Does Our Low-Wage Economy Call for More Government?

How can we get to a Goldilocks wage model—not too high, not too low, but just right?

For much of the 20th century, the United States operated on a social contract premised on high (and steadily rising) wages, generous benefits and relatively expensive goods and services. Over the past few decades, we have transitioned to a social contract based on a stagnant wages, leaner benefits and much cheaper goods and services. Writing in The AtlanticJosh Freedman and Michael Lind of the New America Foundation argue that the low-wage model is working out badly for Americans, but a high-wage model à la Scandinavia is non-transferable. Instead, they suggest, we should embrace a “middle-income social contract.”

To them, this means raising the minimum wage. But this model doesn’t assume a surge in pay. Rather, “it assumes that many service industries won’t be able to offer their workers middle-income salaries, which means that, in addition to raising wages somewhat, the government will have to take a more active role in making essential services like education, child care and health care more affordable,” the authors write. “The best way to do this is to provide these programs directly, such as through universal Pre-K, single-payer health insurance or subsidies to the states for taking care of the elderly.”

Peter Drucker also worried about the many Americans getting left behind in the new economy, particularly formerly well-paid blue-collar workers, whom Drucker called “society’s stepchildren.” But he was profoundly skeptical of government providing services directly, and had been since at least the late 1960s, when he wrote his famous essay, “The Sickness of Government.”

HiResMoney TreeThe social programs of the past 50 years have, by and large, not been successes,” Drucker asserted in his 2002 book Managing in the Next Society. “The needs were certainly there. And so has been the money. . . . But the results have been meager everywhere.”

As for the counterargument that new public-sector programs are necessary because the challenges we face today differ greatly from those of yesterday, Drucker would not have been swayed. “The problems we face in the decades ahead will be even harder than those we now handle so poorly,” he wrote in The Frontiers of Management, published in 1986. “Each of them has powerful constituencies with radically different, indeed mutually exclusive, goals and values, which practically guarantee that government could not succeed in solving them.”

Instead, Drucker looked to nongovernmental institutions—with their ability to focus on a single purpose—to tackle major social challenges. This included not only nonprofits, but also businesses.

Government could set the target (“steering more, rowing less”), but any on-the-ground task would ideally be “performed by nongovernmental institutions, especially business, locally and on a competitive basis,” Drucker wrote. Better still, business would step up on its own, finding ways “to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs and into wealth.”

Do you think Drucker’s resistance to government programs needs to be reconsidered in light of today’s low-wage social contract—or do you still agree with his take?