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By providing fiscal stimulus and strengthening financial sector regulation, of course. But that may not be enough. Will the U.S. and the Europeans also revisit the idea of a global social contract -- to protect millions of people losing their jobs in developing countries? In a speech I delivered to the Dutch Scientific Council in December, I argued that

...to save the hyper-connected global economy from its excesses and to make it fair and politically sustainable, there is a need for some sort of "activist" polity at the global level analogous to the state at the domestic level. An activist global polity is needed to construct and manage a contract at the global level analogous to the social contract at the domestic level that exists in one form or another in most mature democratic societies. On the one hand a global social contract sounds worryingly utopian. On the other hand, it is simply about adapting to the reality of a global market-driven economy...

Already the domestic social contract is getting attention everywhere. The U.S. fiscal stimulus is all about jobs. My colleagues Kim Elliott and Randy Soderquist have recently bogged (here and here that finally, after 8 years of foot-dragging, Congress has included in the stimulus package trade adjustment assistance for service not just manufactured workers who lose jobs associated with trade agreements. (It's too little and too late, but still better than not). And this morning I heard reported the following result of a recent survey: an amazing 60 percent of Americans favor allowing anyone to sign up for Medicare (which now covers only the elderly in the U.S).

People want protection in a storm. In the United States, where the median wage has not risen in almost two decades, and where "globalization" has become the scapegoat of a stagnant median wage and failed health and other social insurance policies, it is not possible politically to sustain open trade markets let alone the minimal levels of legally sanctioned immigration (for sensible numbers read Michael Clemens that have helped to bring us Silicon Valley and other riches.

What about at the global level? Will the new G20 group of heads of state, meeting in April in London, take even minimal steps toward construction of a global social contract? And in a cash and capital-strapped world, where will the resources for transfers for developing countries to fund social protection programs come from? More on that in a future posting...

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CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.