Our current social contract, the one many of us grew up with or are living under, is feeling a bit wobbly. You might even sense that "things fall apart," as Yeats wrote in a different time of global turmoil. Recent years have certainly felt unstable, right? We've seen the lingering effects of the 2008 financial crisis, politics getting increasingly divided, environmental concerns mounting, and of course, the huge impact of the coronavirus pandemic. The pandemic, in particular, really shone a spotlight on how much we rely on each other – from the essential workers we often overlook to the collective responsibility of behaving safely. Shafik, drawing on her experience and the rich history of the London School of Economics (LSE), where she is the Director, argues that these moments of crisis can also be moments of big opportunity. Think about the New Deal after the Great Depression or the international order that emerged after World War II – crises leading to positive change. But crises can also sow the seeds of new problems, like the response to World War I or the fallout from the 2008 crisis that fueled populism. So, whether the current instability leads to better outcomes depends on the ideas available and how politics evolves. The social contract concept, she believes, is a useful way to frame and understand potential solutions. The LSE has been a hotbed for thinking about the relationship between the economy and society for a long time. We hear about inspiring figures like Beatrice and Sidney Webb, who advocated for a "national minimum of civilised life" including things like nourishment, education, a living wage, and care for the sick and old – aspirations that are still relevant today. Then there's William Beveridge, whose report laid the foundation for the UK's modern welfare state, introducing ideas like the National Health Service and comprehensive approaches to minimum incomes, unemployment insurance, and pensions. His report was so revolutionary, people actually queued up to buy copies! But the story doesn't end there. The LSE was also home to Friedrich Hayek, who presented a contrasting view, emphasizing individual liberty and market efficiency, warning against the interventionist state. His ideas significantly influenced leaders like Margaret Thatcher and Ronald Reagan and provided the basis for the Chicago School of economics. Later, the "Third Way" emerged as an attempt to find a balance between these extremes, embraced by leaders like Bill Clinton and Tony Blair. However, the 2008 financial crisis seemed to undermine support for this approach, leading us back to a place where a "new paradigm" is needed. So, what exactly _is_ this social contract? At its heart, it's about the norms, rules, and expectations that structure society and determine the opportunities people face. It's about deciding what things are left to individuals and what is determined collectively. Crucially, because it's so important and people can't easily leave their societies, the social contract needs the consent of the majority and needs to be renegotiated as times change. Shafik sees it as a partnership involving individuals, businesses, civil society, and the state, all contributing to a system that provides collective benefits. This is different from the welfare state, which is one mechanism for pooling risks and investing in social benefits, often through government action. The idea of a social contract has been debated by philosophers for centuries. Hobbes thought rational individuals should submit to a sovereign to avoid a nasty state of nature. Locke believed the contract was to protect rights, justifying revolt if the sovereign failed. Rousseau focused on political institutions allowing citizens to make laws for themselves. These early ideas had minimal expectations compared to ours today; the contract was mainly a precondition for avoiding exploitation. As societies evolved, the debate shifted to the obligations of citizenship and what we owe each other. Adam Smith, known for his economic thinking, also talked about "circles of sympathy," where self-interested individuals care about others' well-being. He identified moral, political, and economic reasons for social solidarity: ensuring basic needs are met (moral), sharing common experiences for democracy (political), and efficiently pooling risks like sickness and unemployment (economic). But even Smith acknowledged limits to sympathy, especially when individuals behave "badly," raising questions about individual responsibility in the social contract. A major 20th-century philosopher on the social contract was John Rawls, who proposed designing society behind a "veil of ignorance" so we wouldn't know our own status, leading to a just contract. His principle of equal opportunity suggests that talent and willingness to use it should determine success, not one's starting place in society. This notion is a key expectation today, and its absence is a source of anxiety. There's also an expectation today that effort should improve one's life, a shift from historical fatalism, and enabling social mobility is seen as fair and binding for society. The book argues that profound changes – technology, demographics, the changing role of women, and environmental pressures – are challenging the old order. The 2008 financial crisis and the pandemic simply made the existing fissures glaringly apparent. We are, in many ways, at a crossroads, needing to rethink what we owe each other to navigate these challenges. What might this new social contract look like? The book doesn't offer a precise blueprint but suggests a direction of travel guided by three broad principles: 1. **Security for all:** Everyone should have a guaranteed minimum for a decent life, including basic health care, education, work benefits, and a pension to avoid poverty in old age. The exact level depends on what a society can afford. 