Podcast: The LSE’s Minouche Shafik on how to fix our broken society

TRANSCRIPT: The LSE’s Minouche Shafik on how to fix our broken society

Minouche Shafik:

Universal basic income is like giving up on people. It's like saying, "You have nothing to contribute to society, so we're just going to pay you to do nothing." And I don't believe that. I believe everyone has something to contribute.

Ian Bremmer:

Hello and welcome to the GZERO World Podcast. Here you'll find extended versions of the interviews from my show on public television. I'm Ian Bremmer, and today I'm asking a big question. If life for billions of people around the globe is measurably better today than it was just a few decades ago, why are so many people so unhappy? In the past 50 years, there have been huge gains in technology, extreme poverty, eradication, healthcare and life expectancy, but in a 2019 survey of people from the United States, China, India, and Europe, four out of five said that the system isn't working for them. My guest today believes it's time for a reset on what we should expect from our governments and our communities. I'm talking to Minouche Shafik, she's director of the London School of Economics and author of the new book, What We Owe Each Other: A New Social Contract for a Better Society. Let's get to it.

Announcer:

The GZERO World Podcast is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company, places clients needs first by providing responsive, relevant, and customized solutions. Visit firstrepublic.com to learn more. This podcast is also brought to you by Walmart. We all depend on a healthy planet, that's why Walmart, along with the Walmart Foundation, are committing to help protect, manage, or restore at least 50 million acres of land and 1 million square miles of ocean by 2030 related to ecosystems that produce food and other consumer products. Learn more at walmart.com/sustainability.

Ian Bremmer:

Minouche, thank you so much for joining GZERO World.

Minouche Shafik:

Thank you so much, Ian. It's a pleasure to be here.

Ian Bremmer:

So much human progress, improvement in wealth and education and longevity in the rest over the last 50 years, and yet 80%, four out of five surveyed all the major economies in the world say the system doesn't work for them and they believe that their children will be worse off. Why do they feel that way?

Minouche Shafik:

There's a big contrast between the rich countries and the developing world. In the rich countries, most people feel their children will be worse off than them, whereas in the developing world, most people are much more optimistic about the future. And I think there are many dimensions to that pessimism. First, because work has changed and the prospect of having a stable job, which enables young people to have a family, and expect a decent old age has diminished and people feel economically insecure. And I also think that expectations about future opportunities have changed. And in many societies, particularly in many advanced economies, the opportunities open to the next generation are just less than opportunities that previous generations, particularly the baby boom generation benefited from.

Ian Bremmer:

The social contract that you're write about is really in many ways a vestige of World War II era notion that you grow up, you get a job, you pay into programs like Social Security, or the NHS and the United Kingdom, and then you have some level of security in old age. What broke that system?

Minouche Shafik:

Well, the old social contract was premised on the idea that you'd have a main male breadwinner, that that person would have a handful of jobs over the course of a career, that the education that they got from age about six to early 20s would be sufficient to last a lifetime and that they would live very few years after they stopped work and that social security would cover those costs. If you think about all those things I've just said, very few of them still apply. More and more women are in the workforce, people often have many employers over the course of their lives, they don't always get benefits with that employment if they're in the gig economy or working under a flexible contract. And the proportion of years that people expect to live after they retire has grown. In a typical advanced economy now, people expect to spend a third of their adult life in retirement, and that means the amount of savings you will have had to build up to have a decent retirement has increased massively.

In addition, because careers have gotten much longer the idea that the education that you got when you were young would be sufficient to last for a career that might last 40 or 50 years is no longer valid.

Ian Bremmer:

So maybe a simple question. I mean, we all know that longevity is increasing. I mean governments around the world, and corporations and the rest tout the fact that people are living so much longer, and that's a fairly incremental and also fairly predictable thing that happens every year. Why don't we see systems around the world that are just indexing retirement to change every year as the actuarial tables change every year? Does anyone actually do that?

