Rebuilding the Middle Class after COVID

29 October 2021

Virtual address to the Global Progress Conference in Rome




Virtual address to the Global Progress Conference in Rome





In equal measure, this pandemic has revealed the resilience of our communities and the fragility of our economies.

If the former is inspiration, the latter is a reckoning – and one that the Rome G20 and Glasgow climate conference cannot ignore.

As we emerge from this pandemic, we must recognise that we won’t rebuild our economies, repair our budgets, renew our politics or restore trust until, and unless, we rebuild the global middle class. 

That should be our purpose and our priority.

COVID didn’t break our economies, they were already broken.

With nearly five million dead, millions more gravely ill and great global cities brought to a standstill for months on end, these have been trying and traumatic times.

It is understandable that people all over the world are now seeking to shrug-off the rapid and radical change Covid-19 visited on the way we live and work and learn and socialise and shop, in the name of a return to ‘normal’.

But ‘normal’ wasn’t working.

What cannot be cast aside and must not be wished-away, are the hard truths of this moment: Covid didn’t break our economy, it was already broken.

The pandemic just held the fractures, fault lines and missed opportunities of the last decade up to the light.

Among these is the hollowing-out of the middle class caused by the right-wing agenda of wage suppression, insecure work as an ‘efficiency’ of first-resort, the outsourcing of government services and the undermining of organised labour – all in pursuit of any growth at any cost.

This didn’t spring-up with the first Covid case and it won’t be cured by any vaccine.

So, this pandemic must not be a right-wing alibi for years of economic weakness. 

And building back post-Covid cannot mean unthinkingly restoring everything to how it was before, from the top down.

Instead, we need an economic model where growth comes from bottom up and especially the middle-out.

As it stands, the middle class in advanced economies is shrinking, and more people are more vulnerable.

But a closer look at the global data shows that Covid was merely an accelerator of this long and already-damaging trend.

Forty years of trickle-down economics has inflicted far more devastation on the world’s middle class than a two-year pandemic.

A key conclusion from the OECD is that developed economies have been growing while the middle class has been shrinking – from 64 per cent in the mid-1980s to 61 per cent in the mid-2010s.

While the membership base is getting smaller, the wait for entry is getting longer and the demographic is growing older: 70 per cent of baby boomers were middle class in their 20s, but just 60 per cent of millennials.

Australia’s middle class is smaller than the OECD average (58 per cent), and the share has fallen 3.4 percentage points since the 1980s. 

In Sweden the fall has been 7.4 percentage points; in Germany, five; the United States’, 4.3.

Across the OECD middle incomes are barely higher today than a decade ago.

Falling out of the middle class can happen quickly, climbing back in takes a lot longer.  

Harvard research shows it took over 12 months for those in the US earning a middle-class wage to get back to work, after over a fifth of middle-class workers lost their jobs in early 2020. 

If the writing was on the wall, Covid-19 provided a brutal exclamation point.

The global middle class is getting smaller, older, poorer, less mobile, more difficult to get into and harder to stay in. 

This is the broken bargain between leaders and led.

Yet, the link between middle class prosperity and national success is very clear. 

Before Covid, stagnant wages and flatlining living standards were undermining consumption, and investment.

Productivity paralyses were delivering weak and uneven growth. 

Just as the long post-war upswing in strong global growth created and then fed off a strong, vibrant and growing middle class, the tepid growth of more recent times has run parallel to the shrinking of the middle class. 

In Australia, the decline of the middle class has coincided with some of the weakest growth in our history. 

GDP growth over the eight years of the incumbent conservative government is lower than the average GDP growth in every decade since the Great Depression of the 1930s.  

It’s a similar story in other comparable countries like the United States and the United Kingdom.

Amidst all this economic pressure, and all this uncertainty, fear of change and nostalgia for the past are powerful and potent forces. 

In recent times, concern about globalisation has been matched by fear of technological change, social change and necessary steps to combat climate change.

For progressive parties of the centre-left, the task isn’t just to find the right anxiety to feed-off or to rely on nostalgia for past achievements. 

Nor is it enough to fiddle at the edges in the hope of taking some of the sting out of transition.

We owe the people affected more than a commitment to soften the blow.

Our task is to connect more people with more meaningful opportunities, to prepare communities to prosper from economic change and to broaden the pathways out of poverty and into security: with affordable housing, better investments in skills, training and technology and opportunities that are real, rewarding and within reach.

Progressive governments have very full in-trays, so many of the common challenges we face cannot be solved overnight.

Budgets are a mess; the cybersecurity and geo-strategic risks are elevated; climate change demands a greater collective effort; poverty and systemic disadvantage cannot be ignored.

And pressures on the middle class are intensifying.

Since the GFC, asset-holders have raced ahead of wage-earners.

Low interest rates in response to COVID have driven up asset prices at the fastest pace in 30 years.

Meeting cost-of-living pressures for the middle-class now relies more than ever on two incomes, yet the childcare that is supposed to enable both parents to work more and earn more, can end up costing families more than they earn.

This deprives our economy of skilled workers, throws up barriers to the middle class, puts millions of families under constant financial pressure and deprives our youngest citizens of a fair start in life.

On top of this, the middle-class bears the biggest risks, but has the most to gain, from tackling our greatest global challenges.

One of the oldest and most effective tricks of those who deny climate change science has been to present sustainability as a goal at odds with middle-class growth and prosperity.

In fact, modelling from Australia’s biggest employers shows inaction on climate change is a grave risk to living standards.

The middle class stands to benefit most from cleaner and cheaper energy.

Within the OECD, almost half of middle-income workers are in high-skill occupations, compared to one-third two decades ago.

For all these reasons, Australian Labor’s plan for middle Australia focuses on: improving wages, job security and conditions, more affordable childcare, investing in skills and training, cleaner and cheaper energy; and boosting housing supply.

This is a plan to grow the economy by empowering more Australians to join and prosper in the middle class with confidence.

Because we must do better than simply transport people from one kind of vulnerability to another.

Our policies recognise that the most worthwhile way to rebuild our economies and our societies and our politics is to rebuild living standards for a growing middle class.

Without concrete steps like these, the promise of social mobility is just rhetoric. 

In the absence of a plan to grow the middle class, working people are merely shuttled from one kind of vulnerability and insecurity to another. 

Instead of an escalator, it puts people on a hopeless treadmill or a heartless conveyor belt.

Either people work hard and get nowhere, or are merely transported from one place to another without any improvement in their lives.

We can be the parties of the middle class, or parties of opposition.

We can be the global champions of the global middle class, the authors of a new social contract which re-establishes the link between middle class growth and national economic success and repairs the broken bargain between leaders and the people. 

But we can’t do it from opposition.

We know from contemporary experience that at least five conditions need to be met for us to be electorally successful.

One, we need to represent safe change. 

Two, our policies and proposals need to be grounded in real lives and real communities. 

Three, we need to be optimistic and forward looking. 

Four, we need credible leadership. 

And five, we need a compelling story for the middle class. 

This is the course for progressive politics, the way forward to make the next decade a time of stronger, fairer and more inclusive growth.

A middle-class recovery where no-one is held back, and no-one is left behind, as the basis for all else.