Broke: Who Killed the Middle Classes?. David Boyle
Into the misty past, the middle classes have benefited from rising above the undifferentiated masses, Fukuyama implies. Now they are being driven back into the undifferentiated mass by a new global elite which is benefiting from the shifts in the financial world over the past generation. Once the middle classes siphoned off wealth to provide themselves with comfortable lives, now they are the victims of the siphoning – and siphoning on a vast scale.
What is happening is most obvious in the USA, where it drove the massive growth of inequality over the past generation. In 1974, the top 1 per cent of families took home 9 per cent of GDP. By 2007, that share had increased to 23.5 per cent. But this isn’t just the USA, because the same global and technological shifts are happening everywhere, says Fukuyama, from off-shoring to replacing skilled jobs with IT systems. ‘What if the further development of technology and globalisation undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status?’ he asks:23
The other factor undermining middle-class incomes in developed countries is globalisation. With the lowering of transportation and communications costs and the entry into the global work force of hundreds of millions of new workers in developing countries, the kind of work done by the old middle class in the developed world can now be performed much more cheaply elsewhere. Under an economic model that prioritizes the maximisation of aggregate income, it is inevitable that jobs will be outsourced.
We have become so used to the idea that the middle classes are the winners, as they have been since time immemorial, that it is difficult to get our heads around the fact that this has now changed. The middle classes are no longer winning. They are losing out, and losing out devastatingly, to the rise of a whole new class which has become known as the ‘One Per Cent’ (1 per cent may be an overstatement: in the UK, 0.6 per cent of the population earns more than £150,000 a year). It was this phenomenon that the great investor Warren Buffett referred to in 2006 when he confirmed the existence of a ‘class war’. ‘But it’s my class, the rich class, that’s making war and we’re winning,’ he said, fearful of the consequences.
The One Per Cent is dominated by people in financial services, and at the top of the global corporations, plus perhaps a handful of global bureaucrats. It is a deeply interconnected world – one study showed 94 directors holding 266 directorships in 22 corporations.24 But the real point is that they are doing very well. The number of billionaires in the world grew from 225 in 1996 to 946 in 2006. These are the customers for $45 million personal Gulfstream jets. They control two-thirds of the world’s total assets. They are the reason why house prices are so high in London and the south-east.
All this explains to some extent the vast transfer of public money to the banks from 2008 onwards, but we all know about that (£1.5 trillion in the UK alone). What is less understood is that there is something bigger going on: a huge transfer of assets from the middle classes to the new elite. Labour’s business secretary Peter Mandelson once said that the Labour Party was ‘intensely relaxed about people getting filthy rich’, but actually it does matter. House prices are higher as a result, the salaries of those lower down the food chain are squeezed, pensions are top-sliced, while the financial class has become a new kind of landlord, living off the rents and charges of the financial system which funnel wealth upwards – while real wages, and real salaries, haven’t risen in real terms since 1970, and since 1960 in the USA where the process is most established.
This all sounds a little like a conspiracy theory, but the figures are stark. And although the phenomenon is hardly ever discussed in the media, it is discussed among the very rich. In 2005, the first of three reports was published privately by the US banking giant Citigroup, especially for their wealthiest clients; they coined a word to describe the phenomenon and tried to explain it. The first report was called ‘Plutonomy’, and it explained the idea like this:
The world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the US. We project that the plutonomies (the US, UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization. In a plutonomy there is no such animal as ‘the US consumer’ or ‘the UK consumer’, or indeed the ‘Russian consumer’. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the ‘non-rich’, the multitudinous many, but only accounting for surprisingly small bites of the national pie …25
Two more reports followed in 2006, explaining that plutonomy was a result of a kind of financialization of the economy – a huge expansion into financial assets, which are the target for investment rather than real assets, and which the financial sector repackages and repackages, inflating their prices each time. When the financial bubbles burst, they buy back the assets again at a lower cost. Even bursting bubbles make the One Per Cent better off. This is helped by the fact that the most powerful governments of the world see the value of those assets – property, bank shares etc. – as the touchstone of economic success, which is why so much of the banking bailout was designed to reflate their value.
Citigroup came to regret publishing these reports, presumably because it encouraged the idea that they were cheerleaders for plutonomy. Over the years, copies began to leak out via the Internet, much to their horror. There was a concerted attempt to suppress them. By 2010, Citigroup lawyers had managed to remove them all from the Web, only to find them seeping back again. The revelations are important because not only are these vital resources sucked out of the middle classes, just as they are sucked out of all classes, they also affect the middle classes in other ways. Unless they work in the financial sector themselves, they find their factories and real-world businesses starved of investment and their professional skills automated.
Even so, it isn’t really a conspiracy. It is a peculiar twist of the way our economy has become unbalanced towards financial products rather than real ones, and it is a real phenomenon. It is a practical acceleration of the division between two worlds – one where money is infinitely elastic and where mistakes get bailed out, and the world of the rest of us, including the indebted middle classes, for whom money is concrete and unforgiving. There is something about the frenetic generation of outsourcing, streamlining and offshoring, and the whole business of permanent restructuring, that has quietly shifted power and profit away from the middle classes. ‘Instead of democracy widening and deepening as we had hoped,’ writes the eminent Conservative writer Ferdinand Mount, ‘power and wealth have slowly and unmistakably, begun a long migration into the hands of a relatively small elite’.26
When 1 per cent of the world owns a quarter of all the wealth, leaving the middle class scrambling for the crumbs that fall from the rich man’s table, then a different kind of lifestyle becomes necessary. Over the past generation, it slowly began to dawn on the English middle classes – who believed with some reason that the financial service professionals and their institutions were firmly on their side – that it wasn’t like that at all. Something had shifted, very quietly, very dangerously, and actually the signs were there a generation back.
Christopher Stockwell was a successful businessman and property developer. He was the very model of middle-class success, the son of a clergyman and an innovative campaigner for development causes in his youth. But in the mid-1980s he began to be sucked into the peculiar – and now largely forgotten – story of financial incompetence and staggering callousness (and probably worse) at the ancient insurers Lloyd’s of London. Within a few years, he had been made bankrupt, lost his home and found himself at the head of a campaign to unravel what had happened to so many ordinary middle-class families, and get them some kind of redress.
Even now, two decades after the events of the Lloyd’s Scandal became clear, it has a shock value which seems to speak to the plight of the middle classes today. It is somehow the sheer respectability of the families caught up in the scandal that gives it such a peculiar edge, drawn in because they trusted this apparently