Sun, Jan 18, 2015 - Page 9 News List

Looking overseas for solutions to the great wage slowdown

The ability, or lack thereof, of free-market democracies to achieve widely increased prosperity is an economic problem that is threatening political systems and democracy itself

By David Leonhardt  /  NY Times News Service

Illustration: Lance Liu

After almost 15 years of a disappointing US economy, it is easy to get pessimistic. Incomes for the middle class and poor have now been stagnating over a two-term Republican presidency and well into a two-term Democratic one. The great wage slowdown of the 21st century has frustrated Americans, polls show, and raised serious questions about what kind of policies, if any, might change the situation.

Yet, if you look around the world, you can find reasons for hope.

While wages and incomes have stagnated in the US (as well as in Japan and large parts of Europe), they have not done so everywhere. In Canada, a broad measure of incomes has risen about 10 percent since 2000, even as it has fallen in the US. In Australia, it is up 30 percent.

These are not just any nations, either. They are among those most similar to the US: far-flung, once ruled by Britain, with a frontier culture and a commitment to capitalism. Although Australia and Canada are not identical to the US, it seems worth asking what they are doing differently.

On Thursday, an all-star commission of economists and policy experts from several nations published a detailed analysis of the great wage slowdown. It is a defining challenge of our time, the report said, before offering a meaty list of possible solutions.

“Today, the ability of free-market democracies to deliver widely shared increases in prosperity is in question as never before,” wrote the group, which includes Rockefeller Foundation president Judith Rodin; economist Lawrence Summers; and leaders from Britain, Canada and Sweden. “This is an economic problem that threatens to become a problem for the political systems of these nations — and for the idea of democracy itself.”

In a clear reference to China, the report said that “apologists for anti-democratic regimes” have used the stagnation of living standards in the West as a cudgel to argue that capitalist democracies are broken. Those democracies and China are racing for influence across much of the world, especially in Africa and Asia.

The report is meant to shape the political debate — both in this year’s British general election and next year’s US presidential campaign. Democrats and Republicans have signaled that the wage slowdown will be at the center of their campaigns. Former US secretary of state Hillary Rodham Clinton often says: “It feels harder and harder to get ahead,” while Jeb Bush, in a nod to upward mobility, has named his fundraising operation “Right to Rise.”

The report includes ideas that can appeal to conservatives, including more employee ownership and profit-sharing at companies and a more rigorous approach to infrastructure financing. However, it is hard not to see the report partly as the first draft of an agenda for a presumptive campaign by Clinton.

The commission was created by the Center for American Progress, a Washington research group founded by Clinton allies as a counterweight to influential conservative groups. The report also avoids some topics that make many progressives uncomfortable (public-school accountability and the decline of two-parent families).

Politics aside, it is a deeply serious document — one of the best overviews of income stagnation and inequality that I have read. Its central message is that the great wage slowdown is not inevitable. Yes, some unstoppable economic forces, namely technological change and globalization, have played a role. However, those forces have also brought great benefits to billions of people, and some high-income nations have done a better job capturing the benefits of the modern economy while avoiding its downsides.

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