Monday, May 5, 2008

The Muddled Class

Politicians of all stripes have given a lot of lip service to 'protecting the middle class'. In the process, the definition of middle class has been stretched, pulled, tugged and warped. By now, the definition of middle class is snapped - just like the minds of the people running our government (into the ground). So how about a little historical perspective?

For most of human history, there were two classes of people -- the peasants and the nobles. Or more to the point, the ruled and the rulers. (Yes, I know, in most societies there were earls and dukes as well as the king but this is the equivalent of differentiating between Bill Gates and the Hilton family -- rich is rich and nobility is nobility.) But in the period leading up to the Industrial revolution a portion of the peasantry began to distinguish itself from the rest. These people were merchants. They provided an economic benefit to the realm through their services, products and expertise.

As this group grew in size, its members began to acquire the attention of the political leadership. Soon enough, these successful individuals would become a new political class -- the middle class. Between the peasantry / labor class and the nobility / ruling class existed those whose political power devolved from their ability to create new wealth for their nation.

Then an honest definition for the middle class today would be those who have the wherewithal to establish a new company to provide products or services. This would actually be a rather broad definition as it extends from the hairstylist who has been saving her wages for years in order to set up her own beauty parlor to the doctor ready to set up an independent practice. However, these are the individuals who have the skills and the economic power to employ themselves and others. This is the true key. The power of small business is in expanding the number of available jobs, usually the number of well compensated jobs.

You see, big business is very competitive for executive jobs, but when it comes to labor jobs or lower management and supervisory positions, the big company has a major advantage in designating pay and other compensation. Small business, on the other hand must offer a bit more to draw quality employees. Small business cannot provide the job guarantee that large corporations can so they must offset the risk an employee accepts by providing better compensation.

The end result is that small business is an engine of wealth generation and job growth. Furthermore, it it is the ability to create wealth that sets apart the middle class. Therefore the middle class is rightly defined as small business owners or those who have the capacity to become small business owners.