America’s middle class goes global

By Chrystia Freeland
October 15, 2012

President Barack Obama did a miserable job of making his own case last week. But speak to his supporters and the pitch is clear: The American middle class is being hollowed out; Obama’s self-appointed mission is to try to save it.

That is what I heard from Jeffrey Liebman, one of the president’s economic advisers, at a debate about the election I moderated at Columbia University on Monday. Liebman said the central difference between his candidate and Mitt Romney was the president’s view that trickle-down economics doesn’t work. Instead, he believes policy needs to focus on the middle class. Economic growth, he said, should come from the middle and radiate out.

In a separate interview, Mark Gallogly, co-founder of the private equity and credit investment firm Centerbridge Partners and one of Obama’s earliest supporters on Wall Street, likewise emphasized the middle class. The president’s overriding concern, Gallogly told me, was with the workers who make $24,000 a year. Their lot is a pressing issue, Gallogly argued, because even before the recession there had been persistent downward pressure on middle-class wages. Yesterday’s middle-class job can land you among the working poor today.

You may be tempted to say that focusing on the middle class is about as distinctive as supporting motherhood. That is true enough. Two things stand apart in the Obama administration’s analysis of the problem.

One – and this is what has really riled the billionaire set – is Obama’s belief that making the world safe for American business doesn’t automatically translate into a rescue of the American middle class. The second, related idea is that the globalized, high-tech economy of the 21st century poses a particular challenge to the sorts of well-paid jobs that were the backbone of the U.S. middle class in the 20th.

These are two powerful assertions. What is missing is the connection between this domestic focus on the middle-class American worker and Obama’s foreign policy agenda.

At this stage in the campaign, it would probably be political malpractice to ask the president to venture into this esoteric land, appealingly dubbed “geo-economics” by its most wonkish explorers. So far only Tom Friedman of the New York Times has managed to explore this terrain and retain his popular following, and a lot of proper nouns and metaphors have been tortured in the process.

But if the president is serious about creating a 21st-century agenda for the American middle class, he needs to connect the dots between his domestic and foreign policy in a new way. (Judged on his own terms, this intellectual challenge is less pressing for Romney, who is sticking with the Reaganomics view that the way to aid the middle class is to support American job-creating businesses and individuals through lower taxes and less regulation.)

It isn’t hard to explain why a domestic middle-class jobs policy has to be part of Obama’s foreign policy. In a globalized economy, jobs no longer need a passport, but workers do. Creating jobs for your country’s workers is about much more than ensuring that the balance sheets of your country’s companies are strong, or stimulating domestic demand. It is about figuring out how your country’s workers fit into the global economy.

But while that problem has become obvious to a lot of us, the solutions are more elusive. In lieu of answers, here are a few starting points.

The first is to understand and accept that the old link between the prosperity of your nation’s companies and of your nation’s middle-class workers is much more fragile than it was in the past. The operative word is accept – the left scores political points but offers little substance when it berates chief executives or private equity investors for making profits even as they shrink their domestic workforce.

Corporations are not employment agencies, and judging them by that metric is a mistake. Likewise, while it can be fun for liberals to criticize business for going global, consider the alternative: Would America, or any other modern industrialized nation, really be better off if its companies failed to integrate themselves into the world economy?

A related idea is to understand that capital, and capitalists, really have become global. Here, again, the liberal temptation is to mock the billionaires who threaten to pull a John Galt and exit the national economy if they are mistreated. But as the example of Eduardo Saverin, the co-founder of Facebook who renounced his U.S. citizenship, shows, this threat has moved from Ayn Rand’s 1950s fantasy to real life.

Finally, to end on an encouraging note, champions of their own national middle class need to start seeing their problem as a global one. We are used to thinking about the traditional concerns of foreign policy – wars, disarmament, even energy and the environment – as international issues that require some degree of collective action. The hollowing out of the middle class is a problem common to all Western industrialized economies. Maybe we should work together to solve it.

7 comments

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Come on, Chrystia, you can’t use Saverin as an example of billionaires leaving the country. He may be a billionaire (given the drop in Facebook’s share price, I don’t know if that’s true any more), but he just got lucky. He’s not a job creator or industrialist, he won the lottery. He had no real interests in the U.S., as his stake in Facebook is not matched with any influence over the company.

“the left scores political points but offers little substance when it berates chief executives or private equity investors” you are right on this point, as the income of those individuals is a symptom of the problem, not the problem itself. The problem is the distribution of wealth and income, for when it concentrates in a smaller segment of society, there is less for the larger segment to spend. Obama needs to convince the wealthy and the corporations that they will lose if they don’t allocate a large enough share of revenue and profits to the workers income. Demonization may solve political problems, but it won’t solve the real problem of an imbalanced economy.

Posted by KenG_CA | Report as abusive

I’m generally impressed by your insight and clarity, Chrystia. But I was just reading your recent opinion piece in the New York Times that also focuses on rising inequality and the hollowing out of the middle class. There you mentioned Microsoft’s monopolistic activities and Apple’s switch to it’s own Maps as examples of the urge of the successful to work against a level playing field. I think the most notable thing that Apple has done that is anticompetitive is buying into the patent system, which is designed to be anticompetitive. The maps story is really Apple’s reaction to anti competitive behavior by Google (and completely insignificant financially), and hardly a comparable example to Microsoft’s dirty trick era.

Posted by NormM | Report as abusive

A great article, stepping into new territory for the mass media.

Importantly, the article makes the point that the interests of corporations are Business with a capital B — i.e., profits, not patriotism.

Biological life itself is certainly a brutal, competitive struggle for survival, and business is especially so. I agree with Chrystia, how could we expect corporations to act otherwise? They must become international or they won’t survive. They must be un-emotional, or they won’t be around for long.

