Davos Agenda

Why we need a new social contract for the 21st century

In parts of the global south, social safety nets remain under construction. A new social contract fit for contemporary society would address this challenge.

In parts of the global south, social safety nets remain under construction. A new social contract fit for contemporary society would address this challenge Image: Unsplash/Adli Wahid

Aron Cramer
President and Chief Executive Officer, BSR
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Davos Agenda

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  • The social contract on which society is based originated in the post-war era and is no longer fit for purpose.
  • New social contracts could help bring about a more equitable prosperity.
  • These new social contracts should be based on key principles including stakeholder capitalism, skill development, economic security and a transition to net zero.

A social contract is a real or hypothetical agreement between a government and its people setting out the rights and duties of each. The social contracts on which society is currently based largely emerged in the post-war era, and are no longer fit for purpose. As we consider the impact and lessons from COVID, new social contracts could help bring about more equitable prosperity.

In the global north, social contracts in many nations were formulated for a mid-20th century world that no longer exists. Lifetime employment, fixed benefit pension plans, and the traditional nuclear family have all faded, just as lifespans have expanded. In many parts of the global south, social safety nets remain under construction, despite the growth of vibrant emerging economies and societies, leaving the social contract in many countries incomplete.

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A social contract fit for contemporary society should address three fundamental challenges. First, familiar elements of the safety net, such as social insurance and pension benefits, need to address a new set of circumstances, such as the need for people to reskill during much longer working lives. Second, social contracts must be relevant in a world being reshaped by technological revolutions, and the transition to a clean energy economy. Third, a modern social contract must tackle the inequality and exclusion that plague societies in all corners of the world.

Modern social contracts should be based on five core principles:

1. Stakeholder capitalism

Market rules are badly in need of reform. The old rules have promoted short-term thinking that has allowed inequality to proliferate, and incentivized rampant consumption of natural resources. We must build on the momentum in reforming reporting and disclosure rules, including the establishment of the International Sustainability Standards Board and the Task Force for Climate-Related Financial Disclosures as well as other measures, including those embraced by the World Economic Forum’s International Business Council. Businesses must lead by example by addressing the growing gap between executive compensation and the average worker: in 2018, CEOs in the US took home more than 250 times the pay of an average worker; in several European countries, the multiple exceeded 150 times. These disparities have undermined trust in the market economy.

2. Skill development and career pathways

Our social contracts remain focused on a career and work model with three separate and clear sequences: education, work, and retirement. This no longer reflects either peoples’ needs or objectives. A greater proportion of today's 5-year-olds may live to the age of 100, which will require a major redesign of working life. The new contract defining the world of work should allow companies the flexibility to reshape their workforces to enable innovation and new hybrid ways of working, and enable workers the flexibility to access career breaks and training that will help them thrive in a changing world.

Social contracts drawn up in the post-war era did not address modern levels of inequality and longer life expectancy
Social contracts drawn up in the post-war era did not address modern levels of inequality and longer life expectancy.

3. Economic security and mobility

The last two years have shown how fragile social safety nets are in many countries. This was the case been long before COVID-19 emerged. Economic mobility has declined in many countries; in the US, only 8% of children raised in the bottom 20% of income distribution are able to climb to the top 20% as adults, while the figure in Denmark is nearly double at 15%. There are exceptions, as noted in the World Economic Forum’s Social Mobility Index, notably in the Nordic countries. A new social contract needs to re-establish social and economic mobility and security.

4. A just and inclusive transition to net zero

Climate justice and the just transition were recurrent discussion items at COP26. A new social contract must face this head on, meeting the needs of both those disproportionately harmed by the current energy system, and also those who face displacement in the transition. This means providing assistance for the displaced, investments to ensure that clean energy is accessible and affordable for all, and urgent action to improve public and environmental health affected by dirty energy.

5. Responsible use of technology

The rise of disinformation threatens the individual privacy and democratic processes on which functioning societies depend. A recent study found that roughly half of US adults (48%) now say the government should take steps to restrict false information, even if it means losing some freedom to access and publish content. What’s more, there is considerable evidence that the flaws in the information ecosystem disproportionately impact the most vulnerable, especially the young and the economically dispossessed. Governments have struggled to move as quickly as the pace of innovation, and would do well to expand their expertise, and create special-purpose entities to find policy solutions.

None of this can or should be delivered by any single sector, nor by any single model. Governments have the essential role in shaping a new social contract. Business has much to gain by helping ensure that market economies retain the license to operate. Civil society has a more prominent role than it had in the middle of the last century. Collaboration is essential, and all must play a role.

The benefits of a new approach are compelling. Modern social contracts can facilitate economic opportunities and mobility for all; secure the societal consensus needed for a decisive approach to the climate crisis; enable technological innovation in service of social progress, and foster more inclusive societies.

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