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The demise of the middle classes is toxifying British politics | Larry Elliott – The Guardian


Back when he was leader of the Labour party, Ed Miliband came up with a phrase to describe those who, while not exactly poor, were finding life tougher than it used to be. The “squeezed middle” summed up Britain in the years after the financial crisis: the stagnant wages, the falling living standards, the spending cuts that were starting to bite.

Phrases – even good ones – don’t win elections, and Labour went down to defeat in the 2015 election. But Miliband’s slogan has matured with age and it is now clear that he was ahead of his time. The idea of a squeezed middle certainly resonates in the suburban households that have been feeling the pinch during the long and incomplete recovery from the crash of 2008.

For sure, it sums up what has been going on in Britain’s “flexible” labour market, where the gig economy flourishes. But the hollowing out of the middle is happening in most business sectors, in the housing market and in politics. It is not confined to the UK and the US – it’s happening, albeit at different speeds, just about everywhere in the developed world.

Economies have always had their very rich and their very poor, but traditionally they also had a sizeable and growing middle class, which glued societies together and acted as political ballast. But over the past decade or so real incomes for those in the middle have been stagnant at best. When there has been growth, the higher incomes have gone disproportionately to those at the top.

One of the building blocks in the creation of the middle class was the expansion of university education. Those taking out loans to finance their studies did so in the expectation that there would be a well-paid career at the end of their course. But that part of the social contract is breaking down, with the Office for National Statistics reporting that 34% of those graduating since 2007 were doing jobs for which they were overqualified.

Economic failure has hollowed out the middle of societies, increasing the ranks of the nearly poor. It has also hollowed out the middle of politics, as voters have ceased to believe that the mainstream parties of the centre have the answers. The dire state of the French socialist party is a prime example, with large chunks of what used to be its core vote supporting the hard left or the hard right. Emmanuel Macron makes an interesting case study as virtually the last centrist standing.

Ed Miliband in 2014



Ed Miliband in 2014, when he came up with the phrase ‘squeezed middle’. Photograph: David Gadd/Sportsphoto Ltd/Allstar

There is nothing surprising about the hollowing-out characteristics of markets because, left to their own devices, they work in uncompromising ways. Nor is there anything new at work because just as the rewards from the cotton mills in the early 19th century went to the factory owners, so the fruits from the platform technologies go to those running the mega-businesses of Silicon Valley. Over the last 10 years, the five big tech giants – Apple, Amazon, Google, Facebook and Microsoft – have entrenched market power by making more than 400 global acquisitions. The way to make money if you own a startup is to be bought out. The sector has whales and plankton but little in between.

And we ain’t seen nothing yet. The hollowing out of the middle will enter a new phase with the arrival of artificial intelligence and the age of the robot. That’s not because it is inevitable that AI will lead to fewer jobs or mass unemployment, but rather that it will widen the gap between rich and poor.

As in previous industrial revolutions, the automation process substitutes capital for labour and that means greater efficiency and faster growth. But the gains from higher productivity will go to the owners of capital unless workers are strong enough to resist. In recent years that has not been the case, which is why average earnings have decoupled from per capita growth rates.

What’s more, as the Institute for Public Policy Research thinktank noted recently, many jobs that will be replaced by automation are in low- to middle-skilled occupations involving routine tasks. “This will lead to a further polarisation of employment of the kind that has already occurred over the past 20 years, with a larger proportion of both high-skilled and unskilled jobs, and a hollowing out of those available in the middle.”

But the hollowing-out process is also affecting more traditional sectors. Take supermarkets. The British grocery business is increasingly split between those offering premium food at premium prices and discount retailers offering smaller ranges at low prices. Supermarkets positioned between these poles have found life tough. Sainsbury’s and Asda announced plans to merge last year. The deal would have left Britain with two supermarket chains controlling around 60% of the market, but was blocked on competition grounds. The Competition and Markets Authority’s decision was a bit of a shock, but this is just one way governments can inject fairness into the system.

States have long explicitly sought to break the power of monopoly capitalism through anti-trust legislation, the creation of national champions, taxing the windfall gains of the better off, giving trade unions the right to organise, investing in education and training and encouraging home ownership. The idea was not to destroy capitalism but to save it from itself: through full employment, the expansion of home ownership, and a thriving mixed economy. More middle-class households, a phalanx of middle-sized companies and a sizeable role for the state would generate social harmony and a broadly centrist political culture.

The contrast between that ambition and what has been happening in the past 10 years is too stark to be ignored. In the UK, owner-occupation rates are at their lowest for three decades and a third of those aged 18-34 are living with their parents. A quarter of the people in poverty live in households where at least one person is working. Employment is at record levels but the number of people in low-paid and insecure work has risen.

As usual, bad economics has resulted in bad politics, leading to widespread cynicism, disengagement and anger. All the parties have picked up on this, which is why they talk about helping those who are “just about managing” and crafting policy “for the many not the few”. The challenge is twofold: first to sift through an array of ideas – of which a basic income, a land value tax, higher investment in skills and training, a break up of monopolies and a Green New Deal are examples – into a package of measures to rebuild economic solidarity. Second, to convince the squeezed middle that it is for real.

Larry Elliott is the Guardian’s economics editor



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