The Middle Class is the Lifeblood of a Prosperous Society
The postwar boom, fueled by the war effort and the civil rights movement, boosted economic growth, and brought lasting prosperity to the middle class. This rising middle class in the West became a centerpiece for the emergence of a more inclusive society and the establishment of a liberal world order.
Over the past decade, especially after the 2008 financial crisis, these dreams were shattered. Some middle-class households in the U.S. and Europe, victims of technological progress and globalization, are seeing their situation deteriorate and are turning to populist strongmen in the belief that they will protect their interests.
If the well-being of the middle class is the yardstick by which America's success is measured, the country is in trouble. Job security and wage growth have taken a serious hit in recent years as labor unions lost their power and corporations focused on creating shareholder value over employee satisfaction and retention.
Definition of the middle class
The Pew Research Center defines the middle class as households with incomes between 2/3 and 2 times the median U.S. household income of $65,000 in 2021, based on the U.S. Census Bureau. When using Pew's grid, the middle class is composed of people earning between $43,350 and $130,000.
How did the middle class emerge and what is its role in society?
The industrial revolution gave rise to what is known as the "middle class" alongside the working class. In the early stages of industrialization – the era of textiles, coal, steel, and internal combustion engines – the benefits of technological advances were almost always passed on to society as a whole through the creation of thousands of new jobs and businesses.
This emerging middle class owned and operated these new businesses, factories, mines, and railroads, among others. Their lifestyle was comfortable, and their growing incomes created a steady demand for goods and services that led to a culture of consumption.
A powerful middle class with high levels of socio-economic prosperity, self-confidence and enthusiasm serves as an incubator for the next generation of entrepreneurs.
At the same time, nations with strong middle classes experience lower crime rates and greater political stability.
The middle class, once the economic stratum for the vast majority of American adults, has steadily contracted in the past five decades. The proportion of adults who live in middle-class households gradually fell from 61% in 1971 to 50% in 2021, based on the latest analysis of government data by the Pew Research Center.
The shrinking of the middle class is matched by a growing share of adults in the lower income bracket relative to the upper income bracket.
Middle-class households – which predominantly follow a dual-income model – struggle to find a sustainable work-life balance. This is primarily due to the lack of parental support services, such as insufficient childcare resources or unfavorable parental leave policies.
Furthermore, interest rates on loans and mortgages are skyrocketing; insurance premiums are at an all-time high, leaving the middle-class man knee-deep in debt. Add to that health-related challenges: most middle-class families do not have medical insurance.
Origin of the decline of the middle class
The technological breakthroughs achieved in recent waves of innovation have disproportionately benefited the more affluent and educated segments of the population. While inequalities have always existed, due to natural disparities in talent and character, they have grown considerably in recent generations. In 1974, the richest 1% of U.S. families owned 9% of GDP, but by 2007, that share had risen to 23.5%.
Globalization is another factor adversely affecting middle-class incomes. Job offshoring has become inevitable under an economic model that prioritizes maximizing aggregate national wealth. Much has been made of the promise of a knowledge-based economy that would replace tedious and repetitive tasks with creative and interesting work. Such rhetoric overlooks the reality that the benefits of this new economic order accrue disproportionately to a small group of people.
The middle class is key to preserving democracy
There tends to be a close correlation between high levels of social and economic development and stable democracies. Democratic governance has become largely established in developed countries that have achieved a sufficient level of prosperity to allow a majority of their citizens to consider themselves middle class.
Steps must be taken to preserve the American middle class, or the United States will cease to be a democracy, says Ganesh Sitaraman, Vanderbilt law professor and author of The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic. "The shrinking middle class poses a constitutional problem because our Constitution was not designed for a country with significant economic inequality," Sitaraman says.
In the absence of feudalism, hereditary aristocracy and because of the vast lands to the West, the founding fathers built the constitution on the basis of relative economic equality. Today, if the gap between the affluents and the impoverished continues to widen because the middle class continues to shrink, Sitaraman believes the United States will cease to exist as a democracy.
Rebuilding the middle class
It will be necessary to revive the middle class, by:
- increasing public infrastructure spending, which creates jobs and improves overall productivity.
- promoting policies that clear the way for women to participate in the labor force and earn more in the economy. Expanding paid leave for parents and caregivers, reducing, or eliminating the cost of childcare for working families.
- raising the minimum wage and easing the burden on low- and middle-income households through tax reforms.
- improving social assistance: measures must be taken to help people cope with the rising costs of housing, education, healthcare, and childcare. The countries that fared best during the Covid crisis had universal access to affordable health care, paid sick leave and a robust public-health infrastructure – along with income support for workers and businesses, which automatically ramped up when the economy contracted.
A vision of the future
Imagine a vision of the future that offers a realistic path to creating a world with a thriving middle class and strong democracies. What would this vision look like?
First, it would strive to assert the primacy of democracy over economics; after all, democracy is the cornerstone of a thriving economy.
The globalization of markets must be seen as both an opportunity and a challenge that needs to be controlled thoughtfully and sensibly. Under this new vision, markets would no longer be seen as ends in themselves; global trade and investments would factor in their impact on middle-class growth and prosperity. The reality is that the increase in aggregate national wealth is not a reliable indicator of national well-being.
New technologies are key to the success of the middle class, as they will boost productivity and create new job opportunities for many people. To this end, continued sponsorship of ongoing education is essential to ensure everyone acquires the new skills required to keep up with technological progress.
And finally, interest groups should no longer be able to exercise power over politics, which is a prerequisite for a more equitable redistribution of wealth.