The Rise and Fall of the American Middle Class

There’s a sturdy old building in the east end of Pittsburgh. It’s located between two major streets, Centre Avenue and Baum Boulevard. It backs up into a hollow where there’s a railroad spur. From the train tracks in the hollow to the roof, the structure is about 125 feet tall. The building covers a city block. It was constructed in 1914 by the Ford Motor Co.

The Old Ford Plant — in Pittsburgh

Ford Motor Co. Henry Ford’s car company is certainly associated with Detroit. But there’s another story. Mr. Ford cranked out cars in Pittsburgh, too.

Ford Plant, 5000 Baum Blvd., Pittsburgh; image courtesy of Ford Motor Co.

In the early 1910s, the market for Ford cars was growing. But there was a problem. Fully assembled cars were difficult and expensive to move by rail. Also, there was quite a bit of damage in transit. So Ford came up with a better idea.

Ford built satellite assembly plants. It was easier just to move parts — “knock-down kits” — to distant sites by rail. Ford shipped parts to Pittsburgh and hired local workers to put vehicles together near the point of sale.

A Vertical Factory

From the rail siding, far below street level, an elevator lifted bins of parts to different floors. On the top floor, workers started by connecting the chassis and wheels. The assembly line then operated by gravity. Workers rolled the chassis down a ramp to the floor below, where other workers installed additional components and built out the car.

On each floor, at each stage, workers added value. Then they rolled the car down another ramp. The finished car ended up in a parking area behind the building, at street level. There was even a well-appointed showroom on the first floor, where customers came to kick the tires and buy the vehicles.

Producing Cars and Jobs

From 1915–32, Ford’s Pittsburgh plant assembled about 40 cars per day. The plant closed during the depths of the Great Depression. By modern standards, 40 cars per day seems like a low production volume. But for many years, this idea worked for Ford.

According to tax records, the Pittsburgh Ford plant continuously employed 400–600 workers, at remarkably good wages. The plant also created a thriving network of vendors that employed thousands of other people. This included railway workers up and down the Pennsylvania Railroad line between Michigan and Pittsburgh.

Plus, there were employees at smaller nearby factories and machine shops in Pittsburgh. These workers made components like hoses, springs, seats, electric wire bundles, etc.

The job chain of the Ford plant extended straight out the front door. There were transit workers of the old Pittsburgh Railway Co. driving electric trolley cars and carrying people to and fro.

Down the street from the Ford plant was one 
of the world’s first modern gasoline stations. It was the brainchild of the marketing department of the old Gulf Oil Co. At the filling station, attendants pumped gas, checked tires, washed windows and established an iconic image of service that’s still burnt deep into the heart and soul of America.

Creating an American Middle Class

The Ford plant in Pittsburgh was a site of productive urban manufacturing jobs that paid well — at least the pay wasn’t bad by the standards of the time. Plus, the Ford plant created nearby pockets of technology, industry and service that led to more jobs and more wages.

Directly and indirectly, the Ford plant in Pittsburgh supported quite a large population. Tens of thousands of people lived in nearby neighborhoods. Not far from the Ford plant, streets were lined with food stores, dry goods stores, restaurants, churches, schools, hospitals, movie theaters and much more.

How do I know this? Well, many of the old buildings are still there today, in the Bloomfield, East Liberty and Shadyside parts of town. There are even a few really old-timers who can tell the tale, based on their personal recollections and family histories. (Full disclosure — the old Ford plant is not far from where I grew up.)

One Plant of Many, Like Many Others…

To be sure, Henry Ford’s plant didn’t change Pittsburgh, let alone the nation, all by itself. The Ford plant helped transform one area of Pittsburgh into a wealth-creating hub. And as I mentioned above, the plant lasted only until 1932.

But even after it closed, the legacy of the Ford plant lived on. It’s as if the Ford plant sowed seeds of perennial industry and commerce, which took deep root. Many of the nearby supporting businesses survived and outlasted the Depression.

Pittsburgh’s Ford plant makes for interesting history. Indeed, if you ever wondered how the American middle class came about, it helps to know something like this story of one particular urban site. But I don’t want to dwell on just this one plant in just one locale.

The larger point is that the Ford facility was 
one of many industrial plants that sprang up in Pittsburgh, across Pennsylvania and across the country through the early part of the 20th century. Multiply this particular Ford/Pittsburgh story by 
the tens of thousands.

Think of “Ford plants” — or something along those lines, built and run by many other companies — popping up in cities and towns all across the U.S. Then let this process play out over many decades. Every place had one or more plants and factories.

