The Broken Bargain
Governance, Consent, and the Case for Renewing the Social Contract
A Note on Evidence and Scope
All factual claims in this essay are drawn from primary institutional sources: the IMF, OECD, Bank of England, UK Office for National Statistics, World Inequality Lab, EU Tax Observatory, Trussell Trust, and peer-reviewed academic research. Where evidence is contested or where legitimate counter-arguments exist, this essay states so directly. The essay draws on research from the United Kingdom, the United States, and global bodies. This mixing of geographic sources is deliberate and acknowledged: while conditions vary between countries, the broad structural patterns described — wage stagnation relative to productivity, increasing wealth concentration, and declining public trust in institutions — are documented across the majority of advanced economies by the OECD and the IMF. Where a specific claim is country-specific, this is noted.
Introduction: A Question of Legitimacy
This essay is not primarily about economics. It is about governance — specifically, about the conditions under which citizens extend their consent to the institutions that govern them, and what happens when those conditions are no longer met.
Political philosophers from John Locke to Jean-Jacques Rousseau identified the social contract as the foundation of legitimate authority. The core idea is straightforward: governance derives its legitimacy not from force, but from consent — and consent is maintained when institutions demonstrably serve the interests of those over whom they exercise power. When that relationship becomes severely imbalanced, the legitimacy of institutions erodes. This is not a radical proposition. It is the foundational principle of democratic political theory, articulated across centuries and political traditions.
In recent years, political scientists and sociologists have observed a measurable deterioration in public trust in institutions across most Western democracies. The Edelman Trust Barometer — an annual survey conducted across 28 countries — has tracked declining trust in government, media, and business consistently since 2012. The British Social Attitudes Survey records long-term falls in confidence in Parliament, the civil service, and political parties. These are not passing fluctuations. They describe a sustained trend.
↳ Edelman Trust Barometer 2024; British Social Attitudes Survey 2023
The question this essay addresses is whether this trend is connected to measurable, documentable changes in how the benefits and burdens of modern economies are distributed — and whether the political institutions responsible for those distributions have the will to respond before the erosion of consent becomes irreversible.
The evidence, drawn from the institutions that underpin the existing economic order, suggests both that the connection is real and that corrective action is both possible and — on the available evidence — likely to be economically beneficial.
"Governance derives its legitimacy not from force but from consent — and consent depends on institutions that visibly serve the common interest."
I. The Structural Divergence: What the Data Shows
A central claim in public debate is that economic growth benefits everyone broadly — that rising prosperity eventually reaches all levels of society. Examining this claim against the available data is therefore a reasonable place to begin.
In the United Kingdom, the Bank of England's analysis of wage data adjusted for inflation shows that real wages in 2023 remained below their 2008 levels. This represents the longest period of real wage stagnation in recorded UK economic history — spanning fifteen years and multiple governments. The UK is not unique in this regard: the OECD's 2023 Employment Outlook reported real wage falls across many of its member countries in 2022 and 2023, even as corporate earnings grew.
↳ Bank of England, 'Real Wages and Inflation,' 2023; OECD Employment Outlook 2023
On wealth distribution — measured as total assets rather than income — the UK Government's own data is instructive. The ONS Wealth and Assets Survey found that the wealthiest 10% of UK households hold approximately 43% of all household wealth, while the bottom 50% hold approximately 9%. This is not activist data. It is government-collected and government-published.
↳ ONS Wealth and Assets Survey, Wave 7, 2022
The most analytically powerful data point in this discussion, however, concerns the relationship between productivity and pay. Research by economists Lawrence Mishel and Josh Bivens of the Economic Policy Institute — a study drawing on US Federal Reserve and Bureau of Labor Statistics data — found that worker productivity in the United States increased by approximately 62% between 1979 and 2018, while typical worker compensation rose by just 17.5% over the same period. This gap is significant because it demonstrates that the value created by workers grew substantially, but the distribution of that value changed. The World Inequality Lab's data shows comparable divergences across most OECD economies.
