Is U.S. business abandoning the middle class?

By Chrystia Freeland
June 10, 2011

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.

19 comments

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Good article. I think this shows the US to be more and more like a third world country, where a very small percentage of the population controls everything and the rest are left without much opportunity. It reminds me of the situation growing up in the deep South during the Civil Rights movement. A few wealthy white landowners controlled everything, not just for people of color, although it was the worst for them, and would go to any lengths to keep their power. The advent of television changed all that when the rest of the world saw with their own eyes what was really happening. Huffington Post is trying to expose some of the same power mongers, but who is listening this time? A lot more than technology has changed in the last fifty years. The CEO’s of big business have no more shame than the southern oligarchs back in the fifties, they are so convinced of their superiority. It takes the media to expose such atrocities, but it takes another power to stop their actions.

Posted by lhathaway | Report as abusive

I brought this up a a Boy Scout fundraising committee meeting last year. We were trying to come up with a plan to boost donations to the local BSA council.

I mentioned that most people in the community had very little disposable income. All most all of their money was already spoken for. Only a relatively few families actually had substantial funds to donate, so it makes sense to focus on them for support. Still haven’t figured out that part yet though…

Posted by Old49Tom | Report as abusive

When are the American people going to realize that every time Obama utters the word “jobs,” he is simply playing the part of a stereotypical “absentee landlord” who keeps raising the rent, ignores the tenants’ complaints about their living conditions, but refuses to fix anything?
What he is REALLY doing is only “promising” to provide jobs to keep the “tenants” mollified, knowing full well that the “tenants” are too stupid to understand that he has no intention whatsoever to follow through on his promises, and to continue his never-ending scam of giving “political cover” to the wealthy investors who are destroying this country by deliberately sending American jobs overseas.
The problem with the US economy is a lack of manufacturing jobs, resulting from decades of misguided government policies that have done nothing but aid the wealthy in “outsourcing” our manufacturing jobs overseas in a never-ending quest for ever-cheaper labor and higher profits.
Only by demanding pro-American, pro-labor legislative actions by our government (e.g. changing tax laws to favor US, instead of foreign, investment) will we be able to force the wealthy investors to “return” our jobs and allow this country to recover. The reason is simple. Business decisions are always made based on profits (i.e. return on investment), and only when investors realize it is no longer profitable to export US jobs will those jobs return.
We need our manufacturing jobs back, and we need them now! “Playing games” with the debt ceiling and budget issues is nothing more than “political theater” — a “dog and pony show” we can no longer afford. These don’t bring in the needed revenue this country so desperately needs to survive. We need to make sure the US government understands that the American people are tired of politicians’ promises and that we want our jobs back.
This country was once a great manufacturing nation, but we have let “absentee landlords” destroy our living conditions for their own benefit. That MUST stop immediately, or we will not survive this.
Nothing else matters right now!
The American people need to focus on getting our manufacturing jobs back, and ignore anything else the government promises because anything else is simple more false promises. Politicians will always promise anything, but deliver nothing. The American people once knew that. We need to rediscover the truth of what once made this country great.
Only pro-American legislation by the government can solve this problem — it cannot be solved by the Fed, which is reduced to “printing money” to keep the nation alive, but this cannot continue. It is only Congress, by acting responsibly, that can reverse this trend.
The truth is that right now we have an absentee government that refuses to take responsibility for taking care of the American people. The American people need to understand it is the lack of jobs — in other words, a lack of adequate revenue coming into the US economy to pay off our debts and provide decent living conditions for the majority of American people — that is at the root of every single economic problem we are facing today. Until we do, economic conditions are guaranteed to worsen until the US economy crashes under a mountain of debt we cannot pay.

Posted by Gordon2352 | Report as abusive

Right on. Profits have become more important than people. When this happens the house will fall down. The country will fail when our God is money, and we go to the government to solve our problems. It is self destructive and we are unfortunate to have a leader who believes that government spending will fix our problems.

Posted by fred5407 | Report as abusive

THe article keeps addressing these issues as if they were going to happen, when it has already happened. It has been clear for several years that the United States has moved from securing the general welfare to a rob the poor to maintain the rich strategy. This is no exaggeration. It has already happened. The wealthy no longer need a growing domestic economy to maintain or expand their wealth.
Now, the question is whether we as a country want to bring back the middle class or not. What does general welfare mean – all Americans or a select few?
We have been abandoning our ideals and principles one after another, so why not this too? Why bother any more in trying to maintain the charade of the Constitution and Bill of Rights? Poor people don’t have inalienable rights.

Posted by ptiffany | Report as abusive

Thank You, Chrystia.