The terrible problem for America is that the masses, led by the mass media, tend to think that American corporations are on the side of the American people. Nothing could be further from the truth. It is far more profitable to sell the American people out, so that’s what they want to do, and ARE doing very quickly.

And that is OK. The problem is that we the American people cooperate with them, thinking they’re on our side: We pass laws that protect the corporations that are selling us out. We maintain a military whose main function is to protect the corporations in their endless wars for plunder. And then the corporations decrease our wages, while keeping the plunder for themselves.

In a way, American corporations are a far greater enemy of the American people than are corporations based elsewhere, because at night they are operate inside our city gates, as though they were one of us. And we think they are one of us. But they are not. It is profitable to them to sell us out.

Two weeks ago, at the beginning of the new fiscal year starting October 1, the United States government issued 85,000 new H1B Visas allowing large American-based companies, like Microsoft, Intel, Apple and Google, to bring into American facilities 85,000 more low-cost newly graduated foreign engineers, mostly from India, in order to drive down engineering wage rates in America.

Today, even the very best American engineers, the cream of the American crop, are seeing their wage rates and career prospect plummet.

The H1B visa program is corruption at its best. An example of the highest super-organisms on Earth, the multinational corporation, feeding on, eating away the flesh of the the body of lower organisms, individual American workers.

We don’t need an economic revolution, though. Capitalism is certainly efficient and powerful. What we need is a Political revolution, where corporations cannot control our legislatures as is the case with our current political system. We need a political revolution.

Great article, Reuters.

Posted by AdamSmith | Report as abusive

I am going to enjoy reading your blog regularly, Dr. Freeland. Thanks for publishing your book “Plutocrats” and drawing my attention to your work!

It’s an unreal expectation that the Left would offer any substance in berating CEOs and private investors. In this current economic environment we can only expect the Market Economy to value profits. No other value out ranks profits.

To deter the market economy’s myoptic concentration on profits, and encourage some other human values, what can be done in helping to stop the “hollowing out of the middle class”?

The middle class is being hollowed out because fewer financial resources are available to those families. If they find cost savings under their current incomes, then they will have access to greater financial resources. (Squeezing out many more savings can be difficult.) If national economies start to boom in their growth, then the middle class may start to see their portion of the “pie” increase. (It’s doubtful that anyone foresees booming growth of the economies.) Or if resources can be re-proportioned so that the middle class is getting more in their paychecks and investment income, then that may slow the hollowing of the middle class. (Too few are raising their hands for redistribution to take hold.)

Is there any other alternative? Can we systemitize a combination of these three ways mentioned above?

The trends and truths I see are that upper management and large investors and “Plutocrats” are winning financial advantage in every way they can. That in the final analysis is what “hollows out the middle class.” How can it be reversed?

Posted by readingMunkirs | Report as abusive

Africa has been targetted for development by capitalists who want to own it.

Capitalism is a blessing or a poison depending upon whom it serves. If you are seeking to start a new small business, capitalism will help you grow it to serve a larger community. If you are using it to serve the owners, then you are feeding upon the population by creating a dependency relationship and you are thusly a poison to that society.

Consider the single human cell of your body. It is tiny but participates in its proximity and system in which it lives. Your body serves and feeds that cell and the cation of that cell is what in part makes up your body. But when your body feeds upon that cell, or deprives that cell by taking the nutrients to feed its so-called defenders, it is either cancer or AIDS.

Capitalism is a poison for Africa because it seeks to enslave the population to feed the owners, not to server the people – which is only a mask or pretense. Money today has nowehere to go except to commit such violations of society.

the only antidote to prevent capitalist masters from feeding upon the public is to nationalize them. Capitalism is good for business, socialism is good for people.

Posted by joe_common | Report as abusive

“Here, again, the liberal temptation is to mock the billionaires who threaten to pull a John Galt and exit the national economy if they are mistreated. But as the example of Eduardo Saverin, the co-founder of Facebook who renounced his U.S. citizenship, shows, this threat has moved from Ayn Rand’s 1950s fantasy to real life.”

Miss (Mrs?) Freeland, How then are we to defuse the Randian critique? The premise of Rand is that the “Producers” are so critical that any threat of their departure will defuse all reforms. Either this is true, or this is not true. For their departure to represent a “Threat”, it must be true that they are so important that their departure would cause some critical problem. If this is so, then by definition Rand is correct, and we owe them everything, because their departure will cause so much damage we would have nothing if they where to depart.
All meaningful reform must begin with the assumption that Rand is wrong, that those who currently hold wealth are not producers, are not responsible for all that is great in America, and whatever they have or might accomplish is perfectly doable by any number of other people. Thus, their departure is not a “Threat”, and we freely mock it not because we do not think it a fantasy that they will leave, but because the relevance of their departure is a fantasy. Their departure has no relevance, will not adversely impact the economy in any way, because they are not the producers, they are the moochers, orlim boyles one and all. We of the left are not succumbing to a temptation, we are showing you the truth.

Posted by Lrellok | Report as abusive

To suggest that our U.S. economic system relies on individuals like Saverin, who live by money alone, is senseless. Even as a foreigner, the capital he controls will continue to come here when profitable. He became “cofounder” of Facebook through legal action and has no real function within the company. I do agree, however, on the need to strengthen the middle class as the most effective source of economic strength for America. The government has to act as a stabilizing force among the interests of capital, labor, and consumers. Your article does not mention the role of labor unions in helping maintain the balance. Also, government initiatives such as the math science education initiative which would help educate greater numbers of graduates to match the demands of industry. As for the free market of specialized labor, the Dream Act, if in effect since first proposed, would already have produced engineers on our soil to meet the needs of business. In my opinion, the government should act as a stabilizer without interfering with the efficient interplay of the different means of production.

Posted by march12 | Report as abusive