Middle Class and Globalization: A Historical Perspective (Part II)

Without a doubt, the German middle class's resilience, discipline and focus on productivity was the secret ingredient in establishing the rapid success of German science and technology as well as business and industry in the late 19th and early 20th century.

However, as the country's elites at the time sidetracked themselves with such sideshows as racing to build a naval force that would compete with, and preferably overpower, Britain's, something vital got lost — the unrelenting focus on business, technology and the economy.

In this respect, what was World War I to Germany, has been the Iraq war to the United States. Official Washington, as tout Berlin back then, for a critical time period lost its focus and seemed to care just about everything except what clearly constitutes a nation's real lifeline — the economy.

As a result, key industries (such as banking and cars) as well as the nation’s finances are fragile. Lifestyles may need to be adjusted downwards.

The resulting pressures are hard to take in a system where — as the magic of the American social fabric has it — most of these risks are borne by the individual rather than shared collectively. While the concept of solidarity may have taken on excessive forms in Europe, it is getting too much short shrift in the U.S. of A.

The risk to which the United States finds itself exposed is this: It is one thing for societies, such as those of Europe, to realize that their governments are in debt for providing social services. It is quite another to create the same kind of indebtedness by going to war in Iraq, or by cutting taxes for the rich.

Of course, the very tricky, and potentially disastrous, parlor game gripping the U.S. body politic these days is to deflect any such sentiments by blaming globalization itself — to wit, Chinese exchange rates, European subsidies and so on.

That is a big departure from the past. As long as the U.S. economy was ascendant, the global economy — from 1950 onward — provided strong gains to the domestic U.S. economy.

These gains were dynamic enough to blunt any serious questions in the domestic arena about a fairer income distribution. But those same gains can no longer be expected from a global playing field that, for many decades, had tilted in America's favor.

As such, demands for more income security and social benefits by the middle class could not possibly come at a worse time. It is harder to redistribute income when the pie is no longer growing as dynamically as before.

It is true that Europe's comparative focus on social balance has added to the costs of employers, which has long been viewed as one of the reasons for Europe's underperformance in the contemporary global marketplace.

With the benefit of hindsight, that maneuver may prove to have been quite astute politically — as well as socio-economically. After all, Europe's social safety net was constructed during a time of economic ascent — and was therefore felt to be affordable.

Plus, in recent years, due to the pressures of global competition, it has been pared back sensibly, an effect that necessarily continues. A particularly encouraging trend has been for management and labor representatives to sit down and negotiate significant changes to the cost structure and work flow in order for plants slated for closure to remain competitive — and therefore open.

In some cases, national governments may protest a planned plant closure too much, focusing mainly on the rather futile politics of symbolism. But overall, it definitely helps a society if most of the national debate, especially among the "lobbyists," is rigorously focused on the larger public good.

Contrast that with what is very much the case in the United States today. There, most of the political debate in the capital continues to be usurped by high-octane infighting among special interests with little regard for the public welfare. Meanwhile, no effective mechanisms to resolve the broader issues of fairness and social equity have emerged.

Viewed in a global framework, it has become imperative for Americans to look earnestly at issues of domestic income distribution, taxation — and plain smart policymaking.

Editor’s Note: This is part II of a two-part series.

This analysis first appeared on February 4, 2008, as part of The Globalist's Executive Edition.