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Prosperity doesn’t trickle down, it comes from the middle-out (1)

By News Express on 04/12/2017

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Properly understood, the middle-class is the source of all growth and prosperity in a modern technological economy.

But the American middle class is facing an existential crisis. For more than three decades, declining wages, fraying benefits, and rising costs of education, housing, and other essentials have stressed and squeezed middle-class Americans. But by far, the biggest threat to middle-class workers – and to our economy as a whole – comes from the changing nature of employment itself.

Gone is the era of the life-time career, let alone the life-long job and the economic security that came with it. It has been replaced by a new economy intent on recasting full-time employees into contractors, vendors, and temporary workers. It is an economic transformation that promises new efficiencies and greater flexibility for “employers” and “employees” alike, but which threatens to undermine the very foundation upon which middle-class America was built. And if the American middle-class crumbles, so will an American economy that relies on consumer spending for 70 per cent of its activity, and on a diverse and inclusive workforce for 100 per cent of the innovation that drives all future prosperity.

This crisis is not unfolding in a vacuum. For more than 30 years, the Democratic Party has suffered from a crisis of identity, leadership, and vision on issues of political economy that has left it unable to either articulate or defend the true interests of the middle-class. Democrats might tinker around the edges, arguing for more economic justice and fairness, but for the most part they have largely accepted, or at least failed to counter the fictitious trickle-down explanation of what growth is (higher profits), and where it comes from (lower taxes and less regulation). And so, through Republican and Democratic administrations alike, corporate America has seen less regulation, lower taxes, and higher profits, while middle-class America has gotten the shaft.

This acquiescence to the conservative economic narrative has proven to be a political disaster as well. Progressives proudly back economic justice, but economic justice arguments alone are not enough to sway a majority of voters, many of whom value the promise of growth and employment over economic fairness. That is why progressives must reframe the economic debate by replacing the dominant trickle-down narrative with a new and better middle-out explanation of where growth and prosperity really come from: one based on economic inclusion.

In the technological economy of the 21st century, growth and prosperity are the consequences of a virtuous cycle between innovation and demand. Innovation is how we solve problems and raise living standards, while consumer demand is how markets distribute and incentivise innovation. It is social, civic, and economic inclusion – the full, robust participation of as many people as possible – that drives both innovation and demand. And, inclusion requires policies that secure a thriving middle-class.

The trickle-down theory – the one that lionises the rich as “job creators” – insists that the American middle-class is a consequence of growth; and that only if and when we have growth can we afford to include more people in our economy. But trickle-down has it exactly backwards: Properly understood, the middle-class is the source of all growth and prosperity in a modern technological economy, and economic security is the essential feature of what it means to be included in the middle-class.

Economic security is what frees us from the fear that one job loss, one illness – one economic downturn amidst a business cycle guaranteed to produce economic downturns – could cost us our home, our car, our family, and our social status. It’s what grants us permission to invest in ourselves and in our children, and to purchase the non-subsistence goods and experiences that make our lives healthier, happier, and more fulfilling. It gives us the confidence to live our lives with the realistic expectation of a more prosperous and stable economic future, and to take the entrepreneurial risks that are the lifeblood of a vibrant market economy. A secure middle-class is the cause of growth, not its effect; in fact, our economy cannot reach its full potential without it. And, a middle-class that lives in constant fear of falling out of the middle-class isn’t truly middle-class, at all.

From 1950 through 1980, during the heydays of the Great American middle-class, a combination of New Deal programmes, a corporate culture of civic responsibility and a powerful labour movement provided a majority of American workers with health insurance, unemployment insurance, workers’ compensation insurance, pensions, job security, rising wages, overtime pay, paid vacation, paid sick days, a 40-hour workweek, and access to affordable, high-quality education. These are the benefits that provide the economic security of a decent and dignified life that defines what it means to be middle-class, and that led to an unprecedented increase in living standards and economic growth. And under the old economy, they were, and still are, largely provided by one’s employer.

But in transforming the traditional relationship between employer and employee, the new economy is quickly stripping away these benefits. That is why it is essential that we imagine and adopt new policies that guarantee all workers the basic level of economic security necessary to sustain and grow the American middle class, and with it, the economy as a whole. We must acknowledge the radically different needs of a new generation of Americans – many of whom already have more employers in a week than their parents had in a lifetime – by adopting a new “Shared Security System” designed to fit the flexible employment relationships of the “sharing economy.”

Life in the Sharing Economy

Take, for example, an American worker whose story is increasingly typical of this new age. We’ll call her ‘Zoe.’ She is a woman in her late 20s who works part-time in a hotel outside Denver. She’s worked at the front desk for five years, and her supervisor says he’s happy with her performance. But, he never schedules her for more than 29 hours in a single week, so she does not qualify for health insurance or other benefits that full-time workers enjoy. Her annual raises amount to a fraction of a per cent increase to her weekly pay, hardly enough to keep up with inflation.

Between rent, automobile expenses, and buying her own health insurance (now federally subsidised, thanks to Obamacare), Zoe has need to find additional sources of income. She’s always liked gardening, so she started auctioning her services as a landscaper on the popular work-outsourcing site, TaskRabbit. The work was fairly easy and enjoyable – mostly lawn mowing and hedge trimming for elderly home-owners in her neighbourhood – so she quickly abandoned the middle-man and began contracting her services directly to clients. The work takes about 10 hours a week, and she earns an additional $100 or so a week at it, depending on the season.

But those two jobs combined don’t pay enough to keep Zoe in the black. On Friday and Saturday nights, she’ll usually pick up a “shift” working as a driver for the peer-to-peer ride-sharing service UberX. Zoe ferries young people to and from bars across town, responding to calls on the app for four or five hours a night, amounting to another $150 or so a week. Occasionally, on the rare week-day off, she’ll go live on UberX to drive people to and from the airport.

We would be continuing this discourse in the next article.

•Lawrence Chukwuemeka Nwaodu is a small business expert and enterprise consultant, trained in the United Kingdom and the Netherlands, with an MBA in Entrepreneurship from The Management School, University of Liverpool, United Kingdom, and MSc in Finance and Financial Management Services from Rotterdam School of Management, Erasmus University Netherlands. Mr. Nwaodu is the Lead Consultant at IDEAS Exchange Consulting, Lagos. He can be reached via nwaodu.lawrence@hotmail.co.uk (07066375847).

Source News Express

Posted 04/12/2017 8:11:02 PM

 

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