TOWARDS THE CREATIVE SOCIETY
Geoff Mulgan

I. Introduction

The mismatch between economy and society
Four themes for social renewal: institutions; justice; responsibility; holism

II The drivers of change

Knowledge and technology
Demography
Globalised exchange
Exclusion/inclusion
Environment
Values

III Responses to the new environment

The challenge of the new capitalism
Political responses and the Third Way
The return of active government

IV. 10 areas of challenge

STRENGTHENING THE COMMITMENT TO CHILDREN
WIDENING AND DEEPENING ACCESS TO KNOWLEDGE
ACHIEVING FULL EMPLOYMENT
PREPARING FOR LONGER AND MORE VARIED LIVES
BETTER HEALTH AND WELL-BEING
SECURITY FROM CRIME
ACTIVE WELFARE
REVITALISING NEIGHBOURHOODS
MOBILISING THE THIRD SECTOR AND THE OTHER INVISIBLE HAND
TOLERANCE, CULTURE AND IDENTITY

V. Conclusions: the renewal of social and economic order

The decline of the post-war order
The rise of a new social and economic order
What causes change?
Connexity

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What are the decisive social challenges likely to face the world’s developed countries over the next two decades? How will they meet the needs and aspirations of their citizens? Which forms of social organisation will survive and which face a future of irretrievable decline? These are the questions I attempt to address in this paper.

Around the world a lively debate is taking place about how societies can renew themselves in the new century – adapting to change while also preserving the things they value. In Europe debate has focused on the future of generous welfare provision; highly regulated labour markets; and collective provision for old age. In north America debate has focused on the social effects of the new economy, inequality (including continuing racial inequality), the sustainability of mushrooming prison populations, widely varying health levels that are in some areas as low as the poorest developing countries, and widely varying levels of educational attainment. In East Asia, in the wake of the recent crisis and economic stagnation in Japan, the debate has focused on the future of the family, ageing, and on the survival of everything from provident funds to jobs-for-life employment norms. Everywhere attention has turned to the implications of a sharp acceleration in globalisation: greater flows of money, culture, people, information and goods; and more powerful global institutions and communities, from science and business to non-governmental organisations.

So far this phase of globalisation has been marked by a mismatch between economy and society. The global economy is by many standards remarkably healthy. Trade and investment are buoyant. Productivity is growing rapidly by historical standards, with a surge of new technologies and products. The availability of cheap capital, combined with macroeconomic stability, has helped many economies into a benign equilibrium of low inflation and low unemployment.

But the extraordinary economic dynamism of the new knowledge economy has yet to be matched by a comparable social dynamism. The rapid integration of the world’s economies has been accompanied by strong pressures towards social disorganisation (with greater individualisation and the weakening of old communities), and by political fragmentation (with the rise of identity politics, and new national and regional interests, particularly in the former communist world).

The resulting imbalance between the economic, the social and the political has contributed to the legitimacy problems of globalisation - a perception that the spread of global markets is ‘out of control’, that democracy is being bypassed by global business and unaccountable global institutions, and that many societies are paying too high a social and environmental price for economic growth. Certainly large minorities are not sharing the benefits of economic growth and technological progress, and everyone, however prosperous, is affected by problems of crime, drug abuse and social fragmentation. One measure of the problem is the widening divergence between the growth of GDP and the stagnation, or even decline, of broader measures of welfare in many Western countries over the last 20 years.

The great unanswered question of the new century is what role governments - and governance more broadly – can play in responding to this imbalance. So far governments have often appeared sidelined by the pace and complexity of change in culture, technology and society. They have been slow to adapt, to retool, and to focus their energies on the challenges of the future. They remain hugely powerful players, controlling between a third and a half of national income in most OECD countries: but too few have been confident about how best to use that power to revitalise their societies.

As I will argue there is a crucial role for governments to play in the next phase of social renewal: but it will be a different role from that played by governments in the second half of the 20th century, using radically different means. TOP

In the recent past societies have been able to survive and prosper in very different forms. The sheer variety of countries as diverse as Japan and Germany, Ireland and Taiwan, Portugal and Singapore, tells against any over-confident generalisations about which kinds of society will thrive in the next century. But almost every developed society faces some similar challenges - adaptation to an economy based on knowledge; ageing populations and falling birth-rates; new forms of social exclusion; multiplying global connections; pressures to achieve environmental sustainability; changing public values.

In this paper I suggest four main themes to inform how societies should respond to these challenges.

The first is an argument about institutions. The institutions through which people live, work and are cared for, including nation states, corporations, organised religions, and trade unions, have tended to become weaker over the last two decades. The causes are many, but the most important ones have to do with what I call connexity: the new connections and freedoms that make it harder for institutions to command loyalty, commitment and resources. For some this weakening of structures and institutions is cause for celebration, and it has indeed been associated with an expansion of choice and freedoms. However, well-being depends on reliabilities as well as freedoms. Few people can thrive without some guarantees and certainties, and many have suffered greatly from the rising fluidity and insecurity of social and economic life, from weaker families, unemployment, crime and mental illness. Previous periods of rapid change tended to be followed by periods of active reconstruction as governments – and civil society more generally – helped to put in place more stable institutions and orders to spread the benefits of progress. Now, once again, we need to create new institutions, rules and guarantees, covering everything from monetary policy to welfare, lifelong learning to knowledge, old age to crime reduction. Not all of these will be national. Increasingly the most effective institutions will be organised at other scales: global and European, regional and local - to serve as the spines around which freer, and longer, lives can be lived.

The second is an argument about justice. During periods of rapid social change politics can amplify differences and conflicts or it can ensure that there are more beneficiaries, and that the losers are supported. The implicit and explicit social contracts that all societies rest on, the entitlements and obligations of rich and poor, men and women, cities and countryside, old and young, have become frayed in recent years. There are many reasons for this including greater mobility for the wealthy, and ideological contest over the roles of men and women. These social contracts now need to be renewed to fit today’s needs: helping people to cope with the complexities of longer lives and greater equality between the sexes; widening access to knowledge and opportunities rather than effectively wasting the talents of 20-30% of the population as many societies now do; and redefining citizenship to fit the realities of the 21^st century.

The third is an argument about responsibility. Highly populated and complex societies only work well if their members are able to take greater responsibility for their actions and for their lives. The alternative is more coercion, regulation and direction, and an unsustainably rising burden on the state. In a range of fields – from work and learning to health and security – I will argue that greater personal responsibility is the complement to new institutional spines, and the foundation for societies that are better able to organise themselves. Responsibility to all, the founding principle of social justice, needs to be matched by reasonable expectations of responsibility from all. In the age of the Internet, environmental threats and open markets, self-efficacy and moral maturity become invaluable qualities for any society to cultivate.

The fourth is an argument about holism. Many of the 20^th century’s greatest successes came from reductionism: breaking issues down into their component parts to guide the organisation of bureaucracies, production lines, or whole economies. Now many of the most important issues require more holistic, systemic ways of thinking that build on the insights of reductionism, but go beyond them. So, for example, economics is having to come to terms with the social and cultural foundations of successful market economies (learning from the disastrous application of non-holistic economic theories to former communist countries and much of the developing world). Healthcare specialists are coming to terms with the role of well-being and environment in explaining sickness and health; sociologists are grappling with the hugely complex array of biological, economic and cultural factors that shape families and communities; and, to take a very different example of holistic thinking, political theorists are coming to understand that every devolution of power downwards needs to be matched by stronger shared institutions of cooperation at higher levels, if communities are not to become insular and chauvinist. In almost every field, the challenge is to develop holistic ways of thinking – and acting - that are as practical and rigorous as the reductionist ones that dominated much of the last century.

These four tasks are closely linked. Together they amount to a challenge to match the dynamism of the new knowledge based economy with a comparable dynamism in society.

Fortunately there are grounds for optimism that these tasks can be accomplished. For the first time in a generation some of the key indicators are now moving in the right direction in many countries: structural unemployment, crime, and even divorce rates are showing signs of improvement. Governments are beginning to develop policy agendas that seriously respond to the new environment as well as sharing, benchmarking and communicating policies to each other: learning from what works. The connections between economic and social policy are becoming better understood – that economic success depends on human and social capital, and the widest possible access to knowledge and opportunity; and that social success depends on a dynamic, entrepreneurial economy creating jobs and opportunities. The promise is that societies can transcend the false choice between economic success and social cohesion that has bedevilled politics over the last two decades. TOP

It is never easy to disentangle the truly powerful agents of change from those that are marginal. Looking back over the last 30 years few can agree on the relative significance of the contraceptive pill and television, of the car and feminism, of bond markets and microprocessors. Some spheres change at bewildering speed – such as finance, fashion, consumer markets, and by some measures the speed of change appears to be accelerating. Strictly speaking there is no such thing as a measurable ‘pace of change’, and no evidence that it has speeded up. Most OECD societies are far more stable than they were during the fastest phases of urbanisation in the 19^th century, or during and after the world wars. Even technological progress is by no means relentless. Aerospace, which moved in just 66 years from the first manned flight to the landing on the moon, and which at one point looked set to revolutionise societies, is now almost stagnant by previous standards, with only a vestigial space programme, and an industry dependent on planes designed and often built 30 years ago. Even IT and the Internet have still, arguably, not had as much impact on daily life as electricity, the car or television.

Although there are many examples of spectacularly rapid change, most of the fundamental processes of change still move relatively slowly. Six are particularly important.

First, knowledge and technology. Throughout this century the contribution of knowledge as an input to the economy has risen at roughly 1% each year while inputs of matter and energy have declined by roughly the same amount. At the same time the scale of scientific work has steadily risen until today more scientific work is done each year than in the whole of human history up to 1900.

