Us vs. Them, page 12
What else do you expect from government? A job? An opportunity to provide for your children and to give them a better life than you’ve had? Does government owe you an education? A chance to use your mind after you’ve graduated? How about safe roads and bridges and ports and airports? Safe drinking water? Internet infrastructure that protects your property and privacy? At affordable prices? How about access to medical care? If your child will die without medical treatment, does government owe her access to a doctor? At a cost that’s within your means? How about care in old age?
Does government owe you a say in government? Elections that are conducted freely and fairly? Access to unbiased information? Freedom of speech? Does it have some responsibility to place limits on that freedom for the good of society? Freedom of assembly? What if some citizens use their freedom of assembly to organize protests that block your drive to work? Does government have an obligation to protect citizens whose gender, ethnicity, religion, or sexual orientation have opened them to past discrimination, whether by government or by other citizens? A nation’s constitution may answer many of these questions, but as times change, values evolve, and technology creates opportunities and problems that the document’s original authors could never have imagined, how are rights to be updated?
Whatever your answers to these questions, it’s clear that government’s obligations under the social contract extend well beyond national security and a shot at a better life. A government’s legitimacy rests on many things, and readers who are citizens of genuine democracies will surely answer these questions differently than citizens of China, Russia, or Saudi Arabia. But even autocrats must worry about public opinion—and about whether a significant number of citizens have come to believe that their government is unwilling or unable to meet their most basic needs.
Come back to the “pursuit of happiness.” What makes people happy, or at least boosts their sense of well-being? Since 2012, a United Nations agency has been trying to find out. The 2017 World Happiness Report offers some interesting answers.1 The study’s authors found seven factors that make people most happy: “caring, freedom, generosity, honesty, health, income and good governance.” Some of that sounds a little abstract, and only the last of these refers directly to political officials, but all seven tell us something about what people expect from government. They want leaders who care what happens to them, who treat them with dignity, and who don’t interfere in their lives or punish them arbitrarily. They want leaders who will help them when no one else can, who are honest, who can create and sustain a system that provides economic opportunities, and who know what they’re doing. Whether you’re a libertarian or a Marxist, that definition of government’s end of the social contract works pretty well.
Scandinavian countries continue to dominate the UN rankings. There are various theories about why that is, but these are countries in which citizens are burdened with relatively high taxes. Perhaps they’re more confident than people in other parts of the world that their tax money will be well spent, and that they’re investing in programs like free university education, free health care, and other social protections that provide a direct and immediate boost to personal security, quality of life, and the health of society as a whole. Whatever the case, the high taxes that come with their definition of the contract don’t appear to be weighing them down.
Then there’s what China’s President Xi Jinping calls “the Chinese Dream.” There’s no simple definition of this idea. Xi describes it differently to different audiences, but it’s mainly his personal vision of China’s revival and peaceful rise toward greatness. It’s a dream of strength, independence, modernity, creativity, self-reliance, and power. It’s rooted in history and tradition. And it’s a response to perceived national humiliations visited upon the country by outsiders from the mid-nineteenth century to the mid-twentieth. Xi’s Chinese Dream differs from the American Dream in one important, if entirely predictable, way: Its central actor is not the individual or the family but a strong and disciplined ruling party at the vanguard of the Chinese people. The American version of the social contract generally requires that government recognize the unalienable rights of the citizen. The Chinese Dream centers on the ability of the state to lift the Chinese people up and lead them forward.
That UN World Happiness Report ranks the United States at 14 in the world, while China comes in at 79, but that doesn’t necessarily tell us how Chinese people feel about their government. Per capita income and life expectancy in China are still much lower than in the United States, though China’s state-directed economic reform process has lifted hundreds of millions of people out of poverty over the past thirty years. And China’s ranking has held steady over time in the index. Much more to the point, there has been no recurrence of the 1989 Tiananmen Square mass demonstrations that might have split the ruling party in two and provoked nationwide upheaval. We’re not allowed to ask Chinese people how they feel about Communist Party rule, and they’re not allowed to tell us. But it matters whether the party delivers on its promises, because even an autocrat violates the social contract at his peril.
Is there a Russian Dream that might help us understand how today’s Russian understands the social contract? Historically, Russian/Soviet law existed to protect the state from the dangers posed by individuals who challenged its authority, not the other way around. On paper, that’s no longer the case. But the decisions of judges in today’s Russia are not always determined by the law, and corruption remains a serious problem in a country dominated by a very few wealthy and powerful people. In addition, Russia has been mired for the past several years in an economic slowdown, and polling suggests that most of its people don’t expect better economic times ahead.
