This book chapter states that the social compact is integral to people’s perception of justice and to their realisation of citizenship. It argues that a viable social compact is one in which the state acts to reduce people’s risks – through law and order, services and infrastructure – in return for their commitment to the state (including a willingness to finance it through taxation).
Key findings:
- Growth can contribute to poverty reduction, even in societies with very high levels of asset inequality, but only if fiscal institutions are built to generate revenue, and focus on the poor and their needs. Otherwise the promises of politicians will prove hollow when they go undelivered. This is especially important in fragile states: new leaders need to get off to a good start, delivering on quick wins. Many of those quick wins will be in areas directly engaging with chronic poverty – basic health services, and infrastructure to remote (often rebellious) regions. Reducing people’s risk, via law and order, services and infrastructure, is the way forward. This sets up mutual obligations between the state and the individual, and provides the basis for individuals to commit their money, through paying taxes, to build the state. The state thus becomes an institution that enters meaningfully into the lives of poor people, rather than an abstract entity (or even worse, something that they do everything to avoid.
- Historically, there are many ways to build a social compact, but common to all is a sound system of public expenditure management and revenue. The revenue dimension of growth is especially important in resource-rich countries, where resource extraction is often an enclave activity (oil and natural gas in West Africa, for example), so that growth does not directly generate much in the way of increased employment. In these countries, the main way that growth can reduce poverty is through the transmission of resource revenues into greater pro-poor public spending. For the most part, this is not happening. Instead, the poor are missing out on the revenue boom provided by higher commodity prices (especially oil), as revenues flow into spending for elites (or directly into their pockets).
- In societies characterised by high levels of inequality in access to land and other productive assets, the best means for redistribution may lie not in redistributing these assets themselves – desirable though that may be – but in incorporating redistribution into the fiscal system. This can be through progressive taxation (of capital gains from land sales, for example) to finance public spending that creates better livelihoods and human capital for the poor.
- The rush by donors to find easy answers to the ‘problem’ of fragile states, while understandable, is a problem in itself, especially in the many Chronically Deprived Countries (CDCs) that are fragile states. Donors need to reflect on their own histories in building social compacts. These demonstrate that many paths are possible, that the interface between democratisation and state-building is a complex one, and that the role of social movements has been crucial in making progress. The international community has a valuable role to play in removing those who use violence to become powerful and wealthy. This must be done within the full framework of international law.