The most important outputs of science take several generations to work their way through society. It took 50-60 years for the full effect of the internal combustion engine to be felt in the physical organisation of suburbs, supermarkets and motorways, and roughly the same length of time for the full effect of electricity to manifest itself in consumer durables industries which in turn freed women from the obligations of domestic labour. Some of the barriers to the diffusion of technologies are technical, but most are social and organisational. The same pattern is occurring with information technologies: more than forty years after the invention of the semiconductor it is only now that computers are having a measurable effect on productivity statistics. Moore’s law has been operative for 30 years, and may have another 10-20 years to run before the physical limits of miniaturisation are met (or quantum computing takes over), but even now IT is not a mature industry and new waves of innovations – from commerce on the worldwide web, to pervasive computing, digital television to wireless applications protocols for broadband mobile – are emerging, all of which have profound social implications, from privacy (which could be the first major issue around which the IT revolution stumbles) and the place of the English language (97% of web pages are in English), to patterns of control.

The same timescales are likely to apply in the case of biological and genetic science. Over 40 years after the discovery of DNA, the success of the Human Genome Project now offers a potential revolution in the management of health and disease; genetic modification of food; new materials; new reproductive technologies, offering individuals and societies choices and control that were not only impossible but morally inconceivable in the past. But on its own technology is not enough. The full advantages of this knowledge will only be achieved if societies learn how to use, regulate and legitimate them.

The rising importance of knowledge has not happened suddenly. The first management books on the knowledge economy appeared in the 1940s and the first serious theoretical analyses of the knowledge society were done by Fritz Machlup and others in the late 1950s. Economic historians now ascribe at least 50% of growth in the 20th century to the accumulation of knowledge. Yet it is striking how uncertain we are about the implications for societies and economies. Many earlier predictions have turned out to be wrong. In the 1960s experts predicted that the rise of a knowledge society would make universities into dominant institutions, and give professors the highest status in the labour market. Instead by many measures their status has fallen. Others assume that there will inevitably be greater inequality as a result of the rising importance of knowledge - yet the rapidly rising supply of knowledge workers that resulted from university expansion in the 1960s turned out to have the opposite effect in the 1970s, and may already be doing so again in the US at the end of the 1990s. TOP

Second, demography. In the past the nature and weight of population has often been the decisive factor behind social change: from the emergence of states to the growth of large scale administrations and welfare systems that accompanied the emergence of modern industrial cities. Worldwide population is continuing to rise, with mean estimates around 9bn according to the UN by 2050. But many countries face the prospect of sharp declines as birthrates fall well below replacement rates. In 1950 more than a third of the world population was in developed countries. Now the proportion is down to 17%, and falling.

The big driver of change is rising life expectancy. Today 14% of people in the developed world and 21% in the EU are over 65, but this latter figure is set to rise to 34% by 2050, with an even faster growth in the population over 80 from 4% to 10%. In the next 25 years, the number of persons of pensionable age in the OECD countries will rise by about 70 million while the working age population will only rise by 5 million. For the first time ever in human history some societies will be dominated by older people, with a median age in the 50s.

The second driver is falling birthrates, which is partly a consequence of the rising power, education and freedom of women. In 1950 replacement ratios were 3.5 in North America, 2.75 in Japan, and 2.5 in Europe. They have now fallen to a typical range of 1.7-9, and as low as 1.34 in Italy, 1.5 in Denmark. At these rates population levels can fall very rapidly, with unpredictable effects not only on the economy but also on the feel and morale of a society.

The proportion of one person households is also rising as a result of ageing and divorce (in the UK for example from 3.6m in 1971 to 5.8m today and 8.5m by 2021), with profound implications for loneliness and mental health as well as for standards of living, since societies based on smaller households require more houses, cars and consumer durables for a given population. In Germany and Denmark the proportion of single person households is already over a third, double the proportion in Portugal and Spain.

For many countries the main counter to the prospect of falling population is immigration. One of the corollaries of globalisation is large-scale movement of people, whether as tourists, workers, legal or illegal migrants. It has been estimated that 100m people have migrated into the OECD countries since WW2 (more than triple the transatlantic migrations of 1880s to 1920) and there is now a continuing flow of legal and illegal migrants and refugees into the wealthier countries (the ILO, for example, estimates that there are 2.6m illegal immigrants in Europe). Migration is now the main contributor to population growth in many countries - Germany, Italy and Sweden – and the US population is set to continue rising entirely because of immigration. TOP

Third, the spread of exchange. The history of the last few centuries is in large part one of widening patterns of exchange: markets spreading from towns and villages to nations, continents and the world; markets multiplying in layers to cover commodities, currencies, futures, derivatives; systems of exchange for goods, services, information and culture.

At root the concept of globalisation refers to the acceleration of this process, and its consequences as exchange is aided by international travel, telecommunications and satellites. In some countries trade may still be fairly marginal (only 7% of GDP in the US for example). But the volumes have risen steadily as have other kinds of flow: tourism; popular music; direct investment; telephone conversations. Any society or city can now be more usefully analysed in terms of its connections rather than its assets: patterns of direct investment; trade; exchanges; Internet connections per head of population; airports.

The consequences are many: the most important is interdependence. Where once the economies and cultures of communities could be relatively self-sufficient this is increasingly not the case. Jobs depend on distant markets and distant sources of investment. Environmental well-being depends on the actions of firms and governments far beyond national boundaries. Within the cities of the developed world minorities retain strong links to their home countries, or to dispersed diasporas.

Globalisation brings many effects in its wake: changing patterns of time and space, including instantaneous news, and new geographies in which the prosperous centres of cities have more in common with other major cities than with their own hinterlands. There are also effects on power: the relatively mobile become more powerful than those rooted in a single place. Those with globally marketable skills become more valuable; those with trader mentalities can exploit opportunities faster and gain position relative to those concerned with preservation, conservation and guardianship.

There are effects on community. One UK survey asking people who they have most in common with found that they had most in common with parents; people with the same hobbies, who enjoy the same television programmes, or who read the same newspapers. Those they had least in common with included people from the same town, and neighbours.

Another effect is on government. Within Europe in particular, as a result of these new links, there is no longer any clear dividing line between domestic and foreign policy: national departments operate de facto foreign policies in relation to environmental regulations, labour standards, or cross-border control of crime, while local authorities have come to depend on European funding.

However, the overall effects on government are not simple. Although globalisation has diminished government’s capacity to affect some areas, notably currency flows, the thesis that globalisation is profoundly undermining the capacity of governments is simplistic. In fact governments have chosen simultaneously to relinquish powers (such as over trade), to syndicate them (such as over defence) and to enhance them (such as over informal economy or crime). In many fields – ranging from food standards to information – they are taking on new regulatory roles. Moreover, although the power of national governments may be diminishing, the powers and capacities of governments as a whole, including local, regional, European, and global institutions, are almost certainly greater than ever before.

There are many other dimensions of globalisation: the rise of global institutions; the number of non-governmental bodies (20,000 by the mid-90s); and the spread of global media and icons. But all are to a large extent aspects of the growth of exchange, trade, and interaction, which has in turn tended to shift the terms of trade within societies in favour of the mobile relative to the immobile, the connected relative to the unconnected. TOP

Fourth, new forms of inequality and social exclusion. Two centuries ago the richest nations were about five times richer than the poorest. By 1960 the richest 20% of the world’s population had income thirty times the poorest. Now the gap has risen to sixty and the world’s wealthiest 250 individuals enjoy income roughly equal to half the world’s population,

The new economy has continually created new forms of exclusion, new divisions between winners and losers. According to the statistical evidence inequality began to grow in the US around 1973, the UK around 1977, then in Australia, New Zealand, France and the Netherlands in the early 80s, West Germany in the mid-1980s, widening both because of unemployment and because of earnings dispersal. In US the bottom two quintiles experienced a fall in real earnings from 1970 to 1990s.

For many of the OECD countries the return of poverty has come as a shock. While economic growth rates can still roughly double material prosperity each generation, prosperity has been accompanied by worsening social exclusion. Earnings dispersal has increased as the jobs for unskilled workers have dried up and the relative rewards for skills have increased. In some countries (like the US) these problems manifest themselves in declining earnings for those on low incomes (partially reversed in the late 1990s); in others (including much of Europe) as structural unemployment; and in others still (such as the Netherlands) through a burgeoning population defined as incapacitated, disabled, or retired early.

Many more people are now vulnerable to poverty. Recent British research showed that about a third of the population experienced poverty at some point over a four year period. Similar German research found roughly the same proportion passing through poverty at some point over a ten year period. In the US eligibility for tax credits – a good measure of poverty – covers one in six families in any one year, but two in five families in any ten year period.

This widespread experience of transient poverty exists alongside pockets of long-term social exclusion, particularly in inner urban areas and peripheral estates. Exclusion affects new ‘out’ groups such as migrant workers, street homeless, gypsies; growing numbers of the young elderly, particularly men who were at the heart of the industrial economy; and many young people who find it hard to make the transition to adulthood. New kinds of exclusion are also emerging: such as exclusion from IT skills and access (with big gaps between rich and poor in relation to Internet access) as well as the danger of ‘genetic exclusion’.

At the other end of the income spectrum there are now new ways for the wealthy and mobile to exclude themselves by buying their own education, health care, or private security. More mobile capital has also become harder to tax, tending to shift the burden of tax onto immobile labour, and putting a downwards pressure on public spending as a whole. TOP

Fifth, a changing environment. The facts of environmental challenges are well-known and do not need to be rehearsed here. As governments respond to global warming and climate change there are likely to be profound effects on how societies are organised.

