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Refitting the West’s Winning Economic Model

To commemorate its founding 25 years ago, PS will be republishing over the coming months a selection of commentaries written since 1994. In the following commentary, Edmund S. Phelps proposes measures to remedy a damaging flaw in the system of competitive capitalism.

NEW YORK – The advantages of the West’s economic system defeated communism in Eastern Europe and set back economic nationalism and populism in much of the Third World. Yet, in the West itself, a flaw in the system has become glaring – and damaging – to all.

The system no longer offers one-fifth or more of its active-age members enough economic opportunity to integrate them into society. In the United Kingdom and United States, pay has fallen too low for the self-support and job stability of low-end workers. In Western Europe and Canada, to varying degrees, such low pay is ruled out by law or wage-setting bodies, but these block low-end workers from jobs. The resulting idleness, deprivation, drugs, and crime pose costs and hazards to everyone.

With damage so widespread, a broad-based political bargain to correct the flaw is now feasible. To conceive the needed package of reforms, though, we must first understand the West’s economic model: how its parts were designed to work and how it can be refitted to regain its capabilities.

25 years of the World's Opinion Page

Project Syndicate celebrates its 25th anniversary with PS 25, a collection of our hardest-hitting commentaries so far.

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Project Syndicate celebrates its 25th anniversary with PS 25, a collection of our hardest-hitting commentaries so far.

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