This is a Letter to the Editor at The Wall Street Journal. Unfortunately the Editor thought he had better letters to print  -- you be the judge!

When it comes to Jobs! Jobs! Jobs! in America, we are a nation of frogs being slowly boiled to death. The American worker is losing out in the global competition for meaningful employment. Your feature on “The Economy and Finance” in your Monday’s special section on “How to Rebuild Global Prosperity” presents some of the factors causing this result but fundamentally obscures the real problem. Your Fortune 500 CEO’s in your CEO Council do not want to admit to it.

First, a key piece of data: according to the U.S. Internal Revenue Service, from 1980 to 2007, the bottom 90% of all workers went from earning 68% of total U.S. Adjusted Gross Income in 1980 to just 51.9% in 2007. The workers taking the biggest hit were those in the “middle class” (those in the top 50% to 90% -- $33,000 to $113,000 in 2007). Their share of the total national income pie declined from 50.3% in 1980 to 39.6% in 2007. An examination of the data will show that these declines were spread pretty consistently over the thirty year period, they are not the result of any annual anomalies.

My concern is not that the rich got richer. Also, I am aware that the absolute amount of income grew substantially over those years. What is very troublesome, however, is that our middle class has not shared anywhere near equally in the growing wealth of our country during that thirty year period. Capitalism in America is in danger when trends like this persist.

The CEO’s in your Council run global companies and therefore want global solutions. They believe in global free trade agreements. They sincerely believe, I expect, that global free trade will be good for America—and good for the American middle class. Why do they believe this? Well, because it has always been good for us – look to the record of the 20^th century. Unfortunately, we aren’t still in the 20^th Century when America was so dominant. The 21^st Century presents very different challenges. All eyes look to the East – to China. Especially the eyes of your Fortune 500 CEO’s – their business models demand it. And I don’t blame them; that is their responsibility to their global shareholders. But I don’t look to them to solve America’s problems either—that isn’t their problem. They run global companies whose headquarters just happen to be in the United States.

In China, the government’s highest economic (and social) priority is Jobs! Jobs! Jobs! for the Chinese people. Try selling aircraft or power turbines or technology in China. Very quickly the Chinese government will instruct you to start building manufacturing plants and facilities there. Ask Boeing, ask GE, ask Intel. And you better bring the newest technology. Does this sound like global free trade?

If American workers are going to prosper, they need the kind of support from their government that the Chinese workers get from theirs. We need to re-examine our global trade policies and taxation incentives to deal with the 21^st Century global competitive realities. And here’s a hint: don’t look to the CEO’s of global companies for advice – they will have a different perspective.

