"The Top .1% and the Disappearing Middle Class" William LAZONICK
The ongoing explosion of the incomes of the richest households and the erosion of
middle-class employment opportunities for most of the rest have become
integrally related in the now-normal operation of the U.S. economy.
Since the beginning of the1980s, employment relations in U.S. industrial corporations have undergone three major
structural changes–summarized as "rationalization," "marketization," and "globalization"–
that have permanently eliminated middle-class jobs in the United States. From the
early 1980s, rationalization, characterized by plant closings, terminated the jobs of high-
school educated blue-collar workers, most of them well-paid union members.
From the early 1990s, marketization, characterized by the end of a career with one company as
an employment norm, placed the job security of middle-aged white-collar workers, many
of them college educated, in jeopardy.
From the early 2000s, globalization, characterized by the movement of employment offshore to
lower-wage nations, left all members of the U.S. labor force, whatever their educational credentials and work
lower-wage nations, left all members of the U.S. labor force, whatever their educational credentials and work
experience, vulnerable to displacement. Initially, these structural changes in employment
could be justified as business responses to changes in technologies, markets, and
competition. Once U.S. corporations transformed their employment relations, however,
they often pursued rationalization, marketization, and globalization to cut current costs
rather than to reposition themselves to produce competitive products. Defining
superior corporate performance as ever-higher quarterly earnings per share, companies turned to
massive stock repurchases to "manage" their own corporations' stock prices. Trillions of
dollars that could have been spent on innovation and job creation in the U.S. economy
over the past three decades have instead been used to buy back stock for the purpose
of manipulating stock prices. Legitimizing this financialized mode of corporate resource
allocation has been the ideology, itself a product of the 1980s and 1990s, that a business corporation should be run to "maximize shareholder value."
Through their stock options and stock awards, corporate executives who make these
resource-allocation decisions are themselves prime beneficiaries of the focus on rising stock
prices as the sole measure of corporate performance. While rationalization,
marketization, and globalization undermined stable and remunerative employment
structures, the "financialization" of the U.S. corporation entailed the distribution of
corporate cash to shareholders through stock repurchases, often in addition to
generous cash dividends, and, incentivizing these distributions, the stock-based
remuneration of top corporate executives.
In this essay, I review evidence on the fundamental structural changes
related to rationalization, marketization, and globalization that, since the early
1980s, have eroded U.S. middle-class employment opportunities. Then,
I analyze how, in many different ways and in many different industries, this financialized mode of
corporate resource allocation has undermined the prosperity of the U.S. economy.
I go on to show how justified by the ideology that companies should be run
to "maximize shareholder value", this financialized behavior boosts the remuneration of top corporate
executives, providing a major explanation for the increasing concentration of income
among the top 0.1% of U.S. households that is, through the very way it is achieved,
based on the systemic destruction of middle-class employment opportunities
available to Americans.
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