Photo credit: paul bica
We have become so used to the idea that the middle classes are the winners that it is difficult to get our heads around the fact that something important is changing. It isn’t just the poor who are under pressure: the middle classes are no longer winning either.
This isn’t just about the effects of recession. We are all losing out, and losing out devastatingly, to the rise of a whole new class which has become known as the ‘One Per Cent’ (one per cent may be an overstatement: in the UK, 0.6 per cent of the population earns more than £150,000 a year).
The One Per Cent is dominated by people in financial services and those at the top of 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. But the real point is that they are doing very well. The number of billionaires in the world grew from 1996 to 2006 from 225 to 946. These are the customers for $45m 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.
We know all about how the low-paid are being squeezed by the new dispensation. What is less understood is that there is also a huge transfer of assets from the middle classes to the new elite.
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. Meanwhile 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. 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.
Even bursting bubbles make the One Per Cent better off. When financial bubbles burst, they buy back the assets again at a lower cost. 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. But the revelations are important because, not only are these vital resources sucked out of the middle classes, just as they are sucked out of all classes. They also affect the middle classes in other ways: unless they work in the financial sector themselves, they find their factories and real-world businesses starved of investment and their professional skills automated.
Over the past generation, it has slowly begun to dawn on the English middle classes – who have believed with some reason that the financial service professionals and their institutions were firmly on their side – that it wasn’t like that at all. Something has shifted, very quietly, very dangerously, and actually the signs were there a generation back.