Minouche Shafik:

Well, a few countries have taken that very sensible step of linking retirement ages to life expectancy. And so that as you live longer, the number of years you work increases, and therefore you save more to pay for your retirement. But actually, some countries have backtracked on that because old people are politically very powerful. They vote vote much more than young people. They're very effective at lobbying. And there's a clear pattern that as countries get older, they spend more on pensions and less on education, for example, even adjusting for the demographics. So there's a political problem with aging and aging politics, which works in favor of old people. But I also think that at this point the numbers just don't add up. That there is no option but to consider increasing the date at which you're eligible for your pension, in line with life expectancy.

Ian Bremmer:

And I mean, similar sorts of things when we talk about minimum wage, for example, I mean this massive argument in the United States, and it's different at the federal level, and the state level, and states have more flexibility. But nonetheless, I mean it feels like you get these huge political fights when things become truly intolerable, as opposed to every year you make a small change on the basis of inflation, some basket of goods, cost of... You're the economist here, I'm not. But it feels like that would be easier,

Minouche Shafik:

Much easier, much easier. And also if you made it automatic, you wouldn't have to have a political row every time you had to make an adjustment to say the date at which you could be eligible for social security. I think more and more countries are coming to this issue. It's easier to do when you don't have a large population of old people who are politically powerful. So I always tell developing countries, "Do this now while you don't have many old people, because once you lock it in, no one will notice anymore. It will change everyone's expectations about how long they have to work." But we have created a situation where just the years in which people work has just got too out of balance with the number of years they expect to be in retirement.

Ian Bremmer:

To what extent do you see that the type of governance model you have matters to being able to provide for your citizens?

Minouche Shafik:

Yeah. So the correlation is not with the form of government, but with the degree of accountability. So for example, countries that are very authoritarian tend to deliver very poor social outcomes for their citizens. Not surprisingly, because there's no accountability, there's often a ruling elite, they take everything and they have no pressure on them to deliver for the rest of society. Countries that are more inclusive, have more inclusive political systems, do better. Interestingly, presidential systems do less well than countries that have proportional representation. Presidential systems, it's winner takes all. So you target benefits for the majority, whatever that majority is, and the minorities tend to get left behind. Whereas proportional representation political systems, you often have to have coalition governments. And to form those coalitions, you have to look after and deliver for a broader proportion of the population.

China's a very interesting model because, of course, China actually has delivered massive improvements in their citizen's standard of living. Clearly not a democracy. But the communist party is a sort of effective accountability mechanism. And so that those, for example, local leaders of provinces who don't deliver in their communities tend to get-

Ian Bremmer:

They're pushed out.

Minouche Shafik:

Exactly, yeah. And so they that accountability mechanism is key.

Ian Bremmer:

But China is also quite unequal and becoming more so.

Minouche Shafik:

Yes. And some people would argue that those accountability mechanisms in the communist party are becoming less effective.

Ian Bremmer:

Because Xi Jinping is making the system more presidential?

Minouche Shafik:

Yeah, more presidential, more concentration of power and with fewer accountability mechanisms even within the communist party.

Ian Bremmer:

So I might make the argument that in the same way you made this distinction between democracies, and proportional representation systems, and presidential systems, that perhaps in authoritarian systems, you really want to think about a difference between consolidated authoritarian regimes and those that operate more by consensus, where Vietnam is more of the latter.

Minouche Shafik:

Exactly. You got it. That's exactly right.

Ian Bremmer:

Is that in y our book? I don't remember that in your book.

Minouche Shafik:

No, I think you've just made that up. I think I'm going to add it.

Ian Bremmer:

Okay. We're going to have to add that. Okay, fair enough. Let's talk about gender for a second. I mean, women obviously impacted professionally massively by all of these questions, and more so by the pandemic. So much of the pandemic has made inequality worse and has also fallen on the shoulders of the people that are employed in the informal sector, that's women. How much have women been set back by the events of the last year?

