Renewing the American Social Contract: A New Vision for Improving Economic Security

Policy Paper
April 29, 2013

[Click here to download the full collection, Renewing the American Social Contract: A New Vision for Improving Economic Security, as a PDF.]

America’s social contract needs to be reinvented for the twenty-first century. Our inherited social contract — the overall system of economic security for individuals as children, working adults and retirees — was mainly built during the New Deal era. In the years since, long-term economic and demographic changes have eroded its foundations, even before the crisis of the Great Recession further tested its strength.

Some elements of the social contract, like Social Security and unemployment insurance, have held up well, and deserve to be preserved or perhaps expanded. Other parts have fallen away, like disappearing employer defined benefit pensions, and need to be replaced by programs that fit the needs of today’s workers and economic structure. Meanwhile, arrangements like individual reliance on tax-favored private savings accounts have failed in their objectives and should be reconsidered.

The current political environment has raised additional questions about the social contract. In an era of constrained budgets and the shifting of power from labor to capital, there has been a concerted effort to shrink or eliminate many of the cornerstone public elements of the social contract. The repeated refrain that “we cannot afford” these programs has tended to dominate public debate, at the price of shutting down discussion about how to realize the underlying principles of the social contract in today’s conditions.

It is to promote that public discussion that we have commissioned leading thinkers to propose ideas for the next social contract in America. The essays in this collection come from authors of many different backgrounds, ideologies, and experiences, and as a result their solutions do not always align. But taken together, the essays in this collection share certain themes.

The most important theme is that the next social contract should be broader, simpler, and more inclusive. Instead of layering small programs on top of previous small programs, it would be better to consolidate complex existing policies into fewer programs that are more transparent and whose benefits and burdens are more equitably shared.

Much of the existing social contract was designed to achieve goals through opaque, indirect methods that would allay political opposition to “big government.” The complexity of the system is compounded by the fact that the social contract has been created in spurts of reform through piecemeal programs run by a dispersed set of actors at different levels of government. This method of policymaking, dubbed “kludgeocracy” by Steven Teles (Kludgeocracy: The American Way of Policy, Page 2), has not served Americans well. Steven Attewell details how this system came to be and explains the shortcomings of the employer-based system on which we have come to depend (Competing Visions of the Past, Page 20).

The American social contract can achieve its goal of an inclusive economy only if the middle class is able to grow along with the economy. Yet American wages have been stagnant for more than a generation, and wages in the service industries that are gaining the most jobs in a changing economy are often insufficient to ensure a decent standard of living. Jeff Madrick argues that the current low-wage regime across the globe – part of an economic strategy focused on mercantilism – has been a key factor in creating an unstable world economy. The only sustainable path to prosperity is through wage-led growth (The Case for Wage-Led Growth, Page 36).

In a demand-strapped economy, higher wages would allow more people to meet their needs and increase consumption of basic goods and services that improve standards of living and contribute to a stronger economy. Robert Kuttner exposes the dangers of the current weak economic recovery and proposes a strategy to combat weak economic growth with public investment in the service sector that will increase wages, create better jobs, and boost the economy (Economic Recovery and Social Investment, Page 67). Ron Unz lays out the case for a higher minimum wage in the United States (Raising American Wages…by Raising American Wages, Page 59).

But higher wages alone are not enough. As an advanced nation, we have a moral obligation and an economic interest in creating a social contract that will adequately and ably support its citizens when they cannot work, because they are ill, disabled, young or elderly. When it comes to the delivery of benefits to citizens, the fashionable trend toward combining private provision with publicly-subsidized vouchers needs critical examination. Mike Konczal examines the pros and cons of public provision versus vouchers and when it makes sense to have public programs rather than vouchers (No Discount: Comparing the Public Option to the Coupon Welfare State, Page 11).

Perhaps the most common rebuttal of an expanded vision of the social contract is the alleged need to cut back due to the aging of the population. But America’s demographic changes do not, and should not, preclude the possibility of a stronger social contract. In his essay, “Debt, Deficits, and Demographics” (Page 135), Dean Baker explains the true nature of our changing demographic picture and why we can afford better policies even as the baby boom generation retires.

If we want to guarantee a decent retirement for the nation’s seniors – a goal that has not been met through other avenues – we need to be reinforcing and expanding, rather than contracting, Social Security. Steven Hill, Robert Hiltonsmith, Joshua Freedman and Michael Lind propose an expanded version of Social Security that uses a two-tier combination of a universal flat benefit with an income-based component to move the country back toward a more stable system of retirement security (Expanded Social Security, Page 78). Aside from Social Security and Medicare, many of our current social programs suffer from an overly-complicated design that divides power, responsibility, and oversight among the federal and state governments. When it comes to large pieces of our social insurance puzzle a single, national program would be better able to address the flaws of the system. Greg Anrig proposes the nationalization of Medicaid (The Next Priority: Federalize Medicaid, Page 100) and Steven Attewell does the same for unemployment insurance (Front Line of Defense, Page 114).

The next American social contract should also correct a major failing of today’s arrangements by ensuring adequate care for the young and their parents. The United States is the only developed country in the world that does not provide basic paid leave for its workers, and paid family leave policies have proven successful at a state level within the U.S. Lauren Damme proposes to correct this flaw by ensuring paid family leave for all workers (Paid Family Leave, Page 120).

Implementing broader public programs in some cases would require more revenue, but it is possible to create stable, sustainable, and fair funding mechanisms that need not undermine economic growth. A value-added tax (VAT), as Bruce Bartlett notes, has successfully formed the basis of social contract financing across the developed world and used to be widely popular among conservatives in the United States (Tax Reform that Works, Page 155). A VAT need not be regressive in its impact if it is used to finance progressive social programs. In a thorough overview of the design of modern social contracts, Peter Lindert shows that a flatter tax used to fund progressive spending can be both sustainable and progressive without harming growth (Social Contract Budgeting, Page 167).

As Lindert explains, historical data show that higher social spending has not hurt economic growth or competitiveness while raising the quality of life. A reformed social contract that lifts people out of poverty and sustains the middle class would be an economic boon, and more stability and support over the course of a lifetime will allow increased entrepreneurial risk-taking and innovation.

In fact, the public does not see a tradeoff between a stronger social contract and a better economic future. Bruce Stokes analyzes public opinion research and finds support for the types of broad, universal programs described in many of these papers (Public Attitudes Toward the Next Social Contract, Page 186).

The purpose of the ideas and policy proposals in this series is less to provide definitive answers than to ask the right questions about the challenges facing American workers and families. Even if they disagree on other issues, most of the contributors to this symposium reject the conventional wisdom which holds that the next social contract must be flimsier or narrower, and that there must be painful tradeoffs between either government supports and economic growth or between the old and the young. And even if, in some cases, it requires more government regulation or spending, the authors in this series tend to agree that rather than continue to create increasingly complex and opaque programs, we need to build a social contract that is simpler, fairer, and more efficient.

Click here to read the full collection, "Renewing the American Social Contract: A New Vision for Improving Economic Security.