In American public life, it's hard to escape the long shadow of the middle class. From politicians to pulpits to the punditocracy, those in the public eye constantly appeal to the solid center of the country.
Mainstream values are described as "middle class," as are common tastes and preferences. Economists often state that the middle class is the engine of commerce, and industries from construction to education to consumer electronics rely on a strong middle class -- with large amounts of disposable income -- to build colleges, fill houses and buy Blu-Ray players. But what if this massive engine ground to a halt?
On the surface, the scenario sounds unlikely. But a growing cadre of economic analysts note the steady erosion of the middle class, and the loss of its massive buying power. In a recent article, my Daily Finance colleague Charles Hugh Smith laid out a fairly clear argument for the disappearance of the middle class, at least in terms of wealth. As Smith notes, the top 20% of the American populace holds roughly 93% of the country's financial wealth, and the top 1% of the country holds approximately 43% of the money in the U.S. Meanwhile, the middle 20% of the population -- what would, officially, be called the middle class -- holds only 6% of the country's total assets. While disturbing, even this minuscule share of the wealth pie dwarfs the bottom 40% of the country, who control less than 1%.
Trouble on the Factory Floor
So how did the middle class become second class citizens -- or, as Smith puts it, "Debt Serfs"? Not surprisingly, the answer is complicated, involving factors like the rising cost of education, the loss of pension funds and affordable health care, falling middle class wages, and the skyrocketing price of housing. Yet one clear answer lies in manufacturing. When looking at the declining American middle class, a good number to start with is 42,400. That's the total number of factories that the U.S. lost between 2001 and the end of 2009. Put another way, this translates into the outsourcing of 32% of all manufacturing jobs in America.
Other numbers illuminate the impact of this massive job drain. At the end of 2009, 15.7 million people were unemployed, while 12.6 million -- 20% fewer -- worked in manufacturing. This represented only 9% of the American working populace; at manufacturing's height in 1960, 29% of Americans were employed in the sector.
This bleeding of American manufacturing represents a massive drop in the products that are made in America: According to one economist, the country currently doesn't produce any television sets. Computer manufacturing in the U.S. employs about 166,000 people; in 1975, it employed almost 300,000. Meanwhile, Asia's computer manufacturing sector has about 1.5 million workers and a single tech manufacturer, Foxconn, employs more than 800,000 people.
If the name Foxconn sounds familiar, it's because the company entered the news earlier this year when twelve of its employees at one factory committed suicide. In the months that followed the suicide cluster, disturbing facts emerged about the facility, which produced Apple iPods. Describing work conditions, factory insiders painted a picture of a profoundly depressed and dispirited workforce slaving around the clock for wages that start at $130 per month. Foxconn employees are often on their feet for eight hours at a time, regularly deal with emotional and psychological attacks, and often suffer workplace injuries.
Economic Déjà Vu
If the low wages, dangerous workplace conditions and a suicidal workforce sounds familiar, it's because that describes the conditions in many American factories in the late 1800's and early 1900's. This situation was largely remediated by the growing power of organized labor, which successfully pushed for minimum wage, collective bargaining, reasonable work weeks, and many of the other rights that today's workers enjoy. Yet, in the past few decades, "the unions" have become an all-purpose scapegoat for inflexible work rules and the rising cost of American-made goods, as low-cost overseas labor has led to massive outsourcing. And in recent years, some of that reputation may be deserved. Yet the fact remains that organized labor did much to create the American middle class.
If the middle class is to rise to anything approaching its former power, American manufacturing must rebound. While the U.S. is still in the upper ranks of the world's largest consumers, its economy is rapidly slipping down on the global list. According to some economists, China's economy is on track to overtake the U.S. by 2040; ten years later, India will also outstrip America. Economic strength requires a strong manufacturing base, but while Asian countries are building theirs, America has slowly allowed its own base to starve.