[Congressional Record Volume 157, Number 137 (Thursday, September 15, 2011)]
[Senate]
[Pages S5673-S5676]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DISAPPEARING MIDDLE CLASS
Mr. BENNET. Mr. President, I went back to the office and I saw my
senior Senator sitting here at this late hour and I wanted to come down
and keep him company. So I am glad to be here with you tonight, proud
to be from the West tonight with two great Senators from Wyoming
remembering Malcolm Wallop's service in this body. It was wonderful to
hear their remembrances of him. I am glad we were here to share that
being from the West.
Similar to the Presiding Officer, I spent most of August in our
beautiful State--the most beautiful State in the United States, if I do
say so myself--in townhall meetings, mostly in red parts of the State,
but in red and blue parts of the State. They do not actually think of
themselves that way, but that is how Washington would talk about it.
In the townhalls, I always start the same way. I say: Ask any
question you have. Bring any criticism you have. I tell them I was an
urban school superintendent for almost 4 years, it is impossible to
hurt my feelings. It was beaten out of me a long time ago. Then we have
a conversation.
This time, every single meeting started with somebody saying: What is
wrong with you guys? Why can't you work this out in Washington, DC? We
are struggling in the worst economy we have had since the Great
Depression, and what we see are a lot of political games being played
back there.
That is the version of the conversation I have heard now for 2\1/2\
years in our State.
Then, one of the things we get into at the very beginning is the fact
that this is not a garden-variety recession that we are just coming out
of. This is the first time--this last decade, not just this recession,
the last decade--the first time in this country's history when median
family income actually declined instead of going up.
Generation after generation after generation of Americans saw their
income rise. Median family income is sort of shorthand for middle-class
family income in this country. It is the backbone of this country, and
it has fallen for the first time in a decade, as the cost of health
insurance doubled on the people who live in Colorado, and the cost of
higher education went up by 60 percent.
People are saying: Michael, I have been at my job for this whole
decade and I am earning less at the end of the decade than I was at the
beginning of the decade. My costs of not ``nice to haves,'' my costs of
critical things to move my family ahead to create stability for me and
my small business--such as health care, such as higher education--have
done nothing but skyrocket.
I am going to show you some numbers that are pretty scary that came
out this week from the Census Bureau that reflect, in numbers, what I
am talking about and reflect how profound the structural issues are
that we face in our economy, structural that do not fit on the back of
a bumper sticker or a political slogan or during a debate at night on
the television set.
This week's Wall Street Journal, on Monday, had an article on the
front page with the headline that reads as follows: ``As Middle Class
Shrinks, P&G Aims High and Low.'' P&G is Procter & Gamble. There is not
a more iconic brand in our country's history when it comes to the
middle class than Procter & Gamble.
Here are some of the things they make: Crest toothpaste; Head &
Shoulders shampoo; Tide detergent; Pamper's diapers--I am glad to be
out of those in my house, by the way--Bounty paper towels; Downy fabric
softener, Scope mouthwash; Duracell batteries; Charmin toilet paper;
Bounce fabric softener--nobody needed fabric softener before there was
a middle class in this country, but they make it--Mr. Clean; Pepto
Bismol; Pringles; Swiffer brooms and dusters--we have that in our
closet--Old Spice deodorant; Nyquil cough syrup; Puffs tissues; Ivory
soap; Covergirl makeup.
That is what Procter & Gamble makes. That is what they sold to the
great middle class in this country for decades. Here is this article
that says Procter & Gamble aims high and low.
I ask unanimous consent that the article be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Sept. 12, 2011]
As Middle Class Shrinks P&G Aims High and Low
(By Ellen Byron)
For generations, Procter & Gamble Co.'s growth strategy was
focused on developing household staples for the vast American
middle class.
Now, P&G executives say many of its former middle-market
shoppers are trading down to lower-priced goods--widening the
pools of have and have-not consumers at the expense of the
middle.
That's forced P&G, which estimates it has at least one
product in 98% of American households, to fundamentally
change the way it develops and sells its goods. For the first
time in 38 years, for example, the company launched a new
dish soap in the U.S. at a bargain price.
P&G's roll out of Gain dish soap says a lot about the
health of the American middle class: The world's largest
maker of consumer products is now betting that the squeeze on
middle America will be long lasting.
