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A New Social Contract for the 21st Century

It is high time to rethink the relationship—the basic bargain—between the individual, companies, and our government.

By Neera Tanden

Tagged COVID-19politicsSocial Contract

Every 80 years or so, America faces a crisis that reshapes our government, our economy, and our society. The Civil War came 74 years after our Founding and was fought over the nation’s original disastrous decision on slavery and race. Seventy years later, the country faced the Great Depression, a crisis that ravaged our economy and was redressed by President Roosevelt’s New Deal, which reshaped domestic economic relations and created a strong national government for the first time. Now, 87 years on, the United States is facing a pandemic that has—in a matter of weeks—radically altered our country, with millions of Americans adapting to social distancing and stay-at-home orders, and mass unemployment at Great Depression levels, all driving toward a monumental shift that is restructuring our economy and our social order.

Shared Fate

What is unique about this crisis is the specific way the virus ties our fates together. A single carrier can infect dozens, perhaps hundreds, and can do so when she or he is asymptomatic. That means each of us can be affected by the decisions of any single person. Someone who contracts the virus and chooses to self-isolate can stop the spread. Equally, someone who chooses to interact with others even when sick can ensure the virus continues to transmit. Each transmission can drive an outbreak. Our response to this virus, therefore, is only as strong as our weakest link. It binds our fates together, more so than any economic or natural disaster.

By extension, our health-care system is also only as effective as the care it provides for our most vulnerable people, and our national response is only as effective as the states that take the least government action. Radical individualism doesn’t work during a pandemic because when people in states like Texas or Georgia do not adhere to guidelines and outbreaks develops, it can take all of us much longer to recover.

At the same time, the reality of the virus has exposed massive economic and racial inequalities in our society—from who can get a test to who is forced to go out to work through the pandemic. It has exposed the moral distortions of a market system that so little values those who provide vital services to us in a crisis—ensuring that we all have access to food, health care, protection. In this moment, we are also made keenly aware that these same workers—grocery story workers, nurses, food plant workers—are valued the least by our society, as demonstrated by their low pay.  And as the virus has disproportionately killed people of color, we are bearing witness to the devastating impact of the structural inequalities people of color face in the health care and economic systems, which has made their health more precarious in the face of the virus.

To exit from this crisis, we need to fix the broken parts. And to fix what is broken and rebuild stronger than before, we need a new social contract for the twenty-first century, one that updates the New Deal. It is high time to rethink the relationship—the basic bargain—between the individual, companies, and our government.

The Origins of the Twentieth Century Social Contract

Prior to the Great Depression in 1929, the U.S. economy was an exemplar of laissez-faire economic organization. The rise of industrialization and the transformation of typical work from rural agrarian farming, often individualized, to mechanized urban manufacturing with single businesses employing hundreds or thousands of workers was a radical shift that generated decades of turmoil between workers and employers. These developments were accompanied by an increase in the unequal distribution of income, with the share of the top decile of the income distribution rising to nearly 50 percent in 1929.

The New Deal was designed to respond to this transformation of the economic system from agriculture to industry. Prior to the New Deal, almost all social and employment risks were borne by the individual. If a worker were injured at work, she bore the cost of that injury. If a senior citizen was no longer able to work and had no savings, she would be left destitute. If an individual lost his or her job, there was no compensation or unemployment benefits. For many, it meant hunger and impoverishment.

To remedy that risk, the national social contract written during the Great Depression strengthened the power of the state and provided support for individuals. It reordered relationships to shift away from individual risk toward institutions that provided shared risk instead. At the same time, it weakened the power of the corporation and reduced its super dominant role in the employer-employee relationship. It also redefined the relationship between those two parties by setting new rules for labor markets. The Fair Labor Standards Act established minimum wages and other basic protections, and the National Labor Relations Act legitimized and empowered the formation of trade unions through the establishment of collective bargaining.

The New Deal also redefined the relationship between individuals and the federal government by creating work-related social insurance. The Social Security Act established both unemployment insurance and retirement support for workers and their surviving dependents, as well as unemployment insurance. It also changed the relationship between the federal government and business by expanding federal regulatory authority over banking, communications, Wall Street, and more.

These changes initiated in the 1930s and further developed during and after World War II had a profound and continuing economic impact. Between 1950 and 1980, the share of income flowing to the top decile of the income distribution dropped by 10 percentage points. Production and nonsupervisory workers saw wages increase substantially and in line with overall productivity growth during this period.

In the decades since the New Deal, we have seen some individual risks—but very few—move toward shared risks. Johnson’s Great Society expanded on social insurance by creating Medicare and Medicaid. We also created insurance systems for retirement, unemployment, and sickness for the poor and for the old.