Posted by Laster | Report as abusive

Your article fails to point out other modern economies, namely Germany, where the middle class growth and corporate export growth go hand in hand. Though there are many, many reasons for the falling middle class and exponential rise in wealth of the upper 1% in the USA, Americans need to be told that it doesn’t have to be so. And Europe, namely Germany, is an example.

The political parties are all beholden to the mega bucks of corporate America and the upper 1% who own corporate America. Firms like Goldman Sachs make sure that their senior partners are dispersed between the 2 political parties so that no matter who is in office, GS’s agenda is still heard and implemented.

Unions once were a political force in the USA, but through legislation, corruption, and a full court PR pressure to demonize unionization, there is no voice for labor in the USA. Americans are led to believe that unions hurt the economy, hurt profits, and lead to socialism. Of course, Americans never hear that Germany has a 20 year low in unemployment, export growth, and yet nearly 80% of industrial workforce is unionized.

Also, the US tax system since Reagan has gradually eliminated the ability of the US middle class to save. However, instead of raising taxes on the wealthy (and that really only starts with $1.0 million plus incomes, not $250K) and corporate America, these two groups are enjoying the lowest tax rates since the 1920s.

Without sufficient tax revenues, the US is gradually dismantling government programs designed to serve the middle class: education, health, and retirement. Teachers are being fired, hospitals are closing (even in ‘liberal’ NYC), and both parties are ready to reduce or eliminate social security and medicare.

Corporate CEO salaries on an average increased over 20% in 2010. Yet the middle class in the USA has not seen any wage increase adjusted for inflation since 1985!! Productivity has increased hugely, corporate profit margins have increased yet there is no payback to labor. It is exactly how Carnegie ran his steel mills in the 1880s just before the Homestead Strike.

Posted by Acetracy | Report as abusive

Thanks for addressing this topic with such clarity.

I believe that America’s decision makers will eventually have no choice but to consider what is good for the middle class in addition to what is good for corporations and the American aristocracy.

During the Clinton years, the Republican Congress was able to balance the budget with taxes that were a little higher than they are now, paid by the upper class and the middle class.

The financial demographics are changed now. Millions of those who were contributing to the tax coffers are now dependent on those tax coffers for food stamps and medical care. Those who remain in the middle class are unable to make up the difference and the upper class is unwilling to do so.

America’s manufacturing base has been dwindling for decades, but America’s decision makers only gave lip service to the issue at the time and didn’t fully realize the real impact until now because middle class consumerism carried the economy until 2007, even if that meant refinancing their mortgages to do so.

Now that tens of millions of former members of the middle class have discovered the tenuous, transient and illusory nature of their prosperity, they are also discovering that their government has not been making decisions in their best interest or in their children’s best interest for quite some time.

America needs a financially healthy middle class in order to finance its operations. I expect it will take decades to undo the harm done to the stature of the middle class, if and when the decision makers realize that it is necessary.

Posted by breezinthru | Report as abusive

“Is U.S. business abandoning the middle class?” Why wouldn’t they? Seriously, many of use (the everyday person) have figure this out. We also understand why as well. We’re too expensive to employ on a cost effective basis when compared the total cost of employment offshore (China, Malaysia, So Am, etc).

The only ones that this may come to a surprise are those that choose not to pay attention, and the Legislative bodies and the 4th estate that keeps spewing little more the corporate-political talking points. In many ways America should look inwards insofar as understanding their new place in the global arena and adjusting to that reality. Less dependence on foreign goods is a nice sentiment, but we can’t out compete foreign factory output (at least at this time). Just think, what if all the money we spent on Military actions in Afghanistan alone was redirected to rebuilding our infrastructure the amount of jobs that would come forth… Bridges, roads, waterways, flood control and levees, etc, etc, etc… The country’s literally fallen apart.

Don’t rely on the old market models and mentality, and don’t believe for a minute that legacy industries (Oil, Coal, Energy, etc) won’t do everything in their power to subvert or control future markets and technologies. It’s unfortunately as if the U.S. just shifted into slow motion regarding innovations and markets, at least on the home front. We’re gonna have to find a sense of national motivation and direction, and I’m personally not all the inspired by what I see.

Posted by Renegade420 | Report as abusive

@Gordon2352
“Only by demanding pro-American, pro-labor legislative actions by our government (e.g. changing tax laws to favor US, instead of foreign, investment) will we be able to force the wealthy investors to “return” our jobs and allow this country to recover. The reason is simple. Business decisions are always made based on profits (i.e. return on investment), and only when investors realize it is no longer profitable to export US jobs will those jobs return.”

When you say pro-American, you have to realize that USA is the champion in capitalism and profits the only goal.

You said “Business decisions are always made based on profits (i.e. return on investment), and only when investors realize it is no longer profitable to export US jobs will those jobs return”.

