Class vs. Class.

Racial politics have dominated this century, but L.A. is returning to a time when debate was driven by the battle between haves and have-nots

AT the end of the 20th century, we may be seeing the resurgence of the great issue - class - that dominated the 19th.

This reemergence could portend a critical sea change from the racial politics that has dominated much of the last 100 years. It was race, and its manifestation, nationalism, that underpinned the rise of National Socialism, Fascism, Japanese imperialism and, finally, the "wars of national liberation" against Europeans and their allies. Race has loomed over America's politics from the end of the New Deal until the election of Bill Clinton.

Today, race, while still important, is no longer the primary societal demarcation. The rise of an African-American and Latino middle class, as well as the largely superior economic and educational performance of Asians, has eroded the notion - justified in the days of Jim Crow and its immediate aftermath - that skin color constitutes the predominant determinant of success in American society.

Family income and educational level, often linked together, has become a more accurate predictor of information-age progress. Education, age and income, notes a recent Forrester Research study, determines who gets on the Internet - not race or cultural identity. Only 20 percent of those with a high school education or less, over half the population, have Internet access, compared with 53 percent of those with college degrees or more. People with incomes over $75,000, roughly one-tenth of the population, make up 27 percent of online users; those with incomes below $30,000, 40 percent of the public, make up only 17 percent.

Ironically, this reemergence of class divisions is all the more compelling because it has occurred amid a powerful economic expansion. Until the 1970s, America was becoming gradually more egalitarian; since then, the process has been reversed.

Yet the current boom conditions for the upper classes tend to blunt any serious discussion of this phenomenon among the elites. Perhaps it's because the largely liberal chattering classes have done so well. Prosperity, as the Roman historian Sallust noted two millennia ago, "wears out the minds of the wise."

Nor has the right, with the exception of outsiders like Pat Buchanan and Gary Bauer, seemed willing to bring up the issue of class, perhaps fearing it would offend their Wall Street and corporate sponsors. Instead, the bad news has come from the president's own allies, like the labor-backed Economic Policy Institute.

Looking at incomes over the past decade, EPI has found that wages for the median worker were about 3.1 percent lower in 1997 than in 1989. The hardest hit workers have been those with only a high-school education. At the bottom, poverty has become even more entrenched than when Ronald Reagan left office. The bottom fifth of the nation accounted for 4.3 percent of national income in 1980, 3.9 percent in 1990 and only 3.7 percent in 1996.

So who are the real winners in this new post-industrial society? It turns out that it's not so much the scientists and engineers who sociologist Daniel Bell predicted would run things, but a growing, yet statistically small class of managers, investors and salespeople who are cashing in on the remarkable technological transformation.

In today's economy, it's the ability to leverage rapid technological and market change that really matters. The shaved-head set who labor on Internet startups are not the big winners in this game - despite some well-documented exceptions. Rather, it is those who have access to capital, as well as the elite ranks of professional managers and business service providers.

Decade of rich and poor

Indeed, as the middle-class share of national wealth has fallen in the '90s, the top 1 percent's share has grown. Over the past decade, the remuneration for the average CEO has doubled to 116 times that of the rank-and-file worker. After remaining fairly steady for most of the century, the number of billionaires since the 1980s has swelled from 23 to 132.

This trend has been accelerated by the enormous growth in the stock market. As labor's share of wealth has lessened, that of capital has soared.

Despite the talk about "democratic capitalism," the Wall Street boom has done more to concentrate wealth than spread it around. Although the share of households owning stock has risen in the '90s, some 60 percent have no holdings at all and only one-third had more than $5,000 in the market. Almost 90 percent of all stock holdings and profits go to the top 10 percent.

In many ways, this growing class distinction parallels changes that occurred during the first industrial revolution. Trains, telegraphs, steel, electric lights and automobiles - the sinews of modem civilization - brought enormous benefits not just to the rich, but to the middle class and even the poor. But the early stages of the industrial revolution also brought inequalities and traumatic change.

The 19th century technological transformation created what Arnold Toynbee described as "a rapid alienation of classes." The first industrial revolution transformed the relatively benign conditions of an artisan-based economy, in which much work was done in the healthy air of the countryside, into a Dickensian urban hell, from which there was little hope of escape. In today's cities, technological change has similarly produced the loss of whole industries, such as shipbuilding, auto manufacturing and textiles, as well as the migration of large corporate bureaucracies. This has left a legacy of abandoned shopping districts, ravaged neighborhoods and broken people.

In Los Angeles, the new economic formulation suggests the re-creation of a new set of class distinctions. In part because of the high cost of living and doing business, it is precisely the most evolved parts of the economy where these distinctions are in sharpest contrast.

The concentration of wealth is becoming increasingly obvious when it comes to show business. A growing portion of the industry's riches is being recouped by a relative handful of "bankable" actors, directors, producers and studio executives. A decade ago, craftspeople "below the line" - gaffers, grips, prop-people, makeup artists - garnered 60 percent of a production's salaries; today that's down to 40 percent. Variety, hardly considered a paragon of class-conscious journalism, writes of the "increasing Great Divide between the elite and the working stiffs."

