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November 25, 1998
Part I - Speech by Dr. Robert Reich from the 1998 Annual ICCR dinner
SocialFunds.com --
As you can see, 4 years in Washington in the President's cabinet wore me down.
I stand squarely
on my platform. [Editors note: Dr. Reich is less than 5 feet
tall] Actually, in leaving
Washington, I did not know it at the time, but my
timing was impeccable. Politics, many of you
may know this, comes from the
Greek "poli" meaning "many" and "tics"- small blood sucking
insects. That's
really not fair and it is not true - I have enormous admiration for the
people
I worked with. My admiration for politicians in general went up when I was
down in
Washington for 4 years.
 I want to congratulate Tim Smith and the
ICCR and all of you for the extraordinarily important work that you are doing. To a lot of people
who do not know your work, to a lot of people who are outside of the community of faith-based
institutions and socially responsible investing, it all sounds rather vague sometimes. It sounds,
to some of them, a little goodie-goodie. But I can tell you that working in the trenches alongside
many of you on issues like the sweat-shop issue or family medical leave or issues concerning the
welfare of American workers - minimum wage, that you make a huge difference. You, who are money
managers, who are in corporations who are change agents, you may not know it, you may not describe
yourself as change agents, but you are as much change agents as other people in this room and
vitally important change agents.
Now you talked today about globalization, you talked
about global warming. Globalization is now deep in the American economy. The American economy, by
the way, is doing rather well in case you hadn't noticed. Unemployment is down for the second year
in a row, down to 4.6% since January of 1993, 16.5 million new jobs - net new jobs - have been
created in the United States. I was Labor Secretary for 4 of those 6 years and I created almost
every one of those jobs single handedly[laughter]. Average wages are starting to move upward.
There is no sign of inflation at all. The Federal Reserve Board is beginning to understand that,
finally. But when I say that "average wages" have gone up - be very, very careful. Whenever you
hear anybody talk about "averages," when they are talking about economy watch your wallet. The
basketball player, Shaquile O'Neil and I have an average height of 6'1". You get my point.
Averages do not tell you all the time the most interesting information. They also don't tell you
what is happening to the little guy and the American economy - the United States economy.
The interesting story behind the economic good news is that the bottom 60% of Americans, in
terms of their compensation, their benefits - adjusted for inflation, they have not gained ground
in this recovery. In fact, the median wage - adjusted for inflation, is just about where it was in
1989 before the recession and before the current recovery. This is the first recovery in the
post-war era in which average wages have gone up, but median wages have been stagnant. For the
bottom 60% - if you are in about the 20th or 30th percentile and near the bottom, your wages have
been falling, even in this recovery. We are seeing and have experienced greater degrees of
inequality of income and wealth and opportunity in this country than we have seen in this country
since the 1920s.
Now there are people in this country who are very nervous about
globalization. It is not just Democrats, there are many Republicans. A majority of the freshman
and sophomore Republicans did not support the President's desire to have fast track trade authority
and they did not do so because many of their constituents are afraid - they are nervous. They are
nervous about internationalism, they are nervous about globalism. I think they are wrong to be
nervous. I think, on balance, trade is good for us, on balance globalization is good for us, but
again, when people talk about balance or averages, you have to be very careful.
You know, I
was thinking about globalization recently, I realized it affects me very intimately and very
personally. I, in 1992, just before I became Labor Secretary, had my hips replaced - both my hips.
I was suffering from an arthritic condition that I think is related to my height. In fact, it got
very bad about 1992 - I could hardly walk. I did have my hips replaced and it is a wonderful
operation. I don't know how many of you have had a hip operation, but now I have beautiful new
hips. They really are - they are stunning. They are cobalt steel topped with a kind of a silicone
plastic. They are gorgeous hips, but I was talking and thinking about globalization. I was
thinking about global industry, global warming, and global trade and I thought - this is a very
intimate thing - I don't even know where my new hips were made and I made some inquiries.
By
the way, I just want to tell you that there is no disadvantage, there is just upside to having your
hips replaced if you need to - except there is one problem. One problem I ran into when I was
coming down here today was the airport metal detector. I took out my keys, my wallet, everything -
it still went off. I tried to explain, they didn't believe me. They laid me down on that luggage
conveyor belt. It was humiliating for a cabinet secretary - former cabinet secretary - but what I
started to say is... I made some inquiries into where my new hips were actually made. I found out
- I checked with the surgeon and the hospital - that my beautiful new hips were actually designed
in France and they were fabricated in Germany. I have French designer hips.
Now what I want
your cooperation on is this: Because they were made in Germany and they were designed in France -
I didn't know that - I had them put in in 1992, but I was Labor Secretary for 4 years with these
hips in me. Well to put the matter bluntly, I do not meet the domestic content requirements for
being a cabinet secretary. If you could keep that in this room, because you see Ken Starr will use
anything he can possibly . . . I heard him today, he was squirming, he was reaching for whatever
he could, so be -- keep it in this room if you could.
