the railroad, the automobile, factory mass production, computers, and modern telecommunications.

The new challenges of modernizing education and infrastructure and revitalizing institutions, including government, will take effort, energy, and commitment, but so did the old ones. The chief obstacle to meeting the new challenges is not their inherent difficulty, but the widespread belief that Americans and their institutions are no longer capable of change and renewal. For the first time in their national history, Americans see themselves as helpless victims of circumstance, unable to take charge of their future.

Reviving the American dream requires sustainable and widely shared increases in the standard of living. Private investment, embodying new technologies and processes, must move to a higher level. An increase in domestic saving is required to finance this investment without continuing to depend on foreign capital. To generate the higher level of domestic saving, the federal budget should move from deficit to surplus. Moreover, increased public investment is needed to improve education and work skills, modernize infrastructure, and keep the country on the frontiers of science and technological change.

The federal government cannot simultaneously play a major role in new public investment and eliminate the deficit without a substantial federal tax increase. Such an increase seems unlikely to gain political support without a major shift in public attitudes. Moreover, the federal government is not well suited to take responsibility for improving education, training, and infrastructure or fostering economic development. These are functions of government that require experimentation, adaptation to local conditions, accountability of on-the-scene officials, and community participation and support. State and local governments are more likely than the federal government to carry out these functions successfully.

Hence an appealing strategy for implementing needed new domestic policies is [one I have called] "dividing the job.'' The federal government should do what it has proved it can do well: strengthen the nation's social-insurance system. It should take on the dual task of controlling the growth of health costs and insuring that everyone has health insurance. The states should take charge of the productivity agenda, especially education, training, infrastructure, and economic development, while the federal government should devolve its programs in these areas to the states. Devolution will help move the federal budget toward surplus.

Some federal tax increases will be needed, earmarked for the new health-insurance plan so that taxpayers know what they are paying for. State revenue increases will also be needed to support the productivity agenda. States should strengthen their revenue systems by sharing the proceeds of one or more common taxes.

Reviving the American dream will take far more than sorting out functions among levels of government or even a major shift in economic policy. It will take revitalization of institutions of all sorts. If Americans are to recover their self-confidence and belief that positive changes are possible, they must change the institutions of the workplace and of government. ...

[This revitalizing of both public- and private-sector institutions] requires more than buzzwords and a few examples of conspicuous success. It will take pervasive commitment to continuous improvement, the breakdown of old hierarchies, and their replacement with new patterns of citizen and worker involvement. One ingredient should be a major effort to sort out functions of government--both between the federal government and the states and within the states--to clarify missions and make sure everyone knows who is responsible for which activities.

Reviving the American dream also involves restoring the public's sense of control over government and involvement in the policy process. There is plenty of evidence that many citizens feel left out. ... Part of any serious effort to bridge the gap between the public and experts must be simplification and demystification of the policy process. ...

...The overlapping roles of state and federal government add to the public's mystification about the process of government and their sense of powerlessness. Sorting out functions between the federal and state levels should help clarify what different levels of government do and restore some confidence that voters' choices can actually affect what happens.

In sum, reviving the American dream will require not only new economic policies, but restoring individuals' sense that they can make a difference in their own lives and in the functioning of public and private institutions. America is indeed fortunate that the structure of its economy and its government makes such empowerment possible. It is far easier for individuals to make a difference in a free-enterprise market system than in a centrally controlled economy. Similarly, there is far more scope for citizen participation and competitive reform in a federal structure than in a centralized top-down government.

There were good historical reasons why power flowed toward Washington from the 1930's to the beginning of the 1980's. Similarly, there are now equally cogent reasons for re-examining the federal structure and dividing responsibilities more clearly between the states and the national government: revitalizing the economy and making government work better.

From Reviving The American Dream, by Alice M. Rivlin. Copyright 1992. Reprinted by permission of The Brookings Institution. All rights reserved.

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