Phelps believes in John Rawls' difference principle: to be economically just, a system has to allow (all and?) only those inequalities that are in the interest of the least advantaged group of people. It may be that the only way to get good enough brain surgeons is to pay them a lot more than we pay the people whose lives they save, but that will be just because it's good for those who are least well off (such as, maybe, sick people).
Phelps asks which of the two major Western economic systems is just, according to the Difference Principle. The European Model is obviously designed to conform to the Difference Principle. The Anglo-American model obviously is not. The answer will probably surprise you, at least if you haven't read Hayek.