Minouche Shafik

A NEW SOCIAL CONTRACT: LESS ABOUT ME. MORE ABOUT WE.

Minouche Shafik is an Egyptian-born British-American economist who has been Director of the London School of Economics (LSE) since 2017. Minouche Shafik was Deputy Governor of the Bank of England from 2014 to 2017.

This interview is available to listen to as a podcast here.

Minouche Shafik, you just published “What We Owe Each Other: A New Social Contract” with Penguin, Random House. It will be published by Princeton University Press in April, and in Italian by Mondadori in Italy in May. Would you be so kind to tell us what the social contract is?

The social contract is the rules and norms that govern how we live together. It includes how we divide work in our homes, what we expect of our employers, how we look after old people. In traditional societies these social products are delivered more by families and communities. In more modern societies the market and the state play a greater role.

Why does it need to change?

It’s broken for several reasons. One is the changing role of women. The social contract was built for societies in which women take care of the young and the old, but now women are increasingly working and their ability to take care of the young and the old has gotten difficult. Another is how technology has changed work, and people will now have many jobs over the course of a lifetime. And then ageing has played a big role. People will have very long work lives, and questions about how you care for people in old age and how you support them have become much more acute than in the past. My book was partly inspired by William Beveridge, a previous director of the London School of Economics, who wrote the 1942 Beveridge Report which redefined the welfare state in the UK from cradle to grave.

Do we need a new paradigm for children, education, health, work, and old age?

Take education as an example. Most countries invest more in primary and secondary school, but I argue that now we need to invest earlier than primary school and after university and tertiary education. Earlier, because that’s where we can equalise opportunities that exist and jobs will require higher cognitive skills, meaning that faced with a new situation you can figure out what to do about it. That skill is developed before the age of three, so unless you invest more in before the age of three you’re not equipping people for the jobs of the future. And we also know that careers are going to be very long. If you’re going to work for 60 years, as our children are likely to do, they’re going to need to reskill and retool many times in their careers. In the education space, a new social contract means investing much more in the early years, and investing and giving people the tools to go back to school later in life more frequently.

You say that a very important part of education is before you are three years old. What do you mean? What creates better people in the first three years of their lives?

Traditionally, it was the responsibility of families for taking care of children between zero and three, but there are some families that are not equipped to do what is needed, which means really good nutrition, lots of mental stimulation, play and activities which encourage children to be social and engage with others. Some countries have invested in community health workers to visit families to make sure that they learn how to raise their children well. One example is Jamaica, where they had a community health worker visit families once a week for an hour and show the parents how to play with the children, look at what they were feeding them, make sure that the diets were good and that they have opportunities to develop. Those children who had that weekly visit twenty years later were earning forty two percent more than children who didn’t have those visits. Those really early interventions can have huge impacts. There’s a similar story in Chicago where, again, the kids from families who were in very poor circumstances and who don’t necessarily know what to do got early interventions. You can support people, and it has a really high payoff later on in life.

Minouche Shafik, one of the world’s most influential economists, sets out the basis for a new social contract fit for the 21st century in her book ‘What We Owe Each Other: A New Social Contract’.

Minouche Shafik, you say in your book that you were living comfortably in Egypt and then suddenly had to move to the United States, and your father used to say, they can take everything away from you except your education?

Yes, exactly.

Is that concept of a good education also very important to you in the job you do being the Director of the London School of Economics?

Absolutely. Yes. That’s definitely a soft spot for me.

Is this why you quote Abraham Lincoln saying ‘the best way to predict your future is to create it’?  

That applies to countries as well as individuals. Every society should be able to give everyone a minimum basic standard for a decent life, which will vary depending on how wealthy a society is. Every society owes everyone the chance to contribute, and to develop their capabilities to contribute. We owe each other more. We under-invest in each other. A lot of talented people never have an opportunity to contribute to society. The next Steve Jobs might be in some Syrian refugee camp and we would never know. What you want to do is to create a society in which all those talents have an opportunity to thrive. I try and describe a social contract which enables more of that talent to grow, not just because it’s right, but it’s also economically rational. It will have a massive impact on the productivity of the advanced economies, all of which are struggling with low productivity.

