Have you noticed the size of fridges these days?
The “walk-in” fridge – where did that come from? Who is it for? Last weekend, I happened to be in the showhouse of a new estate.There was a huge gaping hole in the kitchen, through which you could have driven a Humvee. I asked the smarm-meister estate agent what was missing. He replied, indignantly: “Why, the fridge of course.”
If Irish families are getting progressively smaller,why do we feel compelled to buy the type of fridge that could store food for the entire 102nd Airborne Division?
Because people are defining themselves by their fridges, of course. “You are what you freeze, darling.” In 2004, the fridge has become a symbol of taste, elegance, style and wealth. In the highly sensitive social pecking order of suburban Ireland, the fridge has its place and you’d better know where it is.
This observation poses a problem for the purveyors of rational economics, because the traditional laws of economics argue that if our families are getting smaller,we should be eating and storing less food. So we should now have smaller fridges than we had in the 1970s, correct?
However, as our families are getting smaller,we are buying bigger fridges. Laws of economics, indeed.
The same carry-on can be observed in the registrations of new cars in the past few years. Irish roads are clogged with far too many cars trying to get from A to B. Logic suggests that we should respond by buying smaller cars, freeing up scarce roadspace. But we don’t.
In the past ten years, the most popular expensive car has been the now ubiquitous 4X4.We are actually buying bigger cars that clog up the roads, and the traffic gets worse. Again,the laws of economics and rationality are turned on their heads.
The first law of economics is that,when the price of something goes up, the demand goes down.
Yet in the ongoing battle for material superiority,which sees us parting with our hard-earned cash for bigger fridges than our neighbours, the opposite prevails. In Ireland,when the price of something goes up, the demand goes up.
Why is this happening? There are a number of theories, but arguably the most interesting possible reason is that the “Irish Dream” has mutated over the past few years.
In our parents’ day, the `Irish Dream’ was about our nation, its culture, history, the Brits, piety, political sovereignty – all the mother’s milk stuff that at least three generations of post-independence Paddies were weaned on.
Today, however, the Irish Dream’ is much more like the `American Dream’. It is about the freedom to “do well”. It is about the opportunity to “trade up”.The Irish Dream is about joining the affluent middle class.
The new Irish Dream is economic in nature. From the young Irish first-time buyers hoping to move from Monasterevin to Lucan,to the Latvian immigrant working three jobs, to the viewer sending in texts to I’m A Celebrity. . . Get Me Out of Here!,we are all middle class now.
Most of us have mortgages, private health contributions or pension contributions – or aspire to all three.This is because political scientists contend that a country with a strong and populous middle class, characterised by similar social aspirations, can be run easily. Indeed, the more homogeneous the society, the less need for party and ideological politics.
So the establishment has a vested interest in fostering this middle class. Not surprisingly, therefore, the government has helped create it by offering tax breaks to subsidise mortgages, private health insurance, pension contributions and the like.
As a result,the middle classes receive two wages – the `market’ wages that they get for their labour, and the subsidised tax-driven `social’ wage that the state gives them.
While the state might be taking benefits away from the extremely poor in this week’s finance bill, it is looking after the middle class and aspiring middle class, through tax deductability on everything from second houses and nursing homes, to special savings accounts and free third-level education.
The point of the exercise is to attract as many people as possible to the Irish Dream. You too can have a walk-in fridge.You too can have a respectable office job.You too can wear a white collar.
There is a serious problem with this development. Economic trends indicate that the great Irish middle class may be at the peak of its spending power. Over the next ten years, as more people join the non-professional service sector, their spending power will diminish, because internationally, productivity in traditional clean middle-class jobs is falling behind.
There is an economic revolution going on: while more and more Irish people go into service jobs, the real wage gains will be seen in clean industry. If the following trends in the US are repeated here, the middle classes will be in trouble.
America’s Bureau of Labour Statistics forecast that over the coming ten years, the largest job growth in America will come in the following areas: food-preparation and serving (including fast food), retail selling, computer support specialist, security, cleaners, landscaping, cashiering and nursing.
