COVID-19 revived the social contract. Pandemic debt could destroy it.

Frankly Speaking

Picture of Joe Litobarski
Joe Litobarski

Editor at Debating Europe

Before the pandemic, there was already a debate taking place on the weakening of the “social contract” in the developed world, i.e. the set of norms and expectations governing relations between individuals and social institutions such as the family, the state, and private corporations. In February 2020, McKinsey published a report on The social contract in the 21st century, arguing that years of wage stagnation (or persistently high unemployment in countries with higher wages) coupled with rising prices in healthcare, education, and housing have squeezed people in the middle and lower income range. As a result, frustration and hopelessness have filtered into politics, with either high abstention rates (as in recent French regional elections) or growing support for populist demagogues promising to tear down a system that is not working for many voters.

The idea of a social contract binding individuals into a community goes back to Plato’s Republic, though the concept is more often associated with Enlightenment philosophers such as John Locke, Thomas Hobbes, and especially Jean-Jacques Rousseau (who first coined the term in a 1762 book by that name). No fixed definition of the social contract exists, but it is broadly understood to mean an implicit agreement between individuals to follow rules governing their behaviour in order to manage risk and to live together peacefully in collective security.

For example, during the post-war period, the implied social contract was: so long as individuals (assumed to be cisgender, heterosexual, white, and male) study hard, work hard, stay married and support their families, pay their taxes, obey the law, and vote for mainstream political parties, then industry will provide a job for life and increase wages in lockstep with GDP growth, while government will provide cradle-to-grave healthcare and a social safety net should they fall on hard times; furthermore, they will be able to retire comfortably, they will have access to a variety of affordable consumer goods, they will eventually own their own house, and they will generally have a higher standard of living than their parents’ generation.

The sheer scale of the intervention raises uncomfortable questions

This post-war social contract has been steadily eroded since at least the 1970s by a combination of globalisation and global competition, automation and new technologies, social change (including higher female participation rates in the labour market), economic and labour market reforms, an ageing population living longer lives, falling participation rates in political parties and trade unions, and most recently the pressure to transition to more sustainable consumption patterns in order to prevent catastrophic climate change. Not all of these trends are necessarily negative, nor are they all avoidable. Nevertheless, the old social contract was breaking down even before the pandemic.

An individual growing up in the 2020s (no longer assumed to be a straight, white, cis man) is unlikely to have a job for life (and, indeed, may change their entire career path during their lifetimes); they may find themselves working in the “gig economy” with greater flexibility but uncertain labour rights. Their wages are unlikely to rise significantly over the course of their working lives. Healthcare systems struggling to provide care to ageing populations may be unable to meet expectations in terms of quality and speed of care.

Rather than following the post-war lifepath of education → work → retirement, they are likely to require a lifelong learning approach, constantly upskilling and retraining to keep abreast of technological developments. They are no longer guaranteed a comfortable retirement, and they may never be able to afford their own house. They are constantly reminded their consumption of cheap consumer goods is killing the planet. They no longer assume they will have a higher quality of life than their parents’ generation.

Then the pandemic hit. The COVID-19 pandemic has only accelerated trends that had been breaking down the old social contract. It also necessitated an unprecedented level of peacetime state intervention in the economy, transforming the relationship between individual, private sector and state overnight. The sheer scale of the intervention raises uncomfortable questions, not least: how will such enormous levels of public debt be paid for?

The COVID-19 pandemic has redefined the relationship between individuals and society

In 2018, Friends of Europe published its #EuropeMatters report, arguing that Europe needs a renewed social contract in place by the year 2030. The next year, Friends of Europe published its Vision for Europe report, setting out a policy toolbox to help establish this new European social contract.

Increasingly, the need to renew the social contract is being championed by policymakers and academics. Baroness Minouche Shafik, Director of the LSE, recently published a new book on the topic: What We Owe Each Other: A New Social Contract for a Better Society. In July 2020, the UN Secretary-General, António Guterres, called for a “New Social Contract between governments, peoples, civil society, businesses and more” that would address tax and inequality, education, development, sustainability, empowerment of women and civil society, etc.

In May 2021, the Portuguese Prime Minister (speaking at the Porto Social Summit organised by the Portuguese Presidency of the Council of the EU) added his voice to the growing call for the development of a new European social contract, arguing that the twin climate and digital transitions will only be successful if they are fair and inclusive: “We are here today to renew the European social contract, making a commitment, each one at their own level, to develop innovative and inclusive responses”.

Overnight, the COVID-19 pandemic has redefined the relationship between individuals and society. The decisions Europe makes over the next two years, in terms of when we withdraw state support from the economy, when (and how) we start paying off public debt, will either make or break Europe’s new social contract. We would do well to make such decisions as part of a broader debate on what Europe’s new social contract should look like.

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