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May 1994

Who Speaks for the Middle Class?

Whatever their rhetoric may be, as a practical matter the Democrats think first of the less fortunate, the Republicans of the well-to-do. Meanwhile, the nation-breaking crisis of the middle class continues

by Jack Beatty

When I was a boy, we had something in America that the cultural critic Ralph Whitehead Jr., in an as yet unpublished book on work and social stratification, calls "the expanding middle class." It was one of the great social achievements of all time. Born in postwar prosperity, sustained by vindicated hope, it muted the class conflict that Marx had prophesied would one day destroy capitalism. Indeed, it was a reproof to the very idea of class.

The expanding middle class had in it two distinct kinds of workers: white-collar and blue-collar. Back then, thanks to the wages won for him by his union, the blue-collar man (the gender specification is unavoidable) could live next door to the white-collar man--not to the doctor, perhaps, but to the accountant, the teacher, the middle manager. This rough economic equality was a political fact of the first importance. It meant that, in a break with the drift of things in pre-war America, postwar America had no working class and no working-class politics. It had instead a middle class politics for an expanding middle class bigger in aspiration and self identification than it was in fact--more people wanted to be seen as middle-class than had yet arrived at that state of felicity. Socialism in America, the German political economist Werner Sombart wrote in 1906, foundered upon "roast beef and apple pie," a metaphor for American plenty. The expanding middle class of the postwar era--property-owning, bourgeois in outlook, centrist in politics--hardly proved him wrong.

Something happened to this expanding middle class around 1973: the economic floor it stood on started to give way. After increasing by an average of 2.7 percent annually from 1947 to 1973, the median family income, adjusted for inflation, actually decreased, hitting a low point in the early 1980s, when it was supposed to be "morning in America"--and this even though the number of two-income families was rising.

The numbers bludgeon complacency. From 1960 to 1974 real wages and salaries of experienced workers--regardless of their level of education- increased by 20 percent; from 1974 to 1989 workers with less than a high school education saw their wages fall by 21.7 percent, and high school graduates saw theirs fall by 14.7 percent. According to Lester Thurow, from 1973 to 1992 average wages for the bottom 60 percent of male workers fell 20 percent, and overall median male wages fell 12 percent. For nonsupervisory workers real weekly wages fell by 20 percent and hourly wages by 13 percent. Among young males aged eighteen to twenty four who worked full time, the percentage earning less than $12,195 (in 1990 dollars) a year more than doubled during the 1980s, from 18 to 40. Among young women the percentage earning less than $12,195 a year increased from 29 to 48. "Earnings prospects are collapsing for the bottom two-thirds of the work force," Thurow says.

Even the lower tier of the top third is losing ground. In The New Republic, John B. Judis recently cited data showing that from 1989 to 1993 "the wages of white-collar executives and managers dropped 0.8%, the wages of technical workers fell by 2.9% and the wages of college-educated workers declined by 2.5%." In 1993, for the first time ever, there were more unemployed white-collar than blue-collar workers. President Clinton said in his State of the Union address, "The recovery hasn't touched every community or created enough jobs. Incomes are still stagnant." Would that they were stagnant. In fact wages continued to decline during Clinton's first year. According to data assembled by the economic analyst Richard Rothstein, in LA Weekly, blue-collar workers earned two percent less in the first half of 1993 than they did the year before, managers earned 2.5 percent less, and the number of involuntarily part-time jobs increased. The official unemployment rate is 6.4 percent, but if you include the involuntary part-timers along with workers too discouraged even to look for work, Rothstein says, then the unemployment rate looks more like 12 percent--and this is during the third year of a recovery.

In his new book, Who We Are: A Portrait of America Based on the 1990 Census, Sam Roberts cites similarly depressing figures. If you define low income as less than half the national median of $37,152 for a family of four, or $18,576; high income as at least twice the median, or $75,304; and middle income as the range in between, the following picture emerges. Since 1980, the census shows, the share of middle-income households shrank from 71 percent to 63 percent and the share of low-income households rose by more than a third, as did the share of affluent households. The affluent top fifth showed substantial gains in wealth from census to census. During the 1980s, according to America: What Went Wrong?, by Donald L. Barlett and James B. Steele, the number of Americans earning $500,000 or more a year increased by 985 percent. In the course of the same decade the combined salaries of people earning $1 million or more a year rose by a deeply affronting 2,184 percent. More--and richer- rich, more poor, fewer in the middle: the pattern is clear, and it is a Latin American, not a North American, pattern.