A further erosion of middle-income jobs is especially worrisome in a city where the number of people making between $40,000 and $100,000 a year has fallen precipitously, while those at both the top and bottom of the wage distribution have been increasing. The studios are trimming costs and moving production outside the country to accommodate the appetites of the mostly Clinton-loving liberals who dominate Hollywood. "These are the most self-centered people in the world," notes Cody Cluff, head of L.A.'s Entertainment Industry Development Corp. "They have no loyalty to the place and people who live here."

Four basic classes

Nor can the increasing presence of other, more conventional high-tech sectors - Internet, software, telecommunications and biotech - necessarily improve the distribution problem. In the ultimate heartland of the new capitalism, Silicon Valley, the wages of middle- and lower-income residents have stagnated since the late '80s; only the top 20 percent has registered significant gains.

We can see the emergence of four basic classes. Although the lines between them are not set in stone, the growing importance of high-level education, capital and technological savvy threaten to slow the upward mobility among them.

The Super-Affluents. They have secured the highest niches of the emerging digital economy and include the financiers, the company owners, the elite providers of business services and the holders of key real estate. Their fleets of SUVs and bottomless charge accounts have become the symbols of this most recent gilded age.

The Middle Class Remnant. The broadest group but also the one that is shrinking. Incomes, even among the technically proficient, have not advanced much in the jackpot economy - about 0.4 percent this decade, less than half their gains in the '70s and even smaller when measured against the immediate postwar decades. Even worse, their prospects are not bright: Many of their skills are being automated mated or digitized, including everyone from CAD-designers to Hollywood craftspeople and managers of "brick-and-mortar" stores.

The Worker Bees. Made up of low-wage workers, this is the group whose numbers have been expanding most rapidly. The boom of the '90s has mostly missed them, although their wages finally have risen somewhat over the past year or two. They labor in factories, churning out products consumed by the other, classes; increasingly, they also work in the homes of the expanding super-affluent classes. Their services are increasingly required, but only recently have they registered any kind of increase in wages. This group includes a large number of immigrants, most of whom have clustered in major urban areas such as Los Angeles.

The Underclass. Finally, at the bottom, is. what appears to be a permanent underclass. These tend to be drawn largely from the native-born population - African Americans in urban areas, poor whites in the countryside - and seem as much damaged by social dysfunction, such as drugs, alcoholism or family breakdown, as by technological innovation. Their numbers have remained fairly steady, according to most surveys, but seem largely impervious to even an improving economy.

Challenge for business

The class structure cuts across many lines - geographic, educational, and, to a considerable extent, racial. And with it, the circle of common interests between rich and poor has essentially disappeared. Firms that need digital artists or investment bankers usually do not look to the inner city for their next generation of recruits. People living in gated communities exist in a different reality than - and barely interact with - those who eke out their existence in Pacoima or the Oxnard barrios.

How business deals with these challenges may prove as critical to the future of the economy as the response of earlier industrialists proved in the last century. The distance that exists between the classes - physically and in the. workplace - threatens to open up new societal, and politically potent, divides.

In the short run, it could get uglier before it gets better. Many of the new elite are more likely adherents of Ayn Rand than John Dewey. Nerd-dom, in general, tends to be a highly self-referencing culture where success, particularly monetary, represents the summum bonum.

The problems of the poor, meanwhile, are only given scant attention. by the wealthy. Even the robber barons seemed more concerned with those in need than today's techno-driven elites. "The poor?" a fabled venture capitalist once told me, "who gives a shit?"

Yet the problems of class will not be so easily dismissed. Union activists have over-turned business interests on a host of issues, most notably the living wage. A union leader like L.A.'s Miguel Contreras is a rising power. So, too, on the national level, is the resurgent AFL-CIO under John Sweeney, a self-professed democratic socialist. His agenda is not friendly to the kind of free trade, market-is-efficient rhetoric that entrepreneurs, particularly in the information industries, accept as gospel.

"Class and class consciousness is hard to talk about in this country, but there's no question more and more working families need help in getting a living wage today," asserts Ron Blackwell, head of corporate affairs for the national AFL-CIO. "The majority of households have lower net worth than they did in 1984, when the Dow was 1000."

Economists can quibble over numbers, but the issue of class distinction will not go away. With so many barely staying above water, and many others insecure about the future, the prospects for labor unrest are good, particularly when the economy softens. Even the normally quiescent nerds might get restless, as Microsoft found out recently when it was handed an order to provide angry short-timers with stock options.

But an increasingly militant labor movement represents just one element of the potential class struggle. In Los Angeles, and virtually every big city, a large portion of young people are being brought up without even the most basic skills. What is their future?

Right now, not great. Growing up in the barrios and ghettos, many seem almost resigned to a life on the fringes. One-third of young black men are in prison, on parole or probation; the proportion is much higher in the inner city. Further troubling is that the ranks of young people, after a period of demographic decline, are swelling again. Scholars like UCLA's James Q. Wilson and John Dilulio look at the numbers and tell us not to take the recent drop in crime as a permanent; Dilulio, in particular, warns of a coming generation of "super predators."

This is the specter that should most haunt America's elites as they enjoy the rosy edges of this technological dawn. The sun may be rising for the venture capitalists, movie producers and MBAs, but it is also falling on hard-pressed working-class communities like East Los Angeles and Compton, where the jobs and the dreams of the new economy still appear all too out of reach.

Business Journal columnist Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy and a research fellow at the Reason Public Policy Institute.