How to Renew the Social Contract
Democratic governments face two main challenges in trying to revive their post-World War II social contracts. They must ensure a strong and efficient social safety net for the digital age, while taking concrete steps toward providing global public goods such as tackling climate change.
WASHINGTON, DC – The success of Western-style democracy after World War II was based on national social contracts: citizens paid taxes, and the state provided the conditions for steady economic progress, along with secure jobs, a social safety net, and redistributive policies that narrowed the income gap between owners and workers. Although the degree of redistribution and the availability of secure jobs varied among countries, the vast majority of citizens bought into the arrangement.
In recent decades, however, globalization has eroded the postwar social contract by weakening the nation-state. Increased global trade and financial flows have contributed to prosperity, but have also created losers. Income inequality has widened in many countries, and the concentration of wealth at the very top no longer seems tolerable. Moreover, the 2008 global financial crisis dented public confidence in steady economic progress.
Democratic governments now face two main challenges in trying to revive their countries’ social contracts. They must ensure a strong and efficient safety net by adapting social and labor-market policies to the new world of work. And they must take concrete steps toward providing global public goods – such as tackling climate change – by securing domestic support for international cooperation.