The writer, director of the London School of Economics and Political Science, is the author of ‘What Do We Owe Each Other? Social Contracts for the 21st Century’ due to be published in 2021
Covid-19 has revealed deep flaws in our societies that have been festering for decades. These flaws were reflected in people’s disappointment in the lives offered to them. Even before the pandemic struck, surveys found that four out of every five people in the US, Europe, China, India and various developing countries believed “the system” was not working for them.
Coronavirus has made the inadequacy of healthcare systems, the increasingly precarious nature of work and the difficult trade-offs between the generations even more apparent. Now we have a chance to use this crisis to define what a new social contract, fairer to all, might look like.
In healthcare, the time has come to achieve true universal health coverage. Three recent deadly epidemics — Sars, Mers and Ebola — had devastating consequences but were contained geographically. In contrast, coronavirus has circumnavigated the world wreaking havoc, particularly on those with health vulnerabilities. The World Health Organization recommends that all countries provide an essential health package consisting of prenatal care, immunisations and treatment of communicable diseases. It costs about 5 per cent of gross domestic product. Most countries can afford this, except for low-income societies with fast-growing populations that will need foreign aid to meet minimum health requirements. Until basic healthcare is universal, we are only as safe as the world’s weakest healthcare system.
A new social contract for work would address the growing prevalence of more flexible employment models. Workers increasingly carry the risk of how many hours they will work, how they will support themselves if they get sick and, if they have a pension, what their income will be when they are old. Interestingly, this pattern is the same across rich and poor countries. This flexibility has some benefits, particularly for employers and the economy, but also imposes social costs and higher levels of insecurity for many.
The virus revealed the perils of such arrangements as the self-employed and those on temporary contracts were most likely to lose their livelihoods. Economic dislocations are likely to be more frequent in future not just because of pandemics, but because of rapid technological change associated with the digital revolution and automation.
A new social contract around work must provide greater security. This does not have to be at the expense of flexibility, but it does mean we have to think differently about the sharing of risks between individuals, employers and taxpayers. Essential elements of a new social contract, include putting a floor on people’s incomes through better minimum wages or wage subsidies, mandating benefits for flexible workers and investing serious resources in retraining those who face unemployment.
Countries are split among those that provide low flexibility and high protection (most of Europe), high flexibility and low protection (the US), and low protection with low flexibility for the formal sector and high flexibility for the informal sector (most of Asia, Africa, the Middle East and Latin America). A few countries — Denmark, New Zealand, Japan and Australia — occupy the “sweet spot” of providing high flexibility and high protection. They strike the right balance, giving employers flexibility to adjust their labour force while also making sure that workers are supported as they move to other jobs while maintaining a reasonable standard of living.
Covid-19 has also had very different impacts on the generations. The old are most vulnerable to the disease; the young are sacrificing economically and socially to protect the elderly. The young will also be lumbered with repaying the huge debts that are being incurred to combat this crisis. They will have to do this in most advanced economies while facing income prospects already poorer than their parents’ generation. The situation is better in the developing world where the young are likely to earn more than their parents. This comes on top of the fact that older generations are already leaving behind a much diminished legacy in the form of a damaged climate and lost biodiversity.
How can we build a fairer social contract between the generations? We must do as much as we can to redress the environmental damage and make progress on reducing government debt as soon as we can. To help reduce the fiscal burden on future generations, today’s older people may need to work longer. In most advanced economies today, people can expect to spend about a third of their adult lives in retirement. That makes pensions unsustainable. Linking retirement ages to life expectancy would help close this gap.
We also need to invest in the next generation to enable them to be productive over what will be very long working lives. Ideally, each young person would start life with an educational endowment to enable to them to develop skills throughout their careers. The resulting productivity gains would help pay for the health and social care needs of an ageing population. This would be an enlightened investment by one generation in the next and provide the underpinnings of a better social contract.