2. **Maximum investment in capability:** Society should invest as much as possible in giving citizens opportunities to be productive and contribute, providing lifelong training, encouraging later retirement, and supporting things like childcare so women can work. There should also be incentives to reduce negative things like carbon emissions and obesity. 3. **Efficient, fair sharing of risks:** Some risks, like sickness, unemployment, and old age, are better shared by society collectively rather than falling solely on individuals, families, or employers. The book then explores how these principles could apply across different stages of life and key areas of society: - **Children:** Personal decisions about childcare have big social consequences, affecting children's potential and the passing down of disadvantage. Childcare needs to be treated as essential social infrastructure, not just unpaid work. The changing economic role of women and the potential economic gains from gender equality require rethinking childcare provision. Different policy choices regarding parental leave and subsidies shape family work patterns. Supporting dual-earner families requires flexible work, individual taxation, and rethinking things like school calendars. - **Education:** Education is vital for personal development, citizenship, and preparing the workforce. There are significant private and social returns to education, with particularly high returns at the primary level. Technology means education must focus on critical thinking and judging information validity. It's also leading to labor market changes, increasing demand for high and low skills while mid-level jobs disappear, making skills like complex problem-solving highly valued. Supporting disadvantaged children early is crucial, and programs combining cash benefits with health/education support have shown high returns. Lifelong learning is no longer optional but essential in a rapidly changing world with long careers, requiring more flexible and permeable educational systems adapted to adult learners. While primary/secondary education is widely accepted as free, there's a strong case for more public support for early-years education. Funding tertiary and adult education is more complex, involving individuals, employers, and society sharing costs and benefits. Different approaches exist, like performance-based funding or income-sharing agreements. - **Health:** Health systems grapple with affordability, defining a minimum standard, sharing costs, and rationing. Most countries aim for basic affordable care, varying in scope from WHO essential packages to comprehensive systems like the UK's NHS. Delivery models vary too, from state as major supplier to state as funder, with increasing use of private insurance and mixed public/private approaches. Rationing demand is a constant challenge; in private systems, it's by income, while in public systems, it's a social contract decision. Countries use health technology assessments to decide which treatments are funded collectively, weighing medical effectiveness against cost-effectiveness and broader public interest. Being explicit about criteria, perhaps using per capita income as a guide, is seen as transparent and fair, though controversial. An alternative view is "lifetime rationing," thinking about healthcare allocation over an individual's life rather than between individuals at a single point. Digital medicine offers cost-saving potential, but raises critical questions about data ownership, privacy, and bias in algorithms. Prevention is highly cost-effective, and societal factors like environment, nutrition, income, and lifestyle have a greater impact on health outcomes than the healthcare system itself. This raises the debate about society's right or responsibility to influence individual behavior, from taxing unhealthy products to mandating seat belts. A more generous social contract for health would guarantee a minimum of primary care and public health, manage costs efficiently, encourage healthy behavior, and address the broader social determinants of health. - **Work:** Work is central to the social contract, providing income, purpose, and contributing to society. The rise of the informal economy in low-income countries and outsourcing/alternative contracts (like gig work) in advanced economies challenge traditional models of employment and social insurance. Key questions include balancing flexibility and security, providing benefits to non-traditional workers, creating quality jobs, and supporting workers to adapt to change. Countries vary widely in this balance, with some like Denmark achieving both high flexibility and high protection. A new contract needs minimum income guarantees (minimum wage, targeted benefits, possibly asset transfers, but UBI is often seen as too costly and less effective than targeted aid) and security for flexible workers (ensuring proportional benefits and contributions). Businesses have a role beyond maximizing