Bill Diffenderffer

Chairman of the GoAmericaProject.org

Most Americans love the idea of “bigness.” Bigness alone seems to have its own virtue. Idiosyncratically, we will drive out of our way to see the world’s largest ball of twine or the tallest building or the most mammoth stadium. More significantly, we strive to have the largest banks, the biggest car companies, the greatest oil companies and most extensive retail chains. We are impressed by size.
Yet we know better than to equate size with quality – in fact we know that the bigger something gets, the harder it is to deliver quality. With almost no exception, once beyond an optimum size (which varies with the nature of the enterprise) the quality of the operation and the product always declines. Sadly, not only does quality decline but the costs per unit of output start increasing.
Worse yet, as things expand beyond their natural limits, they tend to collapse. Excessive size creates instabilities. Everything from balloons to Fortune 500 companies go “POP!” when they expand beyond their structural competency. This is as much a truth of management theory as it is a law of physics.  
There is a political divide in America over how big the government should be. Most often the issue isn’t framed that way; rather the discussion is over the role of government, its functions and its purposes. But at its center the argument is really about the size of government. Some people think the government should be responsible for everything and others think that government should be responsible for as little as possible. The more things government is responsible for, the bigger it gets and vice versa.
For most individuals even their own positions on this issue are somewhat in flux since one’s views on the optimum size and role of government tend to vary with the degree to which people agree with the political philosophy of the current ruling government. If you don’t like the political leaders in charge, you tend to not want to give them more power.
The problem of arguing about the size of government in purely political terms is that it ignores a fundamental reality: the bigger government gets, the worse it is managed.  This is a fundamental law of the political universe. It is without exception.
In the business world it is accepted without challenge that big companies are harder to manage than small companies. “Bigness” has advantages in terms of executing strategy and gaining the benefits of scale that are often worth the increasing management difficulty, but there are many cases where the pure size of an institution overwhelms all the strategic and tactical advantages. Most successful major corporations ultimately reach a size where management of the entity constitutes the biggest single obstacle to success. Beyond a certain size (the size varies by industry and by complexity of the market), unless there is excellent management, the company will fail regardless of scale advantages or the excellence of strategy or tactics.
Because this is true, there are an almost limitless number of books and treatises on management. There are famous management gurus who preach their particular favorite management theory. There are business leaders with worldwide renowned for their management talent. They are justly admired – managing large enterprises is extremely difficult. Yet even with the management gurus at their side, and Boards of Directors that follow their lead, and legions of executives and managers who strive to do as directed, and no real challenges to their authority, and expert consultants to advise them, and a single vision shared by all, even with all these advantages, invariably corporations outgrow their management capabilities.
So let’s return to the issue of Big Government. Is it remotely possible to manage Big Government well? Let’s examine the particular management challenges Big Government faces:
    It is REALLY big;
    There is no common vision shared by all the leaders;
    Power is deliberately divided among three branches of government so that no one authoritarian leader can dominate;
    Senior Management positions are constantly being reshuffled;
    Senior Management positions are allocated on the basis of “office” politics;
    The middle management bureaucracy tends to ignore any executive mandate;
    The middle management bureaucracy is not incentivized to meet specific new objectives;
     The institution itself has no natural imperatives for survival or success.
The list could go on. But the point should already be obvious. Big government institutions suffer from virtually all the management sins that management consultants deplore. No major corporation could succeed with even a couple of the management sins listed above – let alone all of them!
It should be noted that there is one very large part of government that is well managed. That’s the military (the Army, Navy and Marines – not the Defense department.) Our armed forces are very large, but importantly they share a very different command and management structure. They are famously “top down” driven, they have a shared vision, continuous leadership and personal survival is at risk in every battle. Compare any other large government department to our armed forces and the comparison is quickly ludicrous.
Which brings us to the battle over healthcare and the “Public option.” No one who has seriously studied the issues doubts that there is waste and inefficiency in the current system – of course there is – it is a vast and complicated system that is extremely difficult to manage. Yet the idea that the government can reduce waste and mismanagement by substantially growing the system and expanding the government’s role in the management of the system is at best a politician’s pipe dream and at worst a blatant and dangerous misrepresentation (the nice word for a lie.) When a business that is poorly managed to begin with grows larger, the outcome is invariably greater mismanagement, more inefficiency and corruption and deterioration in product quality. That is a fact, not a political viewpoint.
Lastly, it needs to be stated that it is not an accident that Big Government is a management nightmare. The framers of our Constitution feared a big authoritative government and imposed all sorts of checks and balances to prevent any future “CEO” from managing effectively to a single vision with control over all branches of government. They deliberately established a political environment that would discourage government from ever getting too big. Unfortunately, our political leaders have long used their not inconsiderable ingenuity to ignore those limitations – even if it meant government institutions that are wasteful, inefficient, corrupt and contrary to the public good. In doing so, some acted out of good motives and some just aimed for personal aggrandizement, but all of them failed to respect basic management realities. In doing so they charged all Americans with breaking the fundamental law of the Political Universe: the bigger government gets, the worse it is managed.
The message here should be clear to everyone. If the government takes control over an already massive healthcare industry, don’t be surprised if it goes “POP!!!”

For the first time in American history, most parents believe that their children will face tougher times than they did. Most Americans believe that the achievability of the American Dream is fading out of reach. To most Americans this is stunning and alarming. It is their greatest concern. Unfortunately the economic data supports these fears.

There are things that can be done to address these concerns and restore belief in the American Dream, but first the dimensions of the problem need to be understood. Though they are important factors, the current global economic mess, the growth of the competitive threat from Asian economies, and our trillion dollar deficits and looming national debt, are not the biggest problem. The real problem lies deeper in the changing structure of our national economy.

When the right data is examined, the problem is glaringly obvious. The data is neither overly complex nor subject to interpretation. It just requires looking at it. So here it is. We start with looking at all reported income earned by US taxpayers and how it is divided among them,

SHARE OF TOTAL ADJUSTED GROSS INCOME (As reported by the Internal Revenue Service)

                              1980               1989               1999               2007

Top 1%                 8.5%                14.2%             19.5%             22.8%

Top 5%                 21%                  27.8%             34%                37.4%

Top 10%               32%                  39%                44.9%             48.1%

Top 25%               57%                  62.4%             66.5%             68.7%

Top 50%               82.3%               85.1%             86.8%             87.7%

Bottom 50%        17.7%                14.9%             13.2%            12.3%

From this chart we see that in 1980 the top 1% of taxpayers earned 8.5% of all income that year. In 2007, the top 1% of taxpayers earned 22.8% of all income. This means that the top 1% claimed an incremental 14.3% of the total national economic “pie” during those three decades.

