For the middle classes, things can only get worse

From Spectator blogs, August 23, 2013

In this week’s magazine Fraser Nelson and I look at the breaking of the English middle class, a subject so scary you’ll want to hold someone’s hand when reading it. The frightening thing is that in Britain, as in the United States, the middle class is not just squeezed but shrinking and sinking.

Even before the Great Recession began, middle-class jobs in the law, media and accounting have been melting away, outsourced, unprofitable or obsolete, while salaries are falling behind prices. This is not a product of the credit crunch, and it will not be going away.

Median hourly income in London is now below 2002 levels, real wages in Britain have not risen since 2005, and the median income has been static or in decline since 2004. The savings rate, a sure mark of middle-class respectability, has plummeted, while pensions are depleted.

Meanwhile house prices have increased 500 per cent in the past 25 years, so that the average London property is almost 20 times the average national income. Other major costs, notably energy and education, have also soared, part of the biggest squeeze in living standards since the depression of the 1870s, according to economist Roger Bootle.

Technology and competition from abroad, which wiped out large numbers of working class jobs in the 20th century, is doing the same with middle class jobs in the 21st. At least the miners were romantic; no one’s going to make a musical about middle managers in 20 year’s time.

But another, especially British problem, is our reliance on the housing market. David Boyle, author of Broke: What Killed the Middle Classes?, identifies house prices and falling pensions as the chief suspects, housing inflation chiefly caused by an oversupply of mortgage finances (thanks to the abolition of the “Corset” restricting lending) and runaway salaries at the top.

This has also encouraged ‘extreme education competition’, Boyle says, because ‘You’re no longer just competing against your peers but against a global middle class and to be part of a shrinking elite.’

As with the housing market, the foreign rich are coming to dominate private education as prices have risen at twice the rate of inflation this century. Yet people are still trying to get their children into those schools, perhaps reflecting the increased importance of networking, one of the few skills that computers cannot replace­ (unless the Chinese manage to design an android that can replicate Old Etonian charm).

The truly depressing thing is that, while George Osborne’s recovery is reliant almost entirely on the super-rich, he’s also encouraging yet more house price inflation. Things can only get worse.

In the piece we also look at the cultural impact of the new super rich, and declining ‘middle-class values’ like modesty; much of the anger towards the financial services industry stems from the very ethos of the City, and its conspicuous consumers who were treated like modern-day Stakhanov workers by New Labour; it’s all so unseemly. In contrast the values of the broader middle class –­ self-restraint, deferred gratification, patriotism, curtain-twitching neighbourliness –­ are sneered at by a wealthier liberal elite.

Likewise thrift, or prudence, a word so beloved of Chancellor Brown even while his government threw money around like an Anglo-Irish lord at the Hellfire Club. Another middle class value is honesty. Why did MPs steal from the public to finance their lifestyles? Perhaps for the same reason that charity bosses have awarded themselves absurd salaries – to keep up with contemporaries and Britain’s runaway housing costs.

But what can you do? Outside where my local bookshop used to be (killed off by online competition) I recently saw a poster asking “Is it time to rethink Marxism?” Well, it was such a success the first time, after all. For a century and a half the followers of Karl Marx have been foretelling capitalism’s doom, yet while British and American trends give comfort to these secular end-timers, on a global scale capitalism has never been better for humanity; the decline of the British middle class is linked to a process of global embourgeoisement, as millions escape poverty in India, China, South America and even Africa.

But the danger is that the US and to a lesser extent Britain is developing the same sort of hourglass-shaped economy that has always marked places like Brazil, associated as it is with corruption and political extremism.

In Britain we don’t have the positive feedback loop of lunacy that is American politics but there is declining interest in mass party membership and against an elitist, professionalised political class. That is not good for democracy, a system of government that depends on a strong and healthy middle class.

What do you think?