AI and capitalism are killing the middle class

THE middle class, a fundamental bulwark of modern societies, is about to go extinct. Capitalism doesn't need it anymore. But I must first define what I mean by the term 'middle class'.

Historically, the middle class arose from the mercantile communities in the towns and cities of late medieval Europe as trade expanded across the seas. The term itself became more commonly used from the mid-18th century to describe the affluent, and increasingly influential, class of merchants and manufacturers. This class would later evolve into capitalists — the owners of productive resources in capitalist societies.

The old 'middle class' became the rulers of the world by the early 20th century and a new middle class emerged. These were the professionals and managers hired by industrial capitalists to run their businesses and also to provide services that modern societies needed. So the new middle class comprised managers, doctors, lawyers, architects, teachers, and, of course, bureaucrats. At the lower end of this middle class were other white-collar workers, such as clerks and sales staff.

They either worked for a fixed salary or charged a fixed fee. They had no economic skin in the game of capitalism since they carried no risk, unlike entrepreneurs, who could lose their shirt if their business failed. The middle class got paid irrespective of what happened to the company they worked for or sold their services to. Yet, their social — or 'structural' — role was to uphold and stabilise capitalism.

As managers, they supervised and surveilled blue-collar workers on behalf of the owners of capital. The objective was to extract as much productivity as possible to maximise profits for their employers. As bureaucrats, their job was to implement the rule of law and administer the land so that property rights were respected and the market could function without disruptions. And as sundry professionals — lawyers, architects, teachers, doctors — they provided services that capitalist societies required as a whole.

This 'professional managerial class' (PMC), which formed the core of the middle class, was a small proportion of the overall workforce — 10-15 per cent — in the US and the UK till the beginning of World War II.

The big rise in the PMC — the backbone of the new 'middle class' — took place in the post-war period. Western capitalist nations had to rebuild their economies from the ashes of the world war. The west also had to take care of its working classes, especially as the Soviet Union made communist parties more attractive.

The answer was the expansion of the 'welfare state' even in the US. In the UK, the state began to provide free education, healthcare, subsidised housing, old age pensions and unemployment benefit. Along with that, the public sector's role in the economy also increased sharply.

This resulted in massive rise in PMC employment, especially in the public sector.

The PMC accounted for 17.1 per cent of the UK's workforce in 1951, rising to 19.1 per cent by 1961 and 23.5 per cent in 1971. By 1979, the PMC's share of the workforce in the UK had risen to 25-26 per cent, and most of it was in the public sector.

In the US, the public sector had a smaller role, but the Keynesian economic policies followed by successive governments till the late 1970s helped expand the PMC employment. In 1950, PMCs accounted for 17.3 per cent of the US employment, which rose to 19.5 per cent in 1960, 22.9 per cent in 1970, and 28.5 per cent in 1980. Although much of this was in the private sector, estimates suggest that federal and local governments accounted for 45-50 per cent of all PMC employment in the US till the mid-1970s.

The period between the 1950s and late 1970s was marked by economic policies where the state played a much bigger role in both directly running industries and regulating private companies and financial institutions. These Keynesian policies — named after the influential economist John Maynard Keynes — were implemented by, and through, the PMC. This close connection with the state and welfarism made the PMC-dominated middle class suspicious of free-market capitalism, and disdainful towards entrepreneurs.

A fundamental cultural and political shift took place during the 'stagflation' decade of the 1970s, when the intelligentsia began to push for an end to Keynesian policies. The consequent victory of neoliberal economic policies in the 1980s — championed by Margaret Thatcher in the UK, and Ronald Reagan in the US — completely changed the nature of the PMC.

From the 1980s, government jobs shrank, but there was an explosion of private sector managerial and professional employment. As the state withdrew from the economy, education, health, public transport, electricity and water supply, the role of public servants diminished. As these functions got privatised, corporates had to hire managers to run them.

This switch made the PMC the biggest champion of privatisation and deregulation. In fact, they were among its biggest beneficiaries.

In the US, where the 'managerial' revolution began in the mid-1970s, the proportion of PMCs rose from less than 23 per cent in 1970 to 34 per cent by 2007. In the UK, the proportion of PMC employment remained stagnant, but it shifted dramatically from the public sector to private companies, especially in the financial sector.

The 2008 global financial crisis (GFC) was the first major crisis for the PMC-driven middle class. Corporates, which had expanded their businesses throughout the 1990s and 2000s, shifted gears to maximising profits by cutting costs. This meant a contraction in white-collar and PMC jobs, and also a slowdown in salary hikes.

Since 2024, the increasing adoption of AI has caused a second and decisive shift in PMC employment. Typical managerial roles are being automated by AI and middle-managers are being laid off at an alarming pace. Corporates have realised that laying off one manager saves more than by retrenching five blue-collar workers.

This is an existential crisis for the middle class. Their 75-year-long reign — first as implementers of the welfare state and second as the beneficiaries of the neoliberal managerial revolution — is coming to an end.