Everyone now accepts that poverty — whether actual destitution or state-aided, underclass misery — is a growing global phenomenon. The figures, though astonishing, have become a cliché. Three billion people live and die on less than $2 a day, and 1,2-million on less than $1. Even rich countries suffer homeless beggars and street kids and queues for soup kitchens.
Less well known is the fact that, globally, the middle class is struggling and declining. Capital accumulation used to be a normal middle-class pattern — pensions and insurance, setting up the kids on the home-owning ladder, a nest-egg against unforeseen misfortune.
Today, dis-saving is closer to the norm — cashing in inherited savings, taking out loans in excess of income, selling the family silver. Parents are bailing out or accommodating their adult offspring who, in the past, might have contributed to family pensions.
This thinning of middle-class assets accompanies another trend. Two incomes are needed to pay the bond, groceries, medical bills, school fees, transport — the essentials. Middle-class incomes no longer allow even infants the luxury of full-time care by one parent.
This trend has happened over 30 years, when the world’s wealth-producing capacity expanded by a factor of eight thanks to the digital revolution. The world is immensely richer.
We tend to put these trends down to feminist insistence on income-earning, or “the youth of today”. In fact, the growing poverty from the middle class downwards is a function of the exponential systemic increase in inequality.
Again the figures are well known. The top three people own more than the bottom 600-million. The richest fifth in the world earns more than 85% of world income. The pattern is worst in the United States, where 1% owned more than the bottom 95% in 2000 — up from 90% a year earlier.
Where the US leads the rest of the world follows, because that is the economic system it sets for the world.
Thus the astonishing upward gush of resources — from poor to rich — is depleting the middle classes. In the US middle-class households have lost net worth since 1970. Average weekly wages and salaries were 12% lower in 1998 than in 1973, while labour productivity rose 33%. Between 1990 and 2000 the CEO’s pay rose by 570%. It is now 600 times that of the average worker.
The increase in productivity — and more — goes to the top. This systemic concentration of wealth cannot be corrected without systemic change. It cannot be tackled by expanding growth. The more productivity rises, the more the rich take away. It will never trickle down — not because the rich are mean, but because they spend only a little of their wealth.
In the past the rich spent or invested most of their money, employing other people. Today a large proportion is effectively hoarded. More than 95% of the world’s savings — much of it deriving from top incomes — is “grown” by speculative trading through the financial sector, not invested in productive enterprise.
There are now effectively only two classes — one with capital; the other without.
Senator John Edwards, a Democrat presidential hopeful, says: “There are two Americas. One that does the work and one that reaps the rewards … middle-class America, whose needs Washington has long forgotten; and another America — narrow-interest America — whose every wish is Washington’s command.”
Capital owners can demand and get historically high proportions of the product of all countries — because they are allowed to move their capital from country to country. Rates of return of between 30% and 40% are not unusual. Only 30 years ago, 10% was considered very good.
As “unearned income”, it attracted more tax than worked-for income. Today it may be untaxed, because capital owners — having the power to move — profoundly influence government policy.
Low taxes on capital are only one example — “flexible” labour laws and privatisation are others. The middle classes must save and ensure for health and education because capital owners frown on government expenditure on any but the most rudimentary education and health care.
All this is unfair to people without capital. Even worse is the danger posed to economic and social systems globally.
Daily fear of starvation is the fate of poor people everywhere. But everywhere, also, middle-class people are getting into terrifying debt; having homes repossessed, falling behind on medical insurance and pension payments, and leading a life of insecurity, stress and conflict.
Divorce, family violence, mental illness, drug abuse and delinquency follow. So does a disrespect for law and profound cynicism about politics.
The middle class is traditionally considered society’s stable backbone. It holds traditional ethics about decency and good behaviour. It is generally well-educated and values education.
It is about moderation, stability and abiding by the law. And it is often charitable. It can be mocked for this — but it is lost at our peril.
Margaret Legum runs the South African New Economics Network