We need a new social contract

What is meant by the term “social contract”?

The concept of a “social contract” dates from the Age of the European Enlightenment in the 17th and 18th centuries. It was meant to enshrine basic human rights and to curb the abuse of political power. The leading thinkers of the time set out to model a just and well-functioning society with clearly defined rights and obligations of citizens and rulers. Citizens would agree to submit to the authority of the state, if the state in turn respected and protected citizens’ rights and maintained the social order.

What is wrong with that?

There is nothing wrong with such an agreement. The problem is that the industrial revolution ushered in a whole new economic model – capitalism – which completely changed the power structure of society. It’s no longer just governments threatening individual freedoms. People running huge corporations and financiers controlling vast fortunes are now just as powerful as governments. Since they essentially control the economy – the liveblood of society – they are arguably the dominant powers in industrialized countries. And economic and financial power corrupt just as much as political power.

What do we need?

The economy is supposed to provide the goods and services society needs, and to fairly distribute the money to pay for these things. Instead, capitalist economies controlled by powerful corporations provide whatever makes a profit, even if their offerings are worthless or even harmful. They control the wealth distribution in society by setting prices and employees’ wages, and by helping themselves to the bulk of the created wealth. They get away with avoiding taxes, money that should be available for financing social programs and infrastructure. Capitalism has even brought life to the brink of extinction by corporations’ contributions to the climate crisis.

Individuals are no match for corporate power. We need governments to protect society against economic abuses. Only governments can pass the necessary laws and regulations, and only governments can enforce them. We cannot allow big business to be above the law. We need to define not only what governments and ordinary citizens can do. We need a new social contract that also defines the rights and obligations of the business world.

Capitalism or socialism – are those our only choices?

Do we really have to choose between capitalism and socialism? If you listened to American political debates (before “the virus”) you’d probably think so – if you can call all that sloganeering and name-calling a debate. What are these terms supposed to mean, and why all this acrimony?

The term capitalism is defined as an economic system driven by profit, in which trade and industry are controlled by private owners rather than by the state. This pretty well describes the economies of today’s industrialized nations. Conveniently, this definition doesn’t say anything about ethics, about what capitalists can and cannot do to make a profit; it practically sanctions profiteering and exploitation.

The term socialism once meant ownership and control of industry by the state. Today the word has largely become a meaningless slogan, a dirty word smacking of communism (U.S.S.R. = Union of Soviet Socialist Republics). If it has lost all meaning, why is this term still around? Because any demand for economic reforms can be dismissed as socialism, and equating socialism with communism is a very effective tool for deflecting any criticism of capitalist abuses. Add to this a general distrust of governments, and even people struggling economically will fall for this trick.

What is wrong with our beliefs?

Obviously all wasn’t well with our economic system even before the current pandemic, or we wouldn’t have had these arguments. There is unprecedented and unjustifiable inequality in capitalist societies. There is ever greater unearned wealth at the top, while the middle and working classes are struggling. Many full-time jobs are disappearing, and workers have less and less job security, fewer benefits and inadequate wages. There is inexcusable scarcity in the midst of plenty.

Too many people are fooled into attributing today’s (very unevenly distributed) wealth to the capitalist system’s drive for profit and to a fictional free market. Of course, the drive for profit will maximize the Gross Domestic Product – companies will want to sell as much stuff as possible – but the GDP is hardly an indicator of societal wellbeing. It simply measures economic activity, whether it is useful and fairly compensated or not.

The dramatic rise in material wealth isn’t due to the drive for profit. It is the result of (largely publicly funded) scientific advances and to the powerful new technologies based on this knowledge – provided that those technologies are used responsibly and for society’s benefit. Technologically advanced societies should be able to provide a decent living standard for all.

What we got instead was an unheard-of level of inequality. Technology gave rise to wealthy and powerful corporations. Money and power attract the greedy and unscrupulous who grab as much of that wealth as they can get. Money is power, and that power can be used to hijack the political system and further entrench wealth and power. Instead of a decent living standard for all we ended up with an economic system that brought us to the brink of ecological disaster.