Around 1980, however, we saw a cutback on shared risk with the rise of market fundamentalism. The effectiveness of the social contract began to erode. Distribution of income and wealth reverted to 1930s levels. This about-face in policy has meant that individuals in the United States continue to bear a tremendous amount of risk on their own. The one key expanse of shared risk since the 1980s has been the Affordable Care Act, which provided health insurance to millions of Americans, the largest expanse since Johnson’s passage of Medicare and Medicaid. Yet many Americans still have no health insurance; and millions more have no access to paid leave. If they get sick, they risk impoverishment from medical bills or the loss of pay. Yet what makes the experience of the coronavirus pandemic different is that when someone bears that risk alone we all end up worse off. Those individuals risk infecting countless others. If a sick person works instead of staying at home because she can’t afford to do so, she spreads the virus. If she has paid sick leave that insures all of us against this risk.

That is why it’s urgent to rethink our social contract for the twenty-first century so that we can reduce risks and ensure greater safety in the long run. While the virus is exposing weaknesses that we have not seen, it is also creating the emergency conditions to make the structural change we need.

We must rethink the roles and responsibilities of workers, employers, and the government. If we do, we can foster safety, security and long-term prosperity so that each American gets a better, fairer deal.

Revival and Resilience: A New Social Contract for the Twenty-First Century

Companies

For decades, the dominant ethos of American companies is the theory of shareholder supremacy: the notion that returning value to shareholders, who are often global, is the sole purpose of the firm. Indeed, this became a legal standard in the 1980s for companies chartered in Delaware. Companies openly argue their goal was not to help the country that made their profits possible, but instead to return value to shareholders. This has led to the rise of stock buybacks, a practice whereby companies buy their own shares to reduce those available on the open market and, in doing so, cause the prices to soar. The practice has become so widespread that, after the massive tax cuts in 2017, companies did not invest or build their reserves (for a time like now), but instead bought their own stocks to inflate the price for shareholders.

Shareholders bear both the risk and the reward of their investment in a company. They argue, therefore, that they, and not the workers, should get the profits, because they take the risk investing of in the company. The theory goes that all this is legitimate because the company itself, in fact, exists for shareholders, and therefore has no responsibility to its workers, its consumers or —heaven forbid—the country in which it resides.

But in the sweep of mere days of the pandemic, the idea that companies exist for shareholders and that they alone bear the risk was completely undone. All of a sudden, the United States was bankrolling a half-a-trillion-dollar fund for major businesses. Why? Because we as a country couldn’t let these companies go under. American taxpayers became the underwriter for American business.

What this lays bare is the one-way relationship that American corporations have with America. When it’s good for them, they are global companies whose sole responsibility is toward their shareholders. But in more dire times—when they need a bailout—they suddenly become all-American companies in need of all-American support. And that is why we must rewrite the rules to redress this one-way relationship: If American taxpayers can bail out American companies, then American companies can consider the needs of their employees and communities, not their shareholders alone.

Instead of maximizing shareholder value, companies need to rewrite their corporate charters so they value more stakeholders. In other words, let’s reform corporate governance so that the mission of companies is to focus on workers and their communities, as well as shareholders. Senator Elizabeth Warren has proposed an Office of United States Corporations within the Department of Commerce. She would require any corporation with revenue over $1 billion—only a few thousand companies, but a large enough share of overall employment and economic activity—to obtain a federal charter of corporate citizenship. The charter would tell company directors to consider the interests of allrelevant stakeholders—shareholders, but also customers, employees, and the communities in which the company operates. This would shift the role of companies away from shareholder-focused entities to organizations with some responsibility to the country and its citizens who provide them with so many benefits. A company that focuses beyond its shareholders to its employers and community is more likely to think of its workers as critical assets and not disposable costs, hold on to employees longer, and perhaps increase wages rather than cut them.

It’s also important to address the level of taxes that companies currently pay. Corporate tax has fallen from more than a third of the federal revenue in 1945 to just 6 percent in 2018. Trump’s radical cut to corporate taxes in 2017 was the most recent hammer-blow to exacerbate that decline. Therefore, if we are to raise taxes to pay for new social programs going forward, the first in line to pay a larger share should be companies that got a massive tax break so recently.

Individuals

Universal Benefits Protect All of Us

Unlike most industrialized countries, the United States stands alone in not ensuring that all its citizens have health insurance coverage, paid leave, and access to paid sick days. In our country, for the most part, these benefits are options that large employers often offer but are not required to. That changed to some degree with the passage of the Affordable Care Act in 2010. Now, millions more people get health-care insurance even when their employers don’t offer it.

