Does Our Low-Wage Economy Call for More Government?

Posted on Dec 20, 2013 | 5 Comments

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?


  1. Mike Grayson
    December 20, 2013

    Businesses hire people with the expectation of profit from their labor at some time in the near or distant future. Their wages are paid paid based on the goods and services sold by the business, not some theoretical “low-wage social contract”. When there is a high demand for goods and services, and scarcity for the skills, then wages go up. When there is an abundance of people with skills, their wages go down.

    When businesses are uncertain about the future they are cautious about growing. The uncertain financial impact of ObamaCare and thousands of new regulations are causing businesses to be cautious and they are slow to hire. The demand for skilled labor is low and the supply is high because of expanded government and policies.

    The last thing we need is more government.

  2. Greg Zerovnik
    December 21, 2013

    There has been a lot of ink generated lately on the “income divide.” Most of it seems intended to send the message that the old “American dream” concept of rising through the social-economic standards no longer works and we need to tax the hell out of the nasty, greedy one-percenters and give that money to the people who don’t any income tax at all.

    Well, I think that’s hogwash. Oprah Winfrey is a perfect example that someone born to poverty can still become a billionaire.

    It’s not politically correct to say this, but if you look at the history of the growing income gap, you will see that it parallels almost exactly the rise in single-parent families. No doubt it’s a lot harder for a single parent to advance than it is for a traditional, two-parent family. The rise of the quickie, no-fault divorce has made some things easier and better, it’s true. But there is also the unintended consequence of decreased SES mobility.

    With many problem “solutions,” the solution often creates new problems. And I don’t think increasing what is already the most highly redistributive income tax system in the developed world is the way to “fix” it.

  3. Alba Patricia Valencia
    December 22, 2013

    Our low-wage economy call for change our political economic system.

  4. Deborah Hagar
    December 23, 2013

    I believe that Peter Drucker is correct. I believe, however, that we need new models of economic prosperity and that the private enterprises are best suited to find models that create both wealth and social benefit.

    I believe the systems that exist are not suited to solving these problems and we need new models and expertise applied to the problems of the 21st century.

    We need the wisdom of Peter Drucker applied to our current reality – his wisdom is timeless.

  5. Natasha
    December 30, 2013

    Some of our biggest social problems stem not from greedy corporations or incompetent governments acting alone, but from the corrupt alliance of corporate money and government power — an undemocratic combination. Transparency with respect to companies’ wage inequality, politicians’ acceptance of corporate donations/kickbacks/incentives, etc. would empower individuals to spend and vote in accordance with their values, and thereby take the teeth out of corrupt institutions, and support social justice and equality. If knowledge of things that matter to us were at our fingertips, we* could make a difference in developing/shaping effective and just institutions.

    * This includes all of us as individuals and participants in various systems such as corporations, governments, civil societies, NGOs, non-profits, social entrepreneurial organizations, etc. It may be helpful for us to deepen our understanding of the roles we adopt both within and outside of various organizational systems.

    In other words, as we consider expanding the roles and responsibilities of various government or private institutions, we ought to understand how individuals behave within them, and structure them so as to bring out the best in each of us. Increasing transparency and accountability would be a good start.

    (More thoughts posted here:


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