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Interviews: "A More Perfect Union" (January 14, 2003)
Ted Halstead, the founder and CEO of the New America Foundation, argues that the time has come for Americans to devise a new social contract.

The Atlantic Monthly | January/February 2003
[Bests & Worsts]

The American Paradox

The country with the most patents, Nobel laureates, and millionaires is also the country with the highest levels of poverty, homicide, and infant mortality among modern democracies. A case for revising our social contract
by Ted Halstead
othing illustrates America's profound contradictions more starkly than a comparison with other advanced democracies: among these the United States is either the very best or the very worst performer on a wide range of social and economic criteria. We are simultaneously the leader and the laggard among our peers—almost always exceptional, almost never in the middle.

Further reading
selected by Ted Halstead
Without question we are the richest, most powerful, and most creative nation on the planet. Our economic and military might stems from our embrace of a particularly high-octane brand of capitalism, supported by financial markets that are deeper and broader than any others, labor markets that are more flexible, and a culture of entrepreneurialism that is unparalleled. These attributes have turned America into the world's unrivaled engine of innovation and wealth creation. We boast more patent applications than the entire European Union; almost three times as many Nobel laureates as Britain, our closest competitor; and more business start-ups per capita than almost every other advanced democracy. One in twelve Americans will start his or her own business, evincing another outstanding American trait—our great tolerance for risk. And our export of movies, television shows, music, and fast-food chains makes us, for better or worse, the dominant cultural force on the globe.

But like the Roman god Janus, America has two faces. Despite being the richest nation on the planet, we suffer from higher rates of poverty, infant mortality, homicide, and HIV infection, and from greater economic inequality, than other advanced democracies. We have far more uninsured citizens, and a lower life expectancy. On a per capita basis the United States emits considerably more greenhouse gases and produces more solid waste. We spend more per student on K-12 education than almost all other modern democracies, yet our students perform near the bottom on international tests. We have the highest rates of teen pregnancy and among the highest proportions of single parents, and American parents have the least amount of free time to spend with their children; indeed, the average American works nine weeks more each year than the average European. Our performance on many social indicators is so poor, in fact, that an outsider looking at these numbers alone might conclude that we were a developing nation.

The Two Faces of America

This list of "bests" and "worsts" is based on a variety of sources—including statistics from the United Nations, the Organization for Economic Cooperation and Development, and a number of other groups and experts—but the basic criteria are consistent. Among advanced democracies, America had to rank in the top three for a category to be listed under "bests" and in the bottom three for a category to be listed under "worsts." (Where applicable, all rankings were determined on a rate basis or as a percentage of population.)
Bests      Worsts
Gross domestic product     Poverty
Productivity     Economic inequality
Business start-ups     Carbon-dioxide emissions
Long-term unemployment     Life expectancy
Expenditure on education     Infant mortality
University graduates     Homicide
R&D expenditure     Health-care coverage
High-tech exports     HIV infection
Movies exported     Teen pregnancy
Breadth of stock ownership     Personal savings
Volunteerism     Voter participation
Charitable giving     Obesity

How do we reconcile these two faces of America? To a remarkable degree the United States seems to have exchanged social cohesion and a broad-based middle class for economic dynamism and personal freedom. Have we abandoned what used to be referred to as the common good?

ome believe that our bifurcated national condition represents a necessary and acceptable tradeoff; others believe it is a Faustian bargain. Even those who would tolerate a considerable amount of social fragmentation as the price of prosperity, however, must concede that this bargain is yielding ever diminishing returns. Our economic growth over the past decade has been weaker than it was in the 1950s and 1960s. Yet our levels of economic inequality and social breakdown have clearly worsened. In short, we are producing fewer of the goods and more of the bads, suggesting that our nation is increasingly out of balance. What is more, the very idea of a necessary tradeoff between our social and our economic well-being is un-American. It runs against the idealistic foundation on which our republic was built.

To improve the nation's social health and economic vitality at one and the same time will require a new social contract for America. Our current social contract is now as antiquated as it was once innovative. Its primary author, Franklin Delano Roosevelt, would be the first to tell us so. "New conditions impose new requirements upon government and those who conduct government," Roosevelt said in 1932. "Faith in America, faith in our tradition of personal responsibility, faith in our institutions, faith in ourselves, demand that we recognize the new terms of the old social contract."

America has so far experimented with three social contracts, each of which reflected the political forces of its time. The purpose of the first, in the eighteenth century, was to found a nation. The goal of the second was to put it back together after the Civil War. The third—first articulated in FDR's New Deal and later expanded in Lyndon B. Johnson's Great Society—sought to build a mass middle-class society by relying on ambitious government programs and new economic regulation.