Citing statistics like these, Ralph Whitehead says that the expanding middle class has yielded to the "diverging middle class," with blue-collar and "new-collar" clerical and technical workers falling out of the middle class into the heroically resigned ranks of the working poor--the approximately 56 million Americans, representing 22.8 percent of the population, with incomes insufficient to cover basic necessities, according to calculations cited by John E. Schwarz in The Forgotten Americans. Most of us are only a restructuring, a re-engineering, a firing, a major illness, or a divorce away from joining them.


Setting a Course Downward

What went wrong? It would take too long to answer that question in satisfyingly thick detail. But surely the lineage of the crisis includes

* The oil-price shocks and rising energy prices after the Arab-Israeli War of 1973 and again after the Iranian revolution, in 1979. These acted like a huge new tax, multiplying the fixed costs of doing business in America. (Similar costs were incurred by Japan, but they motivated society-wide conservation--not, as here, political denial and a war for cheap oil.) Rising energy costs lowered productivity and, by spurring inflation, caused real wages to decline. Paid less, workers bought less and saved less. A negative cycle had started. It has yet to stop.

* Insufficient savings and capital investment. According to statistics taken from Reviving the American Dream, by Alice Rivlin, net private saving went from 8.7 percent of national income in the period 1947-1973 to 4.9 percent for 1986-1990. Since 1980 net domestic investment, private and public together, has gone from seven percent of national income to 4.7 percent, a loss of a third of this vital job-generating economic category.

* The shift from high-wage manufacturing jobs to low-wage service jobs. At the end of the 1950s, in the America of the expanding middle class, 31 percent of U.S. workers were employed in manufacturing industries; by 1987 only 18 percent were, the thirteen-point difference encompassing those who lost their jobs either to foreign manufacturers or to automation. In Negotiating the Future, A Labor Perspective on American Business, Barry and Irving Bluestone cite research that counted 900,000 manufacturing jobs, many of them paying family-sustaining wages, that were erased each year from 1978 to 1982, for a total of nearly five million jobs lost in five years. That is one of the most stunning social facts of our times, and also one of the most thoroughly ignored. Where were you when this catastrophe took place?

* The decline in private-sector union membership. At the start of the 1980s roughly 17 percent of employees in the private sector belonged to unions; at the end only 12 percent belonged. Back in the 1950s, 40 percent of the work force belonged. Those were the days of the expanding middle class. Unions were crucial to the difference.

* Wall Street's unceasing pressure for bigger and bigger dividends, sooner and sooner. By forcing companies to curtail investment in order to pay the high dividends demanded by institutional investors, "Wall Street has become the prime cause of U.S. deindustrialization," Will Hutton, the author of a book on Keynesian economics, writes in The American Prospect. Thus the real economy gets hollowed out in order to satisfy the casino economy. And yet this is how financial markets are supposed to work--restlessly, impatiently, with bloodless rationality. In other words, the clash between what Wall Street wants and what Main Street needs is not a flaw in the system. It is the system. Marx would have called it a contradiction of capitalism.

* A system of public education engulfed by a "rising tide of mediocrity," to quote from a 1983 report by a Department of Education commission. The decline in the quality of education, serious as it already is, has not yet had its full economic effect. For that we have to project ahead a few years, when the semiliterate casualties of the current system will enter the work force. What will they do?

* The disinvestment in public infrastructure. According to Richard Rothstein, "In 1965 we spent nearly 2.5% of the GNP on civilian public investment. Today it's less than 1%--so business, which relies on public services, is less productive than it could be." One widely cited study has found a strong correlation between economic growth and public expenditures on infrastructure. When the expenditures went down, starting in the early 1970s, so did growth.

To the struggling American family it may look as if the middle class is being victimized by vast, impersonal economic forces over which it has no control. But the crisis of the American middle class, ironically, is also in significant part its own fault. Its unquenchable appetite for imported goods has destroyed millions of domestic manufacturing jobs:

* Consumer-electronics imports had only 5.6 percent of the market in 1960; in 1986 they had 68 percent of the market.

