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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I worked as a teacher – so I can tell you how regressive grammar schools are

The grammars and "comprehensives" of Kent make for an unequal system. So why does Theresa May consider the county a model for the future?

In 1959 my parents moved me from a Roman Catholic primary school to the junior branch of King Henry VIII, Coventry’s most high-profile grammar. The head teacher berated my mother for betraying the one true faith, but although she was born in Galway, my mum was as relaxed about her religion as she was about her native roots. Any strong feelings about the English Reformation had disappeared around the same time as her Irish accent. Her voice gave no clue to where she was from and – as a result of a wartime commission – the same was true of my father. Together, Mrs and Mr Smith embodied postwar Britain’s first-generation upwardly mobile middle class.

Their aspiration and ambition were so strong that my mother saw no problem in paying for me to attend a Protestant school. Why, you may ask, did my dad, a middle manager and by no means well off, agree to pay the fees? Quite simply, my parents were keen that I pass the eleven-plus.

King Henry VIII School benefited from the direct grant scheme, introduced after the Education Act 1944. In Coventry, the two direct grant schools were centuries old and were paid a fee by the government to educate the fifth or so of boys who passed the eleven-plus. When secondary education in Coventry became comprehensive in the mid-1970s, King Henry VIII went fully independent; today, it charges fees of more than £10,000 per year.

A few years ago, I returned to my old school for a memorial service. As I left, I saw a small group of smartly dressed men in their late seventies. They had strong Coventry accents and intended to “go down the club” after the service. It occurred to me that they represented the small number of working-class lads who, in the years immediately after the Second World War, were lucky enough to pass the eleven-plus and (no doubt with their parents making huge sacrifices) attend “the grammar”. But by the time I moved up to King Henry VIII’s senior school in 1963 there appeared to be no one in my A-stream class from a working-class background.

From the early 1950s, many of the newly affluent middle classes used their financial power to give their children an advantage in terms of selection. My parents paid for a privileged education that placed top importance on preparation for the eleven-plus. In my class, only one boy failed the life-determining test. Today, no less than 13 per cent of entrants to the 163 grammar schools still in the state system are privately educated. No wonder preparatory schools have responded enthusiastically to Theresa May’s plans to reverse the educational orthodoxy of the past five decades.

Nowhere has the rebranding of secondary moderns as “comprehensives” been more shameless than in Kent, where the Conservative-controlled council has zealously protected educational selection. Each secondary modern in east Kent, where I taught in the 1970s, has since been named and renamed in a fruitless attempt to convince students that failing to secure a place at grammar school makes no difference to their educational experience and prospects. That is a hard message to sell to the two-thirds of ten-year-olds who fail the Kent test.

Investment and academy status have transformed the teaching environment, which a generation ago was disgraceful (I recall the lower school of a secondary modern in Canterbury as almost literally Edwardian). Ofsted inspections confirm that teachers in non-grammar schools do an amazing job, against all the odds. Nevertheless, selection reinforces social deprivation and limited aspiration in the poorest parts of the south-east of England, notably Thanet and the north Kent coastline.

A third of children in Thanet live in poverty. According to local sources (including a cross-party report of Kent councillors in 2014), disadvantaged children make up less than 9 per cent of pupils in grammar schools but 30 per cent at secondary moderns. University admissions tutors confirm the low number of applications from areas such as Thanet relative to the UK average. Though many of Kent’s secondary moderns exceed expectations, the county has the most underperforming schools in the UK.

When I began my teaching career, I was appallingly ignorant of the harsh realities of a secondary education for children who are told at the age of 11 that they are failures. Spending the years from seven to 17 at King Henry VIII School had cocooned me. More than 40 years later, I can see how little has changed in Kent – and yet, perversely, the Prime Minister perceives the county’s education system as a model for the future.

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times