In The stick effect (Profit Editorial), the journalist and professor of Marketing Management at ESADE and collaborating professor at the UPF Josep-Francesc Valls (Reus, 1947) recounts with numerous data and sources the birth, rise and fall of the middle classes in Europe and particularly in Spain. He calls it the stick effect because after thousands of years of scarcity and misery for the majority of humans, in less than two centuries, starting with the industrialization of 1800, economic and social development accelerates sharply, clearly showing the stick figure. hockey.
Broad layers of society accessed the Welfare State starting in 1950, but with the beginning of the millennium the middle classes derailed and rushed because “the upright stick contains germs of self-destruction”: inflation rides on top of salaries, inequalities They do not decrease, there is overproduction, waste and erosion of resources, misinformation and the rise of fascism and populism.
How do you explain that in just two decades the middle classes are derailed from the top? How have we gone from an industrial capitalism that has more or less allowed the distribution of prosperity to elevate the middle classes, to this capitalism that Josep Ramoneda calls financial and digital?
Several factors intervene. On the one hand, in the war between inflation and the population’s income, a significant gap is produced in which an important part of the middle classes are trapped, who consider that they have sufficient income and continue consuming as before: they change the vehicle from time to time, go to the gym, take a powerful vacation… You have become accustomed to a certain rhythm. Linked to the above, an important part of the middle classes have become accustomed to consuming beyond their possibilities and needs, the result of an overexcitement of the industry, which every day presents new products, services, improvements on the previous ones…
We are in an economic model in which supply, rather than demand, rules. Supply generates new demand, new needs that we do not even consider.
Exactly and that creates a feeling that you should consume because this is happiness. Another factor is that some items in family budgets, such as that allocated to housing, have grown exorbitantly. The same can be said about food, with the exception that their prices began to rise, but with the 2008 crisis some companies opted for their own brands and were able to pivot and abandon the escalation of prices to adapt with less margin to the consumer needs. A third aspect, which has more to do with SMEs [pequeñas y medianas empresas]is that digitalization has swept away numerous traditional businesses, jobs, trades… ways of making a living.
Digitalization has created great companies, such as GAFAM [Google, Apple, Facebook, Amazon y Meta] that dominate everything and have sent traditional businesses and SMEs to hell. This substitution by large groups is causing the middle classes, whether small businessmen, families, officials, to approach levels of impoverishment that are assimilated to the lower classes. Only the upper middle classes are saved.
But this doesn’t just happen, like the law of gravity. That salaries never catch up with prices, that housing prices are through the roof or the great power that big technology monopolizes is because certain political and business actions lead to it, right?
It is a model of society that is evolving. The middle classes had been elevated from 1950 onwards as the queens of the party by governments of all political stripes. The European Union, in the hands of social democrats, Christian democrats and liberals, emanate from this middle class and work for it. The development of services in exchange for taxes is nothing other than the cultivation of this middle class, which takes very good advantage of the opportunities for expansion after the Second World War, both in terms of business and jobs. And additionally, they take very good advantage of the services offered by the Welfare State, hence the entire great caste of civil servants that expand this social class is born. But, far from following this model, economic policy itself means that salaries do not increase at the rate that inflation does. It is true that left-wing governments try to balance it. The increase in mental illness has its origins in this entire process, especially since the 2008 crisis.
Does society have a blindfold? He barely puts up any resistance. Because?
We are still on the slope and we see how there are some attitudes of resistance, more than clairvoyance. For example, when you have a work problem and from a more or less old age, instead of recycling or reinventing yourself, you choose to become a rentier or mini rentier, through rentals, or by closing the store you had. This approach is a first step of resistance and waiting for I don’t know what.
What responsibility and what margin do governments have for this situation to change?
It is very difficult for the middle classes to endogenously take the lead again to resolve this process. It is clear that they have a very important responsibility; it has been their policies, national and community, that have brought us here. For example, it draws a lot of attention that the Next Generation are doing economic good in society, but they are doing it to a small part, which are large companies and corporations, because this way the funds are better articulated and it requires less effort. But SMEs are not massively digitizing, nor are the population in general. Europe has not provided tools to avoid the closure of small businesses and the expulsion of old trades.
