A New deal......

r

Walker's World

A new social contract

Published: Jan. 16, 2012 at 7:57 AM
By MARTIN WALKER, UPI Editor Emeritus

BARCELONA, Spain, Jan. 16 (UPI) -- There seems to be no end to the euro's slow agony. Perhaps it would hurt less if European governments were to focus on the right targets.

But the pain goes on. The downgrading of the credit ratings of France, Spain, Italy and Portugal was widely                       expected but it still hurt. The downgrading of Austria was less expected.

This will weaken Europe's rescue fund, the European Financial Stability Facility, since its ability to borrow rests on the credit-worthiness of the eurozone members. At the same time, the brinkmanship of the Greeks as they try to negotiate the next round of rescue funds is making a hard default more and more likely.

Merkozy, the vogue term for the European leadership team of German Chancellor Angela Merkel and French President Nicolas Sarkozy, will doubtless dash around with more sticking plaster summits and short-term fixes. But the Merkozy duo is still far from confronting the endemic trade imbalances between efficient Germany and its European partners.

And they are still far from grappling fundamentally (as is the United States) with the underlying reality, that the social contract itself lies at the heart of the problem. The social contract which frames public life in the Group of Seven countries was drawn up in the era when men (mostly men) worked until they were 65 and died before they were 70. They now die in their late 70s and increasingly in their 80s. In many countries they can retire in their late 50s or early 60s.

Longevity is a wonderful development, a tribute to healthcare. But it is expensive. In the United States, on average, people in their 60s cost almost $10,000 a year in health costs. People in their 70s cost more than $15,000 a year and those in their 80s and are close to $25,000 a year. Alzheimer's disease and senile dementia are the second fastest growing ailment after diabetes and, since they require high-intensive care, these diseases of the elderly are going to be ever more costly.

This is no longer sustainable. But in democracies, in which people over 50 are usually three times more likely to vote than those under 30, any attempt to redefine the social contract in a way that reduces wealth transfers to mature citizens will be politically difficult.

This challenge comes just as youth unemployment rates are soaring in most developed countries. In much of the Organization for Economic Cooperation and Development countries youth-unemployment rates are double those of the rest of the population. In Britain, Italy, Norway and New Zealand the ratio is 3-to-1; in Sweden the unemployment rate among 15- to 24-year-olds is 4.1 times higher than that of workers aged between 25 and 54.

In Britain the cost of the country's 744,000 unemployed young is estimated to be almost $13 billion a year in benefits and lost productivity. And those unemployed in their teens and 20s are far less likely to find jobs or to earn average salaries in the future. The costs, human as well as economic, last a lifetime.

This threat of a "lost generation" comes when public education systems are finding it ever more difficult to produce school-leavers, particularly those from ethnic minorities and poorer or broken homes, who are sufficiently literate and numerate and socialized to be attractive to employers.

At the same time the costs of college education, increasingly a requisite for most careers earning more than minimum wage, are becoming more expensive. Whether financed by parents, by taxes or by student loans a university degree is less and less affordable.

In the United States, for example, the College Board's Trends in College Pricing says the 2010-11 average total costs (including tuition, fees, room and board) were $16,140 for students attending four-year public colleges and universities in-state and $28,130 out-of-state, and $36,993 for students at four-year private colleges and universities. Assume an additional $4,000 for textbooks, supplies, transportation and other expenses. College tuition costs have been rising at double the inflation rate for more than 20 years.

The new social contract that must eventually come is likely to see a triple-layered system if it is to survive at all.
The bronze level of education, healthcare and pension will be bare bones and subsistence level and financed by public taxation. It won't include college fees or residential costs. It will impose rationing of care for those above a certain age or those deemed at risk through their own action, such as smokers, heavy drinkers and those with a history of drug addiction. It may also penalize convicted felons and offer very reduced services for immigrants, at least until they have paid into the system for at least five or 10 years.
The silver level will top up this base level with personal or family contributions (paid through insurance) that would ideally match the public outlay, whether for education or pensions or health insurance. The less the silver-level members pay in, the less they get out.
The gold level will be wholly self-financed, although some wealthy universities will continue to provide scholarships for star students. It will be an open question whether states will deem it in the collective interest to pay for the training and retraining of the unemployed.

It won't be a pleasant society in which to be poor or disabled or unskilled or chronically sick. But it will be affordable.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.