``It's required us to think differently about our product
portfolio and how to please the high-end and lower-end
markets,'' says Melanie Healey, group president of P&G's
North America business. ``That's frankly where a lot of the
growth is happening.''
In the wake of the worst recession in 50 years, there's
little doubt that the American middle class--the 40% of
households with annual incomes between $50,000 and $140,000 a
year--is in distress. Even before the recession, incomes of
American middle-class families weren't keeping up with
inflation, especially with the rising costs of what are
considered the essential ingredients of middle-class life--
college education, health care and housing. In 2009, the
income of the median family, the one smack in the middle of
the middle, was lower, adjusted for inflation, than in 1998,
the Census Bureau says.
The slumping stock market and collapse in housing prices
have also hit middle-class Americans. At the end of March,
Americans had $6.1 trillion in equity in their houses--the
value of the house minus mortgages--half the 2006 level,
according to the Federal Reserve. Economist Edward Wolff of
New York University estimates that the net worth--household
assets minus debts--of the middle fifth of American
households grew by 2.4% a year between 2001 and 2007 and
plunged by 26.2% in the following two years.
P&G isn't the only company adjusting its business. A wide
swath of American companies is convinced that the consumer
market is bifurcating into high and low ends and eroding in
the middle. They have begun to alter the way they research,
develop and market their products.
Food giant H.J. Heinz Co., for example, is developing more
products at lower price ranges. Luxury retailer Saks Inc. is
bolstering its high-end apparel and accessories because its
wealthiest customers--not those drawn to entry-level items--
are driving the chain's growth.
Citigroup calls the phenomenon the ``Consumer Hourglass
Theory'' and since 2009 has urged investors to focus on
companies best positioned to cater to the highest-income and
lowest-income consumers. It created an index of 25 companies,
including Estee Lauder Cos. and Saks at the top of the
hourglass and Family Dollar Stores Inc. and Kellogg Co. at
the bottom. The index posted a
[[Page S5674]]
56.5% return for investors from its inception on Dec. 10,
2009, through Sept. 1, 2011. Over the same period, the Dow
Jones Industrial Average returned 11%.
``Companies have thought that if you're in the middle,
you're safe,'' says Citigroup analyst Deborah Weinswig. ``But
that's not where the consumer is any more--the consumer
hourglass is more pronounced now than ever.''
Companies like Tiffany & Co., Coach Inc. and Neiman Marcus
Group Inc., which cater to the wealthy, racked up outsize
sales last Christmas and continue to post strong sales.
Tiffany says its lower-priced silver baubles, once a
favorite of middle-class shoppers craving a small token from
the storied jeweler, are now its weakest sellers in the U.S.
``I think that there's probably more separation of affluence
in the U.S.,'' Tiffany Chief Operating Officer James
Fernandez said in June.
Firms catering to low-income consumers, such as Dollar
General Corp., also are posting gains, boosted by formerly
middle-class families facing shrunken budgets. Dollar stores
garnered steady sales increases in recent years, easily
outpacing mainstream counterparts like Target Corp. and Wal-
Mart Stores Inc., which typically are more expensive.
P&G's profits boomed with the increasing affluence of
middle-class households in the post-World War II economy. As
masses of housewives set up their new suburban homes, P&G
marketers pledged that Tide detergent delivered cleaner
clothes, Mr. Clean made floors shinier and Crest toothpaste
fought off more cavities. In the decades since, new features
like fragrances or ingredient and packaging enhancements kept
P&G's growth robust.
Despite its aggressive expansion around the world, P&G
still needs to win over a healthy percentage of the American
population, because the U.S. market remains its biggest and
most profitable. In the fiscal year ended June 30, the U.S.
delivered about 37% of P&G's $82.6 billion in annual sales
and an estimated 60% of its $11.8 billion in profit. P&G says
that Americans per capita spend about $96 a year on its
products, compared with around $4 in China.
During the early stages of the recession, P&G executives
defended its long-time approach of making best-in-class
products and charging a premium, expecting middle-class
Americans to pay up.
But cash-strapped shoppers, P&G learned, aren't as willing
to splurge on household staples with extra features. Droves
of consumers started switching to cheaper brands, slowing
P&G's sales and profit gains and denting its dominant market
share positions.