He says in his book that in the transfer of salary income to capital income, a clear connivance of governments appears, since when the size of the Welfare State increases because there are new needs, many dismantle it by lowering services and taxes to please the people. more affluent classes.
We also see an example of what you say in tourism. Everyone is clear that there is excess tourism and that something must be done. There is this awareness, but since the covid crisis in 2020 we do not know of any serious and rigorous measure to regulate the sector. There is awareness that we must do something, but time passes and relatively little is done.
The economist Jan Eeckhout, who teaches at UPF like you, illustrates in The paradox of profit how the accumulation of profits and power by large companies allows them to carry out monopolistic practices that restrict competition and stagnate wages. He proposes more market and more competition to solve it, do you agree?
In the Spanish case there is neither more competition nor is our competitiveness advancing in relation to Europe. Second, if we look at capital income, we have had forty years, since 1980, of an increase in capital income compared to labor income. This should make us think that there are some who are harmed and these are the middle classes. There are no conditions to reduce inequalities or to improve the benefits of the middle or weaker classes, and the few social elevators that previously allowed the middle classes to remain, such as employment or education, are not working. The benefits are more concentrated in fewer hands.
And the middle classes, instead of rebelling, join the bandwagon of those who promise them more and thus – he says – we are witnessing the rise of populism and the extreme right.
This is one of the derivatives of the mental problems that I mentioned before. Faced with despair due to all these circumstances, people disperse. The middle classes have always been a conservative bloc but one that has wanted to move forward with progress. The history of the EU is this: development, preserving, but accelerating expansion, redistribution and reducing inequality. This has been the ideology of the EU. Today this has been dampened.
Maybe it’s because they don’t have the perception that they are no longer middle class? A year ago the CIS asked Spaniards and 73.9 consider themselves middle class even though reality contradicts them. A Eurofound study says that in the EU27 the middle class has only shrunk from 64 to 63.8% in 15 years.
That an important part of the middle classes still believe that they are middle classes according to the data is evidence of this whole disaster. We don’t know where we are, we are confused. Many believe that they are middle class and are mileuristas, the result of reduced salaries.
The few social elevators that previously allowed the middle classes to remain, such as employment or education, are not working. The benefits are more concentrated in fewer hands.
Do you see, together with the rise of populism and the phenomenon of misinformation, which you also allude to as a result of all this digital capitalism, a danger for democracy?
When the economic situation falters, the dispersion of groups that previously felt settled, calm, satisfied with their social role and empowered, towards very strange theories like the ones we are experiencing lately. Towards political situations that have little to do with the conservatism with progress that I spoke of before. Formal democracy requires deep treatment when the word is no longer valid or is no longer sufficient because it is used in fake news, or when theoretically democratic governments risk not enforcing the Constitution when they have to abandon government, as Trump did. in the United States in the last elections. We do not have to refuse to vote electronically, we have to ensure that digitalization penetrates deeply and makes democracy much stronger as a form of coexistence.
What do you propose to repair this stick and address the eleven risks that you warn about in the book? Transfer of income via tax? Redefinition of the model and the rules of the game? New and stronger institutions…?
Without limiting economic growth, I propose, on the one hand, to redirect consumer anxiety, which is something private, to adjust family budgets to inflation. Second, put the middle classes and SMEs back at the center of society: governments that have gotten lost must once again regain the initiative in this regard. Third, since SMEs are not capable or find it more difficult to compete with the giants, the creation of cooperative formulas must be encouraged. Fourth, massive digitalization campaigns and, finally, that as capital income has grown, the tax bill is no longer paid by the middle classes, and that the upper classes, millionaires and technological platforms pay what they owe.
Do you think the Letta and Draghi reports propose measures in this direction?
I would like to think so.
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