Nevertheless, despite the progress that has been made, the nation’s lowest paid workers are the least likely to benefit from those supports. Those workers are more likely to be people of color and women.  We live in an upside down society where the highest paid workers get important benefits like generous health insurance and paid leave—and the lowest paid employees get none.

The coronavirus makes this system not just immoral, but dangerous. Lower wage workers who don’t have access to paid leave or sick days are likely to be forced into making a decision between their health and economic hardship. However, given the nature of this virus, each decision doesn’t only affect only that person. It affects dozens of people, and possibly hundreds or even thousands. When one person at a meat packing plant goes to work sick, he can infect everyone at the plant. And when everyone at that plant is sick, they can infect the food supply chain. This is the risk we all share when we place the onus on the individual during a pandemic.

That is why, in the face COVID-19, it is time for the United States to ensure that everyone has health-care coverage, paid leave, and sick days. We can do this in ways that respect the choice and pragmatism of the American system. Nevertheless, it better ensures that all workers get to see a doctor when they are sick, that they can stay home when they have symptoms consistent with COVID-19, and that they experience no economic penalty when they put their health and the health of other Americans first.

We have the ability to provide health-care coverage to all Americans, while at the same time ensuring that people can keep private insurance through their employer if they wish. The way forward is Medicare Extra, a program that would set up a public insurance option via Medicare that would provide much more affordable health care, with coverage for dental, hearing, and vision, all with no deductibles and minimal copays. The plan would achieve universal coverage, be open to anyone, and would incorporate the ACA and other individual coverage. It would also allow people who work for large employers to keep their coverage if they chose to do so. For those who are uninsured, as well as those who are currently purchasing insurance through the Obamacare marketplaces, or who are Medicaid beneficiaries or newborns, they would automatically be enrolled in an improved Medicare program, one that would continue to cover seniors as well. And this system could be put in place for a fraction of the cost of Medicare for All.

But addressing direct health-care provision is only part of the battle when it comes to workplace benefits. During a pandemic, we all have an interest in people not working when they are sick. Yet the opportunity to stay home and recover is a lot easier if you have access to paid sick leave—a benefit that 24 percent of U.S. civilian workers, or roughly 33.6 million people, do not have, according to the federal Bureau of Labor Statistics. This is why we need universal paid leave in the United States. We should ensure paid time off for all workers to care for themselves or a sick relative. The same, of course, goes for the birth of a newborn or for an adopted child. This is also critical to ensure that, during a pandemic, people who are sick quarantine themselves. This national paid leave program should apply to workers across the United States, regardless of their job or where they live.  By doing so, we’ll also redress the inequalities in a system where fewer workers of color have access to the security of paid leave than white workers do.

Revival: Jobs Guarantee for the Caring Economy

The virus can also reshape the social contract in terms of the kind of economic security we as a country offer every American. But it also must reshape the kinds of opportunity we offer them as well. We can do that by changing the nature of the social contract so that the government has a real role in ensuring decent jobs for all Americans. In the seeming blink of an eye, Congress chose to supplement wages in the face of this crisis, but as we see the pandemic move from an urgent crisis of short duration to a longer term catastrophe with far greater and longer lasting economic dislocation, we must fundamentally rethink our government’s role in directly supporting jobs.

In this moment, with 20 million people out of work, the product of a massive drop off in demand, the way out of this economic depression is to create a fair, just jobs agenda. That means we must invest in a range of jobs that will make our economic recovery more secure by better responding to the virus and ensuring a safer reopening in the immediate term. And in the long term, we must invest to ensure we better prepare for—and avoid—future national catastrophes. Both areas of investment will ensure that we maintain demand through our recovery, which is central to revitalizing an economy that still relies on domestic consumption for a majority of its economic activity and growth.

Right now we have 21 million Americans who are unemployed. With innovations in unemployment insurance, many of those workers are essentially furloughed and hopefully can return to work or perhaps already have. Now is the time to change our unemployment system to a reemployment system; we can do this by subsidizing employers who keep their employees attached to work as the economy has shut down. This model is working effectively in Germany and Denmark to keep unemployment low and workers attached to their employers through the pandemic, which will mean far less economic dislocation in the long term.

These workers have been in services, not manufacturing. While every sector has been hurt, the truth is that our economy is really in a service sector depression. So let’s have a jobs plan focused on the service sector that brings people back into the workforce in a way that can ensure we are safe. After 9/11, we hired tens of thousands of transportation safety workers and created a whole new department to keep us safe. Now we have to think of a another bold strategy for a new form of safety.