Minouche Shafik:

Well, I think there has been massive setbacks for women in this last year, and we have lost years and years of progress. In many ways, the changing role of women has been the biggest change in the social contract in recent decades. For the first time in human history, more women around the world go to university than men. And what we observe around the world is that women do, in fact, in most universities slightly better than their male counterparts. They go into the labor market, they earn the same, and as soon as the first child is born, there's a massive divergence. Women's incomes falls, men's rise because they move to these more flexible and part-time work arrangements, and as a result, they have less experience and as a result, they don't get promoted, and as a result, you have a gender pay gap. And then of course, during COVID, we saw that in extremists because many families who had to lock down, keep children at home, do homeschooling, those roles tended to fall to women.

And I think there's a real question about how quickly we can recover from that. Recovering is so important because those women are incredibly talented. And in the US between 1960 and 2010, 20 to 40% of the gains in productivity in the US economy came from the fact that more women entered the labor market. And so that employers, rather than just choosing from a narrow pool of white men could draw on the talent of women, of Black people, and you could fit people into the jobs that suited them the most. And that better use of talent is a key driver of productivity going forward, and a really important reason why we need to make sure that in the wake of COVID, we restore that equal access of everyone to the labor market.

Ian Bremmer:

So when we see the way countries around the world are responding to coronavirus, and I don't just mean purely economic, but also issues of getting schools back open and running so that women that are mostly principal caregivers can actually be functional in the economy again, where do you see countries falling down? How do you think the economic response has been thus far to this enormous shock?

Minouche Shafik:

Well, particularly vis-a-vis women, the key thing is getting schools back open. But the other key thing is how countries choose to support families with childcare. So on average in the world, women do two hours more unpaid work than men. It varies enormously though, from about-

Ian Bremmer:

Per day.

Minouche Shafik:

Sorry, per day. Every day. Two hours more every day. And that varies enormously from sort of very egalitarian Norway where women do 20% more unpaid work, to very egalitarian Pakistan where they do 1000$ more unpaid work than Pakistani men. Whether a country offers maternity leave, parental leave, or publicly provided childcare has very different consequences for whether women can get back into the labor market. Because if you think about it, maternity leave, and I would note, the United States is the only advanced economy in the world that has no nationally mandated maternity leave entitlement. But maternity leave says to women, "You stay home and take care of your child." Parental leave says to a family, "You can both stay home and take care of your child." Publicly provided childcare says, "Society will help you take care of your child so you can both continue to work." And that spectrum has very different consequences.

These choices are very personal, but I think societies that give families a wider array of options, so each family can choose the right mix of who does childcare and who works in the marketplace, would result in both fair but also more efficient societies.

Ian Bremmer:

How much do you think the issue with failing social contracts is about not spending enough as opposed to spending the same amount but spending very differently?

Minouche Shafik:

Yeah, that's a great question. It depends on the country. There are some countries that are just not spending enough, and there are some things we're not spending enough on. So for example, re-skilling adult workers who are displaced by technology automation competition. Most countries underspend on that, so they should spend more. Many countries spend things in the wrong way. So in healthcare, for example, Benjamin Franklin's famous quote, "An ounce of prevention is worth a pound of cure." Most healthcare systems under invest in prevention, under invest in things like nudges that get people to exercise, eat better, do all the things that massively reduce healthcare costs, overspend on late interventions late in life, and when people are already ill. So in the book, I talk a little bit about how much should the healthcare system pay for each additional year of a healthy life, and using that as a barometer for figuring out how to spend better in the healthcare system. I'm afraid the US does very poorly on that measure.

Ian Bremmer:

Now, you mentioned nudges, and I mean I remember when the UK government broadcast Sunstein in, who is kind of the author of that concept, in order to create a series of micro political maneuvers that would get the kind of results you're talking about. How successful was that? I mean, does the UK look meaningfully different as a consequence of nudging effectively?