* Automobile imports grew in market share from 4.1 percent to 31 percent over the same period.

* Apparel imports grew from 1.8 percent to 50 percent.

* Footwear imports grew from 2.3 percent to 58 percent.

* Machine-tool imports grew from 3.2 percent to 50 percent.

To borrow a formulation from my colleague James Fallows: As consumers, Americans have undermined their role as producers.


The Politics of Deadlock

It is possible to think up policies that would nullify these causes of the middle-class crisis. But such policies would be politically incoherent.

For example, eliminating or cutting the capital-gains tax would increase savings and investment. That would make the economy expand, producing more and better-paying jobs. But because wealthy Americans save and invest much more than those of us who lack the money to do either, a capital-gains tax cut would also be a boon to the wealthy. Republicans would like that; Democrats would not. The opposite would be true of labor-law reform, which would make it easier for unions to conduct organizing drives, thus enabling more Americans to enjoy union wages. Liberals would be for it, conservatives against. Neither could embrace both labor-law reform and a capital-gains tax cut. Yet both need to be implemented to end the crisis of the middle class.

Increased capital investment in new technology would raise productivity, but probably at the cost of more high-wage manufacturing jobs. That is the paradox of productivity--it can go up, taking profits with it, while employment goes down. Machines don't require health insurance. Neither do they receive pensions. The paradox applies beyond manufacturing. According to The Wall Street Journal, "much of the huge U.S. service sector seems on the verge of an upheaval similar to that which hit farming and manufacturing, where employment plunged for years while production increased steadily."

More spending on infrastructure or education would be an unmatchable investment in tomorrow's economy. In today's economy, however, it would mean higher taxes. These would come out of savings and wages, lowering private investment and aggregate demand.

To discourage consumption of imports, U.S.-made goods must compete on price and quality. The higher wages accompanying increased unionization of the work force would hurt both. They would be passed on as higher prices, which would make imports more competitive. Alternatively, as companies cut corners in production in order to pay increased labor costs, higher wages would lower the quality of domestic goods, making imports more attractive.

As these examples suggest, a politics comprehensively addressed to our crisis would be incoherent not only in theory--no one in that Administration would be likely to embrace the conflicting policies needed--but also in practice. Each of the parties has already prevented the other from passing its own pet nostrum for the crisis. George Bush tried to cut the capital-gains tax, but the Democratically controlled Senate blocked action on his plan. Bill Clinton tried to get Congress to approve his much reduced $16 billion stimulus package, which would have marginally addressed the causes of the crisis by increasing spending on infrastructure, but a Republican filibuster blocked it.

The parties, one must conclude, are in the way of solving the crisis of the middle class. That is one reason so few Americans vote. Elections don't change things. The crisis continues unabated. Why bother?


The Civic Void

The crisis of the middle class is of commanding gravity. Nothing else--not national security, not poverty, not crime, not the environment, not education, not health care, not even race relations--comes close. Why? Because the crisis breaks what Herbert Croly called "the promise of American life," and that is bound to be prolific of adverse consequences.

The America of the expanding middle class had a centrist, two-party, post-ideological politics. The America of the diverging middle class is rapidly developing a populist anti-politics--programmatically inchoate, hostile to party and ideology alike, and profoundly cynical about government. If stability was the hallmark of the first kind of politics, instability may be that of the second. In the most recent presidential election Ross Perot got nearly 20 percent of the vote, a higher percentage than any third-party candidate since 1912, making Bill Clinton a plurality President with a weakened mandate. Significantly, 36 percent of voters said they would have voted for Perot if they thought he had a chance to win.

The Perot irruption fits into a trend full of portent for the two established parties, which political scientists depict as the irreplaceably sturdy props of our easy-to-take-for-granted stability. During the hundred years from 1864 to 1964, Gordon S. and Benjamin D. Black write in their new book, The Politics of American Discontent, only three third-party candidates--the Populist James B. Weaver, with 8.5 percent of the vote in 1892; the Progressive Theodore Roosevelt, with 27.4 percent in 1912; and the Progressive Robert La Follette, with 16.6 percent in 1924--managed to get more than six percent of the vote. Yet just in the past three decades three third-party candidates--George Wallace, with 13.5 percent in 1968; John Anderson, with 6.6 percent in 1980; and Perot in 1992--have won more than six percent of the vote. Survey research further illustrates this rising discontent with the two parties. Whereas in 1938 only 13 percent of voters wanted to see a new, strong third party to compete for the presidency, 63 percent wanted one in 1992.

