will they ever be able to buy homes or shake off their debts, or even the housing debts of their parents? Especially when policy and economic circumstances have combined to provide an extraordinary shift in resources backwards from the next generation to their baby-boomer parents, the phenomenon outlined by the higher education minister David Willetts in his much-debated book The Pinch. Willetts showed how the baby-boom generation benefited from free higher education, low house prices and inflation to eat away at their debts. And now when the debts are almost paid off, they benefit from low income taxes and low interest rates. ‘The boomers, roughly those born between 1945 and 1965, have done and continue to do some great things but now the bills are coming in,’ he wrote, ‘and it is the younger generation who will pay them.’20
The middle classes – those that dare to look ahead – see their children being flung into a proletarian struggle to maintain any kind of roof over their heads. ‘It is as if your parents die leaving a treasure chest,’ wrote Willetts, ‘and, when you open it, you discover a pile of IOUs which you are obliged to pay.’21
But there is something else going on here which affects the middle classes, however you define them, in many developed countries. Middle incomes in the USA and Canada have flatlined for three decades now. Even in Germany, real monthly incomes have been falling. In fact, the term ‘squeezed middle’ came originally from the United States, where the term ‘middle class’ is usually used to mean what it says – those on average incomes – rather than the extra superstructure of values and social aspirations that the term has come to stand for in the UK.
There certainly is a middle-class problem in the USA, where 4 million families are believed to be in danger of sliding into poverty and one in four middle-class households are about to drop down onto the lower rung, spending a quarter of their incomes just servicing debt.22 It is different over there, but there are important parallels between the UK and USA, which is why the Labour leader Ed Miliband borrowed the American phrase ‘squeezed middle’ in 2011. The parallel has also been noticed by one of the most important commentators on world affairs. Francis Fukuyama is busily charting the decline of the middle classes in all developed nations.
Into the misty past, the middle classes have benefited from rising above the undifferentiated masses, Fukuyama implies. Now they are being driven back into the undifferentiated mass by a new global elite which is benefiting from the shifts in the financial world over the past generation. Once the middle classes siphoned off wealth to provide themselves with comfortable lives, now they are the victims of the siphoning – and siphoning on a vast scale.
What is happening is most obvious in the USA, where it drove the massive growth of inequality over the past generation. In 1974, the top 1 per cent of families took home 9 per cent of GDP. By 2007, that share had increased to 23.5 per cent. But this isn’t just the USA, because the same global and technological shifts are happening everywhere, says Fukuyama, from off-shoring to replacing skilled jobs with IT systems. ‘What if the further development of technology and globalisation undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status?’ he asks:23
The other factor undermining middle-class incomes in developed countries is globalisation. With the lowering of transportation and communications costs and the entry into the global work force of hundreds of millions of new workers in developing countries, the kind of work done by the old middle class in the developed world can now be performed much more cheaply elsewhere. Under an economic model that prioritizes the maximisation of aggregate income, it is inevitable that jobs will be outsourced.
We have become so used to the idea that the middle classes are the winners, as they have been since time immemorial, that it is difficult to get our heads around the fact that this has now changed. The middle classes are no longer winning. They are losing out, and losing out devastatingly, to the rise of a whole new class which has become known as the ‘One Per Cent’ (1 per cent may be an overstatement: in the UK, 0.6 per cent of the population earns more than £150,000 a year). It was this phenomenon that the great investor Warren Buffett referred to in 2006 when he confirmed the existence of a ‘class war’. ‘But it’s my class, the rich class, that’s making war and we’re winning,’ he said, fearful of the consequences.
The One Per Cent is dominated by people in financial services, and at the top of the global corporations, plus perhaps a handful of global bureaucrats. It is a deeply interconnected world – one study showed 94 directors holding 266 directorships in 22 corporations.24 But the real point is that they are doing very well. The number of billionaires in the world grew from 225 in 1996 to 946 in 2006. These are the customers for $45 million personal Gulfstream jets. They control two-thirds of the world’s total assets. They are the reason why house prices are so high in London and the south-east.
All this explains to some extent the vast transfer of public money to the banks from 2008 onwards, but we all know about that (£1.5 trillion in the UK alone). What is less understood is that there is something bigger going on: a huge transfer of assets from the middle classes to the new elite. Labour’s business secretary Peter Mandelson once said that the Labour Party was ‘intensely relaxed about people getting filthy rich’, but actually it does matter. House prices are higher as a result, the salaries of those lower down the food chain are squeezed, pensions are top-sliced, while the financial class has become a new kind of landlord, living off the rents and charges of the financial system which funnel wealth upwards – while real wages, and real salaries, haven’t risen in real terms since 1970, and since 1960 in the USA where the process is most established.
This all sounds a little like a conspiracy theory, but the figures are stark. And although the phenomenon is hardly ever discussed in the media, it is discussed among the very rich. In 2005, the first of three reports was published privately by the US banking giant Citigroup, especially for their wealthiest clients; they coined a word to describe the phenomenon and tried to explain it. The first report was called ‘Plutonomy’, and it explained the idea like this:
The world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the US. We project that the plutonomies (the US, UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization. In a plutonomy there is no such animal as ‘the US consumer’ or ‘the UK consumer’, or indeed the ‘Russian consumer’. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the ‘non-rich’, the multitudinous many, but only accounting for surprisingly small bites of the national pie …25
Two more reports followed in 2006, explaining that plutonomy was a result of a kind of financialization of the economy – a huge expansion into financial assets, which are the target for investment rather than real assets, and which the financial sector repackages and repackages, inflating their prices each time. When the financial bubbles burst, they buy back the assets again at a lower cost. Even bursting bubbles make the One Per Cent better off. This is helped by the fact that the most powerful governments of the world see the value of those assets – property, bank shares etc. – as the touchstone of economic success, which is why so much of the banking bailout was designed to reflate their value.
Citigroup came to regret publishing these reports, presumably because it encouraged the idea that they were cheerleaders for plutonomy. Over the years, copies began to leak out via the Internet, much to their horror. There was a concerted attempt to suppress them. By 2010, Citigroup lawyers had managed to remove them all from the Web, only to find them seeping back again. The revelations are important because not only are these vital resources sucked out of the middle classes,