In late 2008, unit sales gains of P&G's cheaper brands
began outpacing its more expensive lines despite receiving
far less advertising. As the recession wore on, U.S. market-
share gains for P&G's cheaper Luvs diapers and Gain detergent
increased faster than its premium-priced Pampers and Tide
brands.
At the same time, lower-priced competitors nabbed market
share from some of P&G's biggest brands. P&G's dominant
fabric-softener sheets business, including its Bounce brand,
fell five percentage points to 60.2% of the market as lower-
priced options from Sun Products Corp. and private-label
brands picked up sales from the second quarter of 2008
through May 2011, according to a Deutsche Bank analysis of
data from market-research firm SymphonyIRI.
P&G's grasp of the liquid laundry detergent category, led
by its iconic Tide brand, also posted a rare slip over the
same period as bargain-priced options from Sun and Church &
Dwight Co. gained momentum. Even the company's huge Gillette
refill razor market suffered, declining to 80.1% by May from
82.3% in the second-quarter of 2008, as Energizer Holdings
Inc.'s less-expensive Schick brand gained nearly three
points.
P&G began changing course in May 2009. After issuing a
sharply lower-than-expected earnings forecast for the
company's 2010 fiscal year, then-CEO A.G. Lafley said the
company would take a ``surgical'' approach to cutting prices
on some products and develop more lower-priced goods. ``You
have to see reality as it is,'' Mr. Lafley said.
When the company's 2009 fiscal year ended a month later,
P&G's sales had posted a rare drop, falling 3% to $76.7
billion.
In August that year, P&G's newly appointed CEO, company
veteran Robert McDonald, accelerated the new approach of
developing products for high- and low-income consumers.
``We're going to do this both by tiering our portfolio up
in terms of value as well as tiering our portfolio down,''
Mr. McDonald said in September 2009.
To monitor the evolving American consumer market, P&G
executives study the Gini index, a widely accepted measure of
income inequality that ranges from zero, when everyone earns
the same amount, to one, when all income goes to only one
person. In 2009, the most recent calculation available, the
Gini coefficient totaled 0.468, a 20% rise in income
disparity over the past 40 years, according to the U.S.
Census Bureau.
``We now have a Gini index similar to the Philippines and
Mexico--you'd never have imagined that,'' says Phyllis
Jackson, P&G's vice president of consumer market knowledge
for North America. ``I don't think we've typically thought
about America as a country with big income gaps to this
extent.''
Over the past two years, P&G has accelerated its research,
product-development and marketing approach to target the
newly divided American market.
Globally, P&G divides consumers into three income groups.
The highest-earning ``ones'' historically have been the
primary bracket P&G chased in the U.S. as they are the least
price sensitive and most swayed by claims of superior product
performance. But as the ``twos,'' or lower-income American
consumers, grew in size during the recession, P&G decided to
target them aggressively, too. P&G doesn't specifically
target the lowest-income ``threes'' in the U.S., since they
comprise a small percentage of the population and such
consumers are typically heavily subsidized by government aid.
At the high end, it launched its most-expensive skin-care
regimen, Olay Pro-X in 2009, which includes a starter kit
costing around $60. Previously, the Olay line had topped out
around $25. Last year, the company launched Gillette Fusion
ProGlide razors at a price of $10 to $12, a premium to
Gillette Fusion razors, which sell for $8 to $10, and
Gillette Mach3, priced at $8 to $9.
At the lower end, its new Gain dish soap, launched last
year, can sell for about half per ounce of the company's
premium Dawn Hand Renewal dish soap, which hit stores in late
2008.
Developing products that squarely target the high and low
is proving difficult for a company long accustomed to aiming
for a giant, mainstream group.
Conquering the high end is difficult because it usually
involves a smaller quantity of products.
``We do big volumes of things really well,'' said Bruce
Brown, P&G's chief technology officer. ``Things that are
smaller quantities, with high appeal, we're learning how to
do that.''
Likewise, the cost challenges at the bottom of the pyramid
are also proving difficult, Mr. Brown said. Over the past two
years, P&G has increased its research of the growing ranks of
low-income American households.
