Description
Our society runs on a “social contract.” This is the entire set of rules, both written and unwritten, that manages the complex relationship between ordinary people, the government, and businesses. When this contract is strong, it creates a stable, prosperous society where everyone can work together and benefit. But this vital contract can be broken, and right now, we are living through a period where it has completely frayed.
The rules we live by were mostly designed for the industrial age. They are no longer a good fit for our modern, global, and digital world. As a result, we find ourselves in a “second Engels’ Pause.” This term refers to a time, much like the Industrial Revolution, when technology and the economy have changed so fast that the old social rules are obsolete. This pause is defined by massive, growing inequality, political instability, and a feeling that the system is rigged. The benefits of new technology and global trade are not being shared, leading to widespread frustration and anger.
A primary cause of this breakdown is the modern corporation. For the last few. decades, most businesses have been guided by a single theory: shareholder capitalism. This idea, famously promoted by economist Milton Friedman, states that a company’s one and only responsibility is to maximize its profits for its shareholders. This narrow focus has had disastrous consequences. We see it in action when three companies control 90% of the insulin market, allowing them to raise prices in unison and turn a life-saving medicine into a luxury good. This approach ignores all other vital responsibilities—to the company’s employees, its customers, the communities it operates in, and the environment. It creates a system where corporations win, and society pays the price.
At the same time that corporations have become incredibly powerful, governments have grown weak and ineffective. After the Cold War, many governments embraced deregulation, believing that markets alone could solve society’s problems. This has left them unable to respond to major crises, as seen in the slow and inadequate response to Hurricane Maria in Puerto Rico. In many ways, large corporations are now more powerful than governments. A company like Amazon can decide to raise its minimum wage to an hour, while the federal government has been unable to pass a similar law for years. Markets are very good at one thing: creating profit. They are very bad at solving problems that are not profitable, such as public health, building resilient infrastructure, or protecting the planet.
This severe power imbalance was created by two main tools: lobbying and tax avoidance. Lobbying is when corporations use their vast wealth to influence politicians, ensuring that new laws benefit their bottom line. This process warps the social contract, making the government serve business interests rather than the public interest. At the same time, corporations use highly complex accounting tricks to avoid paying their fair share of taxes. Many use schemes like the “Double Irish with a Dutch Sandwich” to legally shift their profits from high-tax countries (where they actually do business) to “tax havens” like Bermuda, which has a 0% corporate tax rate. This starves governments of the money needed to fund schools, roads, and social safety nets.
This imbalance is also deeply felt in the workplace. In the mid-20th century, strong labor unions fought for and won benefits like the 40-hour work week, higher wages, and pensions. This was a period of high union membership and the lowest income inequality in American history. Today, union membership has collapsed. As a result, worker power has vanished, and inequality has soared. In the 1970s, an average CEO earned about 30 times more than their average worker. Today, that ratio is nearly 280-to-1. Without a strong, collective voice, employees cannot bargain for their fair share of the value they create.
To fix our broken social contract, we must first change the purpose of business. We need to move away from shareholder capitalism and embrace stakeholder capitalism. In this model, a company is responsible not just to its shareholders, but to everyone affected by its business: its employees, its customers, its suppliers, and the environment. Companies like Patagonia, which prioritizes sustainability, show that this is possible. We also need to empower workers. The Nordic model, used in countries like Denmark and Sweden, provides a strong example. There, union federations, business associations, and the government all work together to set fair wage and working standards for the entire economy, ensuring that as the country becomes richer, everyone benefits.
We must also fix our broken tax system. The best solution is a system called unitary taxation. This would treat a multinational corporation as one single entity, not a collection of separate branches. Its total global profit would then be taxed based on where it actually does business—where its sales are made, where its employees are located, and where its factories are. This would end the “race to the bottom” that encourages countries to become tax havens. Finally, governments must catch up in the digital realm. The next major conflicts will be fought in cyberspace, but governments are lagging far behind private tech companies. They must build partnerships to harness new technologies like AI responsibly and defend against digital threats.
The United States, long seen as the world’s leading model, can no longer make that claim because its own social contract is in tatters. The world is now at a crossroads, facing a choice between two very different models for the future. On one side is the Closed Model, represented by China. This model combines authoritarian political control with a capitalist economy, offering stability and growth at the cost of individual freedom. On the other side is the Open Model, represented by the Nordic countries. This model pairs a free market with a strong social safety net, funded by high taxes that citizens are happy to pay because they see the benefits in universal healthcare, education, and social support. This model proves that it is possible to have both economic dynamism and social fairness. The central message is that we must actively and urgently rebuild our social contract to create a more balanced, fair, and stable society.
