Seven years have passed since the great financial crisis began in early 2007, and that was merely the opening of a profound economic crisis that is not over.
This meeting is of great importance because it is a serious effort by one of the key international institutions charged with preventing just this type of crisis, the OECD, and one of the world’s great philanthropic institutions, the Ford Foundation—to meet the intellectual challenge posed by this crisis to the conventional economic wisdom of the past 30 years -- what Pope Francis calls “the sacrilized workings of the prevailing economic system.”
So I want to commend Angel Gurria for his leadership, and Darren Walker for his willingness to join in this effort. But then I want to challenge you to go deeper.
Because it is easy to have a conversation about inclusive growth that presumes our basic pre-crisis ideas about how the world economy works still are valid, but we just need to be a bit more humane about the way they are implemented. This approach treats the crisis we are still living through as something that just happened, like a meteor hitting earth.
The reality is that the crisis was the logical consequence of the key economic ideas of the past several decades. The idea that inequality promotes growth. The idea that deregulated financial markets both created value and had no effect on macroeconomic stability. The idea that destroying workers’ rights and bargaining power improves labor markets. The idea that national economies are somehow decoupled from each other, instead of being mutually interdependent. The idea that equality of opportunity can coexist with radical inequality of wealth and income, as if the child of a Walmart worker and a Walmart family heir have an equal chance to go to Harvard.
Where did these ideas lead? Even before the crisis, aggregate positive national growth numbers disguised a reality of falling incomes for a majority of the population—and nowhere more so than in the United States, the epicenter of the crisis.
In the United States, between 1997 and 2008, before the crisis hit the labor markets, all the income gains in our economy went to the top 10% of households. Not some, not a lot—all. The wages of the lower 90% of the workforce fell.
This is the result of a generation of policies that destroyed workers’ bargaining power, and so dramatically increased inequality. The harm that was done is not incidental. These policies harmed the vast majority of our population.
And it should be no surprise to anyone that the imposition of these same ideas post-2008 in Greece and Spain and Ireland have produced the same horrifying results.
In contrast, Germany, with strong labor market institutions, weathered the economic crisis with modest unemployment, and Brazil, which pursued policies designed to strengthen labor market institutions, reduced poverty and inequality during the same period. And even China, which has perhaps the world’s highest level of inequality, responded to the economic crisis with massive public works, and largely avoided the prolonged mass unemployment the U.S. has suffered.
Of course, Germany and China at the same time have contributed significantly to overall global economic stagnation through their reliance on export-led growth and the impact of that strategy on the larger global economic environment.
It’s clear that rethinking our ideas about the relationship between growth and inequality is no small matter. This rethinking must be at the center of policymaking and economic thinking, not an exercise on the margins.
And this rethinking is a huge political challenge, too. Because the reality is that inequality feeds on itself. Once a society reaches a certain level of inequality, the winners can rig the rules for the next round of the game. The tax laws, the labor laws, the banking laws and, most importantly, the laws of the political process itself.
But—as all of you here clearly recognize—the challenge of inclusive growth is a global challenge. I am here with you in my role as both president of the AFL-CIO and president of the Trade Union Advisory Committee to the OECD, representing all the unions of the OECD countries. In that role I am acutely aware that the OECD countries do not make up the world. Policies that promote inclusive growth must include the developing world as well as the big emerging market countries and the developed world, and they must address new threats such as climate change as well as age-old challenges of economic justice.
So what would a comprehensive global approach to inclusive growth look like?
It would have three pillars. Investment. Jobs. Incomes.
Investment. Billions of people in the developing world are unconnected from the formal, regulated economy and live without the basics of modern life. This is a problem fundamentally of inadequate public investment and inadequate labor standards, and the consequences are both blighted lives and inadequate global demand. In the developed world, there is a similar problem of an aging and technologically outdated infrastructure that is leading to the erosion of the foundations of broad-based prosperity in many developed countries, and threatening our ability as a planet to stop climate change. Investing in public infrastructure is a way of creating livable cities, instead of massive slums, and would have the added benefit of creating jobs. Here in New York, and in Los Angeles and Chicago, and in other great American cities, the labor movement is working with the business community and with community groups to forward this investment agenda city by city. But we need national and international policy support.
Jobs. There will never be inclusive growth as long as we treat unemployment as a distasteful afterthought, not to be mentioned in polite company. Ending mass unemployment is now, as it was in the Great Depression, the prerequisite for healthy economies and healthy societies. Because there will never be income growth as long as we have mass unemployment.
Incomes. But even with a massive jobs program, growth will not be inclusive growth so long as the global economy has no meaningful labor standards and workers lack bargaining power. The lack of workers’ bargaining power in both developed and developing countries has been a key driver of major global imbalances, and income stagnation and even decline in many countries.
But inclusive growth should have something more—a social and moral dimension that speaks to indefensible practices like mass incarceration and the consignment of immigrants to second-class status in many of the world’s economies.
In the end, any effort to put the global economy on the right track must deal with each of these issues, and must do so consistently. It is not possible to have inclusive growth while pursuing austerity policies or attacking workers’ bargaining rights in the name of “flexibility” At a time when demand is greatly depressed and unemployment levels are at new highs, labor market deregulation simply condemns many more workers to join the ranks of the unemployed.
Consistency and seriousness about inclusive growth will not be easy. Turning away from what Pope Francis calls “the economy of exclusion and inequality” will mean challenging the political economy of concentrated wealth. But there is no other path to prosperity than shared prosperity.
Thank you.