The first thing we must do is to hire 200,000 new health-care workers for testing and tracing through a new “National Health Service Corps.” We need to test 500,000 to a million people a day if we are going to effectively manage this virus over the long term, especially if, as many predict, it continues and grows in the fall. As of early summer, we are testing at a rate of roughly 400,000 a day. New health personnel can contribute to testing on a massive scale and also do the detective work when it comes to contact tracing. As we’re learned from previous outbreaks, contact tracing is a critical element of containing the virus; and with the large-scale racial disparity of virus impact—African Americans are over two times as likely to die from COVID-19 as whites—if we concentrate our hiring focus on those who come from communities hardest hit by the virus, then we can hire health personnel that have built-in relationships in these communities, stifling spread. Not only would such a program provide a vital frontline in combating the virus, it would put crucial paychecks in workers’ hands, boosting demands for goods and services.

Second, we need a fleet of workers to ensure the safety of public spaces throughout the country. Many countries, including Israel, have been hiring staff to continually clean public transportation, public locations, and frequently traveled locations. These workers ensuring our safety as we reopen through radically improving public sanitation deserve decent pay for the vital work they do.

Beyond the immediate need for hiring in the health-care space, we also need to consider the intermediate terms. We are going to have to socially distance for some period of time. Other industries will need recalibrating. The reopening of schools and childcare facilities, for example, are critical to ensuring that parents can work. But to safely do that, we must keep children more spread out; that means increasing staffing ratios by hiring more teachers and more childcare workers per child. The same is true for longterm care facilities. To be safe, we need wider distances between seniors and staff. That means more space between workers and more staff per senior. Ultimately, it means hiring many more people in the caring economy. Caring jobs in health care and child care are disproportionately performed by people of color and women; boosting investments in the caring economy will likely ensure we rebuild back more failry for all Americans. And as we invest more in childcare and in our schools, more educators per child will also mean a higher quality educational experience for children, which can improve outcomes well into the future.

Resilience: Directing Domestic Production

Job creation should, however, extend beyond the caring economy to critical needs in production. During this crisis, Americans have experienced the vulnerability of a supply chain where market efficiencies have created too few producers of goods. For example, at one point, testing slowed down because there was essentially one domestic producer of the appropriate swabs for the coronavirus testing kits. That translates to a world where more people die because we don’t have adequate testing and, as a result, we don’t have the ability to contain the virus.

This pandemic has exposed inherent weaknesses in an all-too-fragile globalized economy where huge demand spikes cannot be met within the United States. Instead, states are begging countries like South Korea for tests. Last month, they were begging China for ventilators. Take a moment to think about what that says for the state of our national economy. The Washington Post reported in May that a company in Texas offered the Trump Administration to increase production to make an additional 1.7 million N95 masks a week in the United States. The head of the company viewed “the shrinking domestic production of medical masks as a national security issue” and wanted to create a domestic supply. The Trump Administration turned the company down.

Domestic production is going to be the only kind of production our country can really control. If the pandemic is like a war, then we must treat it as such. Going forward, we need to use the Defense Production Act to mandate that the private sector mass-produce the necessary arms in this fight. Where there is no domestic capacity, the government should create public-private organizations to do mass production of all the apparatus needed for testing, personal protective equipment, cleaning supplies, and all essential goods required for our country to protect itself and fight the virus. At a time when Trump is increasing the war of words with China over the coronavirus, we are in the in the position of relying on China to produce the essential products that protect us from the virus. That vulnerability makes little sense. The government has set up companies before and should do so now if necessary to produce the whole cascade of supplies to fight the virus, prepare for a possible second wave, and establish the mass testing and tracing we need to contain the virus. And this demand would also create new hiring opportunities for hundreds of thousands of Americans.

Building resiliency also means working to avert future disasters. That’s why we should build back in a way that puts people back to work but also addresses our climate needs. We have the opportunity to make changes now that not only move us toward a more sustainable model, but one that is more robust and better equipped to handle future disasters. The oil and gas industries are collapsing because of a global drop in demand and a runaway fracking boom that allowed oil and gas companies to become overleveraged. As we rebuild our economy, let’s also think through how we do so in a healthy, clean, and safer way to avoid the next catastrophe.

Renewable energy is 100 percent domestically produced. It also doesn’t generate the pollution that has sickened communities for decades with greater instances of asthma, lung disease, and cancer. Many of these same communities are the ones hardest hit by the coronavirus, which has been most dangerous for those with underlying health conditions. The connection between the effects of pollution and COVID-19 are real and the result of a system that does not value clean air and water as a right for everyone.

