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The next two generations will most likely continue to pay even
higher taxes, but see fewer services in return. (YANNIS
BEHRAKIS/REUTERS)

THE BURDEN OF A LONG CENTURY

By NADIM SHEHADI
LONDON — The year 2011 was the end of the 20th century.

In fifty years, a historian will look back at the protests of 2011 and describe the global crisis as a symptom of the end of a uniquely
20th century phenomenon: the state took unprecedented control of individuals’ lives, and its role grew out of proportion until it
finally cracked.

Variations of a social contract existed in Europe and elsewhere: the state promised cradle-to-grave employment, education, health
care, pensions and other services; in return individuals gave up a large portion of their freedom, income, inheritance, savings and
wealth. By the late ’70s, high earners in Britain were paying over 90 percent of their income in taxes.

It is now finally clear that one side of this equation is no longer valid; the state cannot deliver its part of the bargain. If anything,
the next two generations will continue to pay even higher taxes, but more of it will go toward paying back the debt generated by
the last two generations and not toward getting better services.

But the issue here is not about quantity or quality. The whole concept is breaking down. It is not just an economic crisis, or a crisis
in governance; the idea of the social contract is dead.

In the 20th century, the state gradually took over our lives. State expenditures even in the most capitalist systems in the world
sometimes exceeded 50 percent of gross domestic product, while at the beginning of the century, it barely reached 10 percent. The

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growth happened incrementally, sometimes deliberately or after crises or wars, and was mostly irreversible. Corruption expanded
to a whole new dimension. It is too tempting for politicians to make promises on behalf of the state for which they are never really
held accountable. Votes are won in the short term and problems occur too far ahead, with others taking the blame.

The issue is not new, but 2011 is when the crisis came to a head. In Greece, Spain, the United States, India, China, Israel and in
the Arab Spring, people took to the streets. Some demanded their services and pensions back, but they will never get them. They
are in denial, mourning the end of the state’s role. The Occupy movements blame the bankers for the crisis; others have chosen
emigrants as the scapegoats. This is not a peasant or a worker’s revolution; the protesters are mainly at the middle income level.
Ironically the system strengthened their ranks, but they are also the ones who paid the highest proportion of their income in taxes,
received the least in services and whose savings and wealth have been gradually eroded by a debased currency manipulated by
politicians.

This has been a long century. Most of the ideas that created the monster originated from debates in the 1870s. Bismarck’s Prussia
was triumphant after the fall of Paris in 1871 and its strong state institutions and social insurance were the inspiration for what
later became known as the welfare state in the West. Debates after the recession in the 1930s resulted in the Keynesians — who
advocated state expenditure — gaining the upper hand. There was the idea of a strong state and the justification to pay for it. The
welfare state model peaked after World War II and flourished for roughly 40 years, when cracks started to appear by the mid-
1980s. The burden was too much and the returns in terms of services were diminishing. The idea of state control started losing
ground in the Reagan and Thatcher years, and the Berlin Wall also collapsed. But at the time, attempts to roll back the state were
unsuccessful in the West.

It took over twenty years to realize that the ship of history is turning and we are still not sure where it is headed. Alternatives have
been gradually emerging without us realizing their meaning. There is a return to the classical philanthropy of Warren Buffett and
Bill Gates, which had gone out of fashion when the state was supposed to be the universal provider. Occupy Wall Street protesters
called for a return to cooperative banking; voluntary services are filling gaps and there are demands for more social responsibility
by businesses and individuals. Another sign of the times is that the ideas of Austrian economists like Friedrich Hayek, regarded as
the champion of laissez-faire capitalism and who had lost the debate in the 1930s, re-emerged with the Tea Party, Ron Paul, a
candidate for the Republican presidential nomination, and other Libertarians.

Like the man staring blankly in a railway carriage in a Hitchcock movie, the system was long dead and only needed a poke to
finally keel over. In the Arab world, there is almost total collapse. This is where individuals gave up much more of their freedoms
and were getting the least in return. Regimes that think they can buy their way out of this by raising salaries or creating public
projects are fooling themselves. The contract is no longer valid. It is not a question of price, and those that cannot adjust will fall
as they did in Eastern Europe, where the idea died first and the systems followed.

Since way back in the last century, which ended last month, concepts like crises, stability and risk are no longer negatives, as they
can produce a better outcome. Attempts to patch up problems in their name will simply not work in times of such radical change.

(Nadim Shehadi is an associate fellow at Chatham House, the Royal Institute of International Affairs in London.)

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