Entrepreneurs Need To Own The Problem Of Middle Class Decline, And We Can Help
It’s all too easy for Americans who have done well to ignore the decline of less educated U.S. workers and their families, commonly called the “middle class”. Long-term neglect has led to a political crisis that weakens the system from which we all benefit. Entrepreneurs, as leaders and business people, need to own this problem. They can do much to reverse it and keep our system strong.
I had breakfast recently with a friend who came to the U.S. early in life, excelled in school, won admission to an “Ivy+” college, married another professional and is now a fund manager. He’s on his way to building wealth and thinking about how to help his children follow in his success. Our conversation flowed towards the irrationality of the anti-global, anti-immigrant sentiment and policies that are taking hold. We both appreciate the value of immigrants to the U.S. and the virtues of a system that allows unusually bright people to rise rapidly.
Real incomes for U.S. families near and below the median have not grown for almost 40 years (see chart above): middle class people have not shared in economic progress. Politicians like Bernie Sanders say that the system is “rigged” against the middle class. The U.S. is now often criticized for low levels of economic mobility. Hearing this, a successful entrepreneur might feel attacked and think something like this. I’ve done nothing wrong. I’ve played by the rules, worked far harder than most clock-punchers, competed intensely ever since I was 12, and had some success. No strings were pulled. The system is not fundamentally rigged; it’s simply demanding. I earned what I have.
And many immigrants still want to come to the U.S. and view it as the land of opportunity. Why? The U.S. has the best university-level education in the world, dominates that tech and biotech industries, hosts the the most important financial hub (post-Brexit) and has the strongest start-up ecosystem. It offers very talented, well-educated immigrants opportunities for training, jobs with employers who recruit aggressively for intellectual talent and a chance at riches. Most other immigrants to the U.S. come from low-income countries, so life at the low end of the U.S. income scale is a trade-up. It’s no surprise that both the poor and the extra-talented want to come.
But that does not equate to opportunity for people below the top income quintile in the U.S. They are often trapped for multiple reasons: they lack the skills to participate in the information economy and are too old to retrain; they live in a place where jobs have vanished; or they do not have the specific gifts prized by the STEM-dominated information economy. Meanwhile, the top 20% are marrying each other, reinforcing their talents, and working hard to prepare their children to achieve and stay at the top, and immigrants from poor countries will work for less. People in the middle have reason to feel trapped and squeezed.
All of us in the entrepreneurial ecosystem should care a great deal about the decline of the middle class. This decline has brought us to a political crisis that is impacting the U.S. and much of Europe. The crisis has created opportunity for a new generation of demagogues to gain power. They promote simplistic ideas that sound good to their base, like attacks on the globalist policies, particularly free trade and immigration. Economists believe that globalist policies have been a key driver of U.S. economic growth. They think that curtailing immigration of skilled people, raising tariffs, taking the U.S. out of NAFTA and Britain and France out of the E.U., etc., will reduce jobs and economic growth. It will create major disruptions for many companies: curtailed access to global markets when countervailing tariffs are put up, higher cost for materials and components, problems hiring for key skills. So all of us stand to lose what we’ve built if the system we depend on is torn down or degraded.
Globalist policies are also important to the security of the U.S. If we isolate ourselves, China will increase its influence regionally and globally, and act in its own interest. The European Union has helped Europe’s tepid economic growth and brought an end to European wars, which was its original purpose. If it shrinks or shatters, U.S. companies will have fewer opportunities to sell to Europe, and the world may become a more dangerous place.
We should also care because we are countrymen and women. For all its foibles, the United States is much greater than the sum of its parts. We benefit from being part of it even if we put more than the average into the pot. So it’s worth lending a helping hand to keep the country strong. And we need our electorate to trust the technocrats to govern in our interest, with the right checks and balances. Our economy is not simple. Ideas that sound good can produce disastrous results. When markets crashed in the 1930s our government made the wrong moves, including a big rise in tariffs, producing a decade of economic and political regression worldwide. When markets crashed in 2008 today’s technocrats made on-balance the right moves, and recovery happened relatively fast. If a large segment of the electorate believes it has been exploited and left behind, this trust will not exist.
And, speaking personally, caring about the fate of the middle class is a matter of decency. I don’t want to live in a country where all of the citizens and legal residents lack access to decent healthcare, decent education, opportunity to earn a living and dignity in the workplace, a safe place to live and a fair chance to compete for the elite roles in society.
I found myself making this argument passionately to my friend. We, the beneficiaries of the U.S. system, native-born or immigrant, own this problem. We’ve known for a long time that the economic system was working well for the elite, but the middle was suffering economic stagnation and despair. We mostly ignored the problem. Even the leaders of the Democratic party, the self-styled party of compassion, failed to win the trust of the distressed middle class.
Entrepreneurs and small business leaders can do a lot to help. We can develop our businesses in ways that create real jobs for our workers and that benefit, rather than suffer, from the rise of robots and artificial intelligence. We can make extra efforts to offer training opportunities to workers whose skills are out of date. We can push back tribalism (us-versus-them mentality) in our companies in multiple ways. We can make extra efforts to hire workers coming out of retraining, much as some companies make extra effort to hire a diverse workforce, by working hard to discover as many good candidates as possible (and not by lowering standards).
And, we can set a personal example: vote, talk to our elected representatives, write, teach our children and avoid cynicism, cheap-shots, and sounds-good proposals. We can take time to listen to the voices of our middle class workers. We can support and work for the candidates we believe in, particularly candidates with skills solving complex problems and working with diverse parties. That’s worked well here in Massachusetts. Finally we must keep firmly in mind that the U.S. is a great country, we need to nurture and improve it, and we have a lot to lose if we fail.
First published @ blogs.forbes.com/toddhixon on April 28, 2017.