The damage done to the global middle class, while significant, is not irreparable. The solutions are as varied as the countries themselves, but they all share several key features that influence whether a consumer-driven economy will flourish or not.
First and foremost is access to capital for small and medium-sized enterprises. In developed and developing economies alike, funding all but dried up during the economic crisis that began in U.S. and quickly spread around the world. Especially during recessionary periods, start-ups are critical job creators compared to existing firms, which tend to shed employees. During the 1991 and 2002 U.S. recessions, start-ups added nearly 3 million new jobs, while established firms laid off 4 million to 5 million people, according to a Kaufmann Foundation report.
Misguided government regulations have also been thwarting the return of the middle class. Breaking up the excessive influence of conglomerates in emerging economies is another way to create room for the middle class, but doing so often proves to be difficult and controversial. Policymakers, no matter where they are, need to shift their fixation from top-line statistics like GDP growth, which can obscure wealth-gap and purchasing-power problems, and focus more on the health and size of their middle class. Until the world’s middle class recovers, there will be no global recovery.
Full article is available on the World Politics Review website.
Photo: President Barack Obama signs the Middle Class Tax Relief and Job Creation Act of 2012 in the Oval Office, Feb. 22, 2012 (White House photo by Pete Souza).