The path from Covid-19 to a new social contract

The path from Covid-19 to a new social contract

  • Pandemic offers world leaders an opportunity to rebuild faith in liberal democracy

To employ an old world metaphor, entire forests have been felled in the cause of predicting how Covid-19 will change the planet. This before anyone knows if, five years from now, we will still be hiding from the virus or whether it will have been consigned to the epidemiological textbooks by an effective vaccine.

The heavy first-round costs, human and economic, speak for themselves. They need to be measured against the options that are opening up for policymakers. Left to itself, the pandemic could tip many of the world’s rich democracies over the populist edge on which they have been teetering since the 2008 financial crash. Paradoxically, it also offers a route for political leaders to rebuild faith in liberal democracy.

There is no mystery about the populism that saw Americans vote for Donald Trump as president, Britain to back Brexit and voters across Europe to flock to parties of the far-right and left. The stability of the postwar ancien régime rested on a social contract that underwrote steady rises in living standards. This varied among nations, was far from perfect and never universal, but its legitimacy was rooted in a broad perception of “fairness”. Successive generations could expect to be more prosperous than the last.

Trust collapsed with the 2008 crash and the austerity-induced recession that followed. The fracturing of the contract, however, had started much earlier with stagnant median incomes, rising job insecurity and widening income inequalities. Low-income, unskilled workers were left behind by technology, rapid shifts in comparative advantage and the slavish devotion to unfettered markets of policymakers mesmerised by something called the Washington consensus.