Speech

Social Contract in Times of Crises - Opening Remarks by Deputy Managing Director Kenji Okamura

October 11, 2022

As Prepared for Delivery

Welcome to this seminar on the Social Contract in Times of Crises.

We live in turbulent times. Just as countries were recovering from the pandemic, a sharp rise in food and energy prices is taking another toll on households and threatens to push many into poverty.

This turbulence in the global economy points to the importance of social contracts. An understanding of mutual expectations that binds citizens and their governments. Through such contracts, citizens pay taxes in exchange for public services and protection against adversity.

The Covid19 pandemic strained social contracts in many ways.

It revealed weaknesses in the health, education, and social protection systems. This affected disadvantaged groups the most. Specifically, poor and vulnerable households suffered worse health consequences; children from poorer households experienced larger educational losses; and, low-skilled, informal, female, and young workers were the most likely to lose their jobs.

At the same time, the pandemic also provided an opportunity to showcase the value of government support.

When appropriate systems are in place, government protection of its citizens can be a lifeline. As documented in our Fiscal Monitor, many governments were able to protect citizens’ livelihoods through swift and innovative response packages.

But, we are now facing shock, after shock, after shock. The global economy is vulnerable and fragile.

Nearly all over the world, governments are taking actions to protect their citizens from the cost-of-living crisis that has already pushed many into hunger and poverty. The climate crisis, the impact of digitalization and automation on low skilled jobs, and the scars of the pandemic have led to disaffection and social protests.

These extraordinary times provide an opportunity for government to renew their social contracts. But, this will require a decisive response from governments.

Let me outline three key areas:

First, Infrastructure. Governments must act now to increase investments in basic public services and resilience, in such areas as health care, education, physical infrastructure, and social safety nets. These additional investments should be embedded in medium-term fiscal frameworks.

Second, Trust. To strengthen public trust and support social cohesion, it is essential for governments to deliver and meet the demand for basic public services and more inclusive policies. People could be willing to pay taxes in return for public services, especially during bad times when protection is most valuable.

Even where the starting point is low trust in government, reallocating spending to services that citizens value, such as health care and education, can help build trust.

Mt third and final point is on Transparency. Strengthening accountability in budget formulation and execution through fiscal reporting and auditing can reassure citizens that they get good value for the taxes they pay. The credibility and effectiveness of government—with a fair, transparent use of public resources—is key.

The international community can help through financing, policy advice or capacity development.

More challenges will put the social contract to test.

Today’s panel will help us consider how to improve the social contract during these challenging times. They will help us better understand the lessons from the crisis, and going forward, how to make societies more resilient to future shocks.

I look forward to an engaging discussion. Thank you very much.