Covid and the climate crisis show why we need a new social contract between old and young
Covid-19 continues to bring many inter-generational tensions to the fore. Older people bear the brunt of the disease’s impact on health; younger people have to make economic and social sacrifices to protect them. But the pandemic is just one reason why the social contract between the generations is under pressure.
Within families, the social contract between the generations is easy to understand. Parents want to give their children the capabilities and means to have a good life; children want their parents to have a comfortable old age. But at a societal level, the social contract between the generations is more complex. The legacy we leave to future generations has many dimensions – the stock of human knowledge and culture, inventions, infrastructure and institutions, and the state of the natural world. We owe a great deal to previous generations and most would agree that we also owe something to future generations we will never meet, and that each generation should leave the next at least as well off, and preferably better off than they were.
In many advanced economies, those born between the end of the second world war and the early 1960s benefited from decades of sustained economic growth, secure jobs with benefits and major gains in health and social conditions. The generations that followed have faced a world of more flexible and precarious work, rising house prices and a period of fiscal austerity after the 2008 financial crisis that reduced social spending in many countries. Many carry large debt burdens from student loans and credit cards, which limit their ability to afford a mortgage to buy a home, or start a family. The income gains and the prospect of security in old age experienced by past generations have stalled and, in some countries, reversed. The risks of poverty are shifting from older people to younger people. Today, there are many in advanced economies who believe the next generation will be worse off than their parents.
Meanwhile, so-called Generation Z (those born after 2000) are at the forefront of the youth protest about the climate crisis. “You will die of old age; we will die of climate change,” read the
sign of a young protester at the climate strike in London in September 2019. These young people are not convinced that older generations are doing enough to leave them with an inhabitable planet or viable livelihoods.
How, then, can we rebalance the social contract between the generations? The best way we can improve the economic prospects of future generations is through education. A massive investment in early years is the most effective way to equalise opportunity for all young people. Ideally, each young person would start with an educational endowment to enable to them to develop skills throughout their lives. More investment in re-skilling is also needed to enable people to adapt as jobs change over time. The resulting economic gains would also help pay for the elderly care needs of an ageing population and make debt more sustainable in the future.
To reduce the fiscal burden on future generations, today’s older people will need to work longer. In most middle- and high-income countries, workers today can expect to spend about a third of their adult life in retirement. The basic problem is that the years in retirement relative to the years in work have grown too much. By 2060, all the G20 countries will have shrinking populations and the number of people over 65 who need to be supported by the working age population will have at least doubled. To avoid an undue burden on today’s young people, we need to link retirement ages explicitly to life expectancy, so that the ratio of time working and time in retirement comes into better balance. There must be a sensible way to finance social care that prevents destitution in old age and asks the better off to contribute.
We must also do as much as we can to redress environmental damage. A good start would be to eliminate the $4-6 trillion in annual government subsidies to agriculture, water, fisheries and fossil fuels that actively encourage the exploitation of the environment. These subsidies mean it is not just free for companies to deplete the natural world, the taxpayer actually pays for them to do it. There needs to more investment in conservation and restoration of the biosphere, such as planting trees. Current public and private spending on conservation is about $91bn, less than 2% of what is spent on subsidies to degrade the environment.
The next step is to measure things properly: where market prices do not convey the true value of environmental services, we must find other ways to factor them into our calculations and decisions. Finally, governments should use fiscal policy to change incentives, such as taxing carbon or incentivising green technologies.
Finding cohesion between the generations is complicated by the fact that older people tend to be more effective at exercising political power than young people. Research has shown that the share of older people in the population has a significant impact on the pattern of public spending. Put simply, more older people means more spending on pensions and less on education. Older voters are more averse to policies, such as low interest rates, that are intended to increase economic demand and maintain full employment but that lower returns on savings and risk more inflation. Having retired, they generally care less about unemployment, relative to the average citizen. Political parties in ageing societies are increasingly forced to cater to these demands.
One way or another, we must find a way to give more weight to the voices and interests of younger and future generations. Otherwise the social contract that shapes the future will be designed exclusively by those who will not live to see it, without the input of those who will. Investing more in education and skills, finding ways to manage the costs of pensions, health and social care, and redressing environmental damage would be enlightened investments by one generation in the next: this would benefit all of us and provide a new social contract for our time.
•Minouche Shafik is director of the London School of Economics and Political Science, and the author of What We Owe Each Other: A New Social Contract