The irony is profits are maximized when jobs are exported. All the CEO’s are not really that bright. They only need to set up factories in China or Sri Lanka to achieve high profits. The CEO’s and those working/living in the White House will ALWAYS maintain their living standards regardless of the unemployment rate.

Don’t get me wrong, all my sympathy is with you and the public. My point is once our CEO’s taste blood like Dracula did, there is no turning back. There is no alternative for them to maintain the kind of profitability after they have shifted production overseas or contract production there.

Which brings me to Apple. Do you think their share would be worth $350 and making obscene sales and profits had they not contract production to Foxconn and made it’s owner the richest man in Taiwan?

The other point is Americans are so addicted to consumerism. If Americans REALLY want their jobs back, STOP buying products made in countries where there are no unionized labor. That would put USA on level playing field and get the chance to retrieve your jobs. In reality, no one would respond to this kind of suggestion. So there goes your viable solution.

Changing the politicians mentality would be just a dream.
They are controlled by those who got USA where it is now in the first place. You think these 2 groups give a heck what happens to the middle class and below?

Posted by doctorjay317 | Report as abusive

U.S. business started abandoning the middle class when, back in the ’70′s, they fired Grandpa with 30 years experience at the job and hired a newly minted college grad to do the job at a lower salary. This was done in the interest of “helping the bottom line”. Then it went to investing in foreign markets, leaving the manufacturing plants here to decay from lack of modernization, again to “help the bottom line”, because it was cheaper to build over seas than to invest in the plants here. From there it went to outsourcing jobs and closing the manufacturing plants here to again (yep, you guessed it) “help the bottom line”. If these supposed smart businessmen would have had half the smarts God gave a pig, they would have realized way back then that without workers in the USA, there would be no purchasing power in the USA. But, wait, maybe they did realize it — and just didn’t care — because they could still “help the bottom line” (which is code for ‘lining their pockets’) through the employment for near slave wages of the natives in foreign countries.

My conclusion is tht they are either VERY stupid or VERY selfish. Neither is a positive trait.

Will it ever get better? I honestly don’t think so because the rich won’t give up anything to help this country. In fact, on many forums, some rich are saying they will just move over seas where they and their families can live well for generations to come because the wages are so low.

Our politicians won’t help the situation. Most of them are millionaires already. They can afford to live on their own little island in Dubai.

I’ve NEVER been pesimistic about my fellowman before, but this crisis has gone on too long for me to look at it with rose colored glasses anymore.

Posted by Pinky212 | Report as abusive

“where the middle class has the votes, but the business class has the money …”

Seriously, the middle class has the votes?

We vote for the people that the business class puts on the ballot, ergo, the middle class vote is a business class vote. Not only is one vote useless, but all the votes are useless in this scheme.

American voters, for the most part, are clueless.

Posted by SanCo | Report as abusive

I say good riddance to any company that imagines the threat of them moving out of the country means anything at all — if they leave we’ll have replacements — we have plenty of ppl ready and willing to do just that given the opportunity. I say get rid of them and let the market take over.

Posted by FDale | Report as abusive

When are we going to realize that big business doesn’t care a whit about America. It is concerned about it’s bottom line and if that means JOBS and customers overseas, so be it. If government won’t help and it probably can’t, then it’s up to the American worker to take back the country.

Posted by neahkahnie | Report as abusive

America is now merely a shell of its former self. The size and scope of HOW “the greatest nation the earth has ever seen” was inflated and then destroyed is mind boggleing.

The old asian proverb of How do you eat an elephant? (one bite at a time) barely applies here.

The 90′s was the last chance America had to save herself, but instead of heeding the warnings about globalization of your left leaning rock-bands like Pearl Jam and RATM it was more empowering to dismiss them weak and communist. When by supporting & cheerleading the designed “overheating” of the economy YOU were actually helping the TRUE lefties and communists achieve their long term goal of draining America of her wealth and then blaming it on the weakness of her citizens.

YOU were ALL CONNED! and the sooner you wake up to this FACT the sooner we can all get around to correcting it.

Ask yourself “who do I follow?” is it your boss? your Spouse? parents? clergy? government? media? commanding officer? Chances are they, either knowingly or unknowingly, follow this top down style of leadership.

Why do all these world leaders discuss “the economy” like it is a superior being worthy of our adoration, or a demon that is scapegoated at the first sign of trouble?

Do these decisions often work-out in your favor? make you happy?

Then why are you still following them?

Its THEIR game, YOU just play it with your life.

THEY tell you what to like, YOU buy it.

THEY write the rules, YOU don’t even question them.

THEY set the fees and collect the taxes, YOU pay for it.

YOU think THEY have all the power.

