There’s growing recognition that CEOs are paid too much, that shareholders are pocketing too large a share of corporate profits, and that high levels of inequality are bad for economic growth. The case for paying workers more keeps getting made — again, and again, and again — and yet the gap between the rich and the rest continues to grow, within countries and companies alike.
Rising income inequality is a feature of most advanced economies, and yet we seem hard-pressed to do anything about it.
Enter a new report from the Center for American Progress, co-led by Larry Summers, the Harvard economist, and Ed Balls, a Member of the British Parliament. Their answer to inequality and stagnant living standards is “inclusive prosperity,” an economic agenda centered around middle-class growth.
I asked Summers about his proposals, and business’s role in implementing them. A condensed and edited version of our conversation follows.
What is inclusive prosperity and why should executives and business owners care about it?
Inclusive prosperity refers to the idea that growth — growth that is inclusive, that benefits the middle class — is essential if nations are going to flourish.
Without middle class growth, institutions lose legitimacy. The American example is degraded. The ground is fertile for populist revolt. The debt becomes much more difficult to manage and cynicism corrodes the functioning of the society.
I think it is a lesson of history that businesses succeed or fail with nations. It is very difficult for any company to be highly successful based in a country whose national economy is stagnating. And it is much easier for businesses to succeed when a society is functioning well.
Can the private sector create a more inclusive economy or is it up to policymakers to solve the problem?
The right public frameworks are in the interest of the majority of businesses that very much want to do the right thing. That means cracking down on tax shelters that give some businesses a competitive advantage. That means strengthening regulation where some businesses are putting competitive pressure on others by skimping on safety, by denying workers basic benefits, or by operating with dangerous degrees of leverage. Support for making certain benefits like family leave universal serves the interests of good employers against ruthless employers who may seek to gain advantage by skimping on basic benefits.
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What about the role of more traditional unionization and collective bargaining?
I think that one has to maintain a sense of balance. Unions are right in some employment contexts. Unions do not add value in other employment contexts.
What I think is important is the principle enshrined in U.S. law that workers should have the right to collectively bargain if that is what they desire. I am concerned that in recent times that right has eroded because employers have been permitted to retaliate against those who seek to organize workers with impunity.