Radical reductions in car use, for example, may reverse the trend to longer travel between home and work, or between home and shops or leisure. The spread of network technologies, combined with higher taxes on more polluting fuels, could radically reduce the need for travel (although it is worth noting that throughout this century travel and telecommunications grew in tandem). Policies to recycle and reuse waste products may change the physical shape of houses and streets as well as creating new industries and occupations.

Longer term pressures for sustainability may encourage a return to compact cities; alternatively the trends to de-urbanisation that have become quite marked in a handful of countries could accelerate, prompting the revival of market towns, and the rise of wired cottages and a new post-urban geography.

Sixth, changing values. Many of the principal values of modern societies have changed relatively little over the last century. Most people’s lives still centre around family, community, work, leisure and religion.

But values are not fixed, and nor is their impact on behaviour. For example the commitment to fairness and equality of treatment has over time has come to be applied to new groups - to women as well as men, to ethnic minorities, the disabled, the elderly. It is increasingly being applied as well to children and the mentally ill. Moreover there is now strong evidence of the long-term trends in values. The work of Ronald Inglehart and others has shown the importance of generational formation, and that since WW2 each generation has been more attached to ‘post-modern’ values than its predecessor – by which is meant concern for quality of life as well as material wealth; individual self-expression and creativity; individual value systems rather than ideologies; tolerance of single parents, homosexuals. The greater power and autonomy of women has also been a strong force in reshaping values. Others, following the work of Walter Ong, have analysed complex changes in cognitive styles as each generation is shaped by the dominant media around them – oral, print, television or computer cultures each bring with them distinctive logics of causality, hierarchy, reason and emotion.

As new values spread other values wane: deference, hierarchy, respect for tradition, militarism, attachment to nation. These patterns of generational change are not straightforward. Periods of economic crisis tend to lead to a return to stronger concerns for security, reinforcing traditional loyalties and enmities. But there is nevertheless evidence that changing values are a powerful force. In politics new values fuel the desire for more direct engagement: referendums, citizens juries, e-politics, direct action (encouraged by stronger belief in conscience above the law), single issue politics (such as animal rights) - as adjuncts to formal representation through parties. They also play a de-politicising role in that the traditional vehicles for politics lose much of their purchase in favour of a more consumerist, less loyal or tribal approach to parties and elections. Such value shifts are at least part of the explanation for the spread of liberal democratic values - according to the Freedom House Survey 1998 survey 88 of the worlds 191 countries are free, maintain a high degree of political and economic freedom, and respect civil liberties, while another 53 were partly free - much the highest number ever.

In the economy new values are contributing to de-materialisation: much the largest share of the increase in consumption spending since the mid-60s has been on non-material needs, and some anticipate a steady growth of new sectors providing not only services but experiences. Values also shape the social agenda: the rise of new movements based around quality of life, conservation of the environment, animal rights, pressures for free time (particularly in continental Europe and amongst younger Japanese), holistic health, and the growing importance of personal privacy and control over personal data. They shape the labour market, encouraging both more instrumental relationships with employers - seeking skills and advantage rather than security and loyalty – but also more of a search for meaning in working life. They encourage tolerance of diversity around a common core of respect, as evidenced by the steady decline in racism in each new generation. Crucially too they tend to bring less faith in the wisdom and good faith of government and other formal authorities.

The biggest shift in values of our times is undoubtedly the rise of individualism, the search for greater autonomy. But this shift is not as simple as it is often portrayed; human nature has not ceased to be profoundly social. Shifting values have not replaced community with a world of free-standing individuals. Rather, beyond individualisation lies a different sense of community, which is more likely to be a chosen rather than an inherited, but which continues to be shaped by the constant striving for partnership, connections and bonds that an atomised society cannot provide. These values of community, reciprocity, mutuality and fairness, continue to be important resources for social renewal. TOP

Every previous era of industrial capitalism has elicited political and social responses - usually to share the rewards of progress more widely and more fairly. The emergence of socialist movements; cooperatives; mutuals; trade unions; state enterprises and planning; welfare states; consumer regulations; charity law; rights; paid holidays - all were responses to the anomie, poverty and powerlessness that the new industrial system brought in its wake. All were responses to the fact that the market is a dynamic force that can also be blind and destructive.

Many political responses failed. Those that looked backwards to craft, medieval, and agrarian traditions all failed. Those that attempted to create entirely separate economic systems have – for now – turned out to be historical dead-ends. The ones that prospered found ways to complement the dynamics of the capitalist system for producing wealth with new forms of social organisation.

The current era is - once again - forcing a debate about how to design a political and policy response. Few would dispute that a distinctively different type of capitalism is taking shape - one that is dominated by firms producing intangibles - chips, software, pharmaceuticals, brand values – in new sectors such as IT, genetics and biotech, with a combination of more monopolistic firms in leading sectors, dynamic small firm sectors providing much of the energy, alongside new service industries. The Fordist industrial structures that dominated Western economies for much of this century have been replaced by new models of work organisation.

This new economy is still in its infancy. Over the next few decades as Internet penetration reaches the great majority of OECD households sharp changes are likely in the organisation of sectors as diverse as banking, retailing, pornography, gambling, information, and the media. These are likely to be matched or even exceeded in their impact by the new biological industries.

So far this new economy has turned out to be less fixed than its predecessor. Businesses founded on intangible assets are less permanent; firms are easier to create – and destroy. Structures come and go, including alliances and joint ventures. Employment contracts have tended to become fixed term, and, for professionals, more likely to include equity alongside salaries. Yet there are also new kinds of glue. In the new economy the unit of production – and of competition – is more often the network than the firm, and collaboration and social capital have turned out to be key elements in the production of new knowledge, goods and services.

This new economy appears to thrive best against a background of institutions and fiscal arrangements that encourage entrepreneurship; skilled and adaptable workforces; high levels of public investment in education; cosmopolitan cultures that are open to women, minorities and outsiders, and tolerant of dissent.

Yet our understanding of the social causes and consequences of the new economy remains limited. Economists have highlighted the role of flexible financial markets to recycle capital into new ventures; urban geographers have analysed some of the spatial concentrations that have given birth to new industries; sociologists have analysed the role of social capital. But none has yet provided an adequate interdisciplinary analysis of the new economy, or credible models to make reliable predictions.

Nevertheless some of the problems associated with the new economy are becoming clearer: how to ensure that enough people have the skills to participate; how to balance the flexibility needed to create new enterprises and new jobs with people’s need for security; how to protect family life in an economy that is much faster – and often stressful. TOP

There have been many unsuccessful political responses to the new economy: the neo-liberal attempt to use the new economy as a justification for a dramatic extension of market principles into society, which ended in electoral defeat; the traditional left’s attempt to build up militant resistance to globalisation, protecting existing jobs and industries and rights to welfare; and the radical green movement’s wholesale rejection of free trade and the new economy in favour of a return to localised production and exchange, based on suspicion of science and new technology.

Each of these responses has had an influence beyond its immediate constituencies; but none has yet developed a credible political and policy agenda that is able to command widespread support. Instead the most serious political response to the new economy has largely come from the centre-left: what has variously been called the ‘Third Way’, or ‘Neue Mitte’, associated with leaders as diverse as Blair, Kok and Schroder, Jospin and Cardoso. This response takes different forms in different countries, but there are common themes.

First, there is an acceptance both of the reality of the new economy and globalisation, and of the need to build institutions that can maximise its advantages and minimise its costs. The stance is pro-enterprise and anti-exclusion, in favour of strong communities as well as an open world, rather than proposing a radical alternative to capitalism.

Second, there is a conscious attempt to update social democratic ideology and values: applying traditional values of cooperation, equality and responsibility in a new environment, taking into account the new economy, and the experiences of earlier phases of social democratic government, while reasserting the philosophical principles of mutual responsibility, equal worth and respect for others as ends not as means.

Third, there is a strong emphasis on pragmatism: drawing on the lessons of experience and experiment, informed by values, rather than attempting to define a traditional ideology from which policies can be deduced. TOP

At the heart of this new politics is a reassertion of the positive role that governments can play in a period of profound change: not standing above society with a plan or blueprint but rather working in partnership with society to widen the circle of winners, mitigate costs and insecurities, and prepare people for change.

There is still a fairly close correlation between wealth and social spending as a proportion of GDP. But the confidence of governments, and confidence in governments, hit barriers in the 1970s and 1980s. Some of these concerned the demand for government: public distrust and resistance to higher taxation manifested itself in tax revolts from the Progress Party to Proposition 13. Some of the limits are more accurately described as limits of supply: failures to deliver policy objectives such as higher economic growth, lower unemployment or crime; loss of confidence key professions; and problems maintaining the tax base in an era of more mobile factors of production.

According to one view the net result is that governments face inevitable decline and a diminishing social role. The combination of values favouring autonomy, technologies undermining the tax base, and the inherent inefficiency of large structures will militate against any attempts by states to retool. Neo-liberals argue that the history of the 20th century needs to be turned on its head, shrinking the state back to a minimal core of defence, public order and law. This position is in turn justified on the grounds that a weaker state must necessarily mean a stronger economy and a stronger, more self-reliant society.

Governments constructed according to traditional bureaucratic principles have certainly found it hard to adapt to more complex societies; networked forms of organisation; greater flows of information and knowledge. Yet the argument that government’s role in shaping societies is in irreversible decline is unconvincing. The share of tax in GDP actually rose across the OECD from 34% in 1980 to 38% in 1996. Contrary to many predictions the demand for government and the capacity to supply this demand both remain strong. On the demand side electorates have signalled clearly that they want public services, the security afforded by governments in health care and pensions, as well as common goods like clean air and safe streets. Business too has rediscovered its dependence on government to maintain social order, education and infrastructures.

