In 1762, the French philosopher Jean-Jacques Rousseau published a book called Du Contrat Social. In it, Rousseau argued that no one had a moral right to rule over anyone else, unless those people consented. In the days of monarchs and empires, this was radical stuff, and the social contract became one of the guiding principles of The Enlightenment and the subsequent political revolutions that swept across Europe, as well as the abolition of slavery.
Rousseau went on to say is that people would only consent if those in charge made their lives better. Barring the odd recession or disaster, we expect life to get a little bit better each year. If that happens, we happily go about obeying the law, paying our taxes and electing roughly the same bunch of people and the same institutions to run the show.
But what happens when, as now, life is no longer getting better for enough people? Covid is part of the problem. But this trend has been going on for some time. Real median wages have been stagnant for two decades, while child poverty has been creeping up. Nor is this just a British phenomenon – we see the same trends across the developed world.
So far, governments have been able to conceal much of this with the help of central banks. Government debt is up 620% in 20 years, funding all sorts of public sector freebies. Over the same period, household debt has nearly tripled, meaning lifestyles have been maintained on credit. Rock-bottom interest rates have delivered yet another boost.
But the biggest boon has been asset price inflation thanks to all those interest rate cuts. While that hasn’t been much use to the young or the poor, enough people have benefited to keep the Conservatives in power. Those on the right side of QE-induced bubbles (such as tech and private equity), have enjoyed a growing share of societal wealth. And for asset-rich voters, their paper wealth has rocketed in a way that is totally detached from the real economy. Think of all those headlines about Londoners earning more from their houses than their jobs.
Now, however, rising inflation and interest rates mean the debt-fuelled money illusion is coming to an end. Shortages are popping up everywhere amidst broken supply chains. And with household bills and mortgage rates on the rise, living costs are outstripping wages.
Politically that makes things tricky. If you cannot generate real or paper wealth then the social contract quickly breaks down. That can only spell disaster. This was one of the key insights from Professor Frank Luntz’s landmark survey of the British public: ‘Rising prices is the single greatest daily threat. If life becomes less affordable, your majority will become less stable.’
This is already playing out in real time across the pond. President Biden’s approval ratings are falling faster than any post-war president, underlined by last week’s shock defeat in Virginia. With Americans suffering from runaway inflation and productivity-draining policies, it’s little surprise that the latest NBC poll has given the Republicans an 18-point lead with voters when it comes to ‘dealing with the economy’ – the widest since 1991, when the survey began.
The message is clear: when it comes to the social contract there are no excuses. Neither pandemics, nor climate change nor the theatrics of identity politics will cut it. If you don’t make people better off, you can kiss goodbye to high office.
But this about more than just poll ratings. Because if you do not fulfil the social contract, governing itself becomes nigh on impossible.
Dissatisfied voters are angrier and less tolerant voters. In fast-growing economies people will accept things like new housing developments, immigration and international compromise. These are trade-offs worth paying for. In stagnating or declining countries those same issues can become political dynamite.
Identity politics is another natural response. If the pie is shrinking, the first instinct is to join a tribe and grab what you can. Indeed, at root identity politics is little more than a demand for unearned privileges at the cost of social unity. When the social contract breaks down, people stop caring about fairness. It is then that important values get thrown by the way-side. We thought we cared about the environment, until we couldn’t get petrol from the pump or cheap gas for our homes. Now we’re not so sure. Will anyone pitch up to COP27 if their tank is empty and their house is freezing?
And if history is anything to go by, today’s most powerful institutions will either disappear or be completely upended. Paradoxically, it is the largest companies, international organisations, and public sector bodies that tend to be the most vulnerable precisely because they have never had to adapt. Fifty years ago the unions were the mightiest in the land, then stagflation hit.
This trend is behind the growing disgruntlement across the EU. First there was Grexit, then Brexit, and now Frexit, Polexit and Nexit have entered the lexicon (though none looks like happening any time soon). With her moribund economy even Germany is kicking off. When European economies were growing nicely, nations blithely acquiesced to the pursuit of ever closer union. But with wealth stagnant or falling, the EU has forfeited its divine right. That is what happens if you don’t keep your side of the social contract.
This does not strike me as a welcoming environment for Boris Johnson’s brand of politics. His jovial optimism needs things to go well. If they don’t, he can come across as crass and cut off from real voters – a sort of latter-day Marie-Antoinette. Cakeism only works when there is plenty of cake.
To avoid angry mobs, divisive politics and the upending of our institutions, the Government needs to put the social contract front and centre again. That means explicitly making personal prosperity its top priority.
The great thing is we know how to do this because it has been done successfully many times before.
Cut taxes and simplify them. Return to fiscal discipline. Slash red tape and bureaucratic waste. Reform public services to focus on delivery and accountability – that means calling a halt to the endless mission creep, and returning the public sector to its core purposes. Let free markets function, with free trade, robust competition law, and meritocracy based on equality of opportunity not equality of outcome. Protect property rights and preserve the rule of law.
So far, Sunak and Johnson have spoken fondly of these ideas, while doing exactly the opposite.
What should alarm them is how quickly and how completely President Biden’s support has been obliterated.
Make us better off or lose everything. That’s the deal.
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