Britain should heed the lessons of the US when understanding what has gone wrong for the 'squeezed middle', argues Harvard research associate Sophia Parker.
For many average households, today’s economic crisis began well before the crash of 2007. As the Resolution Foundation and the TUC have documented, ‘Middle Britain’ – households existing on average incomes – have been losing out since the end of the 1970s. Even as the overall economy grew and productivity rose, households earning less than the median have experienced stagnant wages, reduced job security and declining living standards.
John Healey and Liam Byrne have both argued that the left needs to reach out to this squeezed middle and win back their votes, and last week Ed Miliband made a similar case. But it is not just the Labour party who see this group as integral to their future electoral success. Nick Clegg’s recent visit to the US included a briefing on Joe Biden’s Middle Class Taskforce and there are rumours that he plans to import the idea to the UK.
There are many lessons that the UK probably does not want to learn from America when it comes to questions of inequality and unbalanced growth. On every count, from poverty to wage stagnation to eroded safety nets, the US is doing worse than Britain.
But when it comes to a clear, evidence-based assessment of what has gone wrong for the middle classes, America is some distance ahead of us. And the emerging story is one that UK politicians should listen carefully to.
In broad terms, the story is one of a ‘lost decade‘ for everyday Americans. Global economic changes have served less-skilled workers badly. Automation, outsourcing, immigration and technology have eradicated some jobs, and lowered the wages of others. Policy decisions –the deregulation of the labour market and successive attacks on systems of social insurance in favour of individualised plans, for example – have left poorer workers less likely to achieve economic security.
Progressive thinkers in the US such as Paul Krugman are urging for more and bolder action to rebuild the economy and to address the massive inequalities that were allowed to grow as America moved into the 21st century. Many fear, however, that ‘Obama’s moment’ may have been missed and that the chances of taking the action required to achieve a fair, broad-based prosperity will be stymied by an increasingly partisan and dysfunctional politics on Capitol Hill.
So what should UK progressives take from this unfolding story? First, that we need to sharpen our own account of who the squeezed middle are and what has been happening to them, as part of a wider story about the state of working Britain today.
Second, that however global the changes are that are affecting low paid workers, there is still a central role government, and for social and economic policies that protect against the vagaries of such changes. As Robert Reich’s new book shows, policy and political frameworks to address seemingly insuperable structural changes have made a difference in the past, and will be vital in the future.
Finally, there is a lesson about the goal we should be reaching for. The Labour party must not fall into a trap of thinking the central question is one of deficit reduction vs. growth. The severance of the historic link between productivity and wages in the run up to the 2007 crash should remind us that economic growth alone will not solve the squeezed middle problem.
The focus instead must be on fostering a broad-based prosperity – a prosperity that will provide low and middle income households with the economic security that has been snatched away from them over the last generation.
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