JP Floru: Ed Miliband prescribes more socialism to cure the squeezed middle

By JP Floru

“More of the same”, was Ed Miliband’s remedy to tackle the growing income inequality which has befallen the “squeezed middle”.  In his keynote speech to the Resolution Foundation this morning he robustly defended  tax credits, benefits, the minimum wage, and continentally-inspired business models.  Some people never learn.

According to the Resolution Foundation low-to-middle earners’ share of household income has been falling since 1977.  The squeezed middle are typically those who earn just too much to enjoy benefits.   They amount to 11 million adults in 6 million household – or 1/3 of the working population.  As a category they are often ignored: where the poor and the middle classes have always found a voice, the squeezed middle have not.   Electorally, they are pretty vital to any party wanting to gain a majority.

The central assertion – that for this group the household income went down as a percentage of the whole for the UK – shows us where the wind is coming from.  That poverty is relative and not absolute is the cornerstone of contemporary left wing thinking.  Through the left’s glasses,  John is poorer because Mark is getting richer faster, not because John can’t afford food anymore.  This translates in a contemporary fashion for income and health inequality.

Be it as it may, there is ample evidence to show that this group is indeed not doing very well.  It typically takes them 23 years to save for a house deposit, as compared to 7 years in 1977.  And house ownership is going down fast.

The spokesmen of the Resolution Foundation emphasised the independent nature of its research.   It is headed by Gavin Kelly, who was Downing Street's Deputy Chief of Staff between 2007 – 2010.  Also neither  the members of the Resolution Foundation’s commission on Living Standards, nor the organisations supporting its work, strike me as centre right in any form or format (though I may have missed one or two).  But let’s not quibble:  the Commission’s work over the next 14 months will be in the limelight and we have to keep an eye on it.

Red Ed offered more socialism to help the squeezed middle, oblivious to the fact that socialism is probably the cause of the squeeze.  A robust attack on cuts  and a defence of benefits, state jobs and continental-style business models showed him true to form.  He adroitly evaded the implication of tax rises under a future Labour government. 

The decreased share of wages of the squeezed middle is perfectly explainable by free market forces.  An increase of the total labour force by increased female participation and mass migration offers an incomplete explanation as countries which do better saw similar social change.  The more satisfying explanation is that our overburdened production model  can simply not compete with the developing world.   The Resolution Foundation denied this on the basis that most jobs of the squeezed middle have no international aspect (hotels, bars, health and education,...).   It did not occur to the Foundation that international competition in any one activity will permeate throughout society.   

The West’s most effective export products has been jobs for quite a while, and the squeezed middle are evidence of that fact.  To keep the low paid jobs in existence in this country, wages go down.  Those in highly specialised and therefore highly paid jobs will see less competition from the developing world.

Making higher earners pay more will not do the job – they will simply flee, taking jobs, wealth and business with them.    The answer lays in making the pie grow for all by becoming competitive again.