Stop blaming Big Business

(Fortune Magazine) -- The top-grossing movie in the world, Avatar, is on screens now, and it clearly identifies the most evil force in the universe. It's business.

"There's only one thing the shareholders hate more than bad publicity," says the smarmy manager of an unnamed company's mining operations on the planet Pandora in Avatar, "and that's a bad quarterly report." Slaughtering hundreds of peace-loving Pandorans may generate some nasty press, but he decides to do it anyway -- in the name of profit.

That portrayal -- echoed in the Oscar contender Up in the Air -- may seem cartoonish, but it's in line with the popular mood, which is why President Obama knew he was on safe ground when he recently derided "fat-cat bankers."

Polling shows that America and the developed world still loathe business two years after the U.S. recession began; a 2009 survey by the Edelman PR firm says that only 30% of Americans (and 13% of Brits) think the reputation of large global businesses is good. Now Congress is weighing a "Wall Street tax" meant to penalize the financial services industry for its transgressions, and Britain and France already have enacted high taxes on bonuses.

None of those sanctions will achieve their goals, because the intended victims can evade them or pass along the costs; they'll just throw a bit of sand in the gears and impose a burden of inefficiency on everyone.

Instead, these moves are all about payback: Voters love them because they punish the sector of society that so many blame for the recession and their own poor financial state. Unhappiness with the current state of affairs is entirely rational, but ...

Blaming business is not only nuts, but also dangerous.

It's nuts because if you really want to name those who caused the recent recession, the list is long: stupid and shortsighted companies for sure, but also a government that encouraged and mandated risky lending as well as millions of people who willingly took on mortgages they never should have.

More important, it's dangerous because it's a delusional response to a far larger issue. As miserable as this recession has been, the hard reality is that even when it's over (and it may be over already), most Americans won't be any better off than they were a decade ago, nor will their prospects be bright. Hanging business from the rafters won't do a thing to help.

The real problem for most Americans isn't the recession.

It's the more ominous fact that average household income hasn't budged for the past 10 years. That's true in every income quintile of the population, even the top.

And for the bottom 60%, that stagnation has lasted twice as long. Most of the country has just been treading water over a period that spans expansions and recessions, bull and bear markets, and Republicans and Democrats in charge.

Just try finding the bad guy in our real-life movie. The advent of a large-scale global labor market means that millions of Americans are competing for jobs with Chinese, Indian, and other workers, pushing our high pay down. Social trends have led to more single-parent and typically lower-income households. Perhaps most important, America no longer boasts a world-beating education system that turns out masses of graduates who can support an ever-rising living standard.

Who's the villain?

It isn't a few evil people or any one sector. It isn't the rich; the gains of the top 1% needn't cause declines at the bottom. Our society isn't behaving villainously at all. It just isn't adapting to a changing world. Don't despair; we can return to a rising standard of living. We've done it before. But we'll never do it as long as we refuse to face the real reasons that so many Americans are in economic trouble.

How to raise living standards

1. Increase accountability and pay in public schools. We can turn out better graduates by realizing that principals and teachers respond to the same incentives as the rest of us.

2. Embrace high-performing immigrants. They don't steal American jobs; they create them and make the U.S. more competitive.

3. Lower the U.S. business tax rate and end corporate welfare. That will help make U.S. companies more globally competitive and aid American workers.