The rise of Trump and Sanders: inequality and the middle class

BernieSanders

Bernie Sanders

The rise of Donald Trump and Bernie Sanders in the US reflect the same economic and social trends. The two of them seem to be rather different politically, coming from the right and the left respectively. But they both reflect a new populism, drawing on disaffection with political and business elites alongside a failure of the economy to deliver widely shared prosperity.

Monday’s Guardian newspaper has a useful piece by economics editor Larry Elliott on the economic forces driving voters to support more populist figures. Globalisation and free trade have created winners and losers across the world. While much manufacturing production in the richest countries has moved to poorer ones to take advantage of cheaper labour costs, leading to dramatic changes in the structure of employment, prices for many imported goods have fallen. Consumers as a whole have benefited, while producers, particularly the middle and working classes, have suffered from stagnating wages for the last three decades. While producers and consumers necessarily consist of the same people for the economy as a whole, job losses tend to be concentrated while benefits for consumers are more diffuse. The welfare state is relatively weak in the US, so losing a job can be far more damaging to the individual than in some European countries.

As tends to occur under capitalism, the distribution of the costs and benefits from globalisation have been uneven. Particularly in the US, but also elsewhere in the rich world, the bargaining power of labour and of trade unions has been in decline, and median wages have stagnated even while productivity has risen. This can only mean that profitability has risen. These relatively higher profits are either returned to the production process as new investment, paid out as dividends or used by corporate elites to buy back shares. The upshot in many countries has been weakening private investment for the economy as a whole and rising inequality. The middle class has shrunk, hollowing out the distribution of income, while the richest have seen their share of national income and wealth rise substantially.

Faced with stagnating incomes and the easier availability of credit in the three decades leading up to the Great Recession, poorer households in the US borrowed to sustain consumption growth. This could only be sustained for so long, and although the sub-prime debacle was an important trigger for the ensuing financial crisis, a major economic shift was the bursting of asset bubbles and the fall in private sector debt accumulation. Suddenly households were moving to save and pay down debt to restore the health of their balance sheets.

The weakest in society have typically suffered the most from the recession. It is no wonder that they are disaffected with elites of all kinds, political and business alike, who seem to have been largely insulated from the impact of the crisis. They have been driven to support a new populism, which may offend as well as inspire with its rhetoric. Although Trump and Sanders may not make it to the White House, it would be foolish to ignore the sources of their support.

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