↳ Mishel & Bivens, 'The Productivity–Pay Gap,' Economic Policy Institute, 2021; World Inequality Report 2022
On geographic scope: the productivity-pay data above is primarily from the United States, which has the most comprehensive long-run datasets. The OECD confirms broadly similar patterns — productivity growth outpacing wage growth — in the UK, Germany, France, and most other advanced economies, though the magnitude varies. The structural dynamic is common; the scale differs by country.
What this body of evidence describes is not a failure of economic growth, but a change in how growth is distributed. The argument that everyone benefits broadly from expanding economies is not supported by the data of the past four decades.
II. Austerity: A Contested Policy with Documented Costs
The politics of fiscal austerity — sustained reductions in public spending following the 2008 financial crisis — represents a genuinely contested area of economic policy, and intellectual honesty requires acknowledging this upfront.
The case for fiscal consolidation rested on serious arguments: that high government debt posed risks to market confidence, that deficit reduction was necessary to restore long-term economic stability, and that the structural deficits of many Western governments required correction. These arguments were made by credible economists and not simply by political opportunists. The debate was real.
However, the empirical evidence that has accumulated in the years since the consolidation programmes were implemented raises significant questions about whether austerity achieved its stated objectives, and whether its costs were distributed fairly.
The most significant intervention in this debate came from within the IMF itself. A 2016 paper by IMF economists Jonathan Ostry, Prakash Loungani, and Davide Furceri — published in the IMF's own Finance and Development journal — concluded that in many cases, fiscal consolidation had increased inequality and that the growth benefits had been systematically overestimated. The paper's significance lay in its institutional source: this was not a critique from outside the system, but a self-correction from within one of the primary architects of the fiscal discipline consensus.
↳ IMF Finance & Development, 'Neoliberalism: Oversold?' Ostry, Loungani, Furceri, 2016
In the United Kingdom, the Resolution Foundation — a non-partisan research organisation focused on living standards — documented that the reductions in public services and transfers fell disproportionately on lower-income households. The Institute for Fiscal Studies confirmed that by 2019, relative child poverty in the UK had returned to levels not seen since the early 2000s, reversing the progress of the preceding decade.
↳ Resolution Foundation, 'Austerity and the Distribution of Cuts,' 2015; IFS Poverty Report 2019
The COVID-19 pandemic then introduced a further empirical complication. The UK government increased public borrowing between 2020 and 2021 to levels not seen since the Second World War, deploying the furlough scheme and emergency support programmes at speed. To be precise about the mechanism: this spending was made possible through emergency borrowing and Bank of England asset purchase programmes — not from reserves that had simply been withheld. It does not therefore prove that unlimited fiscal resources are always available. What it does demonstrate is that the political framing of absolute scarcity during the austerity period significantly understated the available options, even within the constraints of borrowing-financed expenditure.
III. Taxation: The Structure of the Problem
The question of how different income and wealth levels are taxed is central to any discussion of the social contract. Taxation is the primary mechanism by which societies redistribute the proceeds of collective economic activity. If that mechanism operates in ways that are structurally regressive — that is, if those with the greatest capacity to contribute pay a smaller proportional share — then the contract between citizens and state is materially imbalanced.
The EU Tax Observatory — a research institution based at the Paris School of Economics, which analyses tax data from multiple national jurisdictions — published findings in 2024 estimating that the world's billionaires pay effective tax rates, measured as a percentage of their total wealth, of between 0% and 0.5% per year.
↳ EU Tax Observatory, 'Global Tax Evasion Report 2024'
Methodological note: this figure is calculated as tax paid relative to total wealth, not relative to realised income. Critics rightly observe that unrealised capital gains are not income and are not conventionally taxable as such. The EU Tax Observatory's point is not that billionaires are evading taxes on realised income, but that the structure of existing tax systems — in which wealth held as appreciating assets incurs no annual tax liability — means that the most significant concentrations of wealth accumulate largely outside the tax base. This is a structural observation about system design, not a claim of illegality.
