Events - 09.05.2014 - 00:00 

Demise of the Social Contract

Falling within the theme of “Clash of Generations”, a range of panellists discuss the deterioration of the pension system and the failure of the social contract when it comes to youth unemployment.


9 May 2014. The panel included: 

  • Lady Barbara Judge (US/GB), Chair, UK Pension Protection Fund 
  • Zeenat Rahman (US), Special Adviser on Global Youth Issues to the U.S. Secretary of State, John F. Kerry
  • Prof. Axel Weber (DE), Chairman of the Board of Directors, UBS AG

Rahman focused her comments on the role of young people today looking towards their future tomorrow.  “All around the world, young people are questioning their relationship with the state in the context of figuring out what their identity is, what they stand for and how they can be successful in the world.. and of course this plays out in a global way. ”              

She says that for most Americans the “American Dream”, the idea that you could come from anywhere, you could get a solid education, find a stable job, provide for your family, your kids and have some money put away for your own retirement is a good illustration of a social contract. Rahman doesn’t know if this opportunity is the same today as it used to be. “Global youth unemployment indicates that it (social contract) has failed.”

Weber, who is an economist and former professor as well as the Chairman of a global financial institution, wanted to focus on the economic perspective of the question of social contract.  “Transfers and taxes have become too high in many countries. If you go back to the Middle Ages, peasants used to give 10%of their income to the ruler. If the ruler became greedy, they would burn down the castle. Today the public share of the GDP is about 50%.” He believes that to save the social contract, is by reforming the system and that labour market reforms don’t meet the needs of society.

He believes that the pension system needs a complete overhaul. In Germany the pension system was introduced by Bismarck in the1850s with a retirement age at 65 when life expectancy was 59.  In 2000, life expectancy was at 83 with an effective retirement age at 61. As an economist who was an advisor to former Chancellor of Germany Gerhard Schröder, Weber was one of the voices on the German Council of Economic Advisors that helped craft the idea that Germany could slowly increase the retirement age from 65 to 67. It was one of the reasons that public opinion shifted against Schröder where he ultimately lost his job because there was a pushback by the people… “he did the right thing… but should have indexed the retirement age to the pension system.”

For Judge, the solution is simple. She stated, “my own theory on how to solve the pension crisis is threefold: Save more, work longer and expect less.” “I think society has an obligation to give older people an opportunity to work longer… but we have to worry about young people. If we all stay in our jobs, are there going to be jobs for younger people?”

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