So what gives the still popular Vladimir Putin and his government their legitimacy? Are the citizens of Russia and other countries willing to endure significant hardship without challenging their government’s right to rule? Public expectation of government changes over time, of course, especially in response to bouts of hardship. In a poll conducted in March 2017 by Moscow’s Levada Center, 31 percent of respondents agreed that “the state gives a lot, but we can demand more,” a 6 percent rise over the previous year. Another 31 percent, also up 6 percent, agreed with the statement that “the state gives so little that we owe it nothing.” Those who indicated a belief that the citizen has a responsibility to help the state, even if it requires personal sacrifice, also fell by 6 percent.* It’s said that Putin has restored the pride and dignity that Russians lost with the collapse of the Soviet empire and the frightening economic chaos that followed. Where do pride and dignity figure in the social contract? Despite recent hardships, Putin has maintained an approval rating above 80 percent over several years.
But in the United States, Scandinavia, China, and Russia, how long can today’s agreement between the state and the individual last?
REWRITING THE SOCIAL CONTRACT
Faced with the challenges to come, there are things that (some) governments can do to rebuild relationships with their citizens. In short, they can rewrite the social contract to provide for the needs of society in new ways. Inequality will become a prime target of these changes. There will always be rich and poor, but history has shown again and again that when the gap between them becomes too wide, and when there are too few people in the middle, trouble follows. That’s why the United States, like many other countries, has a “progressive” tax system, one in which wealthier people pay income tax at a higher rate than poor people, and why taxes paid at every income level go to provide services for those who can’t afford them, to limited-term insurance payments for the unemployed, and to pensions and health care for the elderly.
The United States existed for almost a century before the first large-scale effort was made to provide for people in their most vulnerable stages of life. The private sector, not government, led the way. The first pensions in America were provided by the American Express Company to its employees in 1875. By 1919, there were three hundred private pension plans, covering about 15 percent of wage and salary employees in the United States, but until the 1930s few Americans had any expectation that someone outside the family would help the elderly pay to live out their lives.
At the height of economic depression in 1935, the Roosevelt administration created the Social Security system, which Americans pay into during working years and draw from after they retire. The age of retirement was set at sixty-five at a time when life expectancy was about sixty.2 For years after, companies hoping to attract talented workers continued to offer “defined-benefit” pension plans that promised specific amounts of money for retirement, but a growing realization that companies would not be able to control the resulting costs led them to offer “defined-contribution” plans that allowed workers to invest more of their own money. In 1978, Congress allowed for the establishment of 401(k)s that enable employees to contribute pretax income to private pension plans. As life expectancy has increased, various forms of individual retirement accounts have developed with different sets of tax requirements.3 In short, as public expectation of government increased, U.S. political leaders understood the need to adapt, to find new ways to share burdens among the state, citizens, and the private sector. Solutions will take different forms in different times and places, but around the world, the need for these types of changes is about to rise with new urgency.
Rewriting the social contract to help people survive and thrive in dangerous times also means rethinking assumptions about the purpose and content of education—and how it’s provided. It means fundamental changes in the way that governments collect taxes. It means preparing people to compete and succeed in a fast-changing economy and providing for their most basic needs when they don’t or can’t. It means welcoming creative thinking on the broader challenge from those inside and outside government. And it requires that government work with private companies and institutions to meet the moment.
EDUCATION
Opportunity begins with education, which must now become a lifelong process. First, preparing people to succeed in a digital-age economy does not require abandonment of a traditional liberal arts education. In fact, given the ever growing importance of critical thinking, creativity, and the ability to communicate with a much more diverse range of people over the course of a working life, an education that includes history, philosophy, literature, art, and music as well as math, science, and digital skills will be more important than ever.
In addition, multiple studies in recent years have shown that access to early education is a critical component in battling income inequality and all sorts of other social problems.4 It will play a vital role in fostering the adaptability of human beings to a faster-changing world. For many, early childhood education will be a new expense, and government has finite resources, but this is a crucial area of investment in a nation’s ability to compete in a global knowledge economy. Where national governments fail, local governments can succeed. A state, province, city, or town that offers affordable early education can attract smart, talented parents who want to ensure their children have the best chance to succeed. New York City has invested in universal prekindergarten education that brings 70,000 children into the classroom at age four, giving them the opportunity to learn while relieving their working parents of the cost of private school or day care programs.5
But education must extend far beyond youth. The increasing speed of technological change ensures that workers must learn new skills quickly and often, and that workers will be asked to shift jobs, and even industries, much more often than ever before. By providing access, or incentivizing others to provide access, to training and retraining on an historically unprecedented scale, governments can help citizens make most of the opportunities that change creates. In Singapore, a government agency called Workforce Singapore works with businesses to retrain their employees by helping them develop the new skills needed to remain valuable.6
Whether for young children or mature adults, education can’t simply be about sitting in a classroom, important as that experience is. Distance learning will be a critical component of education at every age. The role of government here is to ensure that citizens can afford all these levels of education, and that the technology is available to them. In Singapore, government has created “individual learning accounts” to provide every citizen over twenty-five with money to spend on training in new technologies.7 There will be many more such experiments, large and small, in coming years around the world, and those who lead the way will reap the first benefits.
