Popular futurists from Alvin Toffler to John Nesbitt have been mostly pretty accurate in predicting the impact of the Information Age on societies in the developed world. But few, if any, could have factored in the impact of the global economic crisis sparked in 2008. South Africa has much to learn from what’s happening to middle-class USA. By J BROOKS SPECTOR.
While The New Yorker magazine is famous for many things, its cartoons are renowned for tapping precisely into US fears and hopes. Recently I saw one such cartoon that spoke directly to one of the greatest fears in contemporary America – the financial crisis and recession is exacerbating and accelerating the ongoing shrinkage of the country’s middle-class as the jobs are being downgraded and then melting away.
The cartoon depicts a quotidian scene that happens across the US (and, in South Africa as well). A man stands at the back of a small pickup truck – a bakkie – calling out for particular types of workers who cluster around the truck, hoping for a day’s work. Only, instead of bricklayers and painters, the contractor yells out, “Okay, we’re good with IT, anybody here do spreadsheets?”
This part of central Florida is not the fashionable enclaves of Miami Beach, Boca Raton or Palm Beach, the ethnic and racial enclaves of Tampa-St. Petersburg and Miami or the recreational la-la-land around Orlando. Nor is it northern Florida’s farming and cattle grazing parts of the state that reach back to an earlier Florida. Rather, it is quietly middle-class, a mix that includes retirees from other climes as well as engineers and other technical personnel associated with America’s space programme and the military.
Like the rest of the South or the Southwest, Florida fundamentally changed with the ascendency of air conditioning, mass market air travel and, most recently, a sustained property bubble. This area, stretching from Melbourne to the beach communities to the north and south (including Cape Canaveral’s launching pads), gained from the national property boom harnessed to an influx of people in the growing retirement wave of the Baby-Boom Generation.
The region also gained from high tech companies closely associated with the military and Cape Kennedy. At its peak, the local airport had half a dozen airlines landing flights all day. Now it is down to three or four a day from one airline. The area’s housing boom has deflated, as the high tech industries have been affected by the termination of the space shuttle and the downsizing of other Nasa projects, as well as the recession that sucked the air out of the tourism industry.
New construction is almost totally absent and so when a major government contractor in high tech communications (and cyber warfare, among other activities) announces it has a new contract and will hire hundreds of electronics specialists and even more construction workers to build a new facility, it is the lead story in the local paper.
At lunch, a waiter pours out his life story. He’s 31 and sees no future in the restaurant business. “No retirement, no health care, no benefits.” So he’s gone back to university to study media and communications technology. In the popular imagination, as it has been since the beginning of the idea of America, since Huck Finn lit out for the territory, America still remains the country of the eternal second chance.
And that takes us back to The New Yorker cartoon. In the past several months, a slew of articles from Time to Foreign Affairs have focused on the American middle-class as an endangered species. With titles like “Is America Over? – on Inequality and Social Decline” and “Can the Middle Class Be Saved?”, the media is focusing on how wealth is concentrating in the top segment of the population and squeezing the middle-class. George Packer in the sombre journal Foreign Affairs argues: “Like an odorless gas, economic inequality pervades every corner of the United States and saps the strength of its democracy. Over the past three decades, Washington has consistently favored the rich — and the more wealth accumulates in a few hands at the top, the more influence and favor the rich acquire, making it easier for them and their political allies to cast off restraint without paying a social price.”
Don Peck, writing in The Atlantic writes: “The Great Recession has accelerated the hollowing-out of the American middle class. And it has illuminated the widening divide between most of America and the . Both developments herald grave consequences….
“[Bank analysts argue] America was composed of two distinct groups: the rich and the rest. And for the purposes of investment decisions, the second group didn’t matter; tracking its spending habits or worrying over its savings rate was a waste of time. All the action in the American economy was at the top: the richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into their pockets.”
While The Economist puts a political dimension to this evolution: “Unemployment remains stubbornly above 9%, with the long-term unemployed making up the largest proportion of the jobless since records began in 1948. As the superpower’s clout seems to ebb towards Asia, the world’s most consistently inventive and optimistic country has lost its mojo.
