Why it pays to invest in a more inclusive U.S. economy

Last summer I came back to the United States after spending 20 years living and working in Europe.

Much of what I found upon my return was impressive. I came home to a country with a vibrant economy, strong financial markets and globally dominant companies in everything from finance to technology. 

I also saw things that disturbed me. The social challenges our country faces hit me in much the same way the fresh eyes of a tourist perceive the unfamiliar.

Capitalism with globalization is the best way to build an economy that produces growth and wealth for all. Since the Industrial Revolution took hold, economic growth has decreased inequality, but that trend has stalled or even reversed in the developed world since the 1980s, which has spurred a populist backlash.

New York, for example, is a city with untold wealth as well as tremendous poverty. The income inequality gap widened while I was away. And there are too many examples of people falling behind and losing out on opportunities to participate in America’s success.

Growth without inclusion will continue to foster populist movements that risk curtailing development, which will make everyone less prosperous, but hit the poor the hardest as they are the least able to absorb the losses.

More than 200,000 Americans have died this year, with the burden falling heavily on our most vulnerable populations, who were more likely to bear the risks of going to work and less likely to have health insurance. Those same communities were also handicapped by a lack of access to digital technology. A recent report published by our research team discovered that fewer Blacks and Hispanics own computers than their White counterparts and fewer have access to broadband. In fact, minorities are 10 years behind when it comes to broadband, an alarming statistic.

During the pandemic, those shortfalls have made it harder for the disadvantaged to work from home. In the long run, it will limit their chances to thrive in an economy where technical skills are critical. 

Then there is education. All children suffer when classrooms are shut down. But lower income children, who were already behind, have fallen further back because they may lack the help from parents and tutors that their more affluent classmates enjoyed. 

There is no simple explanation for the large and growing gaps between the winners and losers in our society. There is, however, a common thread that ties them together: the uniquely American belief in the power of the individual to solve all problems. That belief explains much of the country’s success, especially the risk-taking, entrepreneurial spirit that has made this economy the envy of the world. Unfortunately, that same faith in self-reliance can get in the way it comes to offering help to people who, for a variety of reasons, need assistance to reach their goals.

On that front, Europe may have something to teach us. Before I explain what I mean by that, let me make it clear what I don’t mean. In no way am I suggesting that America should use Europe as an economic role model. I spent enough time there to see the shortcomings of systems that have too often produced slow-growing economies that were overburdened with regulation and lack the dynamism needed to compete in cutting-edge industries. Europeans, in fact, could learn something by watching the resilience and flexibility that U.S. businesses have displayed during the pandemic, especially their rapid adoption of digitization.

But in one area – creating more inclusive growth – the European experience is instructive. According to the Pew Research Center, all the European members of the G-7 look better on a key measure of income inequality than the United States. Their health systems also provide near universal coverage.

The emphasis on public health certainly helped Germany through Covid. On a per capita basis, Germany has had only about one-fifth as many Covid deaths as the U.S. Many factors, including early and aggressive testing, played a role in that success story. Still it is clear that a robust public health system, universal coverage and a sense that fighting the virus was a shared national experience also contributed to the lower numbers.

Europe, in general, has also done a better job in ensuring that income isn’t a barrier to higher education. A young person’s hopes of receiving higher education depend far less on his or her parents’ income in Europe than it does in America.

In practice, emulating Europe in these areas would mean adding some targeted investments and incentives to bolster technology access, education and health care. Just as there is broad support for investing in physical infrastructure to help the economy, there should be a recognition that investing in social infrastructure can get the same result. I use the word investment because there is good evidence to show that closing the gaps between the haves and have-nots has a measurable payoff.

One of the notable things about capitalism is that when others fail, we are all impacted. When people stop spending, unemployment rises, and when a bail out is required, it affects us all, financially and socially. We are all in this together. Business and society are forever intertwined.

In a 2014 study the OECD found that in a range of countries, including the U.S., rising income inequality contributed to reduced economic output. How? “By undermining education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development,” the report concluded. The net result: lower productivity, lower wages and lower workforce participation.

In some cases the cost of new investments might be less than one would imagine. In the bank’s research paper on the digital racial gap, our analysts estimated that a well-designed five-year effort could provide computers, broadband access and computer training to millions of people for a price-tag of $15 billion. That is not an enormous sum in a $20 trillion economy and there is no reason to assume the money would have to come from the government. The big tech community and non-profits could lead here – it makes commercial sense for them, rather than the government, to do so.

The agenda I am laying out is not a political one and it is certainly not a partisan one. It is a pragmatic one. By creating more opportunity and giving more people the tools they need to contribute to our economy, we will both grow the pie and make sure more Americans get a slice. In the end that should make this country a happier, healthier and more stable place.

My experiences on both sides of the Atlantic have convinced me that the American economic model has enormous strengths. By adding a few ideas from Europe, our economy and our society will be even stronger. In effect, we will have the best of both worlds.