The political rejection of neo-liberalism has also been encouraged by the failure of earlier strategies to cut taxes and public spending. In many countries, far from cutting total public spending, programmes of retrenchment tended to increase the need for, and hence relative spending on, remedial and palliative areas – in particular social security and law and order – at the expense of productive spending on infrastructures, health and education. In the worst cases cutbacks to government have led to a spiral of decline. Societies with little social capital can easily fall to, and remain at, a low equilibrium for long periods of time.

These experiences have confirmed that good government is a competitive asset, and indeed that the effectiveness of governance – the speed and quality of decisions, the rule of law, integrity of governors - is the decisive factor in economic and societal success, more important over time than skills levels, natural assets, enterprise cultures and savings rates. It is impossible otherwise to explain why self-employed migrants from Haiti to America earn two-thirds as much as those from West Germany, even though the difference would be one hundred times if they had stayed at home, or why the earnings capacity of the Chinese rises ten-fold when they move from Guangdong to Singapore.

Good government does not need to be either big or small: but it does need to be effective at identifying and solving problems, and reallocating its resources to address new needs. This last task is far from easy because of the great inertia in government spending. In the UK three-quarters of public spending in 1990 went on programmes introduced before 1945, and when Thatcher left office in that year, £9 out of every £10 spent by her Government was being spent on programmes introduced before she had come into power.

However, many governments are now adapting and retooling to better supply what their electors want. Some of their reforms are designed to mitigate the tendency of public sector organisations to become vested interests in their own rights. Some are designed to ensure greater effectiveness for public spending. Some literally shrink government to a more manageable size (there are now around 200 nations, up from 62 in 1914, and many more nations with strong regions). Some are about sharing powers and roles – particularly in Europe where cooperation over social and employment policy, asylum and immigration, policing and economic policy coordination has continued to evolve. And some are designed to ensure better management of networks and horizontal forms of organisation in place of the classic, vertically organised bureaucracy. At their best reforms help societies to better organise themselves. These are some of the key elements of this reform agenda:

• focusing public spending away from the older priorities of national defence, farming, traditional industries and passive welfare systems, where governments can no longer add much value, and more towards education, knowledge, active welfare, crime reduction, public health, infrastructures and new industries.
• focusing more clearly on outcomes (such as better education or lower crime), and working backwards to devise solutions, and allocate budgets
• modernising public services to make them more responsive to consumer choice and more transparent, including the use of new technologies to enable services to be delivered directly by telephone or Internet (with integrated portals for citizens to access public services, shaped to fit life experiences and episodes rather than administrative convenience)
• using horizontal structures (joined-up government) alongside the traditional vertical ones in order to cope with complex problems such as the environment, family policy and social exclusion
• turning the state into a purchaser and manager of solutions and outcomes rather than a provider managing vertically integrated agencies and imposing centrally defined solutions
• using evolutionary methods in place of social engineering with incremental, adaptive change, involving continuous improvement, distributed systems and rapid information flows
• investing in innovation: R&D spending within public sectors is still far lower than in industry, and knowledge management remains rudimentary, although more are using zones, experiments and pilots
• systematic use of knowledge including intelligence-led policy using evidence, formal evaluations, data, and analysis of lessons learned
• opening up government information, including internal management information, to improve services and accelerate change
• encouraging entrepreneurship in and around the public sector, through allowing greater flexibility, the rapid deployment of money and know-how to projects, and supporting social and civic entrepreneurs who can identify underused assets, finding new combinations
• new forms of funding and spending that reinforce public support: tax credits, charges, hypothecated taxes
• benchmarking against other governments and the private sector to accelerate adaptation and improvements in performance
• devolving more powers and responsibilities to regional, urban and local tiers of government, including the very local, neighbourhood level
• and, crucially, syndicating more functions internationally and globally through the EU, UN, WTO and others

Governments have little choice but to change in these ways: not only because they increasingly compete with other governments for investment and people, but also because they increasingly compete with other layers of governance for resources and legitimacy in an environment in which the close identification of nations with states, and states with communities, is no longer a given.

The great Italian novelist, Italo Calvino, suggested that the qualities of the new Millennium would be: lightness, quickness, exactitude, visibility and multiplicity. These qualities sometimes seem the precise opposite of how much of public policy in government has been done in this century, when it has usually been heavy, slow-moving, imprecise in its goals; invisible and closed to the public, and committed to single solutions rather than to multiplicity. But they are the qualities that governments will need to take on if they are not to face a future of dwindling legitimacy and effectiveness. TOP

In this section I examine some of the key challenges facing the developed societies, and some of the emerging solutions.

The most fundamental task of any society is to create and nurture the next generation. The decades since WW2 have brought a dramatic shift away from traditional assumptions about family form and duty. Birth rates have fallen sharply. Women have entered the labour market and many more remain childless. Rising earnings for women have been closely correlated with divorce rates. Feminism has – directly and indirectly - produced a marked change of consciousness that has, probably irreversibly, destroyed the foundations of patriarchy (and spawned its own backlashes). Family structures have weakened and mutated (with divorce rates roughly doubling in the UK, France, Sweden and the Netherlands between 1970 and 1990), even though some new technologies (such as the mobile phone) have helped pull them together. The state has become a far more important partner in the upbringing of children, adding to universal education widespread provision of childcare, paid leave for mothers and in some countries for fathers too.

These shifts are having profound knock-on effects. Smaller families have helped to liberate women from full-time motherhood. The relative value of each child has sharply risen, feeding a cultural shift that has made children – their needs, rights and wellbeing - the focus of much public concern and policy. Investment in children has risen sharply. New services have grown up around the needs of children: not just a new domestic service economy of child care, but also new public services. Moreover, policy-makers have begun to appreciate that in order to counteract the pressures on the birth-rate they will need to reduce the opportunity costs of parenting in relation to career opportunities and standards of living.

In all societies the informal ‘family economy’ functions in parallel with the formal economy of paid labour and commodities. In part recent changes can be understood as a shift of functions from the informal family economy to the formal economy. But this is far from the full story. Evidence has accumulated about the value of early attachment to parents in forming self-confident, balanced people. As a result wise societies are recognising the vital role of investment in the early years – and the long term spin-offs in relation to employability, relationship stability, crime that come from effective preparation of children in the early years, and from better support to help parents perform their roles effectively (Headstart in the US and Surestart in the UK are prime examples). Education policy is also beginning to encompass families more overtly: supporting family learning, access to books and IT, and providing parents with skills to help their children learn.

Some Scandinavian countries have gone furthest in reshaping public policy around the needs of children with extensive childcare, generous parental leave entitlements for men as well as women and in Norway a parenting allowance acknowledging the value of parenting work in the home.

The accumulating evidence about the importance for children of being brought up in a stable relationship, ideally with two parents, has convinced many of the need to renew and revitalise the structures through which people make long-term commitments to each other. In some cases this has meant reasserting traditional marriage (for example in the marriage covenants introduced in some US states such as Louisiana), and of more traditional relationships (as in the American ‘True Love Waits’ movement which promotes pre-marital abstinence). In others a very different trend has emphasised the need for legal support for many different kinds of relationship (as in France which has granted legal equivalence to same sex relationships).

Difficult choices will continue to be played out over the next few decades: over the rights to access and responsibilities to provide economic support of non-resident parents; over the balance of spending between early years and the elderly; over how far it is a legitimate goal of policy to give greater encouragement for women to go out to work than to stay at home; striking the right balance between adult freedom on the one hand and the needs of children for stable families on the other; balancing the demands of the competitive economy for longer working hours and more intensive psychic commitment at the workplace with the needs of families.

However in all countries we are seeing a stronger assertion that children are a public responsibility – not just a private one; that the relative weakening of traditional family structures has created a new need for active government to redirect resources of money, time and care towards the early years; and that in the wake of an era of greater freedom in relationships we now need to strengthen the commitments that adults make to each other as well as to their children. TOP

The second area is learning. Every society needs to ensure that the next generation is equipped not just with formal academic qualifications but also with knowledge that we need to live successful and fulfilled lives.

Investment in education has been rising fast. Some countries – such as Korea – have put education at the centre of their strategies for economic development. Everywhere the correlation between earnings and qualifications has become clearer and steeper, fuelling more demand for higher education and training (in the US, for example, in 1998 the average college graduate earned 75% more than the average high school graduate compared to only 46% more in 1980). Governments now look eagerly at league tables for science and maths as a leading indicator of future prosperity.

However, much education investment has been inefficient. In the past some of the countries that invested most in education showed little evidence of any benefit in terms of growth or quality of life (the USSR being a classic example). In most western countries successive evaluations of investment in training for the young unemployed have failed to demonstrate any measurable benefit. Many schooling systems have not taken advantage of evidence about educational effectiveness and remain deeply conservative – and ineffective.

