After almost 15 years of a disappointing economy, it’s 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 United States (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’s fallen here. In Australia, it’s up 30 percent.
These aren’t just any countries, either. They’re among those most similar to the United States: far-flung, once ruled by Britain, with a frontier culture and a commitment to capitalism. Although Australia and Canada are not identical to the United States, it seems worth asking what they’re doing differently.
On Thursday, an all-star commission of economists and policy experts from several countries is publishing a detailed analysis of the great wage slowdown. It is a defining challenge of our time, the report argues, 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,” writes the group, which includes Judith Rodin, president of the Rockefeller Foundation; the 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 notes 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 the 2016 U.S. presidential campaign. Democrats and Republicans have signaled that the wage slowdown will be at the center of their campaigns. Hillary 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. But it’s 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’ve 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. But those forces have also brought great benefits to billions of people. And some high-income countries have done a better job capturing the benefits of the modern economy while avoiding its downsides.
“We should not be fatalistic,” said Neera Tanden, president of the Center for American Progress and a commission member. “There are things we can do. They may be hard things. But there being hard things you can do is very different from there being nothing to do.”
Two protagonists in this optimistic take are Australia and Canada. They too have suffered from slower growth in recent decades, and they too have rising income inequality. But the bottom 90 percent of earners are still faring better than the bottom 90 percent in the United States, the report shows. An analysis last year came to the same conclusion: America’s middle class, long the world’s richest, has fallen behind Canada’s.
What are Canada and Australia doing differently? For starters, a better job with mass education. They have near-universal preschool and do more to get low-income students through college.
“Increasingly,” the report says, “a college education is similar to the high school education of the past — necessary for a prosperous life.”
The efforts to create a more skilled workforce in Canada and Australia (as well as Sweden and some other countries) have led to better jobs — and stronger pretax income growth.
The commission has proposed a list of solutions, touching on many areas I’ve mentioned here. It also proposes a middle-class tax cut and fewer tax breaks for executive compensation.
Whatever you think about any one of these, the crucial point is broader: Middle-class stagnation is not preordained. No country has a magic bullet, but many are doing some things better than the United States — and have results to show for it.
Three years ago, Daron Acemoglu and James A. Robinson, in an important book called “Why Nations Fail,” argued that the defining features of national success were broadly shared prosperity and political participation.
The debate over how, or whether, to help the U.S. middle class and poor has its technocratic aspects, as any policy debate must. Yet ultimately, it’s a debate about the future of America’s global standing.