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