The basic challenge is to structure the economy so that the productive sector supports everyone. The recent economic downturn has put a lot of attention on unemployment. Although there is slow and fairly steady improvement in this area, it remains a serious concern, particularly since the figures do not even count many long-term unemployed. Nevertheless, there is a general feeling that as economic growth returns, so will jobs, and the overall situation will gradually return to "normal" - those who want work will be able to find it. There is a belief, in Adam Smith's evocative metaphor, in the Invisible Hand of the Market - individuals' efforts to maximize their own gains also benefit society as a whole, even if the individuals have no benevolent intentions.
This may have been true in Adam Smith's time, when labor was in widespread demand. Unfortunately, it is no longer true. The biggest challenge to job creation has become the technological marginalization of labor, automation's inexorable reduction in labor requirements. Agriculture, which once provided employment to the overwhelming majority of workers, now occupies only about 1% of the population; manufacturing and construction some 10%. A relatively small portion of the work force produces all the essential products the nation needs. This productive sector supports a much larger service sector which can be divided into essential and nonessential services, although there is no clear line between the two.
Broadly speaking, essential services provide necessary support to the economy and its workers. So government at all levels, including the court system is essential, though there are obviously disagreements on some specific elements. This certainly includes military elements, where there are broad disagreements over what force levels, equipment and missions are necessary. Other services specifically tailored to the productive sector include infrastructure & transportation, travel, telecommunications, and financial support. Education supports workers and provides the skills needed in the productive sector, while health care is certainly essential to the economy, though again there is wide disagreement on who should pay. Nonessential services include many of the things that make life pleasant, including sports, recreation, hobbies, tourism, churches, restaurants, and fashion accessories; some of these services (like parks) are also provided by the government.
But whether the services are essential or not, the nonproductive sectors of the economy depend on the productive sector to provide the income that makes the services available. Business entities provide governments at all levels income as taxes and write off many payments to service providers as business expenses. The income for the service sectors ultimately comes from wages, dividends or profits from the productive sector.
One major challenge is that corporations dominate the productive sector and there is a widely held belief that their shareholders are the only legitimate stakeholders; that government and worker interests are secondary at best. In this view, corporations exist solely to make money for their shareholders, so it is perfectly reasonable to minimize taxes in any way possible and to minimize the wage drain on profits. Associated with this is acceptance of a "need" for outsized remuneration of executives, accepted by corporate boards whose interlocked members support one another's positions.
This situation is exacerbated by a focus on economic growth. It would seem obvious that the economy simply cannot grow indefinitely, especially with a levelling population. In much of the Industrialized World, population growth has already halted. The United States remains an exception thanks to continuing immigration, much of it illegal, which simply complicates the job situation instead of boosting economic growth. But growth remains a focus of many corporate efforts, and this is reflected in the growth of the stock market. Yet stock market growth is not really growth, but rather inflation. It does not reflect any significant increase in real value, but rather an increase in valuation, providing income to those who already have significant assets (stockholders), with the biggest share of this increase going of course to the biggest stockholders. Especially since it is taxed at a particularly favorable rate, this increase in valuation is a major avenue of increasing concentration of wealth at the top of society.
Globalization further complicates the situation. The Industrialized World in general and the United States in particular formerly enjoyed bargain prices for a wide range of natural resources and agricultural products, and had the Developing World as a market for producer goods. But competitive pressures have significantly increased the cost of goods from Developing Countries, which are now making many of their own producer goods - indeed, they make many of the producer goods consumed in the United States. In such a globalized world, competitiveness will be a major challenge and will ultimately depend on the education level of nations. In this regards the United States is not doing well; in one recent study it ranked 17th in an assessment of the education systems of 50 countries, with the relatively low rating partly due to large US socio-economic differences.
Overall, with fewer and fewer man-hours needed in the productive sector, there are more and more man-hours available for the service sector. And since the service sector is also becoming more efficient, the available services grow faster than the increase of available man-hours.
What to do?
How can the productive sector support the economy as a whole? It simply has to support more jobs, and two general approaches seem to be necessary:
Increase the number of jobs in the productive sector by such means as shortening working weeks and increasing vacations. European industry generally does this and recently Carlos Slim, the largest entrepreneur in Mexico and one of the world's richest people, has been promoting a three-day work week.
Increase wages so that workers in the productive sector have enough purchasing power to support the nonessential services which make life worth living. Indeed, Carlos Slim has also stressed the need for increasing workers' earning power.
Both of these approaches are of course diametrically opposed to a corporate focus on maximizing returns to shareholders while continuing outsized remuneration levels for top executives. What is required is a fundamental realignment of economic approaches centered on a basic premise that the productive organizations are responsible to society as a whole, they must produce not only required goods, but also required jobs and income and not simply act to extract wealth from society for the benefit of shareholders.
Market forces are totally inadequate to promote such changes; government has to do this. But the experience of recent decades has vividly shown how difficult this is; corporate interests have very efficiently minimized tax payments as well as worker wages and benefits. Corporate lobbying very efficiently focuses resources on specific legislative proposals, while public interests are generally diffuse and ineffective. This is exacerbated by the major influence of money in politics. Those who benefit from the current system do not crudely buy candidates, but do strongly back candidates who support existing economic policies which continually diminish the number of desirable jobs. And these efforts are reinforced by widespread gerrymandering of election districts to buttress the position of incumbents.
Change will not happen unless everyday citizens demand it. History shows the reluctance of the electorate to force major changes unless there is a crisis at hand. Such a crisis may indeed be coming. The 1965 riots in Watts demonstrated the fury of an enraged and marginalized group. Although calm was restored, the underlying problems were never really addressed. The lack of jobs has made this even more pressing, as vividly demonstrated by the current unrest in Ferguson, Missouri, where the unemployment rate rose from less than 5 percent in 2000 to over 13 percent in 2010-12. For those residents who were employed, inflation-adjusted average earnings fell by one-third. Indeed, according to the United States Conference of Mayors, US jobs pay an average 23% less today than they did before the 2008 recession.
Within the nation's 100 largest metro areas, the number of suburban neighborhoods where more than 20 percent of residents live below the federal poverty line more than doubled between 2000 and 2008-2012. Almost every major metro area saw suburban poverty not only grow during the 2000s but also become more concentrated in high-poverty neighborhoods. By 2008-2012, 38 percent of poor residents in the suburbs lived in neighborhoods with poverty rates of 20 percent or higher. For poor black residents in those communities, the figure was 53 percent.
These figures underline the need for basic changes. While favorable treatment of corporations does support some jobs and provide benefits to everyday citizens, its much larger impact is the steady decline of jobs and wages, as well as continual flow of wealth to the upper classes. Market forces simply cannot make jobs reappear. Overall economic policy continues to drain wealth to benefit the tops layers of society to the detriment of government operations and everyday citizens. Campaign finances and gerrymandering do present barriers to such changes, but the biggest roadblock is the need to make a persuasive case to the general public of the need for a fundamental shift in corporate responsibilities.