Minouche Shafik:

There are some areas where it's been fantastically effective, particularly in areas that require one-off decision. So for example, now everyone in the UK is automatically opted into a pension scheme. You're automatically enrolled and you don't have to keep it and you can actively withdraw. But as a result of that, let's face it, most people have huge inertia in their daily decision making, most people just stay in the pension scheme, and as a result, a much higher proportion of the population is saving for pensions. What's less effective are nudges that require continuous changes in behavior rather than a one-off change. So nudges that try and get people to exercise, for example, wearing a watch that reminds you to exercise every day works initially for a while, but then people tend to slack off. So I think there's a big distinction between nudges that are one-off and nudges that require permanent behavioral change.

Ian Bremmer:

Now, moving cereal boxes that are unhealthy for you out of your principle line of sight and instead having fruit right there, that is an example that we've seen in supermarkets actually is an ongoing nudge that seems to work. Have you seen any policy nudges that actually work like that?

Minouche Shafik:

Yes, I think the food in the line of sight is definitely a good one. Removing all the sweets from the cash register so that your children can't grab them when you're checking out, that also works. Even quirky things like having garbage bins that say, "Thank you" when you throw the rubbish in seems to encourage people not to litter. So there are very small things you can do. Things like with unemployed people, sending them a text when they're supposed to show up for their job interviews or for their meeting with their employment counselor. And having that message be personalized, rather than some completely bureaucratic message increases people's showing up for job interviews and counseling significantly. And these are such low cost interventions that they're very worth doing.

Ian Bremmer:

We're talking about a whole bunch of small things, which can be less controversial, they can be less exciting, but of course, the attention is gotten by universal basic income. The attention is gotten by $1,400 checks for every member of a household under a certain income. There seems to be a lot of momentum towards those sorts of decisions. How do they strike you, Minouche?

Minouche Shafik:

Well, I'm not a fan of universal basic income. I have in my previous jobs at the World Bank and the Department for International Development in the UK, I have worked on cash transfers to very low income households, which can make a huge difference for a very poor family, often very small amounts, but they're the difference between the children in that household getting good nutrition and being able to do well in school. I would set that aside.

In most advanced economies where you have the capacity to target benefits to those who need them, the idea of raising taxes by, let's say 20% of GDP in order to cycle a bunch of money through the government to give it back to people, many of whom don't need it, seems to me a very inefficient way to do policy. That's the sort of hard economic argument why I think universal basic income is inefficient. But at a more sort of philosophical level, the reason I'm not keen on it is that universal basic income is like giving up on people. It's like saying, "You have nothing to contribute to society, so we're just going to pay you to do nothing." And I don't believe that. I believe everyone has something to contribute. And I think the challenge for society is to make sure that we invest in everyone so that everyone can contribute through their work. And even if their work is such that they don't earn a lot of money, you can use what are called negative income taxes, or earned income tax credits or top-ups to their wages so that they can have a decent standard of living, but still continue to work and contribute.

Ian Bremmer:

Now, a lot of people that talk about universal basic income would say that it's much more about allowing people to have the flexibility to engage in activities that otherwise they wouldn't be able to support themselves, their families with. A second point is that a lot of the jobs that the majority of the population has been engaged in throughout history and indeed today can be injury ridden, mentally debilitating jobs. How do you respond to those issues?

Minouche Shafik:

Well, so I think it's very interesting that many of the advocates for universal basic income often use the fact that automation is coming as the reason why we need to do this, because many people's jobs will be automated away, and disappear, and we need to support them somehow. I actually think automation will respond to the issue you just raised. The parts of jobs that will be automated are the parts that are repetitive and routine. Those are the boring bits, the bits that are really unappealing to do. And so, I would kind of welcome that. And I'm not a techno pessimist who thinks that all the jobs are going to disappear. I think jobs will change. And what will remain are the parts of jobs that are creative, that are about empathy, that are about communication skills, emotional intelligence dealing with other people, caring. And so I actually would like to preserve those jobs and automate a way the parts of jobs that people find really unappealing, and debilitating and tedious. So that's how I'd respond.

