A new social contract

• Author: Nemat Shafik
• Position: Director of the London School of Economics and Political Science
• Pages: 4-8

We are living in an a ge of insecurity.

Increasingly, the values of liberal

democracy, liberal economies, and

a rules-based international system

are being repudiated—even though they have

delivered progress for the vast majority of people.

Discontent has been fed by fears over slowing ec o-

nomic progress, especially i n advanced economies,

flatlining productivity and social mobility, and

concerns about the future brought on by shif ts in

demography and technology.

We see this expressed in our politics. Popular

anger and distr ust of elites, compounded by the

financial crisis , have led to growing support for

nationalist and il liberal politicians. We see it in

the mounting evidence of declini ng perceptions

of well-being and trust in m any countries. While

the causes of our disc ontent vary, they all point to

the need to revitaliz e our politics, economics, and

social contract to provide citizens w ith a greater

sense of security and confidence in the face of

impending changes.

Why are so many people in some of the more

successful countries in the world so unhappy?

Inequality is a major cau se, as is fear about future

prospects caused by automation and ag ing. While

the world has become more equal between c oun-

tries, there have been different effe cts on income

distribution within countrie s. e middle class

in emerging markets a nd the richest 1 percent

globally have benefited enormously, while the

middle class in adva nced economies has suffered.

And parents in many countr ies worry about their

children’s prospects in the face of the high costs

of education and housing, alongside low-qualit y

jobs with poor benefits.

Protectionist calls

Many blame globaliz ation and technology, but

I would focus more on the failure of our social

contract to manage properly the consequence s of

both. Our social contrac t—by which I mean the

rights and obligations of citizen ship—has frayed

as a result of hyper-globalizat ion and the austerity

that followed the financia l crisis. e advance of

automation and intensifying globa l competition

have driven down the wages of less sk illed work-

ers. As a result, many c all for more protectionism

or blame immigrants. But the answer is not to

deglobalize a nd revert to our national silos, but to

4 FINANCE & DEVELOPMENT | December 2018

Overcoming fears of technology and globalization means rethinking

the rights and obligations of citizenship

Nemat Shafik

A NEW SOCIAL

CONTRACT