Is neoliberalism really making us poorer?

Ben Page shared a chart this week linking stagnant UK incomes to the pressure on "neoliberalism". I took up the challenge and looked at twelve rich countries.

The US and the UK are both usually labelled "neoliberal". Yet between 2007 and 2024, real disposable income per person rose 31% in the US and 10% in the UK.

Here is the full comparison (OECD, Chart 1):

- US +31%

- Sweden +26%, Denmark +25%, Canada +24%

- Australia +18%, Germany +17%

- France +13%, Netherlands +13%, UK +10%

- Spain +4%, Japan +4%, Italy -7%

The average across the twelve was +15%.

Three conclusions.

1. More market-oriented countries did very slightly better, on average

There is no agreed measure of "neoliberalism", so I used the Fraser Institute's economic freedom index as a broad proxy. Countries with higher scores in 2007 generally saw very slightly stronger income growth afterwards (Chart 2).

This does not prove that markets caused the growth. But "more markets, less prosperity" does not fit these countries.

2. Bigger government did not mean bigger gains

Denmark and Sweden have very large governments. Household incomes grew by about 25%. Not bad.

High-spending France managed 13%, about half as much (Chart 3). Among countries with smaller states, the US gained 31% and Japan 4%.

Government size alone is a poor guide. We need to look at what the spending delivers, including public services this income measure does not capture.

3. Productivity growth is what matters

I found that the best predictor of income growth is productivity growth. Stronger productivity growth generally goes with stronger household income growth (Chart 4). The US leads this group on both measures. Italy comes last. That being said productivity gains do not reach households automatically or equally.

Britain suffered a particularly sharp productivity slowdown after 2008, with weak investment a major reason. Austerity and Brexit made the problem worse.

And of course these are only averages. They do not tell us how much the typical household gained. A country can get richer while towns lose their employers and younger people are priced out of a home. America's stronger income growth has coexisted with a powerful populist backlash.

My conclusion:

Failures of financial regulation helped produce the crisis. Badly timed austerity held back recovery. For sure, those failures deserve criticism. But they do not establish that markets, trade and competition are the problem. We need public policies that favor the investments that bring productivity growth.

Let's judge policies one at a time. "Neoliberalism" is too broad a word to carry the blame, and at the same time too broad to be the solution.

Analysis: NeuronVentures