THEY survive on those who think like that.

Since the dawn of mankind, the MAJORITY has always ruled.

Posted by themansboss | Report as abusive

As someone that is a first time “poster”, I read this article and think back to just this weekend when some folks were discussing where the U. S. middle class is. I told them (sadly) that the middle class is gone – we have moved to a “one world” economy – as the lady that wrote this article points out, the bulk of the profits COME from overseas…. so ask yourself a simple question – would you be worried about building up a 400 million ( equates to ONLY 15% of Asia’s population)person middle class (for as long as that one will sustain itself) or worry about “saving” the 40 million underemployed people/neighbors in the good Ole U. S. of A.??

How do we as true American’s first, then people that “love” their neighbors secondly change this dynamic???

Simply put, take money out of politics – (actually impossible) and do term limits on a even/odd rotating system. This way half the politicians in have experience and the other half is learning –

God love the U. S., becasue thats all we have!!!

Posted by windman4US | Report as abusive

@Gordon2352 and all the others opining about needing to “get our manufacturing jobs back”: Folks, those jobs aren’t coming back. Ever.

This state of affairs was predicted in 1996 (and before) by the authors of “The Sovereign Individual.” The authors, William Rees-Mogg and James Dale Davidson, were eerily accurate in their prognosis.

We are all witnessing the transition of our society — our GLOBAL society — from the Industrial Age to the Information Age. Trouble is, we are in the middle of that transition, not anywhere close to the end, and it will get worse, a lot worse, before it gets better. At least for those of us still camped in America.

I see so many people talk about jobs as if they were entitlements. They’re not. None of us even have the slightest claim on life itself, let alone a comfortable existence. That frame of thinking is nothing but an insidious normalcy bias that tells folks that things will always be as they have been. That is not the way the universe works.

I’ll fight the corporate elites and the political stoolies because their actions directly harm me and people I love, and they don’t care about that. I don’t expect them to care. But I similarly do not care what discomfort they themselves feel, and neither should any of you.

Rees-Mogg and Davidson predicted, ultimately, the disintegration of national governments, and the localization and privatization of the use of force for wealth creation and wealth protection. That is occurring, though most people are blind to it. What to do about it?

Get your hind end off your thumb and MAKE your job. Do something! Don’t buy into the crap on television, refuse to be hypnotized. Learn something new, because you’ll need it. Find out how to save, how to supply yourself with food and water for an extended period of unrest, and how to protect what you have. Associate with other people who are doing the same. Avoid the distraction and stupidity of politics, because it is nothing but a red herring intended to lead the bulk of the populace astray, to keep them “occupied,” and your votes don’t count. Only wealth counts at this point in terms of the direction of national governance.

It’s a new world kiddies, and it’s going to be a heck of a ride.

Posted by BowMtnSpirit | Report as abusive

Americans seem to want their cake and eat it too. On one hand, corporations would love to throw millions of families into homeless shelters and foreclose on their homes. Yet it’s so popular to villify Obama for creating the home modification program, push for healthcare for all, and other middle-class building programs, blaming him for greedy self-serving banks pocketing hundreds of billions earmarked for hurting middle-class homeowners and the unemployed. You can’t have it both ways. Either support government efforts to force corporations to recognize that U.S. citizens are humans and not cattle for the slaughter, or support corporations in exterminating everyone but the elite classes. Take your stand and stop fence sitting. Are you for the American dream for everyone, or would you prefer corporate CEO’s exterminate the masses, bulldoze suburban America, and build vacation palaces with backyards the size of cities (with gardens covering thousands of square miles where pesky suburbanites once lived is little “shacks” which is single family dwelling under 10,000 square foot)?

Posted by DisgustedReader | Report as abusive

I would like to offer a more sobering comment. We Americans have always ignored the signs of imminent trouble until after it is way too, too late. Was anyone really complaining back in 2005 when practically anyone with a heart beat could “purchase” a home (the Housing Market peaked in 2007)? Or when in 1995 when Netscape held its initial IPO without a profit or a plan to make money (that began the dot-com boom and the tech bubble that crashed five years later)?

People were buying homes with nothing down and buying stocks with no “fundamentals” to support their purchases. Meanwhile wages were stagnant and we all went into larger and larger debt to maintain our “current standard of living.” We built inefficient cars (and other products) and bought foreign ones – do you know who makes your iPad (John McCain did not)?

And we will continue to scapegoat the CEOs and their corporate masters – to whom we have (through our elected representatives) given the same rights as human beings.

And we have ignored the presence of a Post-Globalization labor force with which we now have to compete. “Compete,” a seemingly new word (verb, imperative) in the American Lexicon.

Posted by TooEarlyToKnow | Report as abusive