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COVID-19 and the Middle Class

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By David Hamilton
August 8, 2021

Early 2020 warnings from distant shores began a sequence of alarms around the globe. A deadly virus had been detected in Wuhan, China, with reports of its lethal powers spreading more quickly than the virus itself. COVID-19, as it came to be called, arrived in America in short order, resulting in an unprecedented and traumatic closing of thousands of governments and businesses. Fear suspended our lives as we clung with hope to the idea that this lethal virus would pass us by. For many it would not, resulting in over 34 million cases and 600 thousand deaths, according to current statistics from the Center for Disease Control.

But as COVID-19 continued, we adapted through vaccines and other preventative measures that have dramatically reduced the cases. Businesses have re-opened, and governments have returned to functionality. Yet this new era of cautious optimism leaves a pervasive unease as we sense things have changed in ways that we do not fully understand. This article begins the process of assessing the social and economic consequences of COVID-19, particularly in a society that enshrines its middle class thriving on the fuel of private enterprise and small businesses, the lifeblood of our communities.

Warren Buffet, the, “Sage of Omaha,” recently flagged his concerns during a broadcast on June 29 with Becky Quick on CNBC’s special Buffett & Munger: A Wealth of Wisdom.

 “The economic impact has been this extremely uneven thing where… many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big companies have overwhelmingly done fine.” His portrayal of two divergent consequences cut across the grain of equality of opportunity, the underlying vision of the middle class and its bountiful narratives that form the American Dream. For generations, its fulfillment has been realized by creating and operating small businesses within thousands of local communities providing an endless array of services, products and jobs while sustaining the local tax base. But the damage and unequal recovery from the pandemic touched a deep nerve. James Wilfong noted this historic connection in an article published on manzellareport.com of January, 2013. ‘From our nation’s founding, entrepreneurs, small business owners and small farmers have provided dynamic growth and innovation, creating a flourishing middle class. They have supplied cities and small towns with new products, processes and jobs.’”

But the process of prosperity had begun to unravel well in advance of the COVID-19 pandemic. Writing for americanprogress.org, Camilo Mondragón-Vélez stated on May 21, 2015 with statistical certainty, what Buffet and other more recent observers would later sense.

“Increased financial stress on middle-class families—related to rising income and wealth inequality—is unfortunately constraining the creation of new businesses in the U.S. economy and therefore hurting overall economic growth and job creation. Economic expansion in the medium and long run should be reflected in increasing numbers of consolidated and growing private-sector firms, which is supported by a dynamic process of business creation… But as middle-class families’ income stagnated, especially in the business-cycle expansion of the 2000s, the average percentage of business-owner households dropped to 12.4 percent from 2002 to 2008 and again to 11.8 percent in 2010. The net effect is equivalent to a loss of more than 1 million business-owner households in the United States compared to the previous decade… Middle-class families account for 60 percent of new business-owner households in the United States in the past four decades, and their increasing financial stress partly explains the stagnation of business-creation rates in the 2000s compared to the late 1990s.”

While the American Middle Class is an expressive term defined in several ways, it remains a constant identifier, intrinsically linked to powerful social aspirations of millions of Americans that drive our vital free-market economy. But from the data, it appears that small business decline was occurring long before the pandemic hit. What changed was the velocity of the process. Marginal businesses closed or faltered while the optimism of those that might have created one diminished. Yet on the other side of the equation, big businesses continue to prosper. In the Atlantic Monthly of September 2015, Gillian B. White clearly stated the consequences of this alarming trend.

“This inequity is disappointing news at a time when there’s already a growing divide between the country’s most affluent residents and everyone else. The existence of yet another venue where those with money and access are able to gain more while others flounder is bothersome, but it’s especially troubling since small businesses make up such a significant share of the economy, and starting a business has long been a career path that was accessible to a wide array of people, allowing them to provide for themselves and their families, create jobs in their communities and solidify a middle-class existence.”

Future articles in this series will examine steps taken by various communities to strengthen small business and rebuild the fractured middle class.

Author: Dr. David Hamilton is a strategic leader experienced in managing county and city governments. He holds a Doctorate in Public Administration degree from Hamline University focused on the administrative challenges created by rapid-growth in Edge Counties and metropolitan areas.  He heads his own consulting firm guiding governments and organizations in community visioning, strategic planning and capacity building and serves on the Executive Council of the Suncoast Chapter of ASPA, based in the Tampa Bay region of Florida. Contact: [email protected]

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