The rusting of America: it may be a myth

The United States, says Herman Starobin, could bear a striking resemblance to a third-world nation in the not too distant future. Unless there is a fundamental change in policy and direction, the broadly defined middle class will continue to decline, contends Mr. Starobin, research director of the International Ladies' Garment Workers' Union. Society will polarize into a small elite and a mass of low-wage workers, plus many more unemployed and underemployed.

That's a gloomy view. It is shared in a more moderate manner by economists Barry Bluestone, of Boston College, and Bennett Harrison, of the Massachusetts Institute of Technology.

In a book published last year, ''The Deindustrialization of America'' (Basic Books), and in talks about the country, they maintain that some industries in certain regions of the country are shrinking far too fast (steel, autos); that this is reducing the number of high-paying manufacturing jobs; and that the new jobs in the service industry or even the high-tech industries tend to be lower paid.

Symbolically, more of the nation's workers are cooking hamburgers instead of making steel.

Starobin's solution is to restrain imports to a specific share of the US market. The textile industry has lost 300,000 jobs in the last 10 years to automation and imports, he notes.

Members of his union, paid $5.85 an hour, must compete with workers in Hong Kong earning $1.18 an hour; or South Korea, 63 cents; or Taiwan, 57 cents; or China, 16 cents.

''As long as we do not have one world, the obligation of each country is to protect its own people,'' Starobin said at a recent Tufts University conference on economics, justice, and the clergy.

Mr. Bluestone and Mr. Harrison argue for an ''industrial policy'' to prevent too rapid industrial change and encourage necessary shifts of labor and capital to new, more promising industries.

But according to two Brookings Institution economists, Charles Schultze and Robert Lawrence, the pessimism of Starobin, Bluestone, and Harrison is based on myths.

In papers and a debate at Harvard University's John F. Kennedy School of Government, the two at Brookings have made the following points:

* The increased production of services in the US has not come at the expense of the production of goods. Measured in constant 1972 dollars, goods output was 45.6 percent of gross national product in 1960 and 45.3 percent in the final quarter of 1983.

Productivity, however, has increased faster in the goods sector than in the service sector. So a larger proportion of the labor force is now employed in services.

* Contrary to the common view, the proportion of full-time workers earning middle-class incomes ($13,000 to $26,000 in 1983) in the production of goods (46 percent) is exactly the same as in the rest of the economy.

If all the full-time workers in manufacturing (25.4 percent of the total in the economy) were reemployed elsewhere with earnings typical of the rest of the economy, the distribution of earnings would change very little. According to Mr. Lawrence, the number of upper- and middle-class earners would decline by 3 and 1 .7 percent, respectively.

* Industrial change in the 1970s has been no faster than in the previous two decades. ''It always goes on,'' says Mr. Schultze.

* High-tech industries do not have a thin group of middle-class workers. Indeed, says Lawrence, for females these industries offer considerably better earnings opportunities than the rest of manufacturing.

Lawrence does find a decline, though, in the proportion of middle-class earnings - from 50 percent in 1969 to 46 percent in 1983. One percent moved into upper-class earnings; 3 percent to lower-class earnings. This decline was particularly large in high-wage sectors such as mining, durables manufacturing, and transportation.

(Among women, the proportion of middle- and upper-class earnings has both increased. Although a disproportionate share of the poor are women, they have been improving their lot.)

Why has the middle class shrunk a little?

Lawrence does not believe it is because of imports, as Mr. Starobin says, or that it is a dangerous long-term trend, as Bluestone and Harrison say. Rather, Lawrence maintains, it primarily reflects the entry of the baby-boom generation into the labor force.

Because of individual competition within this populous group, earnings, especially of younger men, have suffered a relative decline, Lawrence says. As that generation piles up seniority and experience, the middle class will grow once more, he predicts.

If that's so, an industrial policy (a government effort to influence industry trends) to preserve the middle class by promoting the durable manufacturing industries (autos, appliances, TV sets, etc.) would have backfired. That's because the middle class declined more rapidly in their purchase of durables than in most other areas of the economy, Lawrence says.

The Brookings economist does not consider the current distribution of income optimal. ''There is a role for public policy to change the income distribution both directly, via the tax system, and indirectly, via general programs for training and education to assist the disadvantaged and dislocated,'' he states. He wants not to stop change, but to smooth it.

Schultze holds that an industrial policy would violate the Hippocratic oath of politics: ''Thou shalt do no direct, identifiable harm.'' In other words, government would find it politically difficult to steer labor and capital out of any obsolete industry into another rising industry.