A clean rebuilding of the country must increase public transit so that people can be spaced farther apart and need not be in close quarters. Put people to work retrofitting public buildings, workplaces, and elsewhere to be more energy efficient and resilient to extreme weather. Build charging stations and the grid that’s needed for renewables. And we must make sure these jobs are unionized with decent pay.

This crisis has also laid bare the supply-chain challenges of a global economy. To build for a stronger future, we must bring back the manufacturing sector to support a clean economy. Solar panels, wind turbines, and batteries for electric cars can and should be built in the United States by workers supported by good paying, high quality jobs.

During the New Deal, the Roosevelt Administration’s Civil Works Administration hired 4 million people in the space of two months, which would be roughly 10 million people in today’s economy. FDR and his aides recognized that mass unemployment creates a downward spiral for demand that makes economic recovery nearly impossible. The CWA workers laid 12 million feet of sewer pipe and built or improved 255,000 miles of roads, 40,000 schools, 3,700 playgrounds, and nearly 1,000 airports. Numerous parks, public buildings, and projects were built that still form the cornerstones of communities—small, and large, rural and urban—around the country; New Deal projects like the Tennessee Valley Authority as well as the CWA contributed to American prosperity for decades to come.

What are the public investments we can make today to put people to work and address the needs of our country? One area is education. We can put people to work now to refurbish schools all around the country. But we can go beyond that to imagine a series of new public universities to meet the growing demand for higher education in the decades to come. We can build a series of public universities throughout our country in rural and small town parts of states that haven’t seen growth. Universities also create a positive economic growth cycle in these communities.

If we are willing to rethink our social contract so that our government has a responsibility to ensure decent work, we can better ensure a safer economic recovery, build up demand, and support a faster and fairer recovery.

In this moment, the free market fundamentalism that has captured so much of our national discourse will mean longer and greater economic pain and human suffering. Providing a stronger government role in job creation will revive our economy more quickly and more fairly.

A new social contract provides new responsibilities for companies, individuals, and the government in a reformed compact that reflects the needs of a modern economy in the twenty-first century. It recognizes that forcing workers to work in a meatpacking plant without tests for the coronavirus, without resources if they are sick, or even personal protective equipment, is the modern day equivalent of Upton Sinclair’s The Jungle. Instead, we must rethink our economic relations with the perspective of the fate we share together in the face of this pandemic. When one American is forced to choose between her health and her livelihood, the pandemic makes that a threat to all of us.

This crisis has shown that the federal government cannot simply leave states to their own devices. A libertarian response is a failed response. It is one that would—and has—left families out in the cold, businesses unsupported, and hospitals scrambling in competition with one another for supplies. Collective concerted action, across all levels of government, is vital. And this is not a new concept. When our country has faced its most pressing challenges in the past, an all-hands-on-deck approach has always proved to be the answer.

The Great Depression was the most catastrophic financial disaster our county had ever seen. From 1929 to 1933, America witnessed extraordinary hardship. At its lowest point, some 15 million Americans were unemployed, nearly one in four workers at the time, and half of the country’s banks had failed. President Herbert Hoover encouraged the private sector to increase spending and he tried to pressure the Federal Reserve to cut interest rates. Yet he stopped short of any federal relief for the unemployed, ceding that responsibility to state and local governments. That libertarian approach only served to perpetuate the crisis as demand dropped and the economy spiraled downwards. It took a change in administration and a deeply ambitious federal economic plan, a plan far beyond what the country had ever undertaken before—President Roosevelt’s New Deal—to finally turn the tide on the economic fallout. Roosevelt’s actions show that at a time of such unparalleled crisis, the best course is for the federal government to step up and coordinate a response across the country.  Today, we have an opportunity to build on the New Deal, creating a new social contract that is redresses the economic andracial inequality we’ve accepted for far too long.

The Trump Administration has offered the precise opposite. Where we need a concerted national plan to fight the virus spread, we have 50 state plans with many based not on science, but politics; where we need a reliance on facts and evidence, we have reliance on voodoo medical claims and conspiracies; and where we need competence and public-mindedness, we have incompetence and grift.

Perhaps, in November, we will see that President Trump has become the Herbert Hoover of our day. Not only may this crisis bring in a new President, but we could also see a new wave of progressive reforms in the face of a failed theory of libertarianism, the ideology of a dying era. The virus has highlighted glaring flaws in our current system. And what comes in its place is a reimagined social contract that not only leads us into recovery, but paves the way for a new future, one that reconfigures the relationship between government, corporation, and citizen, and presents a more fair and just way forward.

Read more about COVID-19politicsSocial Contract

Neera Tanden is president of the Center for American Progress. 

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