It has therefore been necessary to engage in a fundamental rethink about learning – how to raise the quality of investment in learning in all its forms; how to achieve a matching rise in individual responsibility to learn, and relearn; how to apply the rapidly growing evidence emerging from the brain sciences about how and when people learn; and how, given the inefficiency of many of traditional models of schooling and training, to innovate new approaches. These are some of the themes of the emerging agenda:

• policies for knowledge go wider than formal education: diet, housing and poverty bear directly on cognitive development and educational performance
• the basic foundations of learning - literacy, numeracy, IT capacity - which are still poorly provided in some countries, are the necessary if not sufficient conditions for social and economic success
• parental involvement in learning can be as critical as the education provided by formal institutions (especially since children spend only 15-20% of their waking hours in formal education)
• the new economy requires new kinds of ability, such as skill in accessing information, selecting, surfing, thinking in systems
• children need to learn not only formal skills but also capacities to make decisions and take responsibilities - capacities that are best learnt through doing rather than formal pedagogy
• the media have a major role to play in education, providing materials on-line, on television and in various forms of ‘edutainment’
• jobs - and life roles - require softer skills of emotional intelligence, ability to work in teams as well as the formal qualifications offered by higher education
• innovation is helped by relatively open and variegated systems for learning, with ease of entry for new types of school and college, with a continuum between further and higher education.
• the need for continual replenishment of skills requires genuine lifelong learning
• education and learning will increasingly take place beyond educational institutions: in workplaces, homes, libraries, via the Internet and television as much as through the printed page (the UK’s new University for Industry, which builds on the experience of the Open University, is a good example of a new form of virtual educational institution).

Looking ahead four issues stand out:

The first concerns the balance of responsibility for paying for learning. In much of the world individuals are paying more: through student loans, tuition fees, and the costs of PCs, Internet charges and books. There are clear advantages in encouraging more individual spending on education, yet too open a market threatens greater inequity as privileges are passed down from generation to generation.

The second concerns employers. Employer’s investment in skills has always been held back by the ‘free rider’ problem - namely that other employers can benefit from one employer’s investment in skills. Some countries maintain strong pressures on employers to invest (Singapore and France are good examples) whereas in others the burden of responsibility falls mainly on the state. Germany and Austria continue to be particularly successful at taking young people from school to work because of the strength of their apprenticeship systems. But in more open and competitive sectors it is unclear whether these models will be able to survive.

The third concerns lifelong learning. It has become a cliché that education in the future will be less a one-off investment at the beginning of life and more a continuous process of acquiring new skills. Some countries have begun to put in place impressive policy frameworks for lifelong learning, including the Netherlands and Sweden. There are clear advantages in creating practical ways for people to borrow money, and take time off work, so as to acquire new skills. Yet, so far few countries have been able to release resources from the mainstream educational system to achieve this.

The fourth concerns migration. The world is still a very long way from having an open market for labour. But some countries and regions have used migration policies as a way to import knowledge. Silicon Valley effectively draws in the cream of the educational systems in India, China and Europe to fuel its growth (and a third of chief executives are non-US citizens). The UNDP has estimated that India, China, South Korea and the Philippines lost 145,00 scientifically trained workers to the USA between 1972 and 1985. In most countries immigration policy is not integrated into economic strategy. In the future it probably will be. TOP

Work is the essential source not only of wealth but also of self-worth. Those European countries that have managed to contain income inequality at the cost of high unemployment cannot afford to be complacent: joblessness can be every bit as damaging as poverty through its impact on dignity and self-worth.

Industrial societies have been strongly shaped by their class and occupational structure, and the ways in which, through these, material rewards and life opportunities have been distributed. Every year, on average 10% of jobs disappear. But beneath this turbulence longer-term trends are unfolding:

• the steady rise in the importance of inputs of knowledge relative to unskilled labour, the continuing decline of agriculture and primary industries, widening earnings disparities within occupations as well as across the economy
• the decline of manufacturing employment (even as its share of GDP remains high);
• the rise of new service industries many of them still at relatively low levels of technological sophistication, and the continued importance of many old service industries (such as gardening, catering or childcare) which are much less vulnerable to automation than, for example, legal advice or hedge fund trading
• the continuing rise of professions
• rising returns to education and, on the margins, ‘winner takes all’ markets for top professionals;
• feminisation of work, both in the sense of the disappearance of jobs depending on physical strength and in the sense of a growing weight and status for women at work (female participation rates in the OECD rose from 48% in 1973 to 62% in 1993, and to take just one telling statistic, in the US 40% of women graduates make more money than their husbands)
• growth of hi tech jobs in software, systems
• growth of care jobs (high touch) in health and education
• ageing of the workforce (as preparation for work takes longer)
• a shift away from fixed salaries towards contingent pay, profit sharing &c
• more sophisticated screening methods adding genetic screening to psychological profiling and other tools
• models of employment that increasingly emphasise entrepreneurship and individual capacity rather than loyalty and conformity.

Looking ahead seven challenges stand out:

First, returning to full employment. The greatest failure of the OECD countries over the last two decades has been the rise of long-term unemployment which has corroded well-being, social solidarity, and the legitimacy of institutions, as well as spawning a host of other social problems. Some of the essential factors in ending long-term unemployment are now clear: maintaining growth and high levels of demand against a backdrop of economic stability; a light regulatory climate that encourages enterprise creation and job creation; high investment in active labour market institutions to help people find jobs, retrain, and adapt (such as the UK’s New Deal); fiscal measures to ensure that there are clear incentives to work (such as the various tax credits introduced in the US and UK which are effectively introducing a negative income tax approach); systems that puts pressure on individuals to accept work rather than spending long periods dependent on state benefits; modern job matching systems using the Internet, call centres and specialised agencies; imaginative job creation such as France’s ‘Emplois Jeunes’ and the Netherlands ‘Melkert’ schemes. The promise is not a return to full employment in the sense of permanent jobs for everyone but rather of achieving security through employability: a realistic expectation that if people lose their job they will be helped into another one quickly.

Second, expanding the supply of labour, so that a greater proportion of the population can achieve economic independence, whether through full or part-time work. The combination of changing values and domestic technologies have already encouraged a big expansion of female participation in the labour market. This was one of the main reasons why the ageing of the last 40 years did not put much strain onto welfare systems. However, other groups have become more detached from the world of work: those defined as disabled; the young elderly; single parents. As the working age population begins to fall (from 2010 onwards for the EU as a whole) the need to find new sources of labour will become acute and there will be even stronger incentives for governments to invest in helping people back into work.

Third, encouraging upwards mobility. Social mobility has risen surprisingly little this century. According to one measure of mobility, the children of middle-class parents are 5.5 times as likely to become middle-class as children of working class parents in the UK, 5.4 times as likely in West Germany and 3.7 times as likely in the US. Only Scandinavia and communist Eastern Europe achieved significantly greater levels of mobility. Yet the promise that each generation will do better than the last, and that life can become more fulfilling and better rewarded is part of the promise that many societies make. Performance in this respect varies widely: the best, like Denmark, achieve rapid upward movement in the work place from the combination of a tight market, pressure from wages and effective training systems. In others too many people end up stuck in low level occupations with little prospect of advancement.

Fourth, improving the balance between work and life. As dual earning has become the norm in many societies, pressures on family life have become intense. The century-long fall in working time went into reverse in the mid-1980s, particularly affecting some managerial roles and some unskilled occupations such as security guards. Many governments have responded with new rights to time off, including parental leave, rights to periods of time off for training (such as Sweden’s ‘Knowledge Lift’) and options for sabbaticals (as in Belgium). France has responded with the introduction of a 35 hour week. In other countries employers have negotiated more flexible management of time, including annualised working hours, and offers of term-time working, as well as 3 and 4 day weeks. There is some evidence that the upwards lurch of working hours is now going into reverse. However the issue is made more complex by the evidence that some people actively choose hard work as more satisfying than leisure (one reason why predictions of an imminent leisure society proved to be so inaccurate).

Fifth, lifelong learning. 80% of technologies are obsolete within 10 years - but 80% of the workforce operates with knowledge that is more than 10 years old As discussed in the previous section, the task of achieving a system that genuinely updates skills has not been easy. This will be a key issue for the next century and is likely to encourage intensive experiment with new forms of incentive for employers; learning accounts into which the state, individuals and employers can invest money; more competitive markets for courses; and use of on-line technologies to offer skills ranging from 30 second help services to 2 year vocational courses.

Sixth, managing new kinds of work. Skills traditionally associated with women in the family and the community are increasingly valuable in the work environment: working in teams, collaborating, interpersonal support. As routine tasks are automated, interpersonal skills and emotional intelligence become relatively more valuable. For many men this has become a major problem (and one that raises questions about the success of education systems in cultivating social skills).

Seventh, good work. In wealthy and growing sectors huge investments are made to ensure that work (at least for the highly paid) is satisfying, fun and carried out in good environments. Because of the persistence of high unemployment, over the last two decades the issue of ‘good work’ has been marginalised in public policy discussions. However if full employment is once again achieved, let alone if labour shortages result from the declining birthrate, these issues are likely to return to prominence. TOP

Where previously people could rely on a predictable passage through childhood and education, work and child-rearing, and a - fairly brief - period of retirement, with income tending to rise during working life, a very different pattern of life is now taking shape.

In early life many more years are now needed to accumulate knowledge and skills; in later life longevity has opened up the prospect of decades in retirement. Compounding these changes have been the collapse of youth labour markets; the destruction of jobs for the over-50s, particularly men; new patterns of childbirth in which women can have children into their 50s. According to one - partly humorous - extrapolation from current trends in education and retirement, by the middle of the next century people will move straight from full time education to retirement.

These shifts are putting great strains on existing welfare structures and on the implicit contract between the generations. When Bismarck introduced the state pension, life expectancy was decades lower than eligibility at 65. Today life expectancy is typically 10-15 years older than the age of eligibility. Most employment insurance systems were designed to cover periods of relatively brief unemployment, not large scale structural unemployment, and certainly not large numbers of people leaving work for good in their early 50s. Ageing affects not only the costs of pensions but also health care. In the UK, for example, it costs 20 times as much to care for a 85 year old as someone in middle-age.