TAXES
Governments will also have to consider new ideas on taxes. As we’ve seen, the automated workplace of the future will have a lot fewer people in it, and the people who are there will have different skill sets. In an earlier chapter, I noted the unavoidable impact of the coming of automation. How can government use the large-scale advent of automation to bolster its end of the social contract bargain? Many on the European left have called for a tax on robots, but the idea gained a much wider audience when Microsoft cofounder Bill Gates endorsed the idea to pay for the retraining of workers who can be retrained and for the displacement costs of those who can’t. Employ more people and pay higher salaries for those who teach our children and care for the elderly, two jobs for which human beings, not robots, will be needed for years to come. In managing this process, there’s an important role for government, Gates has argued. “If you want to do [something about] inequity, a lot of the excess labor is going to need to go help the people who have lower incomes. And so it means that you can amp up social services for old people and handicapped people and you can take the education sector and put more labor in there. Yes, some of it will go to, ‘Hey, we’ll be richer and people will buy more things.’ But the inequity-solving part, absolutely government’s got a big role to play there.”8
Former U.S. Treasury Secretary Larry Summers has some good counterarguments. What’s special about robots? he has asked. If you’re going to tax their use, why not tax all the machines that industry uses for work that a person could perform? And why discourage useful innovations? In a world of driverless cars, for example, deadly accidents will be much less common, and robotics can help doctors perform life-saving operations that would be impossible without them. So why respond to the businesses who create these valuable tools by raising their taxes? And won’t taxes on technology push companies to move operations to places where governments don’t impose these sorts of penalties? That won’t create jobs at home. Finally, Summers asks, “Why tax in ways that reduce the size of the pie rather than ways that assure that the larger pie is well distributed? Imagine that 50 people can produce robots who will do the work of 100. A sufficiently high tax on robots would prevent them from being produced. Surely it would be better for society to instead enjoy the extra output and establish suitable taxes and transfers to protect displaced workers?”9 There are strong points on both sides, and this is a debate that government should be having in every country where automation of the economy will have a major political impact. That is, everywhere.
As this debate highlights, government must decide whether its tax policies should be designed to boost employment or standards of living for consumers. The two approaches are not at all mutually exclusive, but policy priorities must be coherent to accomplish either goal. To incentivize job creation, governments could tax corporations based on the revenue they earn rather than the number of workers they employ. Or, as Ruchir Sharma argues in his book The Rise and Fall of Nations, maybe government should base tax rates on the ways in which money is made rather than how much is made. To encourage innovations that raise standards of living for consumers, government could impose higher tax rates on income earned from rents than from those earned through innovations. Those who invent useful new things should be treated differently than those who earn money without adding to productivity. All these ideas and more should be part of the debate.
There is also the inconvenient problem of debt. Whether the question centers on indebted nations, like Greece, or indebted citizens, like students paying off the enormous loans they’ve taken out to earn a degree at a time of fast-rising tuition costs, debt has cast a long shadow over the future of national economies and global markets. Rewarding those who spend too much and save too little by writing down debt is a dangerous business. That has not changed. But, as Mohamed El-Erian has warned, “the alternatives are worse.”10 Default serves no one, and a carefully negotiated approach to debt can benefit both lenders and borrowers, ensuring that both have the means to fulfill their own social contracts.
THE GIG ECONOMY
Given the increasing speed of automation of the workplace and other trends, some governments will experiment with the creation of incentives for participation in the “gig economy,” one in which individuals accept a life of freelance work because they don’t want (or can’t find) full-time work for a single employer. This is not a fad: In Europe, half of all jobs created between 2010 and 2016 were based on temporary contracts.11 That’s in part a reflection of an economic slowdown across the EU that left employers wary about full-time hires, but the automation trend suggests there will be fewer new jobs created in the future, even when times are strong. Whether we view the gig economy as a solution or a coping mechanism, it’s here, and the people who participate in it have different needs than those with full-time work.
As people working in gig economy jobs—as Uber drivers, Airbnb hosts, or part-time workers in any field—struggle to build families, buy homes, educate their children, find affordable health insurance, care for aging parents, and save for their own futures, governments, citizens, and companies must find new ways to provide for the basic needs of the individual. In a digital-age economy, it’s not a matter of cutting better trade deals. A reorganization of the social safety net will be required whether we like it or not.