``This has been the most humbling aspect of our jobs,''
says Ms. Jackson. ``The numbers of Middle America have been
shrinking because people have been getting hurt so badly
economically that they've been falling into lower income.''
Mr. BENNET. I wanted to read a few excerpts from it because I think
it is instructive about what we are doing.
P&G's profits boomed with the increasing affluence of
middle-class households in the post-World War II economy. As
masses of housewives set up their new suburban homes, P&G
marketers pledged that Tide detergent delivered cleaner
clothes, Mr. Clean made floors shinier and Crest toothpaste
fought off more cavities. In the decades since, new features
like fragrances or ingredient and packaging enhancements kept
P&G's growth robust.
What is happening now? For generations Proctor & Gamble's growth
strategy was focused on developing household staples for the vast
American middle class. Now, P&G executives say many of its former
middle-market shoppers are trading down to lower priced goods--widening
the pools of have and have-not consumers at the expense of the middle.
That has forced P&G, which estimates it has at least one product--and
you heard the list, so this won't be surprising in 98 percent of
American households--to fundamentally change the way it develops and
sells its goods.
For the first time in 38 years, for example, the company launched a
new dish soap in the United States at a bargain price. P&G's rollout of
Gain Dish Soap says a lot about the health of the middle class. The
world's largest maker of consumer products is now betting that the
squeeze on middle America will be long lasting.
If you needed any example of what our families are struggling with in
Colorado every single day, here is a business plan that is modeled on a
perpetually shrinking middle class by a company whose whole business
model in their history was based on a rising middle class.
I will skip the next one in the interest of time. I will go right to
the end. I want to show some numbers. This was the conclusion of the
article:
To monitor the evolving American consumer market, P&G
executives study the Gini index, a widely accepted measure of
income inequality that ranges from zero, when everyone earns
the same amount, to one when all income goes to only one
person. In 2009, the most recent calculation available, the
Gini coefficient totaled 0.468, a 20 percent rise in income
disparity over the past 40 years, according to the U.S.
Census Bureau. ``We now have a Gini index similar to the
Philippines and Mexico--you'd never have imagined that,''
says Phyllis Jackson, P&G's Vice President of consumer market
knowledge for North America. ``I don't think we typically
thought about America as a country with big income gaps to
this extent.''
I don't think we typically thought about America that way either. It
is not who we purport to be or who we are
[[Page S5675]]
going to be. In order to put us on a path that will actually produce a
rising middle class again, instead of a division among the very wealthy
at the top and the poorest of the citizens at the bottom, we are going
to have to come together on some pretty serious choices.
I know there have been some who argue that this is all a problem that
is caused by too many regulations, and I am the first to say we should
only have the regulations that we need. Some say the threat of any
revenue--even at a time when we are collecting less revenue as a
percent of our economy than we have over the last 30 years--some are
saying any revenue is choking off this recovery.
Let me show you something very surprising. This is high-tech Senate
stuff. Here are some lines on a chart. I know people probably cannot
see the detail at home. They can get it on the Web site. This blue
line, from 1992 to 2010, which is about 20 years, represents what is
called the productivity index. It shows that we have become far more
productive as an economy over the last 20 years. It is not surprising
that we have, and we have because we have had a technological
revolution that has made us more productive.
See at the very end where the recession is, look what happened to the
productivity index during our recession--because with every single
month that went by we were losing jobs; American business was doing
what they had to do, which was figure out how to get through the
recession and get to the other end; how to ring out every efficiency
they could, how to make themselves as productive as they could. They
did and they have. We are much more productive today than we were here.
The green line is our gross domestic product, our Nation's economy
per capita, the amount of money per person that our economy is
generating. Here is an amazing fact. This is where we were before the
recession. This is where we are today. Our economy is the same size
today as it was before we went into the recession. We are producing
about the same economic output as a nation that we were producing
before we went into this downturn. I was shocked when I learned this
number.
But look at this. Here is our employment level. Here is our
employment level today. We have 14 million people unemployed, but we
are producing about the same as we were before we went into this
horrible recession.