These trends are not inherently dangerous. Longer lives are in many ways a great boon providing a valuable extra resource for every society: a pool of labour, a source of voluntary help and care. In some countries there is little risk of a demographic time-bomb. Everywhere it is likely that each new cohort will enjoy more disability-free years after retirement, and in the future each new cohort will be readier to learn new skills. Some – mainly the wealthy – may quite soon benefit from dramatic improvements in life expectancy if the promise of new medical advances to prevent ageing is achieved.

However despite these optimistic possibilities, difficult choices will still need to be made about how to adapt to these new patterns of life.

The first and most visible issue facing many societies is how to pay for a longer period of old age, as well as for other periods out of work, such as periods of full or part time parenting, or time off to learn new skills. Most welfare systems developed around a fixed set of entitlements and expectations linked to age, with education up to 16 or 18; state pensions at 60 or 65, and so on. Most insurance systems combine some age-related entitlements with entitlements related to need: Germany has pioneered the imposition of an additional charge for care, and Japan is now introducing an extensive insurance based system to finance long-term care, with eligibility linked to assessments of need. The problem many face is that governments have made unrealistic promises about what can be afforded. In France, Germany, Japan and Sweden state pensions will take 15-20% of GDP by 2050 compared to 8% in the US and 4% in the UK.

Although steps have been taken to raise retirement ages, these have risen more slowly than life expectancy. Moreover, all insurance-based systems face questions about whether they are now focused on the right risks, and about how to avoid problems of moral hazard.

Some of the more radical thinkers have proposed moving entirely away from age-based entitlements towards entitlements based on need, on the grounds that age is no longer a good proxy for need. They have argued for a return to the working patterns of pre-industrial economy, where the elderly continued working while steadily reducing their working hours in line with their capacities, with public provision making up for the difference rather than offering a fixed sum entitlement. But reforms of this kind are hard to implement and clash with perceptions that there is a natural entitlement to payments after a lifetime of employment.

These various considerations are likely to continue focusing attention on self-funding. Self-funded pension schemes have grown dramatically and have been encouraged by public policy from Chile to the UK (and in the US 75% of financial assets are owned by over-65s). In theory self-funding allows public funds to be targeted on those in greatest need. In theory too the money purchase of defined contribution arrangements gives people a visible stake in their society or company, and goes with the grain of an equity culture based on individual ownership. However self-funding is no panacea: it still requires there to be a transfer of resources from people in work to pensioners, even if the mechanism is dividends rather than tax or insurance. Moreover there are serious dangers with over-reliance on self-funding, including often very high transactions costs and risks if stock markets underperform. The most promising examples of reform have therefore introduced complex systems combining self-funding, insurance based models and guaranteed minimum incomes linked to earnings, with strong incentives for self-reliance combined with a reasonably generous safety net (and subsidies for carers and others who are unable to sustain contributions to funded schemes).

Many of the same considerations apply in thinking about how to finance some of the other needs of longer and more complex lives: parental leave: periods of eldercare; re-education &c. All can in principle be supported through pooled insurance models, tax finance or self-funding, so long as there are sufficiently long periods of earnings to cover periods without earnings, and (in the first two cases) so long as there is sufficient willingness to cross-subsidise from the relatively wealthy to those unable to earn for such long periods.

However the issue of changing life patterns is about more than money. It is also about how to mobilise the energy and skills of older people. The strong pressures to encourage early retirement in the 1980s and 1990s now look to have been an historic mistake. They left large minorities out of work, often depressed, and facing the prospect of poverty in old age. As a result policy attention has turned to new issues: how to bring the over-50s back into the labour market, if not in full-time jobs then in part-time jobs; how to increase voluntary activity on the part of the over-50s, including the use of new payments systems such as LETS and Time Dollars as a half-way house between formal paid employment and volunteering (encouraged by the strong evidence that useful activity and personal health are strong correlated). The big issue for the next two decades looks set to be not about how to cope with a demographic time-bomb but rather how to turn longer lives into a boon, a resource for societies and communities to draw on. TOP

These issues of life overlap with the question of how to achieve better health and well-being at all ages. OECD countries spend huge sums on health – in some cases over 10% of GDP. These sums appear to be rising remorselessly. New medical technologies, as well as new drugs such as Viagra or AZT, stoke demand, as does heightened public awareness about health. New fears about drug-resistant infectious diseases, and the rapid spread of epidemics in an open world, also fuel demands for higher spending. New technologies – including smart cards and web-based information services - look set to give consumers much more power over their own health information, and the quality of service they receive, another source of pressure on resources.

However, higher spending does not correlate closely with the achievement of better health. It is estimated that improvements in health services explain only 15% of health improvements - the remainder is better explained by diet, lifestyle and exercise, housing or the stress levels associated with overwork, inequality and powerlessness. There is also now abundant evidence that health is partially correlated with mental well-being and that this is in turn closely correlated with marriage, stable relationships and friendships, and levels of equality. Neither the provision of health services nor increasing income on their own have much measurable effect, whereas social problems such as unemployment and social exclusion have a very direct, and damaging, impact on both well-being and health.

The health strategies of the next century therefore look likely to be much more holistic, addressing several different dimensions simultaneously:

First, applying new knowledge through the technologies of health care: in particular potentially rapid advances in the ability of medical science to predict, prevent, detect and treat, and cure, disease drawing on new knowledge of genetics, and new techniques ranging from the implantation of devices in the body and regenerative medicine to new forms of immunisation.

Second, organisational innovations to contain rising costs, and to improve effectiveness and responsiveness. This may involve applying systematic performance management methods to health services (to reduce the huge disparities in effectiveness that can be found in many systems); introducing greater competition (as is already happening between sick clubs in Germany and insurance groups in the Netherlands); providing more scope for health services to be organised in conjunction with other services (for example for young children); and new forms of palliative and hospice care. The new NHS Direct service which provides access to health advice over the phone and the Internet as well as through walk-in shops is another good example of a radical organisational innovation.

Third, responding to more assertive consumers by offering more information, choice, and data about the performance of providers, in place of passive acquiescence. In some countries the response to consumerism may need to be a new balance between universal provision of a defined range of services, shaped by evidence of what works, alongside a range of lower priority services requiring some form of payment and provided on a more competitive basis.

Fourth, preventive strategies, addressing the causes of ill-health through changing cultures of behaviour (for example on diet, smoking or exercise), encouraging healthy environments, clean air and water; tackling stress &c

Fifth, encouraging the trend towards greater personal responsibility for physical health. In the medieval period it was believed that whereas there was public responsibility for the state of people’s souls - through the church - responsibility for bodies was a private matter. These positions long ago reversed, with the advent of public health services and collective insurance to deal with physical health on the one hand, and the decline of organised religion on the other. But a further reversal may be in hand with a large increase in demand for and supply of services for mental health and a sharper sense of personal responsibility for physical health, through life style, diet, smoking (half a million die each year in the EU from smoking related disease). This new emphasis on personal responsibility and control leads at one extreme to growing support for euthanasia. It will almost certainly encourage a recognition that more detailed genetic information will impose sharper responsibilities on individuals to shape their life in the light of that information; to manage diet and lifestyle; to avoid risks, to enhance protective factors. This may be the quid pro quo for more advanced medical services that guarantee rapid and effective treatment for all. TOP

Most OECD countries are extremely safe by historical standards. Murder rates are low. But many countries have experienced rising levels of crime (and countries as apparently safe as the Netherlands, Sweden and Denmark now have burglary levels higher than the US), as well as rising levels of fear of crime. Some of the causes of crime are well known, such as the demographic effects from the number of 15-24 year old men, who commit a greatly disproportionate number of crimes. But the standard explanations only go so far and in any event the forms of crime have changed: the growth of large-scale organised crime across boundaries; drugs and the associated drugs economy; rising levels of juvenile crime, often associated with family breakdown and school failure; new areas of criminal behaviour coming into view such as domestic violence and child abuse; the preponderance amongst criminals of young men without the clear social roles offered by industrial jobs; and a new interplay between the media and crime which results in systematic misperceptions on the part of the public which in turn influence the climate for policy. Complicating the picture too is the fact that many law enforcement systems are chronically inefficient, with low clear-up rates, and even poorer records in terms of stopping re-offending.

Crime and fear of crime matter: they corrode social trust and community, as well as undermining well-being. Declining civility can become a cause of crime, setting in motion a spiral of decline as people lose faith in their community and in those around them. All societies need to be able to define and enforce rules and these rules in turn need to be widely supported and upheld – not least so that they can be passed onto the next generation both through the formal curriculum taught in schools and through the implicit curriculum that children pick up by observing other children and adults – what is valued, who is rewarded and punished.

Many societies have failed to renew the rules governing social order. Yet without this, progress in other areas will always be hard, if not impossible. Five tasks stand out:

First, preventing crimes. Much is now known about how to prevent crimes. The methods include: intensive support for individuals and families who are at risk of crime, often targeting very young children and aiming to improve cognitive skills and self-esteem; better physical design and lighting; and in areas of high juvenile crime, more coercive measures such as curfews for under-10s. Prevention is also helped when communities take greater responsibility for security: for example through neighbourhood watch schemes, or neighbourhood wardens schemes (as in the Netherlands Civic Guards), or even through the use of private security to complement the police (there are at least three times as many employees in private security as in the police in the US, and twice as many in the UK and other countries). Effective policing of small infractions can help to establish norms of obedience to the law that reduce the incidence of more serious crimes (the ‘broken windows’ thesis of James Q. Wilson).

Second, solving crimes. Technological solutions and organisational changes are critical: applying new information and genetic technologies to the identification of criminals, including systematic DNA testing and the use of DNA databases; the widespread use of CCTVs in public spaces (over 500,000 in the UK alone); home security systems; sophisticated mechanisms for tracking money; the use of cross-border cooperation and transnational policing capacities to deal with international organised crime; and, within countries and cities, the use of new methods of ‘intelligence-led policing’, using data systematically to allocate resources.