The anti-party reform politics of the Progressive era, in Richard Hofstadter's telling, took social root from the status anxieties of middle- and professional-class Americans who were losing ground to a new business elite. Something similar may be developing today as middle class Americans, despairing of the parties' flagrant incapacity to halt the slide in their standard of living and furious at both parties for blocking each other's initiatives, turn away from them altogether and either embrace the send-them-a-message politics of protest or fall out of the electorate and into the civic void.

The crisis of the middle class feeds the property-tax revolt that in many school districts has forced cutbacks in school budgets just as competition from abroad is requiring dramatic improvement in education. People cannot be expected to pay more taxes if their incomes are declining or their jobs are threatened.

The crisis is hardening the attitude of the middle class toward the dependent poor, and to the extent that the poor are urban and black and the middle class suburban and white, race relations are under a new exogenous strain--the last thing they need.

Yes, an economic expansion has been under way for some time, but compared with the historical averages for postwar recoveries, this one is unimpressive. As Daniel Mitchell, of the Heritage Foundation, has pointed out in The Wall Street Journal, "growth has been barely half the level experienced during past expansions," and employment growth since the bottom of the cycle, 2.5 percent, has been far below the average of 9.2 percent. The late Walter Heller called the much stronger expansion of the Reagan years "a haunted recovery," and that is what we have today--a recovery haunted by the untreated causes of the middle-class crisis.

"We Americans have no confidence in the economy's future," the Nobel laureate Robert Solow says. That is not a mind-set nurturant of sustained, broad-based economic growth, quarter after quarter, capable of reaching a wider swath of society than did the growth of the 1980s, which was heavily skewed toward the already wealthy.


Clinton and the Crisis

What is the Clinton cure for the crisis of the American middle class?

First, what Clinton's program won't do: Largely because Clinton has laid such emphasis on deficit reduction, little in his program will--to return to our lists of causes--increase the number of high-wage manufacturing jobs, help private-sector unions grow, keep Wall Street from hollowing out American industry, dramatically improve U.S. education, or discourage Americans from buying imported goods. At least one element of the Clinton program will worsen the crisis in the short run: the tax increase on the wealthy. Far and away the biggest savers in the country, they are likely to pay much of the increase out of savings--which will leave less money for investment, helping government finances but hurting the economy as a whole.

Clinton ran on the middle-class crisis ("The rich get the gold mine and the middle class gets the shaft"), but he has not governed as advertised. Throughout the campaign he said that the nation faced "twin deficits"- the federal budget deficit and a public-investment deficit accumulated over decades of the Cold War and twelve years of Republican neglect. Since then, however, the President has talked almost exclusively about the budget deficit, whose reduction is at the heart of his economic program. The public-investment deficit, the $50 billion of spending on infrastructure and human resources each year for four years which candidate Clinton campaigned on, seems to have been forgotten by President Clinton. Embarrassingly, President Bush's last budget increased spending on infrastructure, education, and training--public investment- by more than eight percent, whereas Clinton's first budget cut public investment in the same categories by nearly one percent.

But surely deficit reduction is good for the middle class? Insofar as a lower deficit leads to lower interest rates, the middle class benefits today and its children will do so tomorrow when they face an Andes of debt instead of a Himalaya. But worried as the middle class is about the deficit, it is more worried about another economic threat. This one is not government-caused, like the deficit, or curable by either the liberal or the conservative orthodoxy, since both partake of the "Potomac illusion": the belief that either more or less government has the magic power to shape social and economic developments that are primarily the result of social, technological, and economic, not governmental, evolutions. This worry is over jobs. A recent poll found that 43 percent of Americans rate unemployment as the most important economic issue facing the country. Only 26 percent picked the deficit.