Ian Bremmer:

Now you remember the last Industrial Revolution. I mean, you were able to get rid of a lot of millwork jobs and instead you end up with piece work that was incredibly debilitating, but for lower class labor. And I see that with ghost work right now with artificial intelligence, where a lot of full-time jobs are gone but helping AI get to the last mile, which is intellectually very low quality, incredibly rote and routine work, there's an enormous amount of it, and it's been facilitated by automation. Now, if that is something we see more of, what can we do? What can we do for such a large piece of society that still does work in jobs that need to be done and they're horrible?

Minouche Shafik:

Yeah. Well, I mean, I think one thing is to automate the bits that can be automated of those horrible jobs. The other thing which I argue strongly for in the book is that a lot of those workers are on very precarious terms and there is no reason why they shouldn't get benefits associated with that work, even if they're on a flexible contract, a gig contract and so on. And I think that additional layer of security makes those jobs much more tolerable. I believe in flexibility, but I think that we can certainly provide additional security. Just as an interesting example, just last month, the UK Supreme Court ruled that Uber drivers are employees, and deserve sick leave and pensions.

Ian Bremmer:

I saw that.

Minouche Shafik:

That's a big change. I know that debate has gone in different ways in the US.

Ian Bremmer:

Different ways in the US. Yeah.

Minouche Shafik:

But I think that is a very important step. And we saw it in the pandemic. There were lots of people who couldn't afford to take sick leave when they had COVID because they would lose their incomes. That just isn't acceptable. And surely we can manage to make sure that those people get the benefits they deserve. I saw an interesting survey in the US, UK and Italy where they asked gig workers, "How much of your income would you be willing to give up to have a more secure job with benefits?" And they said half, they were willing to give up half their income to have more job security. And when they were asked which benefits they wanted, not surprisingly in the US it was healthcare. In the UK and Italy, it was pensions and social security in old age. So it shows that those workers are really, are willing to give up quite a lot to look to not have the insecurity that they currently face.

Ian Bremmer:

So last question for you; tell me the silver lining that you see?

Minouche Shafik:

After a year in which many of us have been deprived of human contact, we all appreciate each other more, and I think the sense of solidarity has gone up in many countries. The willingness to tolerate high levels of inequality has diminished, and polling confirms that across many countries. I think politics will change because of this. People's expectations about what they want society to do for them will change. I think we're going to navigate this working from home thing and work will become more flexible. I would argue that makes it even more imperative that flexible working also comes with benefits if people are going to be working different hours going forward. I would like to think that the interdependence of all of us across the world has become more apparent, and that will make people feel that global cooperation, which has been pretty pathetic in this crisis, will get a second wind, I hope. I'm not sure about that one, but we have some opportunities.

I'm doing some work with the G7 meeting, which is coming up in June. We have the G20 that's also coming up, and there's a real opportunity now for world leaders to send a different signal about how we're going to recover from this crisis and that we're going to recover in a more cooperative, collaborative way. And I really hope that they seize that opportunity, both so that we can put this pandemic behind us, never have one again that is so bad, and have an economic recovery that looks a lot more inclusive than what we've managed so far.

Ian Bremmer:

Minouche Shafik, the book is What We Owe Each Other: A New Social Contract. Great to be with you. Good to see you.

Minouche Shafik:

Thank you so much, Ian.

Ian Bremmer:

That's it. For today's edition of the GZERO World podcast, like what you've heard? Come check us out at gzeromedia.com and sign up for our newsletter Signal.

Announcer:

The GZERO World Podcast is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company, places clients' needs first by providing responsive, relevant, and customized solutions. Visit firstrepublic.com to learn more. This podcast is also brought to you by Walmart. We all depend on a healthy planet, that's why Walmart, along with the Walmart Foundation, are committing to help protect, manage, or restore at least 50 million acres of land and 1 million square miles of ocean by 2030, related to ecosystems that produce food and other consumer products. Learn more at walmart.com/sustainability.

Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform to receive new episodes as soon as they're published.