At the other end of the scale, middle-income earners in the UK face effective combined rates of income tax and National Insurance of 32–42%. The structural gap — between the effective rates on accumulated wealth and the effective rates on earned income — is not a result of avoidance alone. It is the intended operation of tax systems that have been progressively reformed over four decades to reduce taxation on capital relative to labour.
↳ Institute for Fiscal Studies, 'Tax across the Income and Wealth Distribution,' 2023
The question of whether a wealth tax is the right mechanism to address this is a serious policy question with genuine implementation challenges — capital valuation, cross-border mobility of assets, and administrative complexity are all real concerns that deserve serious policy attention. But the prior question — whether the current structure is equitable — is separable from the implementation question. The data suggests it is not.
To give a concrete indication of scale: the EU Tax Observatory estimates that a 2% annual levy on the net wealth of the world's billionaires would raise approximately $250 billion per year globally. The United Nations estimates that ending extreme poverty — defined as income below $2.15 per day — would require approximately $90 billion per year. The resources exist. Whether the political architecture to deploy them does is a different question.
↳ EU Tax Observatory 2024; UNDP Financing for Sustainable Development Report 2023
IV. The Cost of Living: Causes and Contributions
The inflation that affected most Western economies from 2021 onwards had multiple genuine causes: pandemic-related supply chain disruption, the energy price shock following Russia's 2022 invasion of Ukraine, and the demand rebound following two years of constrained consumer activity. Any analysis that attributes inflation solely to corporate behaviour would be inaccurate, and this essay does not make that argument.
However, the data also shows that in certain sectors, price increases exceeded input cost increases — a pattern consistent with margin expansion alongside, rather than simply caused by, genuine cost pressures. This finding comes not from campaign literature but from central bank research.
A 2023 working paper from the European Central Bank, analysing price and profit data across the eurozone, found that corporate profits made a substantial contribution to inflation in the 2021–23 period — in some quarters exceeding the contribution of labour costs and import prices. Peer-reviewed research by economists Isabella Weber and Evan Wasner, published in the Review of Keynesian Economics in 2023, documented similar dynamics in the United States.
↳ ECB Working Paper No. 2860, 'The Role of Profits in the Recent Inflation Surge,' 2023; Weber & Wasner, Review of Keynesian Economics, 2023
In the UK, analysis by the ONS and independent researchers at the University of Cambridge found that grocery price inflation in 2022–23 exceeded the increase in input costs faced by retailers, with the gap consistent with improved margins. UK supermarket pre-tax profits rose significantly during this period.
↳ ONS Food Price Analysis, 2023; Cambridge Centre for Business Research, 2023
These findings matter for the social contract argument because they speak to the question of burden-sharing during a period of genuine economic stress. Households experiencing real-terms falls in income simultaneously faced price increases that, in part, reflected the expansion of corporate returns. The Trussell Trust reported 3.1 million emergency food parcel distributions in the UK in 2022–23, compared to approximately 40,000 in 2009–10 — a more than seventy-fold increase over fourteen years. The scale of that change is not adequately explained by any single cause, but it describes a sustained deterioration in the financial resilience of a significant portion of the working population.
↳ Trussell Trust, 'End of Year Statistics 2022–23'
V. Military Expenditure and the Question of Political Priorities
The Brown University Costs of War project — an academic research initiative — estimates the total cost to the United States of its post-2001 military commitments in Afghanistan, Iraq, Syria, and Pakistan at approximately $8 trillion, when long-term veteran healthcare and interest on war-related borrowing are included.