We see that the top 5% of all taxpayers earned 21% of all income in 1980 and that number increased to 37.4% in 2007-- an increase of 16.4% of the total pie. But for those not in the top 1%, they only claimed an additional 2.1% of the total income pie.

We see that the top 10% of all taxpayers earned 32% of all income in 1980 and that share increased to 48.1% in 2007 – an increase of 16.1% of the total pie. However, if you separate out the top 5% from the top 10%, the share of those in the top 10% but not in the top 5% actually decreased by .3%. In other words, they started taking less of the total.

It gets much worse for everyone else.

We see that those taxpayers in what we call the upper middle class – those in the top 50% but not in the top 10% -- lost the most during the last three decades. Their share of the total income earned in the United States declined from 50.3% in 1980 to 39.6% in 2007. This group is comprised in 2007 of those taxpayers earning between $33,000 and $113,000.

We see that in 1980 the bottom 50% of taxpayers earned 17.7% of all income that year. In 2007, the bottom 50% earned just 12.3% of all income.

Less obvious but still visible in this chart is that in 1980 the bottom 75% of taxpayers earned 43% of all income and that by 2007 that number had dropped to just 31.3% of all income.

In other words during the last three decades, nine out of every ten taxpayers have earned a reduced share of the total national income – they are relatively poorer than they were. (It is true that total income grew substantially during that period, so though their share is smaller, their total income actually was larger. However, the point being made here is not whether most Americans are worse off now than they were 30 years ago. The point is that most Americans have a substantially smaller share of the income earned in America than they used to. They are now benefitting less from our economy than they did in 1980.)

Within the data it is obvious that particularly the top 5% grew disproportionately richer – by a lot. It is also important to state that inherent in a capitalist system there is always going to be a degree of income inequality – that is the whole point of capitalism. However, no one should argue that the 1980’s (the Reagan years) were bad for capitalism, yet the change from 1989 to 2007 is very dramatic. The top 5% increased their share of the total pie by 35% since 1989 (an additional 10% of the pie went to them.)

There are many, many factors that changed from 1980 to 2007 that led to the dramatic increase in income inequality that this chart highlights. Usually when this is analyzed the emphasis goes to the changes that led to the increases for the top 5%. However, it is more important to look at the bottom 90% and address the problems there, if the vitality of capitalism in America is to be maintained. If capitalism only ends up working for the few – as they perceive it – it won’t work for anyone in no time at all.

During the last three decades the biggest shift in the U.S. economy relative to the middle class – who are all in that bottom 75% -- is in the continuing shift from an economy based on the production of goods to an economy based on the providing of services. Here is another simple chart.

                                                                                                       1980                    2009

People employed in the production of goods:                   25,000,000           19,000,000

People employed in the providing of services:                   67,000,000           112,000,000

In other words, the number of jobs in manufacturing was reduced by 24%. The number of jobs in the service sector increased by 82%.

The problem that arises in this shift from goods to services, is that a services based economy is by its nature more stratified. The “higher level” services, like banking, technology and healthcare pay disproportionately more than the lower level services, like fast food and maintenance. The importance of college level education also shows up in the data. The loss of manufacturing jobs was felt most in the middle class and those with low incomes. Our country starts being more stratified. The rich get very rich and everyone else struggles. The changes in the Adjusted Gross Income chart start resulting in changes in our political debates.

Now, if we are to restore a positive future for the next generation of children and reinvigorate the American Dream, it is essential that the right lesson be learned here. The challenge is NOT to take from the rich through higher taxes to give to the poor and the middle class through handouts and national benefits. The challenge is to grow the incomes of everyone not in the top 10% by creating more and better jobs. We must give middle America a greater stake in the national economy!

There is another aspect of this problem that must be mentioned. As a result of these income shifts, the bottom 50% of all taxpayers paid only 2.9% of all Federal income taxes in 2007. In 1980, this group paid 7% of all such taxes. What this means essentially is that one out of every two Americans really isn’t paying anything for their government – they are just taking the benefits from it. Like it or not, this changes their perception of government. It is one thing to get things for free, it is quite different if one has to pay for them. A big, bloated, charitable government looks great if you are not the one paying for it.

But also, capitalism is much more appealing to those who get the benefit of it – it isn’t so great if your share of it keeps getting smaller! So if we are to remain a country based on capitalist principles, we must solve the problem that results in the middle class, in particular, earning a reduced share of total income. We must create more and better jobs. That’s it – everything else will work from there. But it will take a clear and concerted effort. It is the most important thing for us to do. It cannot be assumed it will happen by itself. The last thirty years proves that. Just look at the data! Any other goal could forever change the nature of our country!