By Bayo Ogunmupe
We live in an increasingly divided world in which the social contracts that bind us are fraying. One driver is globalization, which has intensified competitive pressures. Another is technology, which has increased the returns to highly skilled labour and exacerbated inequality. Technology has also transformed our awareness of what else is happening around the world. It has changed the way we communicate and organize, often in a way that divide our people. As a result, social sustenance, society's internal cohesion and ability to hold together over time- is in jeopardy.
How do we overcome these divisions? Part of the answer lies in rethinking the systems that bind us together, that look after those adversely affected by structural changes. Our society has always had mechanisms for looking after the young and the old, for spreading income over the life cycle and for looking after those who have fallen on hard times. These mechanisms have been some combination of support from family, community organizations, the market and the state.
These systems are under new and intense pressures. Aging means the cost of looking after the old has risen, both in terms of pensions, which are seldom paid, and new medical technologies that prolong life. In more advanced economies, unaffordable housing combined with the need for higher levels of education and training mean adolescence is prolonged. Young people depend on family support for even longer duly compounded by large scale unemployment.
Moreover, technology and automation are destroying and creating jobs faster than many workers can adapt. In most countries, fiscal space to address these issues has diminished as debt levels have risen and as many tax systems have become less progressive. At the same time, growing inequality within societies and across generations has created tensions that spill over into political discontent and a rise in populism all over the globe.
To make our society more sustainable, we need to rethink our notion of the welfare state or social safety net. We need to restore progressivism in our tax systems. Perhaps we have done a poor job of managing the social consequences of globalization and technological change. We now have a chance to put in place, a better social contract through restructuring which will usher in true federalism, equality before the law and financial transparency. But this requires serious research and public debate to create something suited to the demands of the 21st century.
Th road to healing the economy to accommodate change is tortuous. One, link retirement age to life expectancy. This is a way to expand the working age population and reduce the strain on government budgets caused by rising demand for social spending. Countries like the Netherlands have increased their retirement age to 67 years. They will then link it mechanically to life expectancy from 2024 onward. For us in Nigeria, linking retirement age to life expectancy immediately would mean minimal political fallout and more time to adjust expectations.
Two, help workers adjust to automation with active labour market policies. Estimates vary but artificial intelligence and automation will eliminate half of the jobs within the next twenty years. However, many jobs including the professions have aspects that are routine and ripe for machine learning, this means workers will have to adjust. Their ability to retain their jobs will depend on adjustment being successful.
This calls for highly flexible labour market contracts that allow employee adjustment; generous social security for workers and active labour market policies including lifelong learning to help workers find new jobs. Under such a system, labour unions have to accept employment security rather than job security. Employers have to accept that the price of flexibility is higher taxes to pay for generous unemployment insurance, social assistance and active labour market policies.
This also has to be accompanied by a developed system of adult education, affordable child care and serious public funding to support transitioning workers. In Denmark, active labour market policies cost 1.7 percent of the Gross Domestic Product (GDP)- multiples of what is spent in most countries. But this has generated one of the lowest unemployment rates and a most consistently happy society. Building such a labour market institution requires strong traditions of collective bargaining and cooperation. But there is no reason we could not move towards this model in an evolutionary fashion.
Three, make part time work easier. Part time work would start to change the nature of jobs to reflect the fact that the routine aspects would be done by machines. Part time work is growing ever more important in the world today. In the Netherlands which prohibits discrimination against part time workers, 76.6 percent of women and 26.8 percent of men work part time compared to 20 percent on average across the European Union.
Four, make lifelong learning real. Remove age limit to access to student loans. Make public finance available for human capital development for careers. Five, invest in early education and preventive health intervention. The most effective policies are on early education and preventive medicine which ultimately reduce welfare spending in the long run. The challenge is in making sure the policies are cost effective and that the politicians allocate funds to programmes that will pay off decades after they are elected.
Six, restore progressivism to tax systems. High tax on Value Added Tax (VAT) has had negative effect on social cohesion and social mobility. In an unequal Nigeria, the ability of children to do better than their parents tends to be much reduced. A progressive tax regime will enable greater social mobility which will help heal divisions in our society. Research has shown that for the United Kingdom, most people take out more money when they are young (in the form of education) and old (pensions and health care) but put more in when they are of working age (through taxation).
This results in a balanced society over a lifetime. Equitable investments in health and education reduce the need for redistribution later in life. Facilitating part time work extends work lives and have positive benefits for the well being of the people. Education increases life expectancy at a lower cost to health budgets than medical interventions. Setting out and implementing this agenda will help us heal the growing decadence of the Nigerian society.
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