The middle class, in short, wants employment security more than it wants deficit reduction. Is that an unreasonable want for an American to have in today's global economy? Apparently the President regards it as such. A career politician himself, having mastered one skill, he has said many times that Americans must get used to changing careers several times in their working lives. But this is to embrace insecurity of employment as a controlling principle--as if there were nothing government could do or should do to slow the whirligig of change. Clinton's premature surrender to the idea of job insecurity as the home face of the global economy amounts to an abandonment of the traditional role of his party, which has been to tame the long revolution of capitalism, to keep it from sacrificing social goods like security and stability and community to economic growth.

In the early years of the century progressive reformers did not capitulate to the leading agent of change of that day, the monopolistic corporation. They subordinated it to society by laying down the rules and regulating the tempo of change. In the 1930s Franklin D. Roosevelt did not allow business to use the mass unemployment of the Depression to break unions and cut wages. He worked for passage of the Wagner Act, which guaranteed the right of collective bargaining for workers, and he established minimum standards for wages. Both actions represented a victory of the society over the economy. So did the New Deal as a whole, which slowed the pace of the long revolution--saving capitalism by transforming and legitimizing it.

Absent a global New Deal, it may no longer be possible for any one country to sacrifice growth for social values, because the pressure from competitor countries will not permit it. Already global competition has forced corporation after corporation to slough off tens of thousands of employees and to cut back sharply on employee benefits. As the economist Bennett Harrison points out in his new book, Lean and Mean, from 1979 to 1989 the share of the private-sector work force covered by company pensions went from 50 percent to 43 percent, while "the incidence of employee coverage by health insurance at least partly provided by employers declined from 69 to 61 percent." Harrison emphasizes that "these are very substantial declines for such a short period of time." The labor analyst Harold Meyerson notes another effect of global competition. "Just five years ago," he writes in LA Weekly, "one in four American jobs were contingent [meaning part-time]. Today, one in three are. The American economy's response to the globalization of markets has been to turn us into a nation of temps." More than 60 percent of the jobs created last year were in three industries: health care, restaurants and bars, and temporary help. Usually the number of workers forced to take part-time jobs falls in a recovery, a recent Wall Street Journal report on the business cycle noted. "Not this time. About 5.5% of all workers, or 6.5 million people, say they are unhappily working part time, a figure that hasn't budged in two years." The same pressures that are transforming the terms of employment in the private sector are acting on government, forcing revisions in legislation that might leave U.S. industry at a disadvantage in the great world scramble. The result is a family-leave act that does not require the employer to pay the employee while he or she is on leave, a toothless plant-closing bill, and a minimum wage that will not keep a full-time earner out of poverty.

Clinton has repeatedly shown that, unlike Bush, he grasps the depth of the jobs crisis created by the new international economy. For example, in a speech during the debate over NAFTA, he said, "Too many Republicans would say that free trade today always equals economic growth. Well, it can, but only if we have a comprehensive national strategy to promote that kind of growth. Some Democrats would say that free trade today always equals exporting jobs and lowering wages. Well, it sure can if you don't have a comprehensive economic strategy to maintain a high-wage, high-growth economy."

So where is this comprehensive strategy? It would seem to amount to little more than such infrastructure rebuilding as is consistent with deficit reduction--that is, not much. In addition, Clinton proposes to replace the current system of unemployment insurance with a re employment program. The scope of this program, however, will be limited by two factors. First, what jobs will the structurally unemployed--many of them victims either of global free trade or of automation--be retrained for? Secretary of Labor Robert Reich has talked about increasing the number of "technicians," but labor leaders have rightly asked, "Doing what?" The second limiting factor is funding. Clinton's campaign promise to require large companies to devote 1.5 percent of payroll to job-training programs has gone the way of his promise of a "middle-class tax cut," a casualty of the very global economy whose pressures it was supposed to temper.

Clinton is good at talking at problems. But the gap between what he says ("comprehensive national strategy") and what his Administration does is wide. "To govern is to choose," John F. Kennedy said. Clinton has made his choice--deficit reduction. It is a defensible choice. But even if the deficit were cut to zero, the middle class would remain in crisis.


An Unbreakable Circle?