Will the growing impact of artificial intelligence and robots eliminate some jobs? 

Artificial intelligence will definitely mean that some jobs will disappear, but new jobs will be created. We have to prepare people with those problem solving skills that the market values. And also, how do we make sure that people who have skills that are relevant to the old market have an opportunity to reskill for the new market? There have been hundreds of studies of programmes to help workers reskill. Some things definitely don’t work, like creating fake public sector jobs to keep people employed. But working closely with employers to help people develop skills that are relevant to the marketplace, giving people coaching and supporting them through developing new skills, those tend to have a very high payoff. Sweden has a really good programme where a year before you lose your job because some industry is in decline, you get a coach who works with you to figure out what skills you need to find a new job. Then they provide you with training, and 70 percent of people come out of these programmes in a new job that actually pays more.

If life expectancy is much longer and rather than retire we have more chances to change profession or job many times, is it true that the time used to prepare yourself for change is not so long relative to the expectation of life?

Exactly right. You need about ten thousand hours to learn a new professional career, and with such long lives it’s possible to do that many, many times. The number of jobs people have is increasing and the duration of jobs shrinking in most markets, and there’s an upside of a greater sense of possibility and opportunity, but only if people are provided support to make those transitions more easily. The idea of retirement is a 20th century creation. Before that, there was no such thing as retirement. People worked and then they died. Over the last 50 years the length of retirement has grown, in many advanced economies people expect to spend a third of their life in retirement. The problem is you can’t save enough in your working life to spend a third of your life in retirement. We need to link retirement ages to life expectancy. As we live longer, we should expect to have to work a little bit longer in order to pay for caring for ourselves in our old age.

Four out of five people believe that the system is not working for them, and the pandemic has created a lot of anger and fear, not only for the English or Americans or Chinese or Egyptians. Is it the same for everyone?

This is an interesting moment of opportunity for change, because the pandemic revealed all these fault lines. The people who suffered most were poor, minorities, women, people doing precarious work with very unstable jobs lost their incomes and didn’t get sick leave and so on. All those vulnerable groups were hit the hardest, and yet we realised that we couldn’t live our lives without the grocers, security guards and health care workers. Bankers and lawyers could all sit at home, but those were the people who our societies needed to function. I hope that this is the moment where we realise how interdependent we are, and that we owe each other more.

There is a lot of discontent. We have had riots in America, the gilets jaunes in France, the five stars in Italy and so on. A large part of the population is really unhappy. Is it all about the huge differences between the wealthy and the poor?

Trying to understand that discontent was the original motive for me to write this book. I wanted to understand what was underpinning the wave of populism that spread around the world after 2016. A lot of it is that people feel that they’ve never been given a chance. The old model was to let competition do what it does, and if necessary ‘compensate the losers’. But who wants to be a loser? People want a chance to thrive and contribute and be valued. The system created a huge amount of growth and wealth, but also, as you say, a great deal of inequality. And it did terrible job of compensating the losers. It didn’t even do that. We need to think about a new model. Redistribution as a way to deal with inequality is a very poor option. A better option is what economists call pre-distribution, to equalise opportunity from the beginning. You don’t have to ever do redistribution if you do pre-distribution well, with good schools, good early years, good employment support. All those things can mean that people feel they get a fair chance. A lot of the anger we see is because many, many people feel they haven’t been given a fair chance.

People whose income derives from tourism and vacations have suffered immensely, and the politicians fail to give real comfort. One moment we are closed until next week, then six months, then three months. This is a very strange way to organise a society. What do you think about it?  

It has been a time of great uncertainty and all political systems have been under pressure to cope with this degree of uncertainty. Most countries thought this would be a temporary phenomenon. If you had told people a year ago that a year on we would still be dealing with a pandemic, no one would have believed you. If we had better systems in place for health care and for looking after vulnerable workers who are doing precarious work, so that they would get sick leave and unemployment benefits for a decent interval, if we had those ingredients of a better social contract, we could have dealt with this crisis much better regardless of the uncertainty, because the base level of vulnerability in our societies would have been less and the transmission risk would have been less. It’s also clear that politicians who took early, decisive action did better. You remember for a while many people were sceptical about experts and economists and scientists, and this crisis has shown us why things like data and evidence and taking the time to understand the evidence and responding to it is a much better way to run things than just going on your own prejudices and biases.