Third, punishment. Over the last two decades there has been an explosive growth in the use of prison as a punishment in some countries, notably the US (where prison populations are now over 1.8m) and New Zealand. These are now hugely costly, and although they may have some effect in reducing crime while offenders are incarcerated, they are extremely inefficient at preventing future crimes. In other countries, a variety of specialised punishments including community sentences and very short sentences have been used. Electronic tagging has also been used. But as a whole the field of punishment has not been innovative, and few regimes of punishment can demonstrate strong evidence of success either in deterrence or rehabilitation.

Fourth, rehabilitation. In many societies re-offending rates remain high. Some countries have therefore shown interest in more imaginative methods, such as the restorative justice methods derived from the Maoris, which bring offenders and victims face to face; more intensive counselling and after care to help former criminals re-establish themselves with a home and a job. TOP

Each of the areas discussed above touches on how we think about welfare and well-being. Welfare was the foundation stone of the post-war order. It ensured protection; it embodied shared values of social justice and protection for the weak and the unlucky. But the risks faced by individuals, families and communities have changed, and the environments in which all welfare systems operate is now substantially different from that of the post-war period:

• new forms of poverty and exclusion have emerged despite rising spending on welfare
• ageing patterns have called into question the promises made by some governments
• changing values have made people less willing to look after elderly relatives
• changing – and weaker - family structures have reduced families’ ability to look after themselves and become a major cause of poverty
• international competition has made firm-based welfare systems harder to sustain
• some welfare systems have had perverse effects behaviour and cultures, including encouragement to free-riding and cheating
• disparities in quality of service between public institutions and private companies have grown

These are all reasons why although many welfare systems are not in any strict sense unaffordable there is good reason to talk of a crisis of welfare. Welfare systems that were designed to provide a backdrop of security have instead, in the worst cases, encouraged a long-term dependence on benefits that is disabling, reducing people’s capacity to find work, corroding self-esteem and self-efficacy, and in turn damaging social capital. In any society, large numbers of people will have no choice but to be dependent: the problem has been to distinguish between them and others who may have real prospects of economic independence.

These are not arguments for dismantling welfare. Modern economics has shown very clearly why markets are poor at providing adequate protection against diverse risks. However the precise ways in which risks are pooled, and the deals offered to individuals and groups, need to be continually modernised if welfare systems are to remain effective – and legitimate.

Much of the developed world is now engaged in reform: shifting from passive provision of funds to active intervention in life chances; focusing more attention on knowledge, skills and self-efficacy rather than only money; defining a clearer balance between rights and responsibilities.

These shifts in approach are likely to entail new mechanisms for delivering welfare, including the use of personal advisers and a more customised front-end for welfare in place of standardised entitlements (as in the UK’s new ONE service); much greater use of IT and the Internet to provide job opportunities, training, as well as benefits; links between welfare delivery to other services such as literacy, drugs rehabilitation and debt counselling.

The goal of reforms will be to redefine the guarantees that the welfare system provides: guarantees that if an individual is unfortunate enough to lose a job, to face a relationship breakdown, or a serious illness, there will be support on offer to quickly help the individual and their family back to independence and prosperity, alongside clearer expectations that individuals will help themselves.

What this means in practice is in some respects a more interventionist welfare system. Rapid and intensive support is often necessary because the longer an individual or family is left poor, unemployed (or for that matter homeless or facing drug addiction) the harder it is to escape. Holistic support – bringing together different agencies and professions - is often needed because the problems facing individuals and areas tend to be clustered, with close links between unemployment, ill-health, family breakdown, and crime.

These new approaches to welfare also bring with them a changed approach to risk. Earlier models of welfare assumed that risks had to be minimised. The welfare state was essentially a vehicle for security. Yet in a more individualised society with a wider spectrum of life chances, some kinds of risk are not only economically healthy but also good for the individual. Indeed one of the measures of confident, self-directed individuals is their ability to take considered risks. Hence the new emphases on self-employment, soft skills and self-confidence as key goals of welfare.

In practice the viability of different types of welfare system depends on deep patterns of political attachment and willingness to pay tax. Experience has shown that very generous systems can be sustainable where there is strong public commitment (and some of the highest spending states remain near the top of league tables of economic competitiveness), so long as welfare continues to be efficient and targeted at contemporary needs rather than old ones. However where this is not the case, and where there is less of a culture of high taxation and spending, governments have to be much more careful in targeting resources to maximum effect. For many citizens the results may not be very different. For example in the very different systems of both US and Sweden typical households spend around 40% of income on protection; the main difference is that in the US much of this is channelled through private or semi-private insurance.

Like other fields of public policy welfare is subject to reflexivity: analysis and assessment of policies and their effects. Some of this new knowledge comes from social science, for example on labour market dynamics. Knowledge can also be drawn from the more sophisticated management of personal data or area-based data. Looking ahead there will also increasingly be knowledge from genetics. So far genetic knowledge has been far too unreliable – and testing too expensive – to have the predicted impact on employment, housing and insurance. But there are real concerns that once the results of the full sequencing of the HGP in 2002 flow through, alongside gene chips that can test more cheaply, a ‘genetic underclass’ could take shape as people find themselves excluded from markets for insurance and mortgages, or facing discrimination in employment TOP

One of the common problems of the last three decades has been the emergence of concentrations of poverty, unemployment, ill-health and crime in neighbourhoods, often in inner urban areas, though sometimes in peripheral estates (as in France). The spatial character of many social problems was under-appreciated in the past. Today it is evident that problems that often began with the disappearance of jobs from cities – particularly industrial jobs for men – became over time much more complex, connecting culture, weak family structures, welfare dependency, low levels of social capital, racial discrimination and the rise of an economy based on drugs. As a result inequalities within cities have often become much more acute than inequalities between cities and regions.

Many of the earlier policies used during the 1970s and 1980s to revitalise neighbourhoods were ineffective. In retrospect many focused too much on physical renewal rather than investing in human capital and capacity; too much was imposed top-down rather than involving communities themselves; too many initiatives were short-term; too many focused on one or two problems rather than tackling the cluster of related problems in the round.

Some progress has been made in the 1990s to tackle these deficiencies. Empowerment Zones and Enterprise Communities in the US; the Single Regeneration Budget and New Deal for Communities in the UK; in France the 'Zones Urbains Prioritaires', which often became amongst the biggest concentrations of problems, have been replaced by the policies of the ‘contrat de ville’ and ‘zones franches’; in the Netherlands the various Grote Steden Beleid programmes have linked together job creation, safety and quality of life; in Denmark the Byudvalgsinitiativ in the mid-90s, and more recently the Kvarter-loft programme, both pioneered integrated approaches to regeneration.

In all of these cases some of the same problems recur: how to gain and sustain local participation and leadership; how to persuade business to invest; how to convince public agencies to cooperate fully. Looking ahead this set of issues is set to the one of the hardest challenges for the OECD countries if they are to prevent worsening polarisation within the major cities. Social renewal will count for little if it does not reach into the poorest urban neighbourhoods, which have largely failed to make the transition to a stable new economic and social order.

No-one would pretend that there are any easy answers (or that neighbourhood renewal can be seen in isolation from larger social and economic policies). However there is an emerging consensus about some of the themes needed to underpin a more holistic and effective approach:

• Physical regeneration as the necessary but far from sufficient condition for renewal; in some extreme cases, there is a need to demolish housing and start again
• Encouraging economic independence through combining inward investment; stronger links to the mainstream economy through transport, job search, and mentoring programmes; and promoting indigenous wealth-creation through self-employment, business start-ups and community business
• Building up community based institutions to manage housing, public spaces and amenities at the neighbourhood level, and building up the assets under the control of the local community
• A strong emphasis on public order, safety and crime reduction
• Using local public institutions – such as primary schools and health centres - as hubs to revitalise community life
• Raising the performance of mainstream public services in poor areas (including in particular schools, police, health services)
• Committing agencies to long-term, 10-15 year, plans for renewal
• Involving local communities closely in the design and delivery of renewal plans, while also tying plans closely into city-wide and regional economic plans TOP

Within any society people need mechanisms to organise themselves and to express care, commitment and altruism. The third sector of non-profit organisations provides the vehicle. Yet in many countries its legal, financial and regulatory environment remains unmodernised.

The post-war order was primarily based around the relationship between state and market. In many countries non-profit independent organisations - particularly religious ones – provided welfare services, schooling and health. Well known examples include the religious organisations in the Netherlands and Germany; labour organisations like Histradut in Israel; the non-profit organisations associated with the Catholic Church in Italy. In Belgium and Austria about half of social services are provided by the third sector. However in all countries the third sector tended to have a subordinate role – lower in status and power than business and the public sector.

Over the last 15 years this relatively low status has begun to improve. One factor was the collapse of communism and a search on the left of politics for a bigger role for non-state organisations, less tarnished by the failures of large-scale planning. Another was disappointment with the excesses of neo-liberalism which appeared to squeeze non-material values to the margins.

The result has been a revaluation of the role of organisations driven by values rather than self-interest and coercion, and a recognition that they have a crucial role to play in social renewal – identifying new needs, new ways of organising, and mobilising different resources of commitment and time than state and market institutions can do.

While some commentators – notably Robert Putnam in the US - have warned of a decline in civic association, the evidence is not clearcut. Some traditional charities have declined but they have been more than compensated for by new ones. Some studies in the US, the UK and elsewhere, have shown a clear upwards trend in social capital, closely associated with rising educational levels and occupational change, and manifest in the growing number of self-help groups in health, small organisations, neighbourhood organisations, and social entrepreneurs. Elsewhere there have been striking examples of public willingness to contribute; after the Kobe earthquake in Japan in 1995 for example, one million volunteers went to help with relief.