It is now time for a fourth American social contract. To fit the post-industrial age it must be able to reconcile the competing demands of flexibility and fairness. In a time characterized by constant job mobility, a proliferation of consumer choices, just-in-time production, and—perhaps most of all—increased uncertainty, individuals, firms, and governments all need unprecedented flexibility. Fairness, meanwhile, springs from the commitments to meritocracy and shared prosperity that have inspired our nation since its inception. A social contract that simultaneously enhances both flexibility and fairness will require new roles and responsibilities for all three parties to the contract: government, business, and the citizenry.

In the public sector our political leaders must stop imposing false choices on the American people. All too often our twoparty system frames issues as if flexibility and fairness were mutually exclusive. Republicans are fond of advocating for school choice and Social Security privatization, on the grounds that these would confer more choices and flexibility on all citizens. Democrats, meanwhile, typically oppose such proposals, on the grounds that they would undermine fairness and the economic security of ordinary citizens. As these pages suggest, however, there are elegant ways to square these circles: for instance, by pairing school choice with a national equalization of school funding.

Our elected officials must dare to think big once more. Major advances in our nation's well-being have usually resulted not from tinkering at the margins of existing institutions but, rather, from bold new programs—the Homestead Act, Social Security and Medicare, rural electrification, the race to space, the GI Bill. A modern equivalent of such big ideas would be to endow every American child with a $6,000 asset stake at birth, thus inaugurating a new era of more-equal opportunity.

The private sector is no less in need of reform. In the 1980s we began revising our social contract in at least one respect—through a wave of corporate deregulation. This experiment rested on the implicit promise that in exchange for less government regulation, companies would not only create more wealth but also act responsibly, often through self-regulation. But as the dramatic stock-market decline and the corporate scandals of the past eighteen months illustrate, this promise has been broken on both counts.

Not surprisingly, public trust in corporations is low. There are two ways out of this predicament: one is corporate re-regulation; the other is a more sincere effort by business to put its own house in order. The latter would render much of the former unnecessary, but at a minimum we need better accounting standards, stronger defenses against conflicts of interest and insider dealing, and greater restraint in executive compensation.

As part of this movement toward greater corporate accountability, it is also time to relieve employers of some of the administrative responsibilities with which society has burdened them. Now that the median job tenure is down to five years, it no longer makes sense to rely on employers to provide basic benefits such as health care and pensions. Our antiquated system of tying benefits to full-time jobs not only adds to the stress of losing one's job but also deprives parents of the flexibility they need to balance their work and family responsibilities. One way or another, we need to jettison this paternalistic model and replace it with universal citizen-based benefits that are fully portable from job to job.

Any new social contract ultimately hinges on a new conception of citizenship. Yet our collective expectations of one another have atrophied in recent years, to the point where even voting—the most basic act of citizenship—is done by only a minority of Americans. Ironically, this emaciation of the notion of citizenship is occurring at a time when ordinary Americans are becoming ever more sophisticated; the majority of Americans now have credit cards, own homes, and have money invested in financial markets. Surely our increasingly sophisticated citizens should be able to handle more civic responsibilities, not fewer. If every American is to be empowered with the right to choose his or her own health insurer, is it too much to ask that each citizen pay a manageable share of the cost? If better incentives are put in place to help all Americans save for their retirement, is it too much to ask that they actually do so?

Finally, as the definitive stakeholders in the social order, citizens must reclaim their collective power over both the body politic and the marketplace. The only way to free both major parties from the minoritarian groups that now wag the dog—whether teachers' unions or moral fundamentalists—is for Americans to re-enter the political process en masse. Similarly, if the increasing number of American stockholders began asserting their rights, corporate America would become more accountable. Like an unused muscle, collective power need only be exercised to regain its inherent strength.

ow likely is it that a new social contract, pairing flexibility with fairness, will emerge? Cynics will be quick to downplay the prospects of large-scale reform, so accustomed are we to incrementalism and tinkering. But what the cynics fail to appreciate is that something very powerful may be brewing—a near perfect political storm.

American history reveals that periods of fundamental reform are typically triggered by one or more of the following: a major war; a large-scale shift from one industrial era to another; extreme levels of economic inequality; a dramatic change in the composition of the political parties. On the rare occasions when these forces coincide, they fundamentally transform society. That is what happened when Reconstruction coincided with the dawn of the first industrial revolution; it is also what happened when the Roaring Twenties and the Great Depression coincided with the beginning of the second industrial revolution. All the requisite ingredients for change are now coming together again, at the onset of the post-industrial age. If patterns hold, our nation's next major reinvention cannot be far away.

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Ted Halstead is the founding president and CEO of the New America Foundation and a co-author, with Michael Lind, of The Radical Center: The Future of American Politics (2001).

Copyright © 2003 by The Atlantic Monthly Group. All rights reserved.
The Atlantic Monthly; January/February 2003; The American Paradox; Volume 291, No. 1; 123-125.