Verified by 
Key points
- Social contracts — agreements between rulers and their citizens about how to distribute goods and services — are often renegotiated.
- Author Minouche Shafik believes it's time for a new paradigm and proposes 21st-century policies to create a more just and generous society.
- A new, rebalanced social contract needs to be less about "me" and more about "we."
Review of What We Owe Each Other: A New Social Contract for a Better Society by Minouche Shafik.
Social contracts — agreements between rulers and their citizens about how to distribute goods and services — are often renegotiated when social, economic, and political realities change. The Great Depression and World War II spawned the New Deal in the United States and the modern welfare state (including the National Health Service) in the United Kingdom. In the 1980s, Ronald Reagan shifted the focus to individual liberty and laissez-faire economics, while Margaret Thatcher declared, “There is no such thing as society … And no government can do anything except through people who look after themselves first.” More recently, Bill Clinton, Tony Blair, and politicians around the world attempted a “Third Way” which sought to use markets to achieve more egalitarian ends.
In the wake of globalization, automation, the Great Recession, the Climate Crisis, and the COVID-19 Pandemic, Minouche Shafik, Director of the London School of Economics and Political Science, believes it is time for a new paradigm. In What We Owe Each Other, Shafik shows how social contracts developed and developing countries have broken down, and proposes 21st-century policies to create a more just and generous society.
Drawing on Shafik’s experiences as deputy governor of the Bank of England, deputy managing director of the International Monetary Fund, and vice president of the World Bank, What We Owe Each Other is data-driven, immensely informative, insightful, and provocative.
Current problems and proposed solutions
The United States, Shafik points out, is the only advanced economy with no legally mandated paid maternity or paternity leave. And the U.S. is well below its peers in public spending on childcare. In countries that have relatively generous arrangements, dual earners are much more common (adding to productivity and tax revenues). Researchers have found that babies benefit if their mothers stay at home in the year after birth; after that, children benefit, academically and behaviorally, from the influence of caregivers, peers, and school. Shafik also notes that school calendars with long summer vacations create challenges for working families while having adverse impacts on learning.
Studies from 139 countries demonstrate that education pays off. Each additional year of school generates an average return to the individual of about 10 percent — and more than twice that in higher tax receipts, lower welfare payments, and fewer crimes. The return is highest in the poorest countries, but also impressive in affluent nations. Pre-primary education and caregiving are most important of all, with sustained benefits on health, cognitive ability, and economic success, but, Shafik points out, only half of children age 3-6 have access to it, falling to one fifth in low-income countries.
In advanced countries, the average return on investment in preventative health interventions is 14.3%; when health measures are provided by the government, it rises to 27.2%. Taxing unhealthy behavior — smoking cigarettes, drinking alcohol, or sugary beverages — is very effective in reducing cancer, diabetes, and obesity. Shafik strongly supports a guaranteed minimum of primary care and public health benefits for all citizens.
With the rapid pace of job destruction, outsourcing, and globalization, the increase in part-timers and gig workers, and the decline of unions, Shafik claims, the balance has shifted too far toward flexibility at the expense of job security, safety, and support. She endorses earned income tax credits for lower-income workers, unemployment insurance that lasts longer and pays more (Denmark allocates 90% of the previous wage), a higher minimum wage, and training programs designed to meet the specific needs of employers.
Shafik is skeptical, however, about a Universal Basic Income. An endowment for education and reskilling, she maintains, has a more lasting impact than cash transfers.
A fundamental problem of old age, Shafik points out, is that the years in retirement have grown too much relative to years of work. By 2060, the number of people over 65 in all G20 countries will double. Half of them in advanced countries and 84% in developing nations have inadequate savings. To close the gap, Shafik recommends getting more people (especially women) into the workforce; linking retirement ages directly to life expectancy (a controversial measure already taken by half a dozen countries in Europe); mandating that every individual and employer contribute to a pension system; and providing for institutional care or independent living for the elderly, instead of leaving that responsibility to families.
Rebalancing the social contract between generations
Addressing these problems, Shafik concludes, requires rebalancing the social contract between the generations. Societies should start by doing more to address the damage already done to the natural climate (land, water, biodiversity) of our planet. For centuries, people have polluted rivers, cut down trees, and emitted carbon at zero cost to them. Annual subsidies supporting the exploitation of the environment for agriculture, water use, fisheries, and fossil fuels exceed $5 trillion and should be ended. Public and private spending on conservation, which is now about 0.02% of those subsidies, should be increased dramatically. Environmental impact should be factored into market prices. Every whale, for example, provides carbon services worth $2 million; and each forest elephant $1.7 million. A tax on carbon will reduce greenhouse gases and provide revenue for more worthy initiatives.
On July 4, 1962, Shafik reminds us, President John F. Kennedy called for a “declaration of interdependence.” What We Owe Each Other gives us a really good start on designing a social contract that is less about “me” and more about “we.”
