By Cliff DuRand

 

[presented August 29, 2012 in a panel discussion “Election Fever”]

Myth of the Middle “Class”

One of the central issues in the election campaign is who can save the threatened middle “class”. Both parties claim to champion this massive block of voters who hold the key to this election. However, there are two problems with this view. 1) The first is that there is no such thing as “the middle class.” It is not the name of a class, but rather refers to the position of a class in the social hierarchy, somewhere between the top and the bottom –the middle. And there is not a single class in that middle position but a number of classes. In the middle we find blue collar and white collar wage laborers of various skill levels, small business owners (the petty bourgeoisie), professionals, supervisory personnel, and managers – hardly a single coherent social grouping.

Generally those who talk about the middle “class” as if it were a single entity define it in terms of income levels. They are actually talking about a statistical category, e.g. those whose incomes fall between __$x__ and ___$y___. Just what values are used for x and y is a matter of choice by the statisticians who compile the numbers. So, ‘middle “class”’ refers to those whose incomes are below top income receivers and above bottom income receivers – those in the middle. E.g. one recent author [Jeff Faux, p.265 n2] defines it in terms of the middle 80% of income earners, with the upper class being the top 10% and the lower class the bottom 10%. The income differences between the upper portion of this statistical category and the lower end of it is $100,000 or more. Clearly such a middle stratum is not a single coherent class.

2) The other problem with the view that the two parties are vying over who can better protect the middle “class” (i.e. middle income earners) is both parties have long embraced basic public policies that have been undermining the economic security of the millions in that middle income range. This is fully substantiated by Jeff Faux in his new book The Servant Economy: Where America’s Elite is Sending the Middle Class. He argues that “the elites are unanimous: lower everyone’s wages and standard of living –except they don’t say it out loud.” Both parties favor no-strings Wall Street bailouts, expanded unregulated trade, weakened unions, and fiscal austerity as an economic priority, even though that means shredding social programs. There may be some difference in degree on these issues, but both parties are in basic agreement. “The mantra of both candidates is ‘Jobs, jobs, jobs.’ What they leave out is they are unwilling to confront the power of Wall Street and the Pentagon, job growth in America now depends on driving labor costs lower and lower to attract business investment” [cf. Faux on AlterNet, July 19, 2012]

This bi-partisan consensus is illustrated by Senate approval this last winter of the free trade agreement with Colombia, Panama and South Korea. While all politicians were calling for more jobs, they approved a free trade agreement that they knew would destroy jobs. This was evident in the fact that approval of the free trade agreement was accompanied by extended unemployment benefits for displaced workers. It’s like they just can’t help themselves when an opportunity arises to favor transnational corporations.

 

The Usefulness of a Middle “Class”

It is generally accepted that a large, prosperous middle “class” or middle stratum is vital to the future of the US. There are both economic reasons for this and political reasons. Economically, the health of capitalism requires a large sector of consumers with sufficient income to be able to buy what is produced. Without effective consumer demand capital cannot realize profits. That is a reality that has become evident today in the long recession the economy is in. Businesses are not investing and jobs are not being created because there is low consumer demand due to high unemployment and high consumer debt. But that then results in higher unemployment in a vicious downward spiral that is evident to all those whose perceptions are reality based. This has been pointed out twice a week by Paul Krugman in his New York Times column. And now the point has been made by another Nobel economics prize winner, Joseph Stiglitz in his new book on inequality. [The Price of Inequality: How Today’s Divided Society Endangers Our Future (W.W. Norton, 2012).]

Politically, prosperous middle strata are important for stability. As the term middle “class” is usually used today, it involves an expectation of upward mobility, rising income and a comfortable and secure standard of living. It is this upward mobility that is of particular political importance. Political stability is enhanced by having a sizable sector of the population who believe they have an opportunity to improve their condition in the existing system – or at least their children do. That is why the existence of a middle “class” is widely considered to be of crucial importance for a stable democracy of the US type. It is at the heart of The American Dream.

 

Downward Mobility

But this dream has become more of a nightmare as more and more in the middle strata are experiencing downward mobility. In fact, of all the advanced countries, the US has the lowest upward mobility of all. [ “Harder for Americans to Rise from Lower Rungs” New York Times, January 5, 2012 http://www.nytimes.com/2012/01/05/us/harder-for-americans-to-rise-from-lower-rungs.html?nl=todaysheadlines&emc=tha23 ]

America is no longer the land of opportunity as incomes of those in the middle have stagnated for the last 30 years and wealth has also declined sharply since the mortgage bubble burst in 2008.

It once was the case that a young man could enter the workforce right out of high school and get an unskilled assembly line job in a unionized industry with high enough pay to be able to start a family, buy a house and enjoy what was called a middle “class” lifestyle. Under the illusion they were no longer working class, they thought of themselves as a new class in the middle, somewhere between the poor and the rich. And they could enjoy economic security and a rising standard of living, even sending their kids to college so they could rise even more in the hierarchy of US society.

