What We Owe Each Other

1. The social contract is breaking under technological and demographic pressures

We are increasingly living in 'you're on your own' societies, a situation which gets translated into the politics of anger, an epidemic of mental health issues and both young and old fearing for their futures.

Technological disruption is reshaping labor markets, favoring highly skilled workers and creating job insecurity for many. Automation and artificial intelligence are replacing routine tasks, leading to job displacement and wage stagnation for low-skilled workers. Meanwhile, demographic changes, such as aging populations and increased female labor force participation, are straining traditional social support systems.

Social contract breakdown is evident in:

• Rising income inequality
• Declining social mobility
• Erosion of worker protections
• Inadequate pension systems
• Strained healthcare systems

These challenges are fueling political discontent and populist movements across the globe, as citizens feel increasingly vulnerable and disconnected from the benefits of economic growth.

2. Early childhood investment is crucial for equalizing opportunities

Early interventions in child development have been shown to have a sustained impact on health, education and economic success.

Brain development in the first 1000 days of life is critical for cognitive and social-emotional skills. High-quality early childhood education and care can significantly improve life outcomes, especially for children from disadvantaged backgrounds. The benefits of early intervention far outweigh the costs, with estimates suggesting returns of $6 to $17 for every $1 invested.

Key components of effective early childhood interventions:

• Nutrition and health support
• Cognitive stimulation
• Parental education and support
• Access to quality childcare and preschool education

By investing in early childhood, societies can reduce inequality, improve social mobility, and increase overall productivity and economic growth.

3. Education must shift towards lifelong learning and problem-solving skills

Education should focus on equipping children with these abilities.

Rethinking education is essential in a rapidly changing world. Traditional education systems focused on rote memorization are no longer sufficient. Instead, education should prioritize critical thinking, creativity, and adaptability to prepare students for jobs that may not yet exist.

Key aspects of future-oriented education:

• Focus on problem-solving and analytical skills
• Emphasis on digital literacy and technological competence
• Integration of soft skills like communication and collaboration
• Flexible learning pathways and modular credentials
• Lifelong learning opportunities and adult education programs

This shift in education will help workers adapt to technological changes, reduce the risk of job displacement, and promote innovation and economic growth.

4. Universal health coverage requires balancing costs and benefits

If we don't measure and price things properly, the market on its own will incentivise excessive depletion of natural capital.

Healthcare systems worldwide face the challenge of providing universal coverage while managing rising costs. Aging populations and technological advancements in medical treatments are driving up healthcare expenses. To achieve sustainable universal health coverage, countries must make difficult decisions about which treatments to cover and how to allocate resources efficiently.

Strategies for balancing healthcare costs and benefits:

• Use of health technology assessments to evaluate cost-effectiveness
• Emphasis on preventive care and public health measures
• Integration of digital health solutions and telemedicine
• Reforms in healthcare financing and payment systems
• Focus on addressing social determinants of health

By implementing these strategies, countries can work towards providing equitable access to healthcare while maintaining fiscal sustainability.

5. Work is becoming more flexible, requiring new forms of social protection

A new social contract with business would have firms paying higher corporate taxes and providing all workers with benefits, while society at large would share more of the risks around minimum incomes, parental leave, pensions and the development of new skills.

Labor market flexibility is increasing with the rise of gig economy, part-time work, and temporary contracts. While this flexibility can benefit both employers and some workers, it often comes at the cost of job security and traditional employment benefits. A new social contract must address these changes to ensure workers are protected in this evolving landscape.

Elements of a new social protection system:

• Portable benefits that move with workers between jobs
• Universal basic income or negative income tax schemes
• Expanded access to unemployment insurance for gig workers
• Lifelong learning accounts to support skill development
• Stronger collective bargaining rights for non-traditional workers

These reforms can help balance the benefits of labor market flexibility with the need for worker security and social stability.

6. Aging populations necessitate pension reform and longer working lives

Pension ages should be linked to life expectancy to maintain the balance between years in work and years in retirement.

Demographic shifts towards older populations are straining pension systems and healthcare budgets in many countries. To ensure the sustainability of these systems, societies must rethink retirement and encourage longer working lives.

Key pension and retirement reforms:

• Gradually increasing retirement ages in line with life expectancy
• Encouraging phased retirement and part-time work for older adults
• Implementing automatic enrollment in pension schemes
• Promoting age-friendly workplaces and combating age discrimination
• Investing in health promotion and disease prevention for older adults

These reforms can help maintain the financial sustainability of pension systems while promoting active and healthy aging.

7. Intergenerational fairness demands environmental protection and debt management

We must do as much as we can to redress environmental damage and find ways to help reduce the fiscal burden on future generations.

Intergenerational equity requires balancing the needs of current and future generations. This involves addressing environmental challenges, such as climate change and biodiversity loss, as well as managing public debt to avoid burdening future generations with unsustainable financial obligations.

Strategies for promoting intergenerational fairness:

• Implementing carbon pricing and other environmental policies
• Investing in renewable energy and sustainable infrastructure
• Reforming subsidies that encourage environmental degradation
• Adopting fiscal rules to ensure long-term debt sustainability
• Investing in education and research to drive future productivity growth

By taking these steps, societies can work towards leaving a positive legacy for future generations.

8. A new social contract requires increased productivity and fiscal reforms

Better social insurance could reduce this tendency towards what economists refer to as secular (meaning long-term) stagnation.

Productivity growth is essential for financing a more generous social contract. This requires investments in education, research and development, and infrastructure, as well as policies that promote innovation and efficient resource allocation.

Key elements of a productivity-enhancing agenda:

• Investing in human capital through education and training
• Promoting competition and reducing market concentration
• Supporting research and development in key technologies
• Improving infrastructure, particularly digital infrastructure
• Implementing smart regulation that encourages innovation

Fiscal reforms are also necessary to fund a new social contract. This may include:

• Progressive taxation reforms
• Closing tax loopholes and combating tax evasion
• Implementing carbon taxes and other environmental levies
• Rethinking corporate taxation in a globalized, digital economy
• Exploring new revenue sources, such as wealth taxes or financial transaction taxes

By combining productivity-enhancing policies with smart fiscal reforms, countries can create the economic foundation necessary to support a more inclusive and sustainable social contract.

Last updated: October 4, 2024