Minouche Shafik, it is an exceptional time and we have an emergency to solve. How will we come out of this period?

There is opportunity in this crisis. We can use this moment to help our economies and societies adjust to the reality of the 21st century. In many countries in Europe the government has been paying the wages of workers in companies that have had to close because of the pandemic, but rather than paying the wages of workers to stay in their current jobs, you could imagine that you would pay the wages for those workers if they move to a new job. If I work in a shop – and we all know that shops are under pressure because everyone is shopping online and there won’t be as many retail stores as there used to be – maybe I could take my wage subsidy and go and work in facilitating the delivery of digital products or something else that’s likely to be a growth sector. For example, in Italy there will be this large amount of European funding coming to support the Italian economy, and there is an opportunity to use that to help the economy shift in the direction of the future.

Are you positive that people are willing to change job? Are they resilient? Are they prepared to change? It’s difficult.

Everyone’s resilience has been tested in this crisis and everybody’s tired. You see that in our daily lives with colleagues and friends and family. But when our economies do open up there will be a desire to get back to work, and if people feel they’re going to be supported through the transition, they will embrace it. If people feel that they’re going to be left on their own – and our societies are a little bit too much “You’re on your own” – the risk of a political backlash is huge. We are at one of those junctures where we can take one way or another, and it will be very, very different for our futures, depending on which one you take.

How much does society owe an individual, and what does an individual owe in return? 

Society owes an individual a decent education, a minimum level of health care, the opportunity to find work so they can support themselves, and the right to not be destitute in old age. In return, an individual is expected to contribute as long as they can work, probably working longer than we’re used to thinking. It means asking individuals to pay their fair share of tax, and that also applies to companies, so that they contribute to the common good. Going forward in health terms, it means asking more of individuals to take care of their own health, because when you look at the reasons people will die in future, even though we’re in a pandemic it’s less about communicable diseases and more about diseases like heart attacks and cancer, which are very closely linked to diet and exercise. Those things are individual responsibilities and societies can ask individuals to do more on that front. I want to restore a sense of mutuality. Society does owe people certain things which are about giving them an opportunity to thrive in life, but people owe things in return. We need to recalibrate what that is.

Can we say that the new social contract is less about me, and more about we?

Yes, absolutely. That’s a very good punch line. It’s moving away from a society which is highly individualistic and about me satisfying myself – but also me being completely on my own if things go wrong in my life – versus one which is more collective in terms of how we share responsibilities and risks, and invest in each other for the common good. It’s not a welfarist idea. It’s much more investing in each other and sharing benefits together – and sharing some risks, too, which makes sense economically.

Have we already made some progress? 

We have made huge progress, and on any measure, even in the poorest parts of the world. The proportion of people living in poverty, the proportion of children getting a chance to go to school, massive progress. Paradoxically, and which is partly why I wanted to write this book, despite that huge progress people are still unhappy.

Why the frustration, why the dissatisfaction?

A lot of it is because people feel that their progress is so dependent on individual circumstances and effort and luck, and not enough on there being a fair system which would enable them to improve their conditions. People’s expectations have also risen massively. In modern times not having a cell phone would be considered being poor, whereas obviously 20 years ago that was not the case. Expectations have risen, but a big part of the anger and anxiety is because so many risks now are born by individuals rather than shared with others. People feel vulnerable and anxious, even before Covid.

We were worried because there was no vaccine and then complain because it’s not delivered quickly.

It’s a miracle of science that these vaccines are developed, and developed faster than any time in human history. It is a miracle.

Do you think that society today is less grateful and more impatient?

Since the beginning of human history we have complained about our political leaders and our states, but our media landscape today amplifies the complaining voices much more than before, and the grateful voices don’t get heard very much. We need more leaders who express those kind of feelings. Most people say, look, I can’t complain. I have a house. I still have my job. A lot of people express gratitude for their circumstances, even in difficult situations, but you don’t hear those voices in the public square. What I’d like to see is a bit more balance in the voices that get heard.

Will the younger generation and those you are educating at LSE have a completely different approach to the world because of this pandemic?

