A post-pandemic social contract for Latin America: the why, the what, the how

Social security
Demographic Economics - Migration
Poverty - Inequality - Aid Effectiveness

Latin American and Caribbean (LAC) countries are confronted with the challenging task of balancing the short-term emergency of the pandemic while simultaneously driving the recovery. Providing relief to those affected by the Covid-19 crisis and ensuring a successful vaccination roll-out must remain the short-term priority. However, countries should not lose sight of the medium to long-term horizon. A robust, inclusive and sustainable recovery will require bold measures and ambitious reforms. Academics, policy-makers, international and non-governmental organisations, and journalists have called on the need to (re)build social contracts throughout the region as part of the recovery and to address the pre-existing and burgeoning discontent before the crisis hit.

The notion of the social contract stems originally from Western philosophers Hobbes, Locke, Hume and Rousseau and has progressively taken a more concrete content with the enlargement of the welfare state and the mobilisation of the labour sector. A social contract, in broad terms, can be defined as the “comprehensive, yet intangible and implicit agreement that binds society together and coexisting within a certain set of formal and informal rules and institutions” (OECD et al., forthcoming). This agreement is comprehensive for two main reasons. First, because it goes beyond the traditional view of the social contract – focused mainly on state-citizen relations – and recognises the prominent role of civil society (e.g. #NiUnaMenos), the private sector, and other key players. Second, because it encompasses multiple areas of public policy.

In this article, we try to better understand the key dimensions of renewing the social contract in Latin America, focusing on three questions: Why is a new social contract in LAC needed? What should it look like? How to implement it?  

Why do LAC countries need a new social contract?

The erosion of the social contract in LAC began before the pandemic, demonstrated by the wave of protests that started in late 2019. In 2010, 45% of the regional population trusted their government. By 2018 the number was down to 22% (Latinobarómetro, 2019). Despite an initial spike in trust in government at the beginning of COVID-19 due to countries’ rapid reaction to the crisis, trust and citizen satisfaction have continued to weaken as the pandemic has unfolded. Major social protests through 2020 and 2021, including in Colombia, Costa Rica, Cuba, Guatemala, and Peru, point to persistently high levels of social discontent. The ties that bind society together are also weak. Interpersonal trust is historically low in the region, and has steadily declined since 2011, reaching an all-time low of 15% in 2019 (Latinobarómetro, 2019). Similarly, satisfaction with key public services – such as the education system and health care – has persistently declined with the COVID-19 crisis further deteriorating people’s perception of their quality (Figure 1).

The drivers of social dissatisfaction are multidimensional and go beyond income inequality. Poor and vulnerable middle class households see no opportunities to improve their status, and are frustrated by their unmet aspirations for better jobs, quality public services and greater representation. This in turn triggers the perception of being part of a system that is hopelessly rigged: as much as 79% of the population think that their country is governed in the interest of a few powerful groups (Latinobarómetro, 2019).

While discontent is high, traditional channels of representation are undergoing a legitimacy crisis. Political parties saw an all-time-low level of support of 13% in 2018. In parallel, politicisation (i.e. the share of people identifying with a left- or right-wing ideology) has increased in recent years (Figure 2), suggesting higher political activism, most likely taking place outside traditional party channels (in the streets, on social media, etc.). While growing politicisation can be a positive indicator of political pluralism and engagement, it also carries the risk of greater polarisation. In the context of the ongoing electoral cycle in LAC, polarised political campaigns and disinformation on social media may put social cohesion to the test.

At the global level, a number of regional and international trends are transforming the way our societies function, hence increasing the urgency of updating the social contract to these new realities. Digital transformation, accelerated by the COVID-19 pandemic; increasing awareness of climate change and gender inequality challenges, or the rising importance of critical megatrends, such as cybersecurity or data privacy, are transforming our societies. Meanwhile, social protests show that citizens’ aspirations are high, and that they are demanding more – not less – democracy. Political activists and demonstrators are advocating, among other things, for democratic renovation to counter the erosion of civic space, weakened checks and balances, and attacks on human rights. A silver lining of the crisis may be a greater appreciation of the value of public services, as well as a stronger willingness to accept tough reforms. In this context, achieving broad consensus will not be an easy task, but the crisis demands it and may be simultaneously offering an opportunity to do so.

What key dimensions should a new social contract in LAC be built on?

To achieve a broad consensus and tackle the most urgent challenges for the region, the building blocks of a post-pandemic social contract should revolve around two main dimensions.

