Abstract
Abstract This paper argues that the traditional social contract that underlies the free market economy has run its course and needs to be replaced by a new contract, based on a new conception of the “empowering economy.” Whereas different social contracts are relevant to different societies, all these contracts have some features in common, addressing some basic human needs that are common to all. These are needs that every thriving society must satisfy. In the presence of current global problems – such as climate change and financial crises – satisfying these needs can also generate the popular approval for multilateral agreements to tackle these problems. The paper identifies three inconvenient truths for the existing social contract: (i) economic performance involves more than material prosperity, (ii) free markets naturally generate inequality, and (iii) human progress rests primarily on cooperation. In response, the paper proposes a new social contract that can be promoted through three policy approaches: (1) policy that focuses not just on material prosperity, but also on personal empowerment and social solidarity, (2) automatic stabilizers that reduce inequalities of economic power and (3) policy that develops the human capabilities of cooperation.
Highlights
Underlying every economic system, there is a social contract setting people’s norms, values and beliefs, thereby determining how people are expected to behave within the economy, what their reciprocal obligations are, and how the economy is to be run
Recognizing a new social contract that is built on these foundations can help recouple economic activity with the satisfaction of fundamental human needs
This new contract is based on a fresh understanding of the responsibilities to be borne by firms, households and governments
Summary
Underlying every economic system, there is a social contract setting people’s norms, values and beliefs, thereby determining how people are expected to behave within the economy, what their reciprocal obligations are, and how the economy is to be run. The norms, values and beliefs that are implicit in any particular social contract must be appropriate to the satisfaction of these needs Focusing on these commonalities among social contracts has become increasingly important, since the integration of the global economy and the massive increase in the world’s human population have generated problems – from climate change to cybersecurity to financial crises – that are global in scope. Tackling these problems requires the countries of the world to cooperate. This new conception provides insights into how economic prosperity (in terms of GDP and shareholder value) became decoupled from social prosperity (in terms of the wellbeing of individuals in their communities) and how economic and social prosperity may become recoupled.
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