08 Jan

Toward a new social contract

A new social contract also may need to provide a minimum income for all, but structured in a way that preserves the incentive to work and retrain.

Every society rests on a web of norms, institutions, policies laws, and commitments to those in need. In traditional societies, such obligations are borne mostly by families and kin groups. In advanced economies, there is a greater burden placed on the state and markets (through health insurance and pensions). Yet even in the latter case, much of the social contract is still upheld by families (through unpaid care work), civil society (voluntary and charitable organizations) and employers, who often must provide health insurance or contributions to unemployment insurance.

The social contract is not synonymous with the welfare state. Rather, the welfare state refers to the dimensions of a social contract that are mediated through the political process and subsequent state action, either directly through taxation and public services or indirectly through laws requiring the private sector to provide certain benefits. As such, the welfare state is best understood not as a redistribution mechanism, but as a source of productivity and protection over the course of one’s life cycle. As John Hills of the London School of Economics has shown, most people contribute as much to the state as they receive in return.

Nonetheless, much of the anger that has come to define politics in the developed world is rooted in people’s sense of having not received what they are owed. Those born into disadvantage feel as though they never had a chance. Those living in rural areas believe that policymakers have overwhelmingly favored cities. Native-born populations fear that immigrants are receiving benefits before they have paid their due. Men sense that their historic privileges are eroding. Older people regard the young as ungrateful for past sacrifices, and the young increasingly resent the elderly for straining social-security programs and leaving a legacy of environmental destruction. All of this distrust and animosity is fodder for populists.

So, too, are the effects of technological change and globalization. The integration of global supply chains has delivered huge gains to the middle classes in emerging economies and to the top 1 percent globally; but it has hollowed out the middle and working classes in advanced economies.

For the first time in history, there are now more women in higher education than men around the world. Educated women have fewer children, are more likely to be in paid work, and will increasingly feel tensions between their participation in the labor market and their traditional caring responsibilities. Yet recent research from the International Monetary Fund shows that closing the gender gap has significant benefits for growth. The challenge, then, is to redefine the social contract so that women can make full use of their talents without any loss of social cohesion.

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Written by Minouche Shafik
Image: Arab News
Publication date: December 23, 2019

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