A new social contract for America

The American Dream can't thrive on World War II-era policies.

Malaise has made a comeback.

How else to describe the results of a recent Rockefeller Foundation/Time magazine poll in which 49 percent of 18 to 29-year-olds surveyed said that America was a better place to live in the 1990s and will continue to decline. Nine in 10 of all respondents agreed that just getting by is as hard as or harder than ever before.

At the root of such pessimism is the failure of the nation's social contract – the policies and institutions that support Americans as they pursue their economic and personal goals – to keep pace with the dizzying changes of the past two decades.

We've seen an explosion in information technology. The end of the cold war has unleashed massive amounts of human capital. Trade in goods and services is fully globalized. Medical advances are spurring gains in life expectancy. The return on higher education, measured by the difference in mean wages for those with and without advanced degrees, has grown 100 percent since 1974. And the traditional nuclear family is increasingly uncommon.

The programs designed to help Americans navigate the economy were conceived for a static, relatively closed economy in which higher education was valued but not essential, retirement was significantly shorter, and two-parent, single-income families predominated.

In other words, the current social contract is as antiquated as the typewriter it was written on.

It is no surprise, then, that Americans are awash in insecurity. To bring the social contract up to speed with the 21st-century economy, we need bold policies that satisfy one or more of the "Four F's:"

Flexible. During World War II, employers began to offer health insurance to compete for workers amid federally imposed wage controls. Subsequently, employer-based insurance and pension programs became the backbone of the social contract. This system has, however, proved inadaptable to the modern job market.

By focusing policies on individuals rather than institutions, the government could create a far more efficient and compassionate system of social benefits, through mandatory, portable health insurance or automatic 401(k)s, for example.

Family-friendly. The cost, economic and emotional, of raising a child well has never been higher, and the need for the productive and resilient adults that strong families produce has never been greater. We must begin to appropriately value child rearing and the essential national asset that is the next generation of adults.

Investment in early-childhood education is an easy and obvious recommendation, as is enacting policies that encourage a more flexible workforce. We might even contemplate more radical measures, such as relieving parents of a portion of their Social Security and payroll tax burden while they are raising their children.

Forward-looking. Policymakers often focus on rewarding previous efforts or consolidating already-won gains. While at times noble (Social Security) and at others just politically expedient (mortgage tax deductions for vacation properties), they do little to encourage future behavior that will benefit society as a whole or increase self-sufficiency. The next social contract should be built with an eye on what long-term results can be expected.

The welfare reforms of the mid-1990s are instructive in this regard. Government expenditures on child care and job training increased significantly, but the resultant drops in welfare dependency and child poverty have repaid those costs many times over. Similar investments in job-skills training and wealth-building infrastructure would do the same.

Fiscally sustainable. Whoever wins the White House will inherit massive deficits and trillions in debt. The next president must rebalance our fiscal priorities and take steps to control wasteful spending.

However, a new social contract should not be bound by the constraints of an old tax system. Just as changes in technology and foreign competition must inform social policy, fiscal policy needs to adapt to a 21st-century economy. A progressive "consumption" tax that would eliminate income levies for all but the wealthiest 1 percent of earners, broaden the revenue base, and recalibrate the incentives of the current tax code would significantly bolster the development of a new social contract.

These principles and policies do not fit neatly into the ideology of either political party. Nor, as it turns out, do most voters. But these proposals offer a common-sense, practical road map for restoring faith in the nation's promise and allowing individuals and families to pursue the American Dream.

Frank Micciche is deputy director of the Next Social Contract Initiative at the New America Foundation, in Washington.

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