I was struck over a year ago by comments by the CEO of General Motors who, in defending the company’s appeal for relief of its crushing legacy costs for health care and retirement benefits for its retirees, in effect said that it should not be expected to bear these costs in their entirety because they are part of the social contract that has been in place for the past sixty or so years, in which GM has been a loyal participant. My initial reaction at the time was that, while he might have a good point, we have long known that we can no longer afford this deal, and it is his responsibility and that of his peers to provide the opinion leadership to replace this contract which has been broken for quite some time, rather than allowing the costs to be socialized by off-loading them to the taxpayers. Roll the calendar forward, and we now have a number of people talking about this broken social contract and predicting that it will likely be the most important domestic issue in the Presidential election of 2008. It’s about time.In a recent article, David Brooks brought my attention to the work of two people who have insightful things to say about this broken contract and what should be done to overhaul it. Jason Bordoff of Democracy Magazine, a Brookings Institution affiliate, has a slightly left of center take on the problem, which he describes as the “two-sided reality of the 21st century economy”, namely that first, in an era of growing economic insecurity it must be recognized that people will not be willing or able to assume all of the inherent risks of globalization and the dynamics it produces without some assurances that there will be downside protection from job loss or dislocation and periodic non-insurability, and second, that, as companies like GM have learned, these very forces have already rendered obsolete as economically unviable the arrangements that assumed long-term employment with one employer as a significant part of the social contract. Bordoff envisions a New Social Contract that would marry economic growth and security through new and sustainable roles and responsibilities for government, employers, and individuals. Government would provide two levels of protection—basic economic security (that assumes the overhaul and resulting long-term viability of Social Security, Medicare, and Medicaid—no mean feat) and “smarter” regulations and “better designed incentives”, without necessarily involving expensive new programs. I wonder. Also, employers would be required to serve as conduits for health care and retirement plans, but would no longer necessarily be the primary sponsors, and individuals would take more responsibility for supplementing the basic level of protection provided by the government. I fail to see how this approach will greatly alter the underlying dynamics of the current system, but given the credibility of Brookings, it will no doubt get a full hearing.
Another approach is from Stuart Butler of the Heritage Foundation, and it has the attractive distinction of taking full account of the organic nature of American society, which in no way mirrors that of European tastes for single-payer, statist systems that fail to recognize American pluralism and individualism and the fact that the primary American social relationship is not between individuals and their government.
DeTocqueville long ago recognized that the distinctive nature of American society is in its voluntary associations and social networks—churches, unions, community groups, etc.—that provide buffers between individuals and their government. It is these organic associations that Butler believes should be the conduit for the transformation to a new distinctly American social contract. He would combine this concept with state insurance exchanges allowing portability, reform of tax treatment of health care insurance, and phasing employers out of health care insurance sponsorship. His is no purely libertarian idea and he too recognizes that the new contract must have a foundational element of basic security to cover the new risk profile. However, according to Butler, the last thing we need is to get all of the smartest people in a room in Washington to build the new system.
All of these plans, proposals, and debates are on a course to collision in November 2008, and all of them assume that there is enough enlightened leadership abroad in the land to finally come to terms with the broken social contract in the first place—which, together with the prosecution of World War IV, is another reason that I believe this will prove to be the most significant national election since 1932.