Globalization is with all of us in
various ways, very subtle ways even if you do not have my hips. Many of you are, I think,
justifiably concerned about certain aspects of globalization. What should the responsibilities of
American companies, companies you invest in, companies you work with? What should their
responsibilities be with regard to globalization, whether it is environment or working conditions
or wages? This tends to be a difficult debate to have, because while we all will agree, I think
that companies we invest in, American companies - companies based here - ought to subscribe to and
must indeed subscribe to U.S. environmental and wage and working condition legislation with regard
to everything they do here. A lot of companies say, with some logic on their side, but we can't
possibly be expected to apply the same identical standards abroad. You can't expect us to pay our
workers in Southeast Asia or Indonesia or Latin America, the same that we pay our minimum wage
American workers. You can't expect us to give them exactly the same high working conditions. You
can't expect us to subscribe to U.S. environmental standards. This would take away all of the
reasons for our being there, the cost advantages for our being there. Many concerned citizens will
say back to American companies, but wait a minute, you do certainly have some responsibilities in
these countries. You need to be leaders in these countries. You need to set an example. You
can't simply be content with standard practice in those countries because we own a piece of you, we
want to be exemplars in these countries. We want our values to be somehow mirrored in your
investments, in your activities in these countries.
You see, you get into a dialog in
which both sides are talking past each other. So, what is the answer? I think there is no clear
and simple answer, but I think that what we expect and should expect from the companies we own, we
invest in, we work with, that have our values, is this: Not that they, in their foreign operations
will do exactly as they are required to do in the United States, but that they will:
1.)
indeed set an example, their standards will be higher than prevailing standards, we want them to
set an example,
2.) not engage in anything that violates the International Labor
Organization, World Trade Organization rules in terms of forced labor, slave labor, child labor
with regard to children under 12, ideally under 14,
3.) treat people with some dignity and
respect and that the International Labor Organization Codes should be respected. In terms of
environmental standards, we would expect - even if they cannot come up to exactly the standards of
the United States - them to use modern technologies to reduce, to the extent that they possibly
can, pollution in air and water and stream, because it is not just polluting that country, it is
polluting the world. They must set an example and they must bring others with them to set that
example,
4.) with regard to their treatment of employees and consumers and others, go
above and beyond these minimum standards and the minimum International Labor Organization
standards. We would expect that our companies bear in mind a kind of developmental path that as the
countries in which they are operating became richer, as the median wage increased, as the country
was able to afford more and more - that all of its employees, all of its workers would do better
and better. That there be a livable wage ----- of the median wage, at least a wage that allows
people to have a subsistence of living, and
5.) monitor their far flung operations with 3rd
parties who are not necessarily in their direct employ, but 3rd parties that they can trust, that
we can trust and monitor their subcontractors and sub-subcontractors to make sure that these
standards are being met - that it is not just lip service.
It seems to me that these 5
principles are a fair compromise between, on the one hand, American companies saying to us, with
complete justification, we cannot be expected to be held to the same U.S. standards because that
would eliminate any cost advantage - that sort of back door protectionism. Then on the other hand,
people of good intention and good will in the Unites States saying, "Our values demand U.S.
Standards." There is a middle ground. I think that I have suggested it, we need to talk about it,
we need to continue to talk and have a dialog over that middle ground. What I particularly
appreciate about ICCR, about so many of you in this room, is that you are willing to talk with each
other. You are willing to continue to engage in a dialog about hard issues, such as the issue I
just raised. You are willing to listen to one another. After 4 years of Washington, I can assure
you that listening and dialoging and trying to reach some accommodation and hearing what it is and
why it is that the other person is saying what they are - that is so crucial in our society today.
Leaving Washington, I suffered from staff deprivation. Let me explain what I mean: you get
in the back seat of your car and there is nobody in the front seat. You find yourself getting
lost very easily, very quickly. When I came home, my first dinner with my family, I had been
commuting for years - my two teen age sons, my wife - they were all together and I did this, I am
ashamed to admit it. I actually did it, I had spent the day at home, kind of going through my
things and going through the house and I had written a little memo and I sat down at dinner and I
said to each of them - I gave them assignments - I delegated things for them to do. Do you know
what my wife did with my memo? [laughter] Yes, you are right, that is what she did with it. My
two sons said, "Dad, you are home now. We are not your staff, Dad." It has been a humbling and
wonderful experience.
I have a reputation for being something of a soothsayer and I am
going to make some predictions right now. I want to warn you, however, that my soothsaying
abilities have been grossly exaggerated. They all derive from a misunderstanding and I will level
with you, as I have tonight in other respects. The misunderstanding is this: In October of 1987,
the first week of October of 1987, I was on a television yelling program. I am often on yelling
programs, you know, they all have belligerent sounding titles like Cross-fire, or Cannonball or
Hardball or Firing Line.
