Conscious Choice: Class Warfare/Corporate Welfare

September 1996

Class Warfare/Corporate Welfare

The Vanishing Middle Class

by Lynn H. Ehrle

Don’t look now because it’s too late. The Middle Class has disappeared! It’s part of a trend that developed during the‘70s but was camouflaged by a growing number of two-income families, a bipartisan social safety net, and a corporate policy of loyalty to workers and community. Then along came Ronald Reagan and The Four Horsemen of Commerce: downsizing, automation, union busting, and corporate moves offshore to friendly slave labor dictatorships. Regressive corporate and legislative policy decisions drove long nails into the Middle Class coffin. The flood gates opened.

• Business investments overseas doubled in just two years, from about $29 billion in 1991 to $58 billion in 1993.
• Despite being the most productive in the world, American workers have been subjected to 40 million job displacements since 1980.
• Federal Reserve Board actions are predicated upon the assumption that six percent unemployment is in reality full employment, a policy ratified by President Clinton when he reappointed Federal Reserve Chairman Alan Greenspan.
• Under Reagan/Bush the National Labor Relations Board failed in its historic mission to protect worker rights.
• Contingent worker companies are now the number one growth industry as major corporations lower their labor costs by hiring temps.

The industrial world is dominated by huge transnational corporations who are beyond the reach of traditional legal restraints. Seventy percent of world trade is now controlled by transnational corporations with their considerable muscle strengthened by “The New Trinity” of the World Trade Organization, World Bank, and International Monetary Fund.

A full court press by corporate PR flacks, indentured academics, and political hirelings is attempting to convince American workers that these reactionary circumstances are in their best interests. If major provisions in the Republican Contract are ratified, their handouts to corporate America and wealthy elites will be bought and paid for by the vast majority of families in the lower income brackets. The social cost of much of this legislation has never been subjected to public scrutiny in committee hearings.

C-Span watchers can attest to the fact that key pieces of legislation have been brought to the House floor without prior hearings or debate to cover up the central role of lobbyists in drafting the bills. The Contract’s provisos make the Reagan/Bush tax favors look like pikers. In his book, Senator For Sale, Stanley Hilton reported that the 1986 “Tax Reform Act” contained 600 separate corporate tax loopholes either introduced or supported by Senator Dole, a record Speaker Gingrich would like to surpass.

A Ground-breaking Investigation
Professor Ralph Estes of the American University has devoted several years to an analysis of the external costs that corporations impose upon customers, employees, communities, and society, costs that never show up in profit and loss statements (which only list internalized costs). His 1995 peer-reviewed study, based upon numerous related research documents, estimates the total costs to be in excess of $2.6 trillion dollars yearly! Some of the most pernicious costs include the following:

• Price-fixing conspiracies, monopolies, and deceptive advertising ($1.16 trillion)
• Deaths from workplace cancer ($278 billion)
• Health costs-air pollution ($226 billion)
• Discrimination ($165 billion)
• Workplace injuries and accidents ($141 billion)
• Unsafe vehicles ($136 billion)
• White collar crime including income tax fraud, bribery, extortion, kickbacks and federal regulation violations ($165 billion)

Estes concluded, “A scorecard that ignores social costs presents a distorted picture of performance that can influence policymakers to be excessively generous with taxpayer-funded corporate benefits and overly lax in enforcing corporate regulations.” Yet Congress is reluctant to investigate the corporate gravy train for it would call into question the power relationship that fuels political and regulatory decision-making. This beneficent largesse has contributed in large measure to the Middle Class vanishing act.

Data Supporting a Two-tier Theory
Despite mounting evidence to the contrary, economists, politicians, and most Americans still cling to the Middle Class Myth, and it will die a hard death. An examination of longitudinal studies and recent Census Bureau data suggests a case can be made for an Upper Class/Lower Class socio-economic division based upon household income and net worth. In 1991 a Congressional subcommittee finally took a look at the growing income gap and promptly ignored its dramatic conclusions, one which showed a 5.85 percent decline in family income among the bottom four quintiles (fifths) and a gain of 28 percent in the top quintile during the period from 1977 to 1989. The 102 percent increase in the upper one percent bracket was by comparison an incredible statistic.

The Census Bureau’s Current Population Survey on household income, adjusted in current dollars, covered the years 1969-1994. It confirmed the previous study’s upward movement in the top quintile and depicts a widening gap, or Disparity Index, between the top and middle quintiles. Since 1980, the top quintile was the only one to show an increase in before-tax income. The bottom 60 percent of the population held only 27.5 percent of household income — down from 31.2 percent in 1980, and the upper fifth controlled almost half of family income in 1994 — up five points from 1980.

Household income is one side of the coin; the other is net worth. A recently released study of consumer finances by Federal Reserve Board of Governors member Arthur B. Kennickell and two others revealed that the top ten percent of households had amassed 67.2 percent of net worth (assets minus liabilities) in 1992. These figures are at variance with the Census Bureau’s research on the distribution of household measured net worth in 1993 showing the top quintile with 44.1 percent of the wealth.

The authors noted that figures are biased by significant underreporting by high income households. This discrepancy does not alter the fact that there is a vast and ever-increasing sum of wealth in the upper quintile.

Recent Census Bureau Stats Reveal Growinq Income Gap
The Census Bureau’s “Current Population Reports” shed new light upon the income gulf between the rich and the poor, and this gap is now finding frequent media attention without so much as a mention of the middle class. The reports contain data that should set alarm bells ringing:

• Median household income has fallen 7.0 percent in the period 1989-1993.
• The number of persons below the official government poverty level was 39.3 million in 1993, 6.9 million more than in 1989.
• In 1993, the 4th and 5th quintiles accounted for 77.4 percent of after-tax household income (capital gains and employee health benefits less government cash transfers), thus leaving the lowest 60 percent of households with only 22.6 percent of the wealth.
• The two-tier socio-economic model is based upon the Census Bureau’s “current official measure” of 1993 household income distribution (excluding capital gains).

Rationale For an Upper Class/Lower Class Divide
For the term “middle class” to have any realistic descriptive quality, it should be grounded in household income data. This nation’s 1993 median income (50 percent above and 50 percent below) was $31,241 — about 29 percent of all households. Raise the upper limit to $50,000 and the “middle class” is reduced to 25 percent; keep it at $20-25,000 and the figure is 33.5 percent. Any way you cut it, the middle class does not amount to much. And a strong case can be made for including the $20-25,000 bracket in the lower class.
In order for a couple to gain a foothold in the Upper Lower Class their hourly income must be $15-22, and they must be working full-time. The reality is that those in the $30-45,000 bracket have a constant fear of job loss, and they are often underinsured or lose their insurance when the insured spouse is laid off. Yet the International Institute for Management Development, in its annual survey, awarded the “competitive leadership” gold medal to the U.S. economy (among industrialized nations). Obviously, downsizing, moves to slave labor venues, and the trend to hire temps has paid off.

Wage scales in the U.S. lag far behind those in European nations. In fact, some social critics claim the U.S. has already achieved Third World status. When you consider the fact that two-thirds of households had incomes under $45,000 in 1993, the downward slide is readily apparent. As if to add insult to injury, CEO earnings at the top U.S. corporations have reached a staggering ratio of 225:1 when compared to earnings of workers on the shop floor. When you identify yourself as middle class, be aware that your kind is endangered!

Lynn H. Ehrle is a freelance writer specializing in environmental health issues. He was vice president of the Consumer Alliance of Michigan and is a retired social studies teacher.

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