Governments have also built the sector up. Its economic weight – typically 4-6% of GDP, and usually a rather larger share of employment – reflects large infusions of public funding. In some cases governments have funded non-profits to cut costs and undermine public sector interests, while elsewhere the priority has been to bring in ideas and responsiveness. In many countries voluntary organisations have taken on some of the characteristics of public bureaucracies and indeed of for-profit firms, and cooperatives have become more similar to associations. But the most important change is that third sector organisations in all their forms – from mutuals in insurance or the Internet to small community groups – are now seen to have capacities beyond the reach of public and private organisations.

Governments are now trying to find new ways to engage the third sector as a partner in social change: legitimately different from, and independent of government, but also inevitably involved with it in framing and delivering policies. These are some of the emerging themes:

• more systematic use of the voluntary sector to innovate, identifying new needs and new practices (for example in drugs rehabilitation, self-help in health, neighbourhood regeneration or housing)
• developing new machineries for people to give time, including funding for volunteering and mentoring programmes to provide a one-to-one personal complement to formal professionally delivered services; accreditation for time given; encouragement for employers to release staff; ‘time monies’ and other kinds of reward for commitments (such as discounts on student loans)
• funding community organisations to run services; manage community exchange systems (such as LETs or Internet equivalents such as GEMs (guaranteed electronic markets)); organise local neighbourhoods; and engage communities in planning their own futures
• modernising the legal and institutional frameworks for non-profit activity, including guarantees of independence, proper scrutiny of financial arrangements, new methods for individual and corporate giving, as well as new forms for the social economy
• involving the third sector more directly in policy-making through commissions, task forces as well as community planning fora &c
• developing new sources of risk finance to support new social ventures, and social entrepreneurs

Two hundred years ago Adam Smith developed the idea of the ‘invisible hand’ that links the pursuit of individual self-interest to the common good through the market. One of the lessons of recent history is that all societies also depend on another invisible hand that mobilises altruism, concern and commitment, and which – like the invisible hand of the market - rests on institutional forms to gain fullest expression. TOP

The final challenge concerns culture: how to maintain a diverse, tolerant society against a background of greater flows of people and a revival of identity politics. Nations have rarely had the homogeneous cultures that romantics imagined. In practice cultural unity often had to be forged out of mass education systems, national media (particularly broadcasting) and national armies. But now there are very real concerns that we could be entering an era of intolerance, cultural conflict and the loss of traditional identities.

In Eastern Europe ethnic and national chauvinism, and anti-semitism, have re-emerged. In the US, more than thirty years after the civil rights movement, the majority of black people expect racism to continue. California’s Proposition 209 in 1996, which made it illegal for public colleges to take ethnicity into account in deciding on admissions, appeared to signal a new period of intolerance. France’s ‘affaire foulard’ (over wearing Islamic headscarves in school) revealed uncertainties about the terms of citizenship at the end of the 20^th century, as did Germany’s debate about the reform of citizenship laws. Elsewhere in Europe the rise of right-wing, often overtly racist political movements such as Jorg Haider’s Freedom Party or the Vlaams Blok has kept issues of diversity high on the agenda, as have racist murders in Germany, Britain and France, and the terrorist acts of US militias.

All have fuelled fears that the next 20 years will bring fragmentation, division, mutual distrust and the importation of the divides of the whole world into settled societies. At a global level the argument is put by theorists such as Samuel Huntingdon, who has emphasised the incompatibility of the world’s main religiously-based cultures, and warned of the prospect of worsening conflicts along their boundaries.

Certainly, much of the world is now populated by more mixed populations, and there are more signs of tensions, from racist violence to civil wars, than a generation ago. Globalisation has been accompanied by a resurgence of identity politics and nationalism. However, there are important reasons for being sceptical about the pessimistic account of worsening conflict and incomprehension.

Firstly, there is now far more evidence that cosmopolitan and diverse societies can be stable and successful. Some of the most diverse cities are also the most peaceful: Toronto, Melbourne and London in the English speaking world are counterexamples to Los Angeles and Washington. Elsewhere countries as diverse as Singapore, Brazil and the Netherlands have achieved remarkable records of harmony. Tolerance and cooperation can be learned and embedded in institutions.

Second, the evidence of hybridity undermines the pessimists account of conflict between homogeneous groups. Mixed relationships now account for 30-40% of the relationships made by young members of Britain’s ethnic minorities, and even in the US half of Asians marry non-Asians and half of Hispanics marry non-hispanics by the third generation. In culture too hybridity has become the norm with the intermixing of forms and genres in popular music, and literature, such that the leading exponents of ‘English’ literature now come from the Caribbean, the Indian subcontinent and Africa. There is the very real prospect that within a few decades there will be fewer clear breaks between majority and minority populations.

Third, the success of ethnic minorities in many societies has tended over time to become more variable, with some minorities quickly attaining wealth and status, while others languish, often reflecting their class origins. Where class and race overlap social problems can be particularly resistant to solution. But the lines dividing in-groups and out-groups are not fixed, and in some parts of Europe and north America the white working class is now one of the most excluded and alienated groups.

These considerations suggest that societies can take a very strong stand against discrimination and inequality without promoting a racist backlash, and that they can achieve integration without assimilation through:

• enforcing vigorous anti-discrimination laws
• intervening to ensure that high unemployment does not become a norm in particular minority groups
• using housing allocation policies to avoid ghettos
• engaging all groups in mainstream politics
• widening access to the most influential professions
• using symbolic acts of inclusion

It is not necessary to believe that societies can only hold together if everyone shares the same values. There is certainly a minimum of shared values that is necessary for social values – and in particular a shared commitment to procedures and regulations. But beyond this societies can thrive with a very wide range of belief systems. Moreover inclusion and tolerance can be learnt, and enforced. The institutions promoting them can be built up, reinforced, and given greater legitimacy because – contrary to the cultural purists - in practice cultures are complex not closed, dynamic and not fixed. However for tolerance to thrive it is essential that the healthy trend towards greater autonomy for individual communities is matched by stronger commitments to tolerance, cooperation and equal rights at higher levels, whether at the level of the nation state, the European Union or global institutions. Otherwise there will always be a risk that greater self-determination for minorities, communities and localities will result in insularity, intolerance and conflict. TOP

What conclusions can we draw from this brief survey about the conditions for social renewal over the next 25 years?

First, we have seen that the social and economic order of the OECD nations that took shape in the years after WW2 has become obsolete. This order tended to include the following main characteristics:

• nation states operating to varying degrees as closed systems
• state and market expanding in tandem
• substantial state involvement in the economy
• states offering economic and health protection to the majority of citizens
• markets offering rising levels of consumption
• knowledge concentrated at the apex of large organisations and professions
• deep hierarchies with many layers
• policy informed by ideology
• welfare systems based on entitlements
• a clear gender division of labour and inequality of power
• relatively homogeneous societies

This post-war order was highly organised; built around powerful institutions able to make strong claims on their citizens, employees and members, under the umbrella of the nuclear deterrent and the cold war; held together by governments taking on a greater share of collective responsibility for health, welfare, education and security; run by organisations within which authority derived from the role not the person, with power and reward clearly linked to position in the hierarchy.

Under the twin impacts of knowledge and connections this order has declined. Institutions have become weaker – less able to command loyalty, to raise money, and to make demands. ‘Strong power’, multilayered hierarchies have started to be replaced by flatter organisational hierarchies and ‘weak power’ structures which are looser and more flexible, more able to redesign themselves; tied together in networks; and governed by finance, information and culture, as much as formal authority. The result is a clear discontinuity, a break in the traditional account of modernity.

This break affects many domains. For much of this century it was possible to say that many nations were on a similar path of modernisation albeit at different stages: the trends towards higher population, urbanisation, industrial employment all pointed in the same direction in the East and West, North and South, as did some of the costs of modernity, notably weaker family structures and environmental pollution. Everywhere the dominant model of development and growth took for granted the virtues of bigness; material abundance; control over nature; increasingly centralised political structures and bigger firms.

Today much of the developed world is moving in a distinctly different direction: towards stable and possibly falling population; de-industrialisation; de-urbanisation; decentralisation; cleaner air and water and reforestation. There are even some early signs that other apparently unavoidable trends are either levelling off or going into reverse: divorce rates have started falling in the US; crime rates have started falling, sometimes rapidly; even distrust of institutions has stopped declining and in some countries is now rising again. Problems that recently seemed insoluble now appear to be tractable: just as the inflation that appeared endemic in the 1970s (and a reflection of deeper social factors) has largely disappeared, so is the unemployment that appeared to be endemic in the 1980s now beginning to respond to new policies. TOP

These – and the other observations discussed above - confirm that we may be witnessing something less like incremental change and more like a change in order – the emergence of a new social and economic order appropriate for knowledge-based economies and for connected and democratic societies. We can summarise the emerging characteristics of this new social and economic order:

• greater porousness to flows of money, culture, goods
• state, market and civic society as triple pillars
• an economy based on knowledge
• active welfare focused on human capital
• a shift from material consumption to quality of life as the primary concern
• flexible labour markets
• a broader spread of knowledge and capacity to organise throughout society in place of reliance on experts
• policy driven by ethics and evidence rather than ideology
• a new balance of rights and responsibilities in place of a politics of entitlements
• intolerance of discrimination based on race, gender, age or disability
• stronger protection of personal autonomy (eg privacy)
• a more androgynous labour market and domestic sphere
• a more diverