A new social contract

Author:Nemat Shafik
Position:Director of the London School of Economics and Political Science
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

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