↳ Watson Institute, Brown University, 'Costs of War,' 2023 update
This section does not argue that military spending is inherently unjustifiable, nor that defence budgets and social spending are directly interchangeable — they are funded through different mechanisms, serve different purposes, and are subject to different strategic constraints. Critics of similar arguments are right to point this out.
The narrower claim being made here is different: that the decisions to commit to these operations were made at the political level, that many have been subsequently acknowledged — including by participants in the administrations that authorised them — to have been based on flawed intelligence and inadequate post-conflict planning, and that the scale of the resulting expenditure illustrates that political will, when sufficiently mobilised, can generate resources of considerable magnitude for chosen objectives.
In the UK, parliamentary library analysis estimates the cost of the Afghanistan commitment at over £22 billion. During the same period, documented by the King's Fund, NHS England experienced sustained real-terms funding pressure, waiting lists reached record levels, and social care — the sector responsible for the most vulnerable members of society — experienced real-terms spending reductions per head. The King's Fund and the Health Foundation both describe these as the result of policy choices about funding allocation, not of any inherent resource constraint.
↳ House of Commons Library, 'Cost of UK Military Operations,' 2021; King's Fund, 'NHS Spending Review,' 2023
The purpose of including this section is to illustrate, with documented examples, that political choices about the allocation of large-scale resources are made regularly — and that when the results of those choices disproportionately disadvantage the less powerful, the credibility of claims that alternative choices are simply unaffordable is weakened.
VI. Why Fairness Is Also an Economic Argument
A frequent response to arguments about inequality is that redistribution carries economic costs — that higher taxes on capital reduce investment, that generous welfare systems reduce work incentives, and that the net effect of pursuing greater equality is slower growth. This is a serious argument. It deserves a serious empirical response.
The most comprehensive response comes from the IMF itself. A staff discussion note published in 2014 by Andrew Berg, Jonathan Ostry, and Charalambos Tsangarides — examining inequality and growth data across a wide range of economies — found that inequality is negatively correlated with both the level and the duration of economic growth. More unequal societies, the analysis found, tend to experience shorter periods of expansion and lower overall growth rates. The paper also found that moderate redistribution does not harm growth and may support it by maintaining the consumption capacity of lower-income households and improving social mobility.
↳ IMF Staff Discussion Note SDN/14/02, 'Redistribution, Inequality and Growth,' Berg, Ostry, Tsangarides, 2014
The OECD reached a similar conclusion in its 2015 report 'In It Together: Why Less Inequality Benefits All,' which estimated that rising inequality in OECD countries between 1985 and 2005 reduced cumulative GDP growth by approximately 4.7 percentage points. The primary mechanism identified was the underinvestment in education and human capital by lower-income households facing reduced economic security.
↳ OECD, 'In It Together: Why Less Inequality Benefits All,' 2015
From a political economy perspective, the economists Daron Acemoglu and James Robinson — in their widely-cited work on the relationship between institutions and economic development — argue that extractive economic institutions, which concentrate returns among a narrow elite at the expense of broader participation, consistently produce worse long-run economic outcomes than inclusive institutions. Their comparative analysis across centuries and continents suggests that the concentration of economic and political power is not merely unjust but structurally inefficient.
↳ Acemoglu & Robinson, 'Why Nations Fail,' Crown Publishers, 2012
"The IMF found that unequal societies experience shorter growth cycles and lower overall expansion. The case for a fairer distribution is both moral and economic."
The public health evidence reinforces this further. Epidemiologists Richard Wilkinson and Kate Pickett, in research drawing on data from across the developed world, demonstrate a robust statistical relationship between income inequality and social outcomes — including life expectancy, mental health, educational attainment, and social mobility — that holds independently of average income levels. More equal societies consistently outperform less equal ones on these measures, regardless of overall wealth. This finding has been subjected to extensive critical scrutiny and has, in its core claims, withstood it.
