Capitalism Undermines the Middle Class

Democratic socialists believe the rich and powerful have rigged the system. On the whole they have rigged the system not through conspiracies, but through using their vast resources to donate to political campaigns, lobbying politicians, busting unions, and influencing political narratives in the media. One narrative in particular that has been central to capitalism: capitalism is the only economic system to create the middle class. Despite how many times as it has been repeated, this narrative is in conflict with the evidence. Unions created the middle class, not capitalism.

When the Middle Class was Small

Let’s talk about what capitalism has done. Capitalism has done extraordinary things for humanity. It is a laughable understatement to say capitalism has created more wealth and prosperity than any prior economic system. Before capitalism, people rarely collaborated to produce goods and services for society. In Europe the primary economic system preceding capitalism was feudalism. Under feudalism most people worked just hard enough to support themselves and the aristocratic lord that gave them land, lodging and protection. Often craftspeople did most of the work of making shoes or hammers themselves. They could not depend on a complicated supply chain for raw materials. When they did collaborate it never compared to the collaboration that occurs in today’s interconnected global economy. Under capitalism some people build the machinery to harvest raw materials, while other develop the science. Sophisticated logistics planners send truck drivers, trains and ships to transport the raw materials to factories. The factories may distribute their output to other factories to finished products. Finished products get distributed to retail stores throughout the world. What humanity has accomplished since the Industrial Revolution, starting around 1760, is incredible.

Understandably, defenders of capitalism emphasize these accomplishments. They claim not only has capitalism developed unprecedented wealth, technology and collaboration, it created the middle class. The reality is that without the formation of the middle class these accomplishments amount to nothing. If capitalism had created billions of jobs, and incredible wealth for the 1%, but the rest of the 99% lived in poverty, few people would defend capitalism, or identify as capitalists.

In feudalism, during the middle ages, the aristocracy lived in incredible opulence. The old castles that stand to this day are beautiful. We love to admire them. But today we condemn feudalism for its vast inequality and poverty. While the aristocracy lived in luxury, the peasants had no access to opportunity.

Wealth inequality remains a central attribute of capitalism. Yes, the middle class became the majority “class” in the United States and Europe in the twentieth century, but democratic socialists argue that if the capitalists had had their way, twentieth century capitalism would have continued to look like nineteenth century capitalism. In the nineteenth century children worked in factories, workers often worked twelve to sixteen hour days, six days a week. Their housing was often inadequate, unsafe, and shared. Workers did not have access to worker protections or safety regulations, so if they were injured on the job, unable to work, they were forced to beg on the streets.

Union Power in the Twentieth Century

Unions created the middle class. In the twentieth century workers began to see unions as their road out of poverty. They found that their bosses could not earn a profit without their labor. The workers refused to return to work until their demands were met. Individually they had no power to fight their bosses, but together they could demand better wages, safer working conditions, and even democratic control over their workplaces. As they gained power in their workplaces, and gained economic power (while their bosses lost economic power), the workers and the middle class gained political power over what laws were passed by Washington.

Not only did the middle class grow as union membership grew, the decline of unions correlated with the decline of the middle class in the United States. Union membership is tied to the size of the middle class.

Democratic Socialism’s Argument in the Twenty First Century

I said democratic socialists believe the rich and powerful have rigged the system. By this I meant that they have made it difficult for workers to form unions, difficult for poor people to vote, difficult for poor people to get justice out of the justice system, difficult to find affordable housing, difficult to afford medically necessary healthcare. Many Americans have become disenfranchised from politics, and have even stopped voting. Everyone recognizes the system is broken. There are many theories about how Washington became so polarized, dysfunctional and unresponsive to the needs of the voters. Democratic socialists blame the rich. The bigger the wealth divide between the rich and everyone else, the more politicians serve the rich.

Democratic socialists argue that capitalism doesn’t work. Unchecked capitalism results in more wealth inequality, not less. Even many capitalists recognize this, nihilistically arguing there is no alternative. Socialism says there is an alternative. In spite of capitalism’s many accomplishments, the real work gets done by the workers. The creation of the middle class is touted as one of capitalism’s greatest successes, if not its greatest, but the reality is that capitalism did not create the middle class. The workers did. If the workers wanted to they could fight for a world without bosses, a world in which the workers owned all the businesses, a democratic socialist world.

Some Charts about Unions, the Middle Class and the Rich

I tried to find data that supports my claims. I found a couple of charts that begin to tell a story of the workers and the one percent fighting over who makes the rules governing the system. Capitalists slam socialists for “redistributing wealth,” but the problem is how that wealth is distributed in the first place. If the workers had been given the opportunity to share in the profits that their labor helped earn, there would be no need to discuss redistribution.

Figure 1, from Business Insider, shows two things:

1. the percentage of the workforce that were members of unions from 1967–2010, and
2. the middle class’s share of the United States’ aggregate income. Note that union membership was in decline during this entire period, as was the middle class.

Figure 2, from Economic Policy Institute, shows two things:

1. the percentage of the workforce that were members of unions from 1918–2008, and
2. the share of income going to the top 10%.

We can see a reduction in the share of income going to the top 10% by the end of the 30’s, which then returns in the 1980’s. It appears that as union membership grew in the mid 1930’s, within about five years we see a reduction in the wealth accumulation by the most rich. Even as union membership began to shrink beginning in the mid-1950’s, and again in the early ‘70’s, something prevented all of the wealth going to the top for a little while. Although in Figure 1 we see the middle class’s wealth shrinking from at least 1967, we begin to see the rich get richer again at the end of the 1970’s. It is not pictured here, but this trajectory has continued to this day.

Fig. 1

Fig. 2