x Abu Dhabi, UAEMonday 24 July 2017

History isn't quite over but perhaps the middle class is

The scholar who spoke of "the end of history" is now talking about the end of the middle class. Should we take him seriously?

The developed world has enough problems without having to listen to predictions of future woes. But when Francis Fukuyama, one of America's foremost sages, predicts that the US and European middle classes are on the way out, we should pay attention.

Dr Fukuyama is famed for having declared "the end of history" in 1992, after the end of the Cold War. He was mocked around the world - and became an academic celebrity - because of the apparent fatuity of his catchy title: even the dumbest person could see that history was not going to stop just because communism had gone out of fashion.

What he meant was rather different: that the ideological struggle between Left and Right had been won by the Right, and in future the world would spin to the rhythm of liberal capitalism. By and large this has proved to be the case for the past 20 years, though historical developments seem to have been coming at an ever-faster pace.

His new idea, expressed in the latest edition of the journal Foreign Affairs, is that the middle classes in developed countries - the main beneficiaries of liberal capitalism - are under threat of extinction from the forces of technology and globalisation. Middle-class employment is declining as tasks once done by educated people are outsourced to low-wage countries or to ever-smarter machines.

To be middle class - to be educated and own property or a business - has been the normal aspiration in the West, and increasingly everywhere else. But now the wealth of a nation is gobbled up by fewer and fewer people. By 2007 the top one per cent of US families took home fully 23.5 per cent of the national income, a share much higher than in recent decades.

As the middle class are the bedrock of political stability, Dr Fukuyama fears that liberal democracy is under threat.

These concerns are not exactly new. Youth unemployment is rocketing in western European countries as graduates find there is no one to give them a job. A British pressure group, the New Economics Foundation, argues that there will never be enough jobs for all. It argues everyone should job-share, working only 20 hours a week.

France tried that, by legislating a mandatory 35-hour work week, but this proved too inefficient for a competitive, globalised world: the law has been greatly weakened.

There is a growing realisation in Europe that its economic problem is not simply a banking crisis, but actually the most recent sign of a systemic weakness which has bedevilled Europe since the late 1960s. This analysis has been most cogently put by Wolfgang Streeck, a German political scientist, who argues that governments have had recourse over decades to a series of fixes to make up for anaemic growth.

First it was inflation, which seemed to raise living standards until it got out of control. Then after 1979, the solution was public debt, originally borrowing domestically and then from foreign creditors. Finally came personal debt, but encouraging people to borrow recklessly led to the sub-prime mortgage bust of 2008. Ultimately it was only through reckless borrowing that the US poor could aspire to join the propertied class, but they have been speedily bumped back down to the bottom of the heap.

One thing unites all the academic discussion of what to do: no one has a convincing answer. Prof Streeck writes that his job is not to propose a solution but to highlight the grim fact that Europe's governments, thanks to decades of bad policy, have become debt-collectors for global finance.

Dr Fukuyama has a surprising suggestion, though it is hardly a plan of action. He says someone needs to draw up a new "ideology of the future" which would promote healthy middle-class societies and robust democracies in place of destructive globalisation.

By hinting at a new ideology, of course, Dr Fukuyama is laying bare his own fallibility as a prophet. If the post-Cold War era was "the end of history" or, in his words "the end point of mankind's ideological evolution", then why do we need a new ideology? The only answer is that he was wrong in 1992, a conclusion he hints at in his new article's arch title, The Future of History.

His contribution to the debate is to challenge globalisation, which should be "carefully controlled politically". Global trade and investment should be valued only if they contribute to a flourishing middle class. Presumably he means in America. But what about Asia, where the opening up of markets has lifted millions out of poverty?

This sounds like the pulling up of America's drawbridge, which could trigger a devastating global recession with probable unrest as far as China as its export industries closed down.

The bitter truth is that Europe and America are lost, without a compass. The hollowing-out of US manufacturing was justified as progress that would take the country towards a service-based, de-industrialised future; goods made abroad would be ever more affordable. The second part of that promise has been fulfilled, but the whole arrangement relies on levels of foreign borrowing that would sink any country but the US.

Now that the middle classes see their well-paid and secure jobs disappearing, we will hear them shriek ever more loudly for some kind of protection, and a return to the affluent stability their parents knew. But those days are gone.

Yesterday Mahathir Mohamad, the former prime minister of Malaysia, could not resist gloating as he offered Europeans a prediction, or rather a taste of Asian medicine.

Europeans had it good for a couple of centuries, he wrote in The Financial Times, but now they must admit they are poor, live within their means, and forsake risky financial engineering in favour of working harder and doing real business.

Unfortunately, his prediction is more likely to come good than is Dr Fukuyama's.



Follow him on Twitter: @aphilps