shareholder value, moving towards stakeholder capitalism that includes providing benefits and training. Legislation and unions can help level the playing field and push for better conditions. Crucially, societies must invest in helping workers adapt through retraining and active labor market policies. - **Old Age:** Societies are ageing rapidly, posing questions about retirement, pensions, minimum income for the elderly, and organizing humane and sustainable care. Pooling contributions is key for pension system sustainability, with a guaranteed minimum state pension linked to affordability. Encouraging saving through behavioral nudges is important. Care for the elderly is a growing challenge, shifting from being primarily the responsibility of families (especially women) to needing societal sharing. Advanced directives (living wills) are crucial for end-of-life care but underutilized. Financing care involves various models like universal tax-funded systems, social insurance, or targeted cash benefits. A new contract for old age would encourage working longer, link retirement to life expectancy, ensure security, support independent living, and share the burden of care. - **Between Generations:** Within families, the contract involves parents investing in children and children supporting parents, avoiding debt legacies. At a societal level, it's about the legacy we leave – knowledge, infrastructure, institutions, and the environment. Many in richer countries are pessimistic about the next generation's prospects, in contrast to emerging markets. Government debt is one legacy, manageable if used for productive investments that boost future growth. A major negative legacy is the depletion of natural capital and loss of biodiversity. An economic view might ask if we've invested enough in human/physical capital to compensate for environmental loss, but valuing nature properly is challenging. Investing in natural capital can yield high returns. The concept of intergenerational sustainability is debated, balancing current needs with future needs, acknowledging future generations aren't represented in current decision-making. Analogies highlight complexities: discounting future benefits (marshmallows), balancing present consumption and future investment (jam), and recognizing non-substitutable goods (swimming pools vs. lakes). Fair burden-sharing, especially between rich and poor countries, is key for addressing climate change. Policy tools include carbon taxes (potentially revenue-neutral and pro-poor if revenues are returned) and subsidies for green technologies. Covid-19 highlighted intergenerational tensions and debt burdens. Rebalancing involves older generations working longer, managing health costs, and investing significantly in the next generation's education and skills to boost productivity and sustainability. Giving younger voices more weight is crucial. Financing this new social contract isn't necessarily about massive tax increases everywhere. Strategies involve boosting productivity (using all talent, encouraging investment), rethinking fiscal policy (investing in high-return areas like education, potential modest tax changes or reallocation), considering wealth/inheritance taxes to equalize opportunity, using carbon taxes (especially if revenue is returned), and recognizing the complementary role of philanthropy and charities. The new contract with business means firms take on more responsibility, going beyond shareholder value to stakeholder interests, providing benefits and training, potentially encouraged by regulation. Achieving this change is deeply political. Social contracts evolve through political systems, accountability mechanisms (legislatures, judiciary, media), coalitions, and crises. More inclusive political systems, where minorities have a voice and politicians are accountable, tend to lead to more generous social contracts. The pandemic is seen as a critical juncture, exposing vulnerabilities and potentially spurring demands for better risk management and social insurance. Building a coalition for a new social contract could involve young people, those in precarious work, women, and those advocating for universal health care. It's about increasing accountability so collective interests are served. Ultimately, the book argues that a more generous, inclusive, and interdependent social contract, guided by the principles of security, capability investment, and shared risk, is needed and economically feasible. Change is inevitable due to powerful forces, and the question is whether we shape it proactively. It's not a fixed blueprint, but a direction of travel, requiring courage, faith, and a sense of unity, much like the challenges faced by previous generations who fought for freedom from want. We have the opportunity to shape a better future for ourselves and those who come after us. Isn't it interesting to see how these big ideas connect to our everyday lives, from raising children and going to school to working, getting sick, growing old, and even the future of the planet? To explore further, you might wonder: - How exactly could different countries tailor these principles to their unique contexts and values? - What are the specific steps needed to build the political coalitions required to negotiate and implement such a new social contract? - How can we ensure that the voices of the most disadvantaged are truly heard in shaping these crucial societal agreements?