Now you’re getting a sense of the long, complex arc of history that created America’s manufacturing backbone, as well as the country’s industrial-based middle class. It drives home the idea — the historical fact — that creating a middle class is no mean feat. There’s nothing easy about it. It takes entrepreneurship, investment, technology and hard work. Oh, and it takes time.

A Great Phenomenon, Now Vanished — A Dozen Factories per Day

In a tragic turn of events, however, the American middle class has peaked. The industrial middle class is now declining, if not vanishing.

Indeed, between 1999–2009, over 45,000 plants and factories closed across the U.S. That’s 
an average of over 84 plants per week, or about a dozen per day. The average job loss was over 200 direct employees from each locale, with countless other workers affected indirectly.

You can see how the process of decline played out on a simple chart below of the falling numbers of U.S. industrial workers.

If you travel across the U.S. — as I’ve done a couple of times in the past three years as editor of Outstanding Investments — you’ll see many places where the heartland, and by extension the American middle class, is a basket case.

The most shocking, eye-catching evidence comes when you visit Detroit, Cleveland, Buffalo or any of hundreds of other old manufacturing centers and factory towns across the land. There, you can drive mile after mile, observing declining, if not vacant, houses, as well as now-abandoned factories and workshops of the lost American middle class.

Go to these kind of places, look around and ask a few questions. You’ll encounter a former middle class that’s idled by serial plant closures and no longer able to gain economic traction.

Or look past the physical ruins, and into the courthouse filings. The legal documents paint a picture of countless broken hopes and dreams. Within the court records you’ll see the declining American middle class. You’ll see the problem — clinically, but starkly — in the data for repossessions caused by unemployment, or mortgage foreclosures and bankruptcy filings.

Changing Times

Times have changed in the U.S., and not for the better for many. It’s not overstating the case to say that something great has been lost. So what’s the answer? Can the U.S. somehow rebuild and restore its former industrial middle class?

Should we — or could we if we wanted to — go back to the good old days, of building Ford cars out of kit parts in factory buildings like that one I described in Pittsburgh? Oh, if only it were that simple. No, we can’t go back to living in that now-vanished industrial past. Too much has changed.

Today, the U.S. work force competes against newly built parts of the world, from Brazil to Singapore, from Turkey to the far reaches of China. Other locales have their own “Ford plants,” so to speak. These plants may actually build cars, just like Ford. Or perhaps they fabricate microchips, computers, pharmaceuticals, oil field equipment, airliners or many other things. Whatever they make, these other sites, across the globe, now create jobs and support their own wealth creation.

Get Friendly to Capital Investment

While other parts of the world are building out, the U.S. has arrived at its sorry predicament through its own actions. The country has spent several decades pursuing a lot of bad economic ideas, starting with a general debasement of the dollar. It’s as if the Federal Reserve is simply incapable of respecting the monetary signals that certain items send, particularly gold and silver.

Now add in more bad policy. The U.S. has abandoned capital-friendly ideas that used to work and adopted other ideas that are designed and destined to fail. The simple way of stating it is to say that local, state and federal governments tax, spend and control things way too much.

For example, the federal corporate tax rate is 35%, which is the second-highest rate in the world (after Japan, if you’re wondering). Then add on numerous state corporate income tax rates, as 
well as many local tax rates. Over the long haul — and because business owners have many other options — these high U.S. tax rates discourage business formation.

We’ll probably never know how many businesses never started up or took root in the U.S. because the federal, state and local business tax rates are too high. But it’s accurate to say that the 35% federal tax rate, applied to nothing, yields nothing. Same thing with the high state and local tax rates.

Or let’s discuss how the country has “financialized” its economy. The biggest part of most discussions of the economy nowadays is about what’s good for Wall Street, versus what helps businesses on Main Street. The idea is that Wall Street somehow has a collective way — financial magic, perhaps — of properly allocating the nation’s capital to the highest and best uses. But that’s not really how it works, is it?

No, with Wall Street benefiting mightily over the past two decades or so, the big picture is that the U.S. economy has lost millions of middle-class industrial jobs. Is the country now better off? I don’t really need to answer that question for you, right?

Where Do We Go From Here?

The bottom line is that the U.S. has to make a conscious, collective national decision to become friendlier to capital investment. That’s where the jobs are. It’s how the wealth of the nation will be created.

In order to prosper, the country has to generate energy, mine things, produce things, make things and sell things. That is, after all, what great nations do. It means that across the U.S., governments need to lower business taxes, reduce regulation, offer a friendlier labor climate and adopt a more open approach to development.

As the story of the old Ford plant illustrates, the rise of the American middle class took many decades. And as the recent data show, the fall of the middle class was precipitous. It’ll require many decades 
to rebuild things, if that’s even possible. But if we want to remain a great and powerful nation, we have to make the effort.

Byron King
for The Daily Reckoning