A Top Economist on Why We Need a New Social Contract

Minouche Shafik has spent a career straddling the worlds of government, central banking and academia. She has held senior positions in the World Bank, the U.K. government, and the International Monetary Fund, and is now director of the London School of Economics.

Having spent a lifetime studying what makes economies and societies tick, Shafik decided to put her ideas down on paper in her book What We Owe Each Other: A New Social Contract. The objective, she told TIME in an interview in July, was to imagine the kinds of policy prescriptions needed to keep a fragile world from pulling itself apart. “We need to think about what we owe each other at all levels of society, from how we divide up housework in the home to how we share the burden of addressing the climate crisis,” she said. “The responsibility is on us as individuals, as citizens, and on who we elect.”

The following interview has been edited for length and clarity.

TIME: Your book calls for a new social contract between individuals, families, businesses and the state. What inspired you to write it now?

Shafik: I started thinking about these issues in 2016, when we saw this wave of populism across the Western world and I was sort of baffled by it. I worked in international development for 25 years, and I’ve seen the progress that we’ve made in terms of health, education, life expectancy. I asked myself why are people so angry? Why are we so divided? Then the pandemic came, and heightened all these problems. People are worried about inequality, and they’re insecure and worried their children won’t be as well off as they are. The populists’ diagnosis is right but their answers are wrong. I kept thinking I’ve got to come up with an agenda that will actually solve those real concerns.

Your book aims to solve that with a range of policy prescriptions, from investing in lifelong education to expanding the workforce to reforming tax and regulation. You make clear it’s not a blueprint or a fixed menu, so what is it?

If you needed a strapline, I think it’s moving away from a world of trickle-down economics to one where we water all the seeds. The old model was, let’s let the economy grow as much as possible and if it accumulates at the top that’s O.K., because eventually it’ll trickle down, and if it doesn’t trickle down we’ll compensate the losers. And of course what we’ve learned is, it doesn’t trickle down, there’s no compensation, and who wants to be a loser anyway? The social contract I’m talking about is about predistribution—investing early in everyone, especially those who are poor and deprived, and then using that to grow a more productive economy.

Can you give an example of the kind of investment you’re talking about?

Well, we have serious intergenerational equity issues. We need this next generation to be incredibly productive, but they’re also going to have really long work lives—50, maybe 60 years? And the current model would educate these people from the age of 5 to their early 20s, and then that’s it for the rest of their lives. It’s completely irrelevant. So instead let’s maybe give people an endowment—if we’re talking about the U.S., let’s call it $50,000—that they’re able to draw down over the course of their lives. It would empower people to invest in their own skills and become more employable.

In the book, you suggest one way to bridge that generational gap is to give younger people a bigger voice. How would you propose doing that?

The most practical thing is to have Internet voting. It is achievable—Estonia has been doing it for years—and it would do a great deal to increase the voice of young people in politics. Governments might also have a person whose job it is to think about the interests of future generations in making investment decisions. There are also more radical ideas, which might be more difficult to introduce: to weight peoples’ votes by how many years of life they have left, for example, so the younger you are the more your vote matters. That’s very radical, but it has a certain logic, don’t you think?

You’ve spent time as a minister in the British government, held senior positions in the World Bank and the Bank of England. You know leaders well. What is holding them back from the kinds of bolder reforms you suggest in your book?

One is this misperception that people vote with their pocketbooks. We’ve done very careful research on this at LSE across a range of countries, and what really drives votes is wellbeing. People’s physical and mental health, and the quality of relationships in their community are much more important drivers of how people vote than whether GDP has gone up or down.

You’ve spent most of your life in multilateral institutions and yet your book is specifically about national social contracts. Do you think part of this conversation should be about what wealthier economies owe emerging economies?

Yes, but the reason we have this backlash against globalisation and internationalism is because people feel like their national social contracts are not delivering. Good national social contracts are a precondition to good international cooperation, otherwise you cannot sustain political support. But I quite agree with you that, at the bare minimum, there are some issues where it is in your national interest to cooperate with other countries. The pandemic is a case study of that.

You write in the book about how opportunities for change tend to emerge out of crises. Do you see that happening with the COVID-19 pandemic?

I definitely think the pandemic will change politics. I think people will expect more from their governments, and they will see how certain groups have suffered more than others, how it has exacerbated the inequalities that existed before. But I think it will take some time. If you go back to 2008 and the financial crisis, the populist backlash took several years to manifest itself. So it’s a bit early to say what the political consequences will be, but I’m 100% sure politics will be different.

What you’re calling for in this book isn’t just about political or economic reforms but about a shift in values: you say thinking more about ‘we’ and less about ‘me.’ Who is responsible for that?

It’s on all of us. We need to think about what we owe each other at all levels of society, from how we divide up housework in the home to how we share the burden of addressing the climate crisis. So the responsibility is on us as individuals, as citizens, and on who we elect. And I think the process won’t be one of saying, here’s a new social contract and everyone knows their place. It will be a direction of travel. But we’re already moving in that direction—look at the recent move on global corporate taxation, that’s a really interesting sign. Here in the U.K. the Supreme Court ruled recently that Uber drivers are really employees and they deserve benefits. The pressure to achieve better health care systems and universal health care is building, and it will be huge.

How do you have that conversation in a country like the U.S., where individualism and self-sufficiency are sort of based into the national character?

Well, America is a very divided country and about half of them would agree with this direction of travel and the other half wouldn’t. So the question is, how do you persuade them that the way the U.S. economy is currently structured is not benefiting them? This is part of the reason why I focus not on wealth redistribution but what economics call predistribution—giving everyone the same opportunity from birth, and making sure everyone is able to earn a decent living, paid benefits and health insurance. If you could persuade people that this isn’t about welfarism, but about opportunity, then I think individualists might buy into that.

How do you stay optimistic about the future of the world?

Being around young people helps. I run a university, and I’m surrounded by these energetic young people who want to learn and who believe that it really does help to do something. I also look at my own life, at the personal experience of my family who lost everything in Egypt and then moved to the U.S. and rebuilt it. I saw that if you work hard and you get an education, and you have a bit of luck, then you can rebuild your own life. But I’ve also seen many, many cases where injustice occurs and talented people whose ability is never fulfilled, so that makes me want to work to change that.

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