On one hand, it should be the result of a transversal agreement i) across socio-economic groups, accounting for differences in terms of income, gender, ethnicity and race, among others; ii) across territories, recognising specific local needs and opportunities and bridging territorial divides; and iii) across generations, ensuring that policy decisions balance the interests of current and future generations promoting the notion of intergenerational solidarity.

On the other hand, a renewed social contract should help achieve three key policy objectives whose relevance the crisis has underscored: i) resilient and sustainable productive strategies that prioritise the creation of quality and green jobs and embrace digital transformation; ii) broader and more effective social protection systems that strengthen targeting mechanisms, support formalisation and address the challenges related to pension reforms; and iii) a more sustainable financing for development model that allows for fiscal reforms addressing both revenue and expenditure and that seeks to strengthen public debt management. These policy objectives should be pursued in a holistic way, accounting for the interconnections between them. For instance, productivity and equity reinforce each other, and so policies that strengthen this nexus should be prioritised (OECD, 2016).

The intersection of these two dimensions creates multiple areas for potential agreement and, in practice, the social contract is made up of various specific social pacts in concrete policy domains, such as the fiscal pact.

How can a new social contract be implemented?

Implementing a new social contract can entail a profound rethinking of its foundational pillars (e.g. the current Constitutional process in Chile), or more targeted attempts to reach an inclusive pact on critical areas of the recovery (fiscal, green and jobs, for instance). Whatever the nature of the endeavour, a key lesson learned from past experiences is that close attention to the process itself is of the utmost importance for building a consensus that is fair, legitimate and durable – especially in a context of high discontent and reduced fiscal space like in LAC.

Four main principles should contribute to guide the process of consensus building. First, the process must be inclusive. This means reconciling different interests and bringing all interested parties in the discussion from the very beginning. An inclusive policy-making process can result in greater accountability and trust, less concern over undue influence; greater policy commitment across time by all stakeholders, reforms that are more sustainable; and innovative solutions to complex issues by leveraging the ideas and resources of different players.

Second, context matters. Even participatory processes can fail if not well designed. It is important to evaluate aspects of the socio-political context that may generate risks, or opportunities, for the strategy (Naser, Williner and Sandoval, 2021).

Third, compensating potential “losers” is crucial. Reforms can make things worse before they make them better, and can leave certain vulnerable groups worse off. This is why it is important to account for clear compensation mechanisms to mitigate the potential distributional impacts of a reform (Rodrik, 1996; OECD, 2010).

Fourth, communication about the rationale and potential impact of a reform is essential. In a context of polarised political discourses and rising disinformation, evidence-based analysis and effective communication are key to shedding light on the benefits of a reform. Independent ex-ante and ex-post evaluations are important for building the case (Worley, Bryan Pasquier and Canpolat, 2018).

These four principles can be summarised with four Cs: conciliate, contextualise, compensate, and communicate, not necessarily in that order. The sequencing and the speed of these steps are critical for successful reforms, though both dimensions are highly context-specific. For instance, in the case of fiscal policy, the sequencing of policy action in terms of expenditure, taxation and public debt management is crucial to balance fiscal needs while financing policies to support the most vulnerable and ensuring wide support to the reforms (Nieto-Parra, Orozco and Mora, 2021). Generally, successful reforms can help increase support for subsequent ones. Policy-makers may prefer to bundle reforms into a comprehensive package, so that losses from one reform are compensated by positive spill overs from others (Dayton-Johnson, Londoño and Nieto-Parra, 2011), or, if this is not possible, to reach specific agreements in areas where there is potential for consensus.

Finally, to reach a consensus and even once it has been achieved, effective intermediary institutions are key to ensuring the long-term sustainability of a renewed social contract. By acting as interlocutors between citizens and the state, intermediary institutions – such as political parties, trade unions and associations – give individuals the opportunity to voice grievances and make public institutions more accountable (OECD, 2021). This two-way dialogue can promote social cohesion and provide useful feedback during the implementation and potential adjustment phase of a reform. However, as seen in the loss of confidence in political parties in the region, the inability to effect change and mediate between citizens and the state may result in civic disengagement and mistrust in these institutions. Strengthening the engagement of public institutions with these intermediary bodies stands out as a relevant area to underpin legitimacy and inclusive policy-making.

In light of these considerations, the challenge is tremendous, and the region must face it with ambition and determination: the recovery ahead will require great finesse.


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