Miliband, Obama & "middle-out economics"

The Labour leader follows the President in growing the economy from the middle classes.

Yesterday, Ed Miliband laid out his cards on his economic vision. He argued that to get to the kind of strong and steady economic growth that will lower unemployment and support deficit reduction: “the starting point is that the recovery will be made by the many not just by a few at the top,” he said.

One reading of this speech is that he is talking about economic growth only to cover for a concern over fairness. Thus, the mansion tax can be interpreted as a way to make sure that the rich pay their fair share, but this really may have nothing to do with growth. But, another reading of the speech is that he — like President Obama — is pushing for a debate about economics that is based on facts, not fiction. Middle out economics or an economics that begins with the many, not the few may sound like good old-fashioned political pandering, but, in fact, there is solid economic evidence for this perspective.

Both Miliband and Obama are pushing against a story of what makes the economy grow that goes like this: Cut taxes or reduce “red tape” or regulation on those who are the “job creators” and they will invest more and hire more employees and the economy will grow. For decades, this trickle-down logic has been an unvarying constant in the political discourse in both the US and the UK. Yet, this model has failed both nations repeatedly and most colossally over the past few years of deep recession and sputtering recovery.

It’s not just that the trickle-down model isn’t fair and that progressive leaders don’t like the idea of giving tax cuts to millionaires while too many struggle to make ends meet, although that may be true. The deeper problem is that this model isn’t consistent with the evidence on what makes an economy grow.

If you ask any group of economists - left, right, center - what drives economic growth, they will give you a list of ideas that will fall into a few categories: the level of demand for goods and services, the skills and educational level of the potential workforce, the quality of the infrastructure, the potential for innovators to bring ideas to market, the quality of governance in both public and private institutions, and access to financial capital, including access to debt and savings.

That’s a long and complex list. The trickle-down story certainly plays a role in how much individuals can save — higher taxes means less savings. But, that’s clearly only one small piece of the puzzle. And, it’s a piece that may stand in opposition to the others: cutting taxes for millionaires may give them each a little more money to invest, but that means less money for schools to educate the next generation of employees, less investments in updated infrastructure that will improve the productivity of private investment, or less funding to support innovation.

The fact is that it is the business owners job to always focus on the bottom line. It’s their job to boost their productivity or sales to add profits to their bottom line. A tax cut helps them do that in the short-run. But, even the best businesses cannot on their own address the gaps in educational attainment, make sure that high finance doesn’t become too big to fail, or address climate change.

Focusing on growing the economy from the middle out is a better reflection of what economists know about what makes an economy grow and thrive. Over the past couple of years, my colleagues and I have been sifting through economics papers and talking to leading economists around the world about this question. We have found that there is a growing body of research pointing to the conclusion that high inequality hinders economic growth and stability through a variety of mechanisms. While there isn’t one perfect, econometrically unimpeachable paper that proves that the economy grows from the middle out, there’s a lot out of research out there - from top tier institutions - pointing to the conclusion that the strength and size of the middle has a strong effect on the all the key factors that propel the economy forward.

For both Britain and the US, the best bet for the economy is on the middle. Both nations have won before on building an economy from the middle out and by developing and investing in the skills and infrastructure necessary to support broad-based growth. That's the winning hand.

Photograph: Getty Images

Heather Boushey is a Visiting Fellow at IPPR and senior economist at the Centre for American Progress in Washington DC

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Michael Gove's quiet revolution could transform prisoner education

To anyone with a passing interest in prisoner education it is clear that current levels of education and training are simply inadequate.

Justice Secretary Michael Gove is quietly embarking on the most substantive prison education reform programme for a generation. In September, Gove announced that Dame Sally Coates would chair a review of the provision and quality of education in prisons, the results of which are expected shortly.

To anyone with a passing interest in prisoner education it is clear that current levels of education and training are simply inadequate. In 2014, Ofsted reported that education levels across the British prison system were inadequate, suggesting that “very few prisoners are getting the opportunity to develop the skills and behaviours they need for work.” Between 2011/12 and 2013/14 the number of prisoners achieving a level 1 or 2 qualification in Mathematics fell by a third, and since 2010 the number of prisoners studying for an Open University degree has dropped by 37%.

In light of these damning statistics, Gove’s calls for prisons to become “places of education” is to be welcomed. The most obvious result of improved opportunities for training and education is that upon leaving prison offenders will be more likely to secure employment and less likely to reoffend. Less tangible, but no less important, limited opportunities for education hinder aspiration and prevent the justice system from acting as a conduit to improving society at large. Too often offenders are unable to develop their potential as citizens and contribute accordingly. Education is a powerful force in building offenders’ confidence and helping to engage with their communities upon release: helping to break the cycle of offending.

In tandem with enhanced opportunities for education, skills and training, Gove has promised greater autonomy for prison governors. Currently, the Skills Funding Agency manages the Offenders’ Learning and Skills Service (OLASS) to connect offender education with mainstream provision. Speaking before the APPG on Penal Affairs, Dame Sally suggested that “many governors feel very frustrated by their lack of ability to have any say in the education delivered.  If we want the governors to be accountable, they have to have the autonomy to contract for this for themselves, or employ their own teaching staff.”

The principle of increased flexibility is a good one. A significant minority of prisoners already have qualifications and require opportunity to build upon them. The education pathways available to them will be quite different to those offenders who enter prison with limited numeracy and literacy skills. However, the high-profile failure of private suppliers to deliver even the most basic services, raises questions as to whether major outsourcing firms will be able to provide these.

In 2014, A4E prematurely pulled out of a £17m contract to deliver education and training to prisoners in 12 London prisons on the grounds that it was unable to run the contract at a profit. This was not the first time that A4E had prematurely terminated a prison education contract. In 2008 the firm ended a similar contract to provide education in eight Kent prisons, again citing huge losses.

Recognising such failures, the Prime Minister has argued that his government’s reform program would “allow new providers and new ideas to flourish”, but the steps to achieving this are unclear. Identifying the difficulty smaller providers – particularly those from the third sector – currently have in winning and delivering contracts is a far easier task than redesigning the contracting system to improve their chances.

There are three steps that could act as a starting point. First, a review of commissioning to ensure a plurality of providers, particularly from small and medium-sized organisations should be considered, with payments-by-results the favoured means of remuneration. Second, providers and experts should be empowered to contribute to the reform process that follows the Coates Review’s publication. Third, it is clear that while a universal standard of education must be set, providers and governors should be empowered to experiment and innovate to seek results above this. In sacrificing universality it may be possible to improve methods and achieve better results in future.

Reforming the prison system is not a task that will be easy, nor one that will be quick. To ensure its long-term success it is vital that education and skills providers’ voices are heard and that the government develops forums through which ideas can be shared. For too long talent, resources and time have been wasted through mismanagement and poor provision. Now is the time to reverse this and ensure that the justice system delivers rehabilitation and improved educational outcomes.