“But politics, far from offering a remedy, is now adding to the national angst. Eight out of ten Americans mistrust their government. There is a sense that their political system, like their economy, has been skewed to favour the few, not the many.”
This simultaneous squeeze on the middle-class, driving increasing numbers out of that zone and consequent growing income inequality comes from the dynamic of globalisation with the changing nature of workforce needs in America. This plays out with candidate-to-job posting ratios of nearly one-to-one in Manhattan and the Washington metropolitan area, in contrast to six-to-one in places like Detroit and Miami. In March, even as national unemployment was 12% for people with a high-school diploma, it shrank to 4.5% for college graduates and a slender 2% for those with a professional degree.
Describing this dynamic, University of California at Berkeley economist Emmanuel Saez says, “The rich seem to be on the road to recovery,” but middle-paying jobs in the US, in which some workers have been overpaid relative to the cost of labour overseas or technological substitution, “are being wiped out. And what will be left is a hard and a pure market.” Many will end up earning less than before the recession. This is accelerating economic shifts already under way as declining industries and companies fail, pushing workers and capital toward rising sectors, but declining cities will shrink even faster. And MIT economist David Autor adds, “The Great Recession has quantitatively, but not qualitatively changed the trend toward employment polarisation” with job losses “far more severe in middle-skilled white- and blue-collar jobs than in either high-skill, white-collar jobs or in low-skill service occupations.”
For more than three decades, the US has been shifting from industry to services and information, and integrating itself far more tightly into a single, global market for goods, labour and capital. Meanwhile, global supply chains have grown both tighter and more flexible because of improving information technology and freer trade. Routine work is easier to relocate as China, India and other developing countries can generate cascades of high-value goods and services. Since 2000, US manufacturing has shed about a third of its jobs even as the country remains the second-largest manufacturer in the world. Compared with the fact that the US is the globe’s number three agricultural producer even as mechanisation means only 2% of Americans make a living as farmers. Manufacturing seems headed down the same road.
In fact, the experts say the transformation of the white-collar workforce is only now starting in earnest. Computer software does boilerplate legal work, carries out first reads of medical scans and the further reads are done by professionals half-a-world away. A few years ago, economist Alan Blinder estimated that about a quarter of all US jobs could be shipped overseas in the next few decades and the recession has simply enhanced this process. The International Monetary Fund says one of every four jobs lost worldwide was lost in the US. As machines and foreign workers have taken these activities, the skills associated with them in the US have become less valuable forcing yet others to take lower pay.
People with good educations, skills or talents have been able to exploit this change in the workplace – more than half of the nation’s income growth has been captured by the top 1% of earners since 1993. From 2002 to 2007, the top 1% captured two out of every three dollars of income gain. This is making things increasingly problematic for the shrinking middle-class and in particular for men in the shrinking manufacturing jobs sector. In his Atlantic article, Peck argues that a key problem for the future, “is the extent to which these sorts of social problems – the kind that can trap families and communities in a cycle of disarray and disappointment – have been seeping into the nonprofessional middle class. In a national study of the American family released late last year, the sociologist W. Bradford Wilcox wrote that among ‘Middle Americans’ -people with a high-school diploma, but not a college degree – an array of signals of family dysfunction have begun to blink red.
“The family lives of today’s moderately educated Americans,” which in the 1970s closely resembled those of college graduates, now “increasingly resemble those of high-school dropouts, too often burdened by financial stress, partner conflict, single parenting, and troubled children”.
“A thinner middle class, in itself, means fewer stepping stones available to people born into low-income families. If the economic and cultural trends under way continue unabated, class mobility will likely decrease in the future, and class divides may eventually grow beyond our ability to bridge them.”
The future repercussions for the American economy and society have the attention of politicians, especially those who hope to lead the country after November 2012. The challenge for politicians is what kinds of policies can address these changes with more success than that of King Canute ordering back the tide. And the implications for South Africa should be just as obvious. DM
- America’s missing middle in the Economist;
- The Broken Contract: Inequality and American Decline in Foreign Affairs;
- Can the Middle Class Be Saved? in The Atlantic.
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