Is U.S. business abandoning the middle class?
The big mystery in the United States today is why the job crisis is not at the center of the political and economic debate. After all, the numbers — and the human tragedies they reflect — could not be bleaker.
Nearly 14 million Americans — 9.1 percent of the working population — are unemployed. That’s just a couple of a million shy of the populations of Greece and Ireland, Europe’s two problem children, combined. Another 8.5 million would like to work full time, but can only find part-time jobs. A further 2.2 million have been so discouraged by the grim labor market that they have given up looking for jobs altogether.
It is hard to blame them — those still actively looking for work have been unemployed for an average of 39.7 weeks. These are cruel numbers, and they depict an unemployment crisis that is deeper and more sustained than at any time since 1948, when records first started to be kept.
Yet the debate in Washington is focused on deficit reduction, rather than job creation. The news media are following the same playbook. A recent database analysis by the National Journal found that over the past two years, the leading newspapers in the United States had dramatically shifted their attention from unemployment to the deficit and were now publishing more than three times as many stories about the budget as they did about jobs.
Politicians and pundits on the left have begun warning that this relative indifference to joblessness is worse than a crime, it is a mistake. In a blog post earlier this month, Robert Reich, the former labor secretary, said that “the economic burdens of America’s vast middle class may be catching up with the Street.” Unless more jobs are created soon, he warned, “American consumers will not have enough purchasing power to buy what the private sector can produce.”
But the reality may be even more chilling: Perhaps U.S. business is learning to get by just fine, thank you, without middle-class U.S. consumers. And while that may be good news for chief executives and shareholders, it could be the beginning of a new and socially wrenching political logic that leaves the great American middle behind.
Wall Street, which is paid for smarts, not sentiment, has this figured out. In a newspaper interview earlier this month, Robert C. Doll, chief equity strategist at BlackRock, the largest money manager in the world, pointed out that the fortunes of U.S. companies and the fortunes of the country as a whole were diverging: “The U.S. stock market and the U.S. economy are increasingly different animals.”
Mr. Doll’s explanation for the shift was the growing importance of international markets rather than the domestic one — of the rising middle class in emerging markets, rather than the stagnating one back home. He said that over the next five years, 70 percent of the incremental earnings of S.&P. 500 companies would come from outside the United States.
In the C-suite, capitalizing on that shift has become standard operating practice. Speaking this week in Washington at an Ernst & Young conference on emerging markets (disclosure note: I moderated some sessions), Steve Taylor, a senior executive at the energy and water company Nalco, explained, “In most cases, it is dismantling something you have in mature markets to build in emerging markets. So you have to take that step. It is very painful, but you have to take that step.”
The move to consumers from emerging markets is just part of the story. Within the United States, Madison Avenue is discovering that the age of the American mass consumer may be drawing to an end. Instead, a new white paper by Ad Age, the industry’s trade journal, argues that growing income inequality means the only buyers who count are those at the top.
“Simply put, as the discrepancy between the rich and poor has become more and more stark, a small plutocracy of wealthy elites drives a larger and larger share of total consumer spending,” the paper concludes, citing research that shows the top 10 percent of U.S. households account for nearly 50 percent of all consumer spending. “It appears that mass affluence may be a thing of the past — and that luxury marketers should reconsider how their products appeal to elite consumers.”
It is hard to overemphasize the importance of this business shift from the U.S. middle class to the rich at home and the hundreds of millions graduating into the middle class in the emerging markets.
Twentieth-century American capitalism was built on what you might call the Henry Ford model — generously compensated workers (Ford paid double the existing rate) created a mass middle class that bought the products of the country’s entrepreneurs. That virtuous circle made the United States the world’s economic behemoth, and created a society and a political discourse defined by a proudly acquisitive middle class — the United States’ much admired and much maligned consumer culture.
But today, for the first time since the Industrial Revolution, that link between keeping up with the Joneses and the rising value of the Dow Jones industrial average may be breaking. Unemployment remains stuck above 9 percent, but since March 2009, when stocks hit their post-crisis bottom, the Dow has risen more than 85 percent.
When the chief of General Motors, Charles Wilson, told a Senate confirmation hearing in 1953 that he believed that what was good for the country was good for G.M. and vice versa, he took some flak for uttering such a self-serving line. But we all remember it because Mr. Wilson captured something axiomatic about the connection between the fortunes of U.S. business and the welfare of the country as a whole.
The creative destruction of 21st-century capitalism seems to be requiring U.S. companies to learn to prosper with fewer U.S. workers and with fewer U.S. middle-class consumers. We do not know yet how American democracy — where the middle class has the votes, but the business class has the money — will respond to this tough new economic logic.