Already, in Ireland, the service sector employs well over 60 per cent of us. American evidence indicates that most people will end up working in the service or service support sector.
The big problem with this is that the technological advances that drive productivity and thus wages upwards, are only having a real effect in the technology and automation areas. So in the past few years,we have all benefited enormously from leaps in technology that have driven down the price of all sorts of goods, from mobile phones to Gameboys.As aresult,forabriefperiod,the relative spending power of the middle classes actually rose faster than their wages.
But this will not last and, in fact, is already beginning to unravel.
The fixed costs of the average two-income Irish middle-class family are rising faster than their wages are.This is why many young, two-income working families in Ireland feel poor.
Mortgage payments have risen as the cost of houses have skyrocketed. Car payments are up, as is house insurance. Health insurance, upfront GP costs, utility bills, childcare and education costs have also outpaced wages. Personal income taxes remain close to where they were in 2000 (before the price hikes), and now there are more workers on the top rate of tax than ever before.
Yet rising costs are rapidly eating into the income gains made in the early 1990s, and are leaving many two-income middle-class families worse off in terms of spending power than the single-income, “one breadwinner” families that characterised the 1960s and 1970s.
Our problem is this: because such a large percentage of our aspirational middle class works in service industries such as banking, insurance, ITsupport and civil service-type positions (this list is clearly not exhaustive), there is no prospect of massive pay increases in the years ahead.
In fact, productivity is likely to stagnate in these industries.Therefore, so will wages.
The huge productivity increases will come in the technology and automotive sectors, and if this translates into relatively more profits than wages,we will have a problem – because when the middle classes get poor, they get restless.
This means that the state has two choices. Either it beefs up the “social” wage aspect of the middle classes by tax ing the rich more heavily, or it faces political radicalism that will ulti mately culminate in the same thing.
Perhaps, in a few years, commentators will ask how the Irish of the early 21st century went from outconsuming each other to embracing radical politics. Read Miller’s Death of a Salesman for a few clues.
so citizens of advanced economies are destined to be victims of their own economic success. with inflows of migrants from the new EU and outflow of many industries to low wage economies ireland faces major problems for sizeable chunks of the workers of the country.increases in unemployment reduced real income per person and a shock such as interest rate rises or global economic downturn would leave ireland in a precarious economic and social situation and bring forth the politics to address the situation( whatwould be the fate of the world economy in say a century when the majority of people… Read more »
David, While I agree fully with the substance of your piece it does strike me that “middle class” is a comparative term. What we are really talking about is the proportion of the population that has a stake in society. By that I mean a job, mortgage and/or private pension etc., people who aspire to have a better, more comfortable life, to do better. The more people who aspire to the good life, the more expensive the good life becomes, the poorer the middle classes become in relative and real terms and as you pointed out, the more the government… Read more »
David, I found your article and following comments very interesting and thought provoking. There seems to be a “Keeping up with the Jones” syndrome going on at the moment in Ireland. We are really just following the same trends as Britain and America. Of course this syndrome is driven by aggressive advertising , corporations and banks. The Corporations want us to buy their products which we really don’t need and the banks want to lend us the money so that we become their servants always in debt to them. Irish people are earning more money than ever before even those… Read more »
Dear Ronnie, John and Michael, thanks for your comments,
the idea of the new “Irish Dream” of “trading up” at all
costs does certainly throw up a few serious issues.
Tomorrow on Agenda, I’ll try to see whether Pat Rabbitte
has figured them out. Thanks David
I certainly agree with most of this article. There is an article on Silicon Republic at the moment which features one “high tech” employer boasting about how it now targets school leavers rather than experienced or qualified workers because they can get away with paying lower wages. (This employer pays starters the princely sum of 17k per year, barely half the mythical average industrial wage). However you don’t point out why wages in other industries have rised faster: its largely because there is a major skills and education deficit in industry. Most factories will not hire somebody unless they have… Read more »
David,it is time for businnessmen to start wearing suits and ties all the time