↳ Wilkinson & Pickett, 'The Spirit Level,' Penguin, 2009; updated 2019
VII. Institutional Legitimacy and the Limits of Consent
The political scientist Francis Fukuyama, writing on the conditions of political order, observes that states derive their authority from a combination of force, law, and — most durably — legitimacy. Legitimacy is the belief among citizens that the institutions governing them are entitled to do so, because they operate according to broadly shared values and serve broadly shared interests. When legitimacy erodes, the other supports of political order become both more costly and less reliable.
Thomas Piketty, whose work on capital and inequality has been one of the most discussed contributions to economic thought of the past two decades, makes a related argument: that when returns to capital consistently and substantially exceed economic growth rates — the condition he summarises as r > g — wealth concentrates without bound, and the political consequences of that concentration tend, historically, to be destabilising. His data, drawn from tax records across several centuries and multiple countries, is among the most extensive ever assembled on this question.
↳ Piketty, 'Capital in the Twenty-First Century,' Harvard University Press, 2014
The data on institutional trust cited at the opening of this essay — the consistent multi-year decline documented by the Edelman Trust Barometer and the British Social Attitudes Survey — is consistent with these theoretical frameworks. The decline in trust is not uniform across all institutions or all populations, but the direction and duration of the trend is clear. And it correlates, in the countries where it is most pronounced, with the countries where wage stagnation, wealth concentration, and reductions in public services have been most severe.
This correlation does not, in itself, prove causation. Other factors — the rise of social media, the fragmentation of traditional media, cultural and demographic change — also contribute to declining institutional trust. A rigorous analysis acknowledges this. But the claim that the material conditions of ordinary life bear no relationship to how ordinary people regard the institutions governing them is also not supported by the evidence.
What the data describes, taken together, is the following situation. Over a period of approximately four decades, in most advanced Western economies: the productivity of workers has grown substantially more than their compensation; wealth has become more concentrated; the effective tax contribution of the largest concentrations of wealth has declined as a proportion of total wealth; public services have faced sustained funding pressure; and trust in the institutions of governance has fallen. These are not independent phenomena. They are connected features of a system that has, over time, become less effective at fulfilling the basic requirements of the social contract.
Conclusion: A Reasonable and Necessary Ask
The argument made in this essay is deliberately moderate. It does not propose the elimination of wealth, the abolition of markets, or any sudden restructuring of the economic order. It makes a more limited claim: that the current distribution of economic gains, and the political choices that maintain it, are inconsistent with the requirements of sustainable, legitimate governance — and that the evidence for this comes overwhelmingly from mainstream institutional sources, not from its critics.
What is being asked is proportionality. That those who have benefited most from the stability, infrastructure, legal systems, and educated workforces that collective investment has produced contribute proportionally to their maintenance. The IMF and OECD research cited here suggests this would not harm economic growth, and may support it.
What is being asked is transparency. That when political choices are made about the allocation of public resources — whether to fund military commitments, extend corporate tax relief, or reduce public services — the terms of those choices are honestly presented to the citizens who bear their consequences.
And what is being asked is responsiveness. The theory of democratic governance is that political institutions correct themselves through the mechanism of public accountability. The sustained trends described in this essay — across many countries, over many years, under governments of varying political complexions — suggest that this corrective mechanism is not operating as it should. The question of why, and how to restore it, is perhaps the most important political question of the present moment.
Daron Acemoglu's research on institutions suggests that inclusive political and economic structures are not merely more equitable but more durable and more productive. The historical record supports this. The social contract, properly maintained, is not a constraint on prosperity — it is one of its conditions.
The evidence reviewed here indicates that the contract requires renewal. The tools to renew it — through reformed taxation, investment in public services, and more accountable governance — are available and documented. The barriers are not primarily technical. They are political. And political barriers, unlike economic ones, are subject to change.
"The social contract, properly maintained, is not a constraint on prosperity — it is one of its conditions."
— End —
All sources cited are from publicly accessible institutional publications. Primary documents can be accessed via the websites of the respective organisations.