The younger generation who’ve grown up with this pandemic will be permanently changed by it, not just because they’ve lost a big chunk of their education and will feel the consequences of that, and not just because they’re entering a labour market which is very tough and we know that young people who start work during recessions suffer economic consequences for many, many years in their lives. Not just because of that. They’ve also had to deal with sacrifice, because many of them have had to limit what they do in order to protect the older generation. And they’ve experienced collective action, having to do things collectively which might not suit your individual preferences. That will shape their political views. They are likely to be more egalitarian and more collective in their thinking as a result of this experience. I hope they’ll read my book and think yes this is a better way to organise our society.

Minouche Shafik has been Director of The London School of Economics (LSE) since September 2017.

Minouche Shafik at LSE.

Minouche Shafik engaging with students at LSE.

Minouche Shafik, will this pandemic create big psychological problems because the most important years of development have been so abnormal?

We haven’t even begun to understand the psychological consequences of this for young people.

What has been your experience at London School of Economics?

Very challenging. We were the first university in the UK to shift online in March 2020, because we saw the risks of transmission were very high. But then in the autumn we did a lot of face to face teaching, by having a very good testing and tracking regime on campus. All the students wore masks and they came to class. The big lectures were online, but all classes and seminars were in person, and it worked really well. I just read the anonymous evaluations from the students from last year, and they were very satisfied because we were able to maintain some social contact. This January, when the transmission rate went up again and they had a third lockdown in the UK, we had to revert to being online. When we were able to maintain some social interaction, it made a huge difference. Students were much happier to be able to engage. Maybe it’s a good illustration of my book that we had a social contract at the LSE. The students wore their masks. They stayed two metres apart. Everybody got tested. The faculty tended to be older and more vulnerable in terms of health risks so we set up the classrooms in a way that they could have distance. They came to teach. The students were grateful for that. And we made it work. It taught me that even at a local level you can develop a social contract, and the students didn’t throw parties in the halls and so we didn’t have an outbreak and our Covid numbers were incredibly low, twenty times lower than the national average. So if you create a culture where people are looking after each other, you can actually do really well. This is the lesson I take.

Do you believe that there will be a new social contract?  

Some countries will be bold enough to do it, and others will follow them. It will be a a very political process. Many countries will come out of this wanting a new paradigm. They’ll be looking for good examples, and there will be some really visionary leaders out there who are inspired to try something different and to rebalance the obligations that we have to each other in society. Others will follow.

Does it worry you that England is now out of Europe because of Brexit? 

The UK and Europe have a long, long history and many more shared interests than differences. That will prevail in the long run. They will find a way through these challenges. When you look at the social contract in the U.K. and across Europe there is more of an attempt to balance the interests of the individual and the collective, and they are more similar than what you see in large parts of Asia or in the United States. We share that challenge and those values. That commonality will prevail.

In British universities in general the fees are going to be much more expensive. Will this reduce the number of students?

For us so far the numbers don’t look too bad, and our application numbers from Europeans for next year look very good. Other universities are seeing a significant drop.

What is the real desire you have for this book which you seem to me to have written on a wave of optimism?

I initially wrote the book at a moment of pessimism, when the world’s problems seemed insurmountable. I had seen many, many, many diagnoses of the problems, but not enough focus on the solutions, so I wanted to give people a reason to be hopeful. Not just to feel hopeful in the abstract, but a real reason and a real sense that there are solutions to these challenges. Thinking about it as a social contract is a way to think about the solutions, a way to put together a set of changes which will make us all feel more hopeful about the future. I’m hoping people will start reading this book from a position of pessimism and end feeling quite optimistic.

In your book are you able to give general solutions on what should be done to solve humanity’s problems?

I worked so many years at the World Bank and the IMF, I travelled to more than one hundred countries, and I learnt so much from seeing how other countries do things. So often when we’re stuck in our own national silos, we can’t see our way out of it. Sometimes if you look up and see how other countries have solved problems, suddenly more solutions are possible. What I tried to do is show examples from all over the world about how countries and other societies have solved these challenges. For every problem, there is a solution somewhere in the world. You just have to go and find it.

Minouche Shafik, thank you very much for the time you gave us and good luck for your book. 

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