So what is it to be – capitalism or socialism?

Rather than arguing over the pros and cons of “socialism vs capitalism” we need to ask what is wrong with our existing economic system, and how we can fix it. Like it or not, these changes require government interventions in the economy. It is governments’ role to outlaw economic activities that are harmful, and only governments can enforce those laws and regulations. If you don’t trust governments – an understandable sentiment – remember that we elect our leaders. It is up to us to participate in public affairs, to choose our representatives wisely and to send the incompetent and/or corrupt ones packing. We need to be informed and politically engaged citizens. Only a functioning democracy can have a fair economic system.

Capitalism isn’t an economic system that optimizes the common good. It is a system in which the most determined and the most ruthless have hijacked the political system and are plundering the world. Why would profit seeking, an inherently selfish motive, maximize the common good? As the economist John Maynard Keynes supposedly put it: “Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all.”

Is there an alternative to Capitalism?

I happened to come across an interesting blog by George Monbiot. The post that caught my attention was titled “The problem is capitalism” and the subtitle was “It is a weapon pointed at the living world. We urgently need to develop a new system.” (1). Of course, I share the writer’s concern. If we don’t change our ways, this ‘weapon pointed at the living world’ will sooner or later bring on an ecological catastrophe and threaten our very existence. The question is how to change course before it is too late.

What does the term ‘capitalism’ mean? It can simply be defined as ‘an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state‘. For all practical purposes the term is a label for the economies of the industrialized world.

What is the problem with capitalism?

Capitalism isn’t a planned economic system. It is the kind of economy that naturally develops in free and technologically advanced societies. People can use their ambitions, knowledge and entrepreneurial talents to build companies, and technological developments have led to the creation of large and powerful corporations. We can thank this combination of entrepreneurship and technology for our high standard of living. Unfortunately, technology can also be misused for power and profit, leading to the serious problems we face today.

The larger a corporation becomes, the richer and more powerful the people owning or controlling that corporation will be. Money and economic power buy political clout, which in turn can be used to further increase economic power and wealth. Big corporations can get favourable laws and regulations, tax breaks, and subsidies. They can influence the very agencies that are supposed to regulate their industries. Corporations that are successfully sued for criminal activities may pay hefty fines, but the people running those corporations typically get away scot-free. There is no effective deterrent against corporate irresponsibility and crime.

What new system could we devise to replace capitalism?

Any new economic system would surely also have to be part of a lawful democratic society. We would still need to outlaw harmful and unacceptable business practices and be able to enforce those laws. Yet, that new system wouldn’t change human nature. We would still have corrupt and incompetent politicians and irresponsible business leaders. So, how could we expect different results from any new economic system?

What is missing from this picture? We are missing – the citizens, the electorate. Politicians – our representatives – are supposed to govern. We – the electorate – are supposed to choose our representatives wisely and vote the corrupt and incompetent out of office. This is how democracy is supposed to work.

Of course, it isn’t enough to just go and vote. We have to be informed voters. That’s easier said than done in this age of fake news, misinformation, and manipulation. And here is the opportunity – in fact the need – for a new system, a system that provides the voters with objective and unbiased information on issues that matter. We need public discussions led by experts free from conflicts of interest, public meetings where people can get together to debate the issues, and other ways to inform, encourage and engage the electorate. Of course, not every potential voter can be reached, but it only takes a small number of informed and engaged citizens to make a positive difference (2).

The cure for capitalism isn’t a new economic system. It is an invigorated democracy.


(1) The problem is capitalism, George Monbiot The Guardian April 25th 2019 https://www.monbiot.com/2019/04/30/the-problem-is-capitalism/

(2) The ‘3.5%’ rule: How a small minority can change the world, David Robson, BBC Future 14 May 2019, http://www.bbc.com/future/story/20190513-it-only-takes-35-of-people-to-change-the-world