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How the left can win in the 5-75-20 society

Social democrats must champion the interests of the newly insecure middle class if they are to govern again. 

Social democrats must champion the interests of the newly insecure middle class.
Ed Miliband at the Labour conference in Brighton last year. Photograph: Getty Images.

For decades, social democrats in western Europe conceived their natural constituency as the "blue-collar" working class: the affluent middle class aligned themselves with Conservative parties. In the intervening decades, social and economic change has transformed that world out of existence. Today, lack of aspiration and insecurity are not only afflicting the "left behind". The disease is spreading to the middle class, manifested in declining real incomes. Parents are struggling to reconcile the pressures of earning and caring. Middle class families fear their children will have less opportunity given booming house prices, escalating university costs, and inadequate pensions. The radicalised working-class which propelled "the forward march of labour" has been declining since the 1970s, as Eric Hobsbawm envisaged: social democrats today should be champions of the ‘new insecure’, transcending traditional class divides.   

Yes, the centre-left is weakened as "traditional" working class supporters drift towards populist parties. Anti-immigration, anti-European sentiment should be heard respectfully, but social democrats must not fight on territory they can never win. The dominant trend in the last two decades has been the emergence of a "5-75-20" society. Roughly 5 per cent at the top - professionals working in finance and those who inherit wealth - enjoying "runaway" rewards as asset prices and returns to wealth have soared. Twenty per cent at the "bottom" of society are at risk of permanent marginalisation. The middle 75 per cent are usually in work or have retirement incomes, but are apprehensive: they not only comprise "blue-collar" employees threatened by outsourcing, but middle class professionals who fear their jobs will be next.

It is the "insecure" middle class who will be the historical agent of change in combating the economic and social cleavages of our age. The insecurity which characterises our societies is being accentuated by structural forces and political choices. This is partly to do with globalisation and trade liberalisation. More than 75 per cent of employment in the OECD is in services. Technological change not only threatens the position of low skilled workers, but professionals too, as Professor Anne Wren has shown. In the 1970s and 1980s, "blue-collar" and low-skilled occupations were vulnerable; today middle class jobs are under threat. The ICT revolution means employment in finance, the law, media and business is readily exported.

No wonder an increasing share of GDP is flowing to capital at the expense of labour. Liberalisation puts downward pressure on market incomes. Collective pay bargaining that traditionally protected middle class living standards is disappearing. Inequalities are spiralling: there is a secular decline in the relative status of middle class households. Median incomes in Germany between 2000 and 2010 lagged behind GDP; in Japan, incomes fell by an average of 1 per cent a year; in the UK, long-term income growth has declined to zero. The shift in the distribution of GDP is not cyclical, it is structural. 

In the meantime, taxation systems are less progressive. As Brian Bell and Steve Machin demonstrate, the "cling on" middle class need collectivised social security to be assured of income adequacy, especially in retirement. As the balance of caring and earning is recalibrated, women face spiralling pay inequalities. Families are under pressure as increasing working hours coincide with rising care costs. Women are forced out of employment, or compelled to accept jobs below their labour market potential.

As a new generation of centre-left politicians gathers in Amsterdam at the Progressive Governance Conference, they must be wary of relapsing into what Tony Judt termed ‘defensive’ social democracy. Bending to populist attacks on globalisation and the European Union is futile and self-defeating.     

The strategic goal is to sustain the political coalition in favour of inclusive systems of social security: the left has to reach out to, and embrace, the new middle class in a world where skilled workers in sectors exposed to global competition are less sympathetic to social spending: as Wren points out, they are least likely to support centre-left parties while fewer middle class professionals occupy public sector jobs. The answer is not to reclaim the lost era of post-war collectivism, but to recast centre-left parties. Five concrete steps should be taken. First, reforms are needed to make taxation systems properly progressive. Policy-makers should focus attention on assets and unearned income – including inheritance and property – which are immobile and hard to evade.

Only a revitalised education and skills system will preserve the promise of opportunity for all. Every government pays lip service to the imperative of lifetime learning. A personal account in which individuals invest in their human capital with state support should generate a culture of active learning ‘from cradle to grave’.

Third, asset ownership must be enlarged: widening the base of employee share ownership and profit sharing; expanding the pool of home owners not by reckless lending to vulnerable households, but extending "part rent, part buy" schemes with major capital investment in housing supply; developing an EU-wide "baby bond" – an asset stake for every child through a combination of government contribution and parental saving.  

Fourthly, championing gender equality is critical to rebuilding support for inclusive social spending. Although industrialised countries have witnessed the rapid entry of women into the labour force, it is an "unfinished revolution". Working women are likely to support investment in public goods from universal childcare to shared parental leave. Public services also need to be world-class, improving outcomes for hard-pressed taxpayers.   

Finally, none of these policies are credible without a strategy for wealth creation, generating surpluses for "social investment". Boosting growth requires structural reforms, not short-term fixes. These include improved access to finance for SMEs and mid-caps, promoting high-tech manufacturing through R&D, and strengthening the HE sector’s contribution to technological innovation. The European Infrastructure Bank should modernise the continent’s productive capabilities.     

The wealthy few are enjoying runaway rewards, but the middle class are feeling the sharp edge of insecurity. To help those most in need, including nearly 2 million families in the UK identified by Oxfam as being pushed further into poverty, social democrats should champion the newly insecure. The next centre-left generation have to embrace the "new" middle class if they are to govern again. 

Patrick Diamond is vice chair of Policy Network. The publication “Making Progressive Politics Work” is available at www.policy-network.net