That is a structural unemployment problem. That is not a problem that
will be solved by slogans, and it is not going to be a problem that is
solved by companies that have become much more efficient at what they
do. It is going to be solved by companies that will be started tomorrow
and the day after tomorrow--small businesses, venture-backed firms,
people who are inventing the technology of the 21st century, the
products and services of the 21st century, not the products and
services of the 20th century. That is the only way we are going to put
these people back to work. We could be investing in infrastructure too;
that would help.
This line is median family income, which is what I started this
conversation with. This is a terrible story. It is not just a sad
story, it is a terrible story. That is that line for median family
income. It was over $53,000 in 1999. It is $49,000 today. It is almost
$4,000 less in real dollars in a decade.
I could have brought in another slide which shows that this trend has
actually been going on a little longer than that. Think about that. It
means half of the families in 1999 were earning less than $53,000, and
half were earning more than $53,000. Today half are earning less than
$49,000 and half are earning more than that.
These are folks who have done absolutely everything that anybody ever
asked them to do. But I don't care whether you are a family or a
business, it makes it very hard for you to make ends meet if that is
the slope that you are on. I argue that we cannot consume one more
decade of this new century, with economic policies that are leading us
here, and expect to have a vibrant middle class. I want to be in an
economy where Procter & Gamble has to change their business model to
catch up with a rising middle class, not be in a position that they are
in today where they believe they have to bet on a falling middle class.
Mr. SCHUMER. Will my colleague yield for a question?
Mr. BENNET. Sure.
Mr. SCHUMER. I compliment him on this outstanding speech. The hour is
late and many colleagues have gone home, so I hope he will send this to
every one of our colleagues. It has been a joy for me to stay and
listen.
The only question I wanted to ask--and we talked about this last
night at dinner--here is another interesting fact amid so many that my
colleague brought up in this great speech.
If we look at that chart, from 1999 to 2007, before the recession
hit, median income didn't go up.
Mr. BENNET. Exactly.
Mr. SCHUMER. That is a question we have to ponder. We need great
minds like the Senator's to figure out the answer. If we just blame the
recession and think it will come back up, it won't. The kinds of
structural changes my colleague talks about are so needed if we are not
going to have a continually declining middle class, even in a period of
growth. Am I right about that assumption?
Mr. BENNET. I thank the Senator from New York. He is right about
that. What he will see on another slide--not tonight--is that we were
already on this decline. This is not news to people living in our
States. It is not news to people trying to figure out how to make ends
meet week by week. This is not news to them. It is not news to the
people who came to my townhalls and said they cannot afford to send
their kids to the best schools. They sent their first kid to the fancy
school, but they cannot send their second kid there. They are upset
that we are not getting done what we ought to be getting done.
What we see on this other chart is that this decline was happening
already because the economy wasn't lifting all boats, and it was
widening in equality terribly. I have things tonight that talk about
that. Then the recession accelerated that decline. They lost 2.3
percent of median family income in the recession, which is more than
any of the previous recessions, going back to the Great Depression. So
that is how tough this is.
The Senator is right. If we keep doing what we have done for the
decade that led us into this recession, if we go back to those policies
and readopt those policies, and that is where we end up, we will
continue to see this slide.
Mr. SCHUMER. I thank my colleague.
Mr. BENNET. I thank the Senator from New York. This gives a sense of
the widening inequality that has happened. This is average income,
which is different from median income. The amazing thing is, while
middle-class income has been falling, and it fell throughout this 10
years, average income actually went up because a few people at the very
top of the economy did incredibly well over this period of time. They
have done incredibly well. This is the very top 1 percent of our
earners who went from here to up here.
The top 1 percent saw that, and here is everybody else. This red line
is 90 percent of the people in America. Their average income was flat
from 1967 to 2006. That is 90 percent of the people who live in the
United States. It is hard to see how people can get ahead under
circumstances like that.
It is no wonder that we have these alarming numbers this week from
the Census Bureau which show there are 46.2 million Americans now
living in poverty. That is a 46-percent increase since 2000. I had to
look to make sure I was reading that right. Since 2000, when 31 million
people were in poverty, it has gone up to 46 million people in poverty
today, and 22 percent of the children in the United States of America
tonight are living in poverty. Over one-fifth of the children living in
the United States tonight are living in poverty. And, by the way, as a
former superintendent of the Denver public schools, I can tell you we
are not doing ourselves any favors when the chances of a child living
in poverty in this country graduating from college are roughly 9 in
100, which is what their chances are today. Ninety-one out of one
hundred poor kids in the country can't expect to get a college degree;
can't expect to be anywhere but on the margin of our democracy or our
economy. I wonder what effect that will have on our median family
income going forward.
