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The Year Ahead 2020

Toward a New Social Contract

In the coming decade, the world's advanced economies will continue to feel the pressures of globalization and technological change, as well as the effects of environmental and demographic crises that are already well underway. All of these challenges are manageable, but only with a full re-imagining of the welfare state.

LONDON – Every society rests on a web of norms, institutions, policies, laws, and commitments to those in need of support. 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.

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