Class warfare?

Posted Wednesday, July 25, 2012 in Analysis

Class warfare?

by Gina Hamilton

The upper classes, and especially their political mouthpiece, the Republican Party, are decrying the increased focus on the middle class by the Democrats, calling it tantamount to "class warfare." Is it class warfare? What does that even mean in the context of today's economy? And are the middle classes right to start asserting themselves?

Class conflict is the tension between members of different socioeconomic classes, due to competing economic interests. A classic example of class conflict is the struggle between labor and capital, for instance, and one which is seen recapitulated during this period of economic difficulty. Unions were born of this struggle, and in the modern era, a well-played propaganda campaign was able to turn much of the working class and middle class against unions, especially public employee unions.

But that is not the only example of "class warfare," as it has been waged by the wealthy against the middle and working classes. 

In the last 40 years or so, a major change has taken place in the American economy. We have moved from an industrial economy, which made actual hard goods, to a service economy, largely involved in trading favors with one another.  In short, for the middle classes, we have become a nation of tax preparers and hairdressers and teachers, all providing services for one another. Very little is built or constructed, and the only kind of "productivity" involved is the shuffling of dollars back and forth, as opposed to the normal definition, which is the number of items built or assembled per manhour.

So, for the middle classes, the only way to increase productivity is to decrease the number of people taking the dollars that are shuffling back and forth. As a result, the tax preparer stays up late every night to do the work himself instead of hiring an assistant; the hairdressing salon cuts back on staff; and teachers are losing jobs, pension dollars, and health insurance. And that is middle-class productivity.

The problem is, it doesn't benefit the middle class, and indeed hurts it. So fewer people are taking their taxes to be done, instead opting to do it themselves, because they can't afford the preparer's fees. People put off getting their hair done for a few more weeks or go to cheaper salons. People go to town meetings and complain about the tax dollars going to support the schools, and cut foreign language, physical education, art, music, and other enrichment classes that the parents themselves enjoyed to save a few dollars, because their own incomes are declining.

However, this isn't a problem for the upper classes. Their income isn't coming from a job alone, it's coming from unearned investment income and maybe a job as well, so a loss in income owing to higher productivity on one side increases investment income on the other. In short, they're doing fine. 

This leads to an increasing wage disparity for those who are technically "working" on the upper-income side and those who work an average job in the same company. This year, the average disparity between a CEO and the average (not the starting average) employee is 231 to 1. In a Fortune 500 company, that ratio increases to 380 to 1.

That is unique to the United States. In most countries, the ratio between the highest earners in a company and those in the middle tends to be somewhere in the range of 15-20 to 1, and in some countries, including Japan, the ratio is about 11 to 1.

What happens when the disparity is as great as it is in the United States is that the average employee can no longer afford the services (generally not goods) that the company is selling. Companies retaliate by demanding greater productivity, often by laying off employees or forcing more unpaid work. But the problem doesn't go away, because the employees (and other employees of other like companies) can't afford to purchase what their employer offers. And so a downward spiral continues until the company goes bankrupt or is taken over by a venture capital firm, which fires everyone and hires again at even lower wages.

What it all means is that the middle classes are the focus of people who want to improve the economy for everyone, because those people understand that the middle class, not the upper class, is the engine that drives the economy forward. 

However, many Republicans in Congress, themselves extremely wealthy, hope to derail the facts of the matter by issuing the war cry of "class warfare."  At the same time, Republicans in every state try to bust public unions, which are one of the ways the middle class levels the playing field, claiming that state budgets do not allow for living wages for their employees.

Apparently, the "class warfare" has been going on for some time; it's only now that the battle has become less one-sided.

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