As economist Ric Wolff has pointed out, over 150 years (from 1820 to 1970), real wages for US workers rose each decade. [Capitalism Hits the Fan, chapter 3] In the quarter century from 1947 to 1973 average real wages rose an astounding 75%. But that shared prosperity came to a halt in the mid 70s. In the next 25 years from 1979 to 2005 wages and benefits rose less than 4%. [Faux p. 47]

This stagnation of working people’s wages was not the result of some impersonal natural force. It was the result of deliberate economic and political decisions. The basic reason for these decisions was set forth with unusual candor by former IMF Director Jacques de Larosière. In a 1984 policy address he said

Over the last four years the rate of return on capital investment in manufacturing in the six largest industrial countries averaged only half the rate earned during the late 1960s…. Even allowing for cyclical factors, a clear pattern emerges of a substantial and progressive long-term decline in rates of return on capital. There may be many reasons for this. But there is no doubt that an important contributing factor is to be found in the significant increase over the past twenty years or so in the share of income being absorbed by compensation of employees…. This points to the need for a gradual reduction in the rate increase in real wages over the medium term if we are to restore adequate investment incentives. [Quoted by William I. Robinson A Theory of Global Capitalism: Produc­tion, Class, and State in a Transnational World, (The Johns Hopkins University Press, 2004), p. 108.]

In other words, in order to ensure “adequate” profits to capital, workers incomes had to be curtailed.

The policies that made this suppression of incomes possible came to be called neoliberalism, a public ideology represented by President Ronald Reagan in the US and Margaret Thatcher in England. It involved a withdrawal of government from directing the economy, leaving it instead to market forces. This meant deregulation, privatization, and free trade. And that required weakening the collective hand of workers by an assault on unions and social benefits so as to strengthen the hand of capital.

“Free trade” policies of our political elite were a key part of the neoliberal offensive against labor. Trade agreements like NAFTA promoted the export of entry level jobs to low wage countries of the global South. With globalization, beginning in the 1980s those entry level industrial jobs that had made possible mobility into middle income levels were the first jobs to be sent off-shore where they could be done by low wage workers in the Third World. For instance, Economic Policy Institute has recently calculated that in the last decade US trade with China has cost us 2.7 million jobs.

And for those jobs that did not emigrate, there was a downward pressure on workers wages and benefits. As a result there has been wage stagnation for the last 30 years, even as worker productivity rose sharply. This is shown clearly in the following graph.

Link to Chart

Capital took the bulk of productivity gains (shown by the upper pink line) over the 1993-2006 period by holding wages down (shown by the lower blue line). But then with the 2008 financial crisis, median family income declined further, by nearly 10%. Jeff Faux projects over the next decade another 20% decline in real wages for average USians. [p. 223

For a while wealth had appeared to increase for average USians because of inflating real estate values. But the financial crisis of 2008 wiped out that fictitious wealth. Median family wealth in 2010 was the same as it had been 20 years earlier. http://www.nytimes.com/2012/06/12/business/economy/family-net-worth-drops-to-level-of-early-90s-fed-says.html?_r=1

Today 80 % of the world’s industrial workforce is now in the global South. This is in no small measure the result of corporate policies over the last 30 years – policies encouraged by our political leaders – to off-shore those low skilled industrial jobs that used to be the entry point to the middle “class” for many USians. That may create the conditions for middle “classes” in Brazil and China and even in Mexico, but it shrinks the middle “class” in the US, pushing people’s living standards downward. Basically, capital is destroying the middle “class” at home and reconstituting it in parts of the global South.

This can be seen in Table 1 (below) which shows how leading US based transnationals have shifted operations abroad where they now have a majority of their sales and workforce outside the US. This is the basis for formation of new consumerist middle classes.

In the 90s we were told by Robert Reich, Labor Secretary in the first Clinton administration, that to remain competitive in the global economy, US workers needed to upgrade their skills. The new knowledge economy would save the middle “class,” we were told. But now we are increasingly finding that these jobs are also being off-shored to countries like India. The knowledge workers there will work for far less than in the US. And many of our college graduates today are saddled with heavy debt and are unable to find work.

Link to Chart

Table 1. Foreign Assets, Sales, and Employment of Top 18 U.S. Nonfinancial Multinational Corporations (Ranked by Foreign Affiliate Assets), 2000 and 2008

Source: UNCTAD, World Investment Report (New York: UNCTAD, various years).

* Figures are for 2001; † Figures are for 2003.

Increasingly transnational capital is free to roam the globe looking for the cheapest, most compliant labor force for its various operations. The US political elite has been vigorous in promoting such free trade, even at the expense of their fellow citizens. That is the central contention of my book Recreating Democracy in a Globalized State.

Conclusion

Our political elite identifies the national interest with the interest of the big corporations, not with the people. They still believe that what’s good for GM is good for America. To be sure, some try to also accommodate the interests of voters, but when push comes to shove, capital trumps the citizens.

While there is some significant difference between the two political parties on some issues of importance (women’s health and Supreme Court nominees come to mind), when it comes to arresting the decline of the middle “class”, i.e. the downward mobility of many USians in the broad middle, both remain wedded to policies that are tending to the Third Worldization of the US. On this vital issue of the decline of the country, the difference between them is only how rapid this decline will be.