Clinton has a compelling theory of prosperity. He wants the middle class to face the future of global free trade with hope, not fear. He wants foreign customers for American goods--that's his recipe for "growing" the economy. But there is an unspoken premise in this recipe: that there are not enough customers in America to buy American goods. In 1914 Henry Ford increased the wages of his employees enough so that they could buy his car, reasoning that "if you cut wages, you just cut the number of your customers." That made sense in a closed market, but not in the customer rich world market. Instead of raising U.S. wages to make U.S. customers for U.S.-made goods, corporations will be able to export their goods to the niches of the world market that can afford them: Chinese yuppies, two career Mexican couples, German investment bankers, French bureaucrats, Italian clothiers--the international versions of the folks who flourished domestically in the 1980s. The model here is Japan, which has expanded its economy by selling goods abroad that many of its people cannot afford at home. By imperceptible degrees we might come to exchange a lower standard of living for the chance to work at all.

The American middle class was not made by free trade. Historically it grew behind protective tariffs, which favored U.S. producers over U.S. consumers. The bottomless demand for American goods in an American dominated world economy after the war also helped--as did military Keynesianism, the industrial policy of the Cold War. The Bureau of Labor Statistics projects that cuts in military spending will cause the loss of 1.9 million jobs by 1997. As for free trade, Clinton often speaks of it as an end in itself rather than as a means to an end--prosperity--reachable by other routes. His tough line with Japan over its trade surplus with the United States is encouraging, but it is clear that he regards selective protection as an expedient born of failure and not as an alternative path to growth. He is probably right about that; it is too late in the day- interdependence has gone much too far--for protection to work. Yet no less a figure than Lester Thurow, exercising his penchant for being provocative, has said that Clinton, to achieve his goal of a sustained domestic economic growth rate of four percent, will have to stem imports. "You would call it protectionism," Thurow says. "I would say it's isolation, but he would say it's common sense to get re-elected." It may make economic but not political common sense, not for the Bill Clinton who staked his presidency on getting NAFTA enacted into law. He will rise or fall by free trade.

In Clinton's economic vision the positive effects of free trade abroad must be balanced against two likely negative effects at home. The first is an intensification of the trend toward inequality by education, for only the better-educated will be safe from low-wage competition in the global labor pool, and the only U.S. goods that will be competitive in the global marketplace will be skill-intensive goods. The second negative effect, which follows from the first, is a steadily contracting middle class, from which blue- and new-collar technical and clerical workers will have been excluded.

"I have got to lay a foundation of personal security for the working people of this country and their families in order to succeed as your President," Clinton told the AFL-CIO convention last fall. The Administration's program for health-care reform deals with a symptom of the middle-class anxiety that Clinton identified in that speech. But follow that anxiety to its roots and health care has the look of a substitute issue, a displacement of graver social and economic fears--of one's job getting swamped in the global labor pool, of seeing the middle-class standard of living uncheckably decline--onto the consolingly manageable politics of remedy.

Between Clinton's desire to increase personal security and his commitment to full U.S. participation in the global market there may be a conflict of essence. Whether billed as stability versus change or as society versus economy, this conflict is unlikely to be ended by promises of job retraining from a federal bureaucracy that, according to The Wall Street Journal, now offers 150 separate education and training programs run by fourteen government agencies, one of which offers loans to 81,600 cosmetology students a year when the private sector has jobs for only 17,000 of them.

The crisis of the middle class is both a cause and a consequence of the haunted economy. For the economy to improve--say, to the point at which only one in four jobs is part-time instead of one in three--the middle class must first feel more secure. Otherwise demand will remain relatively weak. But for the middle class to feel more secure, the economy must first improve--by which I mean not only grow but cease threatening livelihoods by unblunted change, whether in the shape of foreign competition or of domestic restructuring. For the wages of leanness and meanness (from 1979 to 1992 the Fortune 500 let go of 4.4 million workers) is fear, and the wages of fear is lackluster consumption.

What we have here, in short, is a circular, self-generating crisis for which it is hard to come up with convincingly efficacious solutions.


Jack Beatty is a senior editor of The Atlantic Monthly and the author of The Rascal King: The Life and Times of James Michael Curley (1874-1958).

Copyright © 1994 by Jack Beatty. All rights reserved.
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