[[Page S5676]]
This is the last slide, because I know the hour is late, and it is
one that was in the Washington Post. I am not going to bother to
describe the details, but you can find it on the Web site and it is
worth looking at. It is worth looking at.
This red line--and it is the only thing I will talk about from this
slide--shows what the bottom 90 percent--and it seems ridiculous to
talk about the bottom 90 percent--what the 90 percent of earners in
this country earned as a percentage of the income that everybody earned
in the United States from before the 1920s to today, essentially. For
the vast majority of time or some majority of time in the period from
World War II--the end of World War II--until the present, the bottom 90
percent of earners earned roughly 70 percent of the income in the
United States--a majority of the income, 70 percent of the income--for
a long time. Now they are earning roughly 50 percent. The bottom 90
percent is earning roughly 50 percent of the income. That means, by the
way, the other 10 percent are earning roughly 50 percent of the income.
That is how it is distributed. It is a unique moment in the country's
history, actually, uniquely unbalanced. In fact, we have to go back to
1928--the year before the market crashed, the year before Black Friday,
the year before our financial markets collapsed and put us into the
Great Depression--to find income disparity that looks like the income
disparity we face today.
In my view, the 20th century represented a period in this country's
history of limitless opportunity, limitless economic growth, limitless
educational attainment. Our democracy succeeded in generating an
economy that gave everybody a fighting chance. Maybe a definition of
whether we are giving people a fighting chance is whether middle-class
income is rising or falling. Now we are in a period where it is falling
and we find ourselves in the position of producing the same domestic
product we were producing before this recession with 14 million more
people unemployed.
The economists tell us we have recovered, that we are in a recovery.
The technical definition is that we are in a recovery because the
technical definition is based on whether GDP is growing. That is a very
cruel definition of recovery for the 14 million people who are
unemployed. It is a very cruel definition of recovery for a middle
class that is getting wiped out because median family income is
falling.
Look, the people who live in Colorado, notwithstanding all of this,
are optimistic. They are optimistic about their communities and they
are optimistic about their families. It gets tougher and tougher, but
they rise to the occasion. And you know what. That is what they are
asking us to do. They are asking us to knock off the political games
that seem to be only about Washington and seem to have nothing to do
with the challenges they face.
Today was a good day here. I was pleased. It has been a long time. I
was pleased to join my senior Senator and about 30 other Democrats and
Republicans at an event to say it is time for us to think big about
solving this country's fiscal challenges and that we are anxious to
work together to do it. We are anxious to create a comprehensive plan
to deal with it. We should be taking exactly the same approach on jobs.
Getting our fiscal house in order is incredibly important to
encourage and inspire confidence in our markets and confidence in our
businesses and confidence in our local economies. But our work won't
stop there. We need to reinvent our Tax Code so it is driving
innovation and driving a rising middle class. We need to reimagine our
regulatory code so it is doing the same. We need to educate the
children in this country so they can take on the jobs of the 21st
century, because the jobs of the 20th century are not coming back. We
will be waiting in vain for those jobs to come back.
The people in my meetings back in Colorado are demanding--that is the
right way to say it, they are demanding--we work together. Our State is
a third Republican, a third Independent, and a third Democrat, but they
are Coloradans before any of that, and they are Americans maybe even
before that, and it is time for us to meet their standard.
Tonight we had votes on the reauthorization of FEMA--our emergency
agency--to respond to the incredible tragedies that have happened
around the country. It got 62 votes and we were able to pass it. We had
a vote on the transportation extension, the FAA reauthorization, and I
think the vote was 92 to 6, with Democrats and Republicans moving this
country forward. That is what we have to do in order to get this
economy going again. The people in Colorado today are saying: We want
more of that and less of the bickering, more problem solving and less
finger pointing. My hope is that on an occasion such as today, when we
actually have made some progress, no matter how limited, it may give us
the chance to move forward together.
Mr. President, I appreciate the Chair's endurance and allowing me to
speak on the floor tonight.
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