The recipe for a new social pact

Minouche Shafick, of Egyptian origin, is the rector of the School of Economics and Politics at the University of London, was vice president of the British Central Bank and has directed all kinds of international aid institutions. Minouche wrote “What we owe each other: a new social contract.” The text tries, successfully, it seems to me, to establish a series of recommendations that help to establish a new social pact, on the part of the State and the companies, with society, to reverse the negative effects of the liberal reforms, which privileged labor flexibility and reduced tax rates, at the cost of less job security and lower service coverage. Shafick also emphasizes that not having covered the needs of working women and reversing discrimination against minorities has not only included costs in terms of equity, but also productivity due to the loss of talent and human capital that discrimination generates. Between 20 and 40% of productivity gains in the United States can be attributed to white men losing their monopoly on the best jobs, as women and members of ethnic minorities gained access.

We live in a society in which people increasingly assume risks individually, so a new social pact requires sharing the risks among all and guaranteeing the development of everyone’s potential. This implies early childhood care, financing a care system, compensating lower-income people with transfers, establishing minimum pensions, job retraining for adults, guaranteeing acceptable packages of educational and health services, generating incentives to reduce the that we are interested in reducing, such as obesity or carbon emissions, as well as training people in new technologies. Strengthening competition policies are also important in today’s monopoly-dominated economy.

The new pact has to do with improving the distribution of income, but also with investing to increase the productivity of all, which would translate into higher income in general. Labor flexibility, necessary in new jobs, many of them technological, must be accompanied by new forms of job security. Labor benefits must transcend the basic employment contract and mechanisms such as the minimum wage and unemployment insurance must be strengthened. Governments have to invest in human capital and encourage companies to invest in tools that increase the productivity of workers. The digital revolution is an enormous opportunity in this sense, but also to expand the accessibility and scope of public services. Acting against climate change and stopping the loss of biodiversity must be part of an intergenerational social contract, in favor of young people.

All this can be financed if income taxes are increased, which reduced their marginal rates and the collection with respect to the product during the period of liberal reforms. Tax systems must be rebalanced, which now favor capital more than labor. Tax systems can definitely be more progressive and tax collection. It is necessary to establish minimum taxes on the profits of multinational companies, which take advantage of tax havens or countries with reduced rates to report their profits. Middle-income countries have huge areas of opportunity to increase their tax collection. It is also possible to restore or put into operation taxes on wealth and inheritance. It is necessary to tax carbon emissions and other pollutants, to increase income, but also to reduce environmental damage through incentives. It deals with ideas that aim to solve the current crisis of democracies and their economies, which, not because they are general, stop being correct and useful, if they are landed considering the context of each nation.

@vidallerenas