Emergence of the patrimonialist middle class

Image: Magda Ehlers
Whatsapp
Facebook
Twitter
Instagram
Telegram

By FERNANDO NOGUEIRA DA COSTA*

The rentier and patrimonialist middle class found concrete advantages in neoliberal policies, such as high interest rates, asset appreciation and financial investment opportunities

According to Thomas Piketty, in his book A brief history of equality, the share of the richest 10% in total private property reached 89% in Europe (average between the United Kingdom, France and Sweden) in 1913 (compared to 1% for the poorest 50%), 56% in Europe in 2020 (compared to 6% for the poorest 50%) and 72% in the United States in 2020 (compared to 2% for the poorest 50%).

Between 1914 and 1980, both in Europe and the United States, there was a sharp decline in the share of the richest 10% in total private property (real estate, professional and financial assets, minus debts) in exchange for mainly 40% of the richest 10% and less of the poorest 50%. This movement of rise of a patrimonialist middle class was partially reversed between 1980 and 2020, especially in the United States.

From the time series of the graphs, presented in Thomas Piketty's book, I summarized the data in the years of crucial variations in the table below.

In Europe, income inequality began to increase again after 1980, although it remained at significantly lower levels than in 1910. The increase in inequality was much more pronounced in the United States. In both cases, inequality remains very pronounced: although the richest 10% represent a population five times smaller, their share of total income (46%) is much higher than that of the poorest 50% (13%).

Considering these economic powers, they were the ones that Thomas Piketty called the “Great Redistribution” from 1910 to 1980. After the social rise of the middle class, mainly in assets, much higher than what happened with the poorest 50% – they have little, especially in the United States –, there was a fall in their participation in flows (income) and stocks (wealth) from the 1980s onwards.

The United States and Europe have reversed their relative positions in terms of inequality over the course of the 20th century. At the beginning of the century, property concentration was greater in Europe than in the United States. European fortunes were based mainly on colonial and international assets (United Kingdom, France) and on unequal sociopolitical and census systems (Sweden). When they could, the working class emigrated to the United States in search of better wages.

The situation changed after the two world wars that destroyed wealth in Europe and led to trade union and political mobilizations. They imposed new progressive tax rules and created the welfare state in the Old Continent.

The American patrimonialist middle class was roughly on par with the European one in the early 1980s, but its share of the country’s total wealth fell by more than a quarter between 1985 and 2020, while that of the poorest 50% fell to even lower levels. In Europe, the rise in wealth inequality was less pronounced, but the middle 40% and especially the poorest 50% also lost ground.

Almost everywhere, economic and financial deregulation, which has been underway since the 1980s, has favored the wealthiest financial asset portfolios and has not benefited the bottom 50 percent. These low-income, low-wealth consumers have been driven into debt distress.

These developments are explained by a series of political changes in the social, fiscal, educational and financial spheres. In the United States, anti-union policies and the reduction of the federal minimum wage were decisive in the decline of lower incomes, in addition to the problem of the lack of public health care, before Medicare and Medicaid.

The very strong recovery of the highest fortunes and the unchecked remuneration of executives in the United States can be explained above all by the restriction of progressive taxation. It grew significantly from 1932 to 1980, before turning in the opposite direction after the mobilization of the “conservative revolution” of the 1980s.

What is surprising is the re-election of neoliberal governments, even with this worsening of income inequality and the concentration of wealth. This can perhaps be explained by a combination of economic, social, ideological and political factors. These factors include both the structural conditions for the configuration of the economic context and political strategies capable of mobilizing the support of different segments of society, including the rentier and patrimonialist middle class. Many of them position themselves on the right, alongside the rich.

The left needs to recognize the crisis of confidence in the previous model in the face of frustration with state interventionism. The economic crises of the 1970s and 1980s (stagflation, oil shocks, fiscal crises) led to a loss of confidence in Keynesian policies and the state's ability to manage the economy in a way that enriches citizens.

Neoliberal governments have made promises to control inflation and stabilize the economy. These goals have gained widespread appeal among the population after years of high inflation, especially in emerging economies such as Brazil in the 1980s and 1990s.

As for the ideological narrative, the meritocratic and individualist discourse overcame the egalitarian one. Neoliberalism promoted the idea that free markets were capable of creating opportunities for all and that success depended solely on individual merit. It attracted the aspirational middle classes, including those with university education, hoping that economic flexibility would allow them to move up.

Neoliberal policies were accompanied by rhetoric blaming the state for inefficiency, corruption and high taxes. They gained the support of an electorate of “losers” seeking to transfer responsibility to public management.

Neoliberal reforms were presented as part of an inevitable process of modernization and competitive insertion into the global market. Shareholdings promised gains for the rentier and patrimonialist middle class.

In economies such as Brazil, high interest rate policies benefited the middle and upper classes with access to fixed income investments, such as government bonds, generating safe and high returns for those with accumulated wealth. Financial deregulation and policies to open up stock markets and increase asset values ​​expanded investment opportunities in variable income (shares, investment funds, etc.) and real estate, benefiting segments of the upper middle class with resources to invest.

The patrimonialist middle class (and even the subprime) benefited from policies that encouraged the appreciation of real estate with housing finance. It created incentives to support neoliberal governments. The reduction of taxes on capital gains or assets in some cases directly favored the interests of this class, reinforcing support for neoliberal policies.

The working classes, directly affected by precariousness and increased inequality, were alienated and fragmented, including by religious campaigns. They exploited social divisions, such as the opposition between formal and informal sectors of work, and ideological narratives that blamed the State for privileges to “inefficient employees”, as if they were to blame for each person’s problems.

Economic growth, in certain neoliberal periods (such as the tree real estate and commodities in the 2000s), generated temporary improvements in the standard of living of some popular and rural sectors. It led the emerging “new middle class” to support neoliberal governments in the expectation of continuity.

Major media outlets have been promoting neoliberal ideology on a daily basis, amplifying narratives of market efficiency and disqualifying alternatives to the model. This media influence has shaped public opinion.

The technical and economic discourse of neoliberalism removed economic discussions from political debate, presenting its policies as “unique” and “inevitable,” limiting the electorate’s perception of choice. Without pluralism, social-developmental economists were segregated.

The integration of economies into the global market and the pressure for “structural adjustments” via organizations such as the IMF and the World Bank strengthened the neoliberal agenda against “financial repression” as a requirement for attracting foreign investment and maintaining competitiveness. The international situation was favorable to economic globalization because tree de commodities in the new international division of labor. In countries like Brazil, neoliberal governments temporarily benefited from cycles of economic growth, linked to high prices of commodities, reducing the immediate impact of austerity policies.

Ultimately, the rentier and patrimonialist middle class found concrete advantages in neoliberal policies, such as high interest rates, asset appreciation and financial investment opportunities. Combined with the ideological discourse promising modernization and meritocracy, they supported the neoliberal candidates.

However, the cost of these policies was borne by the working classes through precarious employment, unemployment and increased inequality. This model persisted, in part, due to the depoliticization of the economic debate and the control of ideological narratives. It consolidated the support of almost the majority of the electorate (10% richest + 40% middle = 50% poorest) for the discourse of entrepreneurship and the possibility of socioeconomic mobility, with individualism paying little attention to social inequality.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/4dvKtBb]


the earth is round there is thanks to our readers and supporters.
Help us keep this idea going.
CONTRIBUTE

See all articles by

10 MOST READ IN THE LAST 7 DAYS

See all articles by

SEARCH

Search

TOPICS

NEW PUBLICATIONS