On March 31st last year, Joe Bidden made a landmark speech to a group of Trades Unionists in Pittsburgh.
While little remarked upon in the UK, in the course of the speech Biden tore up 40 years of US economic orthodoxy and set his Nation against ‘Trickle Down’ economics. Ever since Reagan, US administrations have believed that the path to prosperity lies in promoting the interests of corporations and the very rich. The theory being that the wealth these groups created would find its way down through the entire economy.
In the UK we have a less enthusiastic relationship with ‘Trickle Down’, indeed our most recent experience was the short-lived Truss Premiership which attempted to use borrowing to fund tax cuts for the well off, among other market petrifying initiatives.
Truss’ failure underscored the fact that ‘Trickle Down’ theory has never worked in practice and that according to research by the London School of Economics the impact of tax cuts on growth over the last 50 years has been “statistically indistinguishable from zero”.
Instead, what Biden proposed was the wholesale adoption of ‘Middle Out’ economics. And what makes this relevant to us in the UK is the curiosity for the idea amongst many in the Labour Party. A group of people almost certain to be running the country within the next two years.
So, if you don’t understand ‘Middle Out’ economics and its implications for the marketing world, its time you did.
‘Middle Out’ is the brainchild of Eric Liu and Nick Hanauer who coined the phrase in their 2010 book ‘The Gardens of Democracy’. They proposed that the middle class and not the rich are the engines of wealth and job creation. And therefore, a thriving middle class is a pre-requisite for growth, not the result of it. This is because only the middle class can create the scale of aggregate demand necessary to drive the economy forward.
In other words, to create prosperity, you need lots of people with a bit of money and not a tiny amount of people with all the money. This will instinctively make sense to any marketer weaned on the Ehrenberg Bass mantra that light buyers are key to the fortunes of a brand and not loyalists.
Economics becomes politics at this point because if you believe that the wealth creators in an economy are the middle classes not the rich and that the only way to prosperity is from the middle out, then you need to create policy that helps bolster the buying power and productivity of the middle class – on both the supply and demand side.
And that is precisely what President Biden is doing through a suite of legislation designed to bolster America’s competitiveness, dominate new industries, rebuild the American heartland and put money in the hands of middle America. And he’s not mucking about. He intends on spending well over $2trn over the next decade all to be paid for through taxation, largely by raising corporation tax and preventing federal tax evasion by the big tech companies. Trickle Down has well and truly got its marching orders from Washington. And America has a plan.
Not so the UK. While Sunak’s abandoning of the neoliberal nonsense of Truss was universally welcomed by markets and market traders alike, we still lack a coherent way to get out of the mess we are in. In a desperate attempt to balance the books through public spending cuts and tax rises for the middle class, Sunak has slunk back to the economics of austerity. A sure-fire way to shrink a country from greatness.
Of course, the catastrophe of Brexit has much to do with an economy that, alone amongst major nations, still languishes behind its pre Covid position. But Brexit alone doesn’t explain all our woes. Inside the EU we would still be in the shit, just not quite so badly and quite so voluntarily.
No, the rotten heart of our economy is income inequality, pure and simple. While we have not actively pursued ‘Trickle Down’ except in moments of madness, we have done little to seriously address hoarding of wealth by large corporates and the super wealthy. Wealth that is simply not being recycled through the economy and reaching the people that can do something constructive with it.
As that wealth has been sucked out of the tax paying middle classes into the less enthusiastic super-rich, we have been unable to fund the public services that we all depend upon, the defence that we all crave and the infrastructure that we all use. Not to mention paying and appropriate wage to the people that provide these services. Instead, the Government has committed itself to the soulless business of managing our national decline.
And that’s a massive issue for marketers because it is a fundamental law of capitalism that if working people have no money then businesses have no customers.
But ‘Middle Out’ has the power to offer us all a vision and a little hope. Not least for marketers and business leaders precisely because we depend on the buying power of the middle class. It doesn’t matter who you actually sell to, it’s this ‘Backbone of Britain’ that provides the wealth everyone depends upon – poor and rich alike.
‘Middle Out’ is inherently political, since bolstering the middle is not a neutral endeavour. It will inevitably mean borrowing to invest in new infrastructure, tax advantages for the middle classes and a progressive tax regime for unearned income, stagnant wealth and corporate profits. Not to mention absolute zero tolerance for tax avoidance and evasion. Measures to keep wealth moving through our economy and reduce income inequality.
That’s why marketing can no longer be politically agnostic. We must demand a change in economic approach from managed decline to one that favours real wealth creation. One that ensure many people have a bit of extra money. One that makes sure we have some customers to sell to. Our livelihoods and those of our brands and business depends on this.
So, expect to hear a lot more about ‘Middle Out’ during 2023. Along with White Lotus, it is one of the better ideas to have crossed the Atlantic in recent years.