“The End of Progress for Canada?” and “Collapse of middle class bargain”

From: "Canada 150: The End of Progress?" By Frank Graves. Presentation to the Queen’s Policy Review. April 27, 2017

New Pathway – Ukrainian News.

EKOS Research Associates founder and president Frank Graves Image: iPolitics

The report “Understanding the Shifting Meaning of the Middle Class” was prepared by Frank Graves (EKOS Research Associates) for the Privy Council Office of Canada in March 2017. The report synthesized public opinion findings and followed a review of the academic literature which looked at the evolving forces shaping the middle class. The opinion polls asked people straightforward questions about their self-identification as members of different classes. The definition of class in the report is strongly associated with an income but also measures other things like individual health levels and overall life happiness.

One of the report’s key findings is the decline in the class perception: at the beginning of 21st century in both Canada and the United States about 70% of the public identified as members of the middle class. That has been dropping consistently in both countries and now under 50% of the polled self-rate as middle-class. People exited the middle class mostly down into the working-class while some have fallen into the poor. Another key measure of the middle class, the perception of what future holds for their kids, has fallen dramatically in Canada – 61% of polled in Canada think that the next generation will be worse off (up from 52% in 2005) and just 10% think that the next generation will be better off (down from 18%). As Graves put it: “There was a time when the middle-class bargain was ‘I work hard, I do better than my parents, my kids will be better than me, and I will retire in the relative comfort or security’. Now we see this period of economic stagnation and the concentration of income at the top which is resembling the kind of concentration of wealth we saw in the beginning of the 20th century, which led to the Great Depression”. Our first question to Graves was about the level of understanding of these issues in the Canadian society.

Your report and successive presentations have very sharp messages like “Canada 150: the end of progress?” and “Collapse of middle class bargain“. The media and many other experts seem to be more reserved about these trends. Why is that?

Frank Graves: There seems to be the whole industry of experts who make commentaries in the media and elsewhere that everything is great. But I can tell you that the view that we get from Main Street as opposed to Bay Street is quite different. If you take the upper one percent out, people are basically on the same level they were in the early 1980s, while males are actually lower. When most people are standing still and many are falling backwards, it mutates into other things, like the rise of the right-wing populism in Europe, which is underpinning Brexit, and Trump success. It was a factor for certain in the Ontario election of Doug Ford. It’s no longer just economics, it moves into areas of cultural insecurities, rising levels of xenophobia, nativism, resentment towards the institutional status quo. But you have a lot of others who say no, let’s keep the economy open, we should be focusing on the more open, cosmopolitan society, receptive to the broader world. But there’s no middle ground between the two camps.

Why is there a disconnect between the worsening perceptions and the official economic data on living standards that by and large are quite positive?

Frank Graves: I would say the depiction of the economy through the lens of public opinion is more negative than what it would be if you looked at it through the lens of the official economic data. There are many areas in the official economy that aren’t measured properly. The problems aren’t really in the middle class, the middle class is generally doing okay. It’s the fact that the middle class is shrinking and it’s the people who have fallen out of the middle class. Take, for example, the people who used to work in the manufacturing where in the 1980s-90s if you had strong back and a union card, it could get you entry to the middle class. That doesn’t exist anymore and those people are very angry and fearful, and they are right. Part of this is the issue of relative deprivation. Even if you’re doing as well as you were 10-20 years ago, if there is a group of people at the top who are doing dramatically better, not just the top 1%, the top 10% that have really moved forward in ways where there is no resemblance to the stagnation of the bottom 90%, it produces a rising level of resentment.

Why is it so difficult at times to understand the real situation with living standards in Canada from the numbers that appear in the media and that often provide very wide income ranges for the middle class, like $50,000 to $150,000 a year? You can’t seriously consider everyone in that range to belong to the same class.

Frank Graves: Exactly and that’s why I leave that to the labor economists and wage experts. There is more than a hundred different income-based definitions on the middle class. I am interested in your sense of identification with a middle-class which does correlate with income and wealth, and it can be separate. For example, for a lot of older Canadians, their incomes are going down but their wealth have gone up because of what’s happened to housing and equity markets. Income can be not adequate on its own to understand this. Most of the expert evidence from those who study it carefully, shows that in the places where inequality is rising faster, you seeing a declining rate of positive social mobilities.

Do you think that the worsening economic perceptions are, at least in part, caused by the sense of entitlement and excessive expectations? That it’s not that the people are doing worse, but it’s just that they are doing not as well as they had expected?

Frank Graves: In our culture, the middle-class idea that you have to do better than your parents and your kids are going to do better than you conditions us to expect progress. When that progress stops happening, even if the income is at the same levels as it was in the past, that produces disappointment and resentment. We’re now in a period where if you’re not at the very top you’re not going ahead and that’s very different from the past. And it produces not so much rising expectations as a sense of despair, which can mutate into anger and resentment. Many of these problems are blend of perception and reality, but whatever people believe in their heart of hearts is how they’re going to behave, politically at least.

Many in the younger generation have had their hopes on buying real estate disrupted by the real estate prices, but the economists are pointing out to the fact that many Millennials will inherit housing from their parents.

Frank Graves: I’m very skeptical of that. Their parents are also experiencing economic pressures which have been brought by the fact that they bought into housing at the time when the housing market was growing for example by 12% a year with the economy growing 2%. First of all, there will be a massive correction in real estate prices at some point. It’s also the case that many of those parents are using that equity as ATMs to make up for the fact that their incomes haven’t gone up so much – there is a gigantic rise in personal household debt in Canada, which is now one of the highest in the world. I’m not sure that that equity will be there – either it will disappear due to a crash or it will have been already consumed by their parents. Among Millennials, only about 10% think housing is affordable. So, you have to rent, but rents are artificially inflated by the distortions in the housing market. The same applies to the labor market – young people are really unhappy because the extended careers have worked out pretty well for the boomers and their employers but not for younger workers. This is particularly true of younger male workers who are also seeing the significant advantage they had over women pretty well gone. Relatively speaking, women have done better, although we still haven’t quite closed the gender gap.

This deterioration in economic perceptions in North America has coincided with the relocation of manufacturing overseas. How do you explain this connection if you are saying in your report that the economy should stay open and globalized?

Frank Graves: Several weeks ago, 1,100 economists, most of them conservative, wrote a collective letter to Donald Trump saying that if he continues to pursue these protectionist and tariff measures, he would be doing the same things that produced depression in the last century. There are actually no examples where trade wars have worked out well for either of the participants. Globalization and trade are factors in some of the dislocation. But that factor is a minor component compared to the impact of automation, robotization and AI in the future. This is in fact far more responsible towards the loss of a lot of traditional jobs than changes to global trading patterns. Economists Daron Acemoglu and James Robinson, in their book “Why Nations Fail” said that the robots didn’t vote but they sure helped Donald Trump. They mapped places with the highest rates of automation and robotization and they lined up extremely well with Trump support. That dislocation, either form trade or from automation, tends to produce a rise in hostility to others, which may explain why we are seeing some of the measures of racism and xenophobia rising in recent years.