You know these are aggressive babble, babble, babble shows. I
was on, now it was the first week of October of 1987 - you economic historians will remember that
something happened toward the 3rd week of October of 1987, but I was there the first week. I was
on one of these shows, one of the most intense yelling shows and I was yelling. There was an
economist on the other side and he was yelling. The point that he was making at this particular
moment was that the Reagan, it was then the "Reagan bull market" - knows no bounds, it is just
going to go through the ceiling. If you are in the market, he said, get in deeper, don't even wait
for the end of this program to call your broker. Right now, get in, get in, while the going is
good. It is going to ...
And it came to my turn and I demurred. I said, "I am terribly
sorry that you are absolutely 100% wrong, you have got it wrong. You are wrong again. There is
going to be a correction. It is going to be a big one, it is going to be a huge one. The market
is going to lose 20% of its value. I can't tell you exactly when, but I think it is going to come
in the next 2 weeks. No - I did, I did say it. There is a tape of this program. It is called
"Crossfire" - one of the most belligerent. I won't give you the name of this other fellow,
because it would not be fair to him, he is not here to defend himself -- Arthur Laffer. It just
slipped out, I couldn't stop it. And I said, "No, not only is it going to be a crash and a big
correction -- two weeks, but I would get out of the market. If you are in, get out. Don't even
wait until the end of this program. Call your broker now, get out.
In retrospect, I don't
think anybody saw the end of the program one way or the other. But then, as you remember, some
of you who are old enough, you remember that there was a correction, about 20% of the market. Yes,
there was a big drop within 2 weeks and I was deluged with letters and telephone calls and, in
those days, telegrams. There was no E-mail, but people (there was, but I wasn't using it), people
wanting to know how to sign up -- sign up for my investment letter. I was flattered, but I told
the people who wrote and called me and telegraphed me -- I told them that I did not have an
investment letter. In retrospect, I think I made a very poor career choice at that particular
point and time.
I will tell you that I -- that prediction that within the 2 weeks the
stock market is going to lose 20% of its value -- did not tell them what I am about to tell you.
I had been making that precise, same prediction for 4 1/2 years, which goes to show that in the
economic forecasting business, if you stick to your guns... Eventually you can have your own
investment letter. So my reputation as a soothsayer is unfounded, but I am going to even make some
predictions nonetheless, because I think that we are at a very special point in time. Not only in
terms of globalization, the labor issues that I have touched on, sweat shop issues that we have
worked on together, environmental issues that so many of you are so deeply involved in and I have
been somewhat involved in, certainly in some of our negotiations with some other countries. We are
at a very important point in this process of globalization because there are forces right now in
southeast Asia and in Europe and elsewhere around the world that are saying effectively, "No, we
don't want to go down this route." Capital is moving too fast. It is undermining the social
contracts in our country. Globalization is not working to the benefit of the bottom 60% of our
people, it is imposing instead an unwarranted burden on the bottom 60%. They are not the
beneficiaries of globalization. Incomes and wealth and opportunities are widening - they are
diverging as globalization sets in.
I think it is our obligation - those of us who believe
that there are benefits to be had in a process of globalization - those of us who believe that
there really are important benefits there in terms of economic growth and opportunity - it is
incumbent on us to make sure that those benefits are spread fairly. That the bottom 60% of our
societies do enjoy some of the fruits, or have a fair shot at some of the fruits of globalization.
That the negative outcomes of pollution, of despoliation of air and water, of carelessness, are
minimized. That there are international agreements on which we, as Americans, American companies,
American citizens, as an American government, take the lead - being exemplars. But also taking the
lead in terms of urging our partners, our trading partners, business partners, subcontractors, to
work with us and improve labor conditions, working standards, the environment. If we do not do
this, if we do not exercise this kind of leadership, if the benefits of globalization are not felt
broadly, if there continues to be environmental damage and despoliation, if people in the bottom
60% in this country and in other countries continue to feel the unwarranted burden of globalization
and not the benefits - then I can guarantee you that isolationism, jingoism, nativism and the
walls that they represent will all increase.
We are at a turning point. It is not simply a
matter of social responsibility. It is a matter of maintaining an economic system that has great
promise where so many people, in terms of alleviating poverty, if it is organized correctly and
properly. There is no such thing as a free market. In nature, there is not a market. Markets are
the consequence of rules. Rules about property and contract and liability. Rules about
bankruptcy, rules about reorganization, rules having to do with how the system is going to be run.
Markets are human creations and we, as human beings, have got to take charge of what that global
market is going to be doing over the next century.
All of you in ICCR, in companies,
investment advisors, fund managers, you are in the vanguard of all of this and I want to salute
what you have done. I want to salute Tim and the ICCR Board of Directors. I want to urge you to
keep the faith. Faith-based institutions are very much a part of the values that we bring to bear
on these issues. Keep the faith and continue what is not going to be easy or quick, but must be a
long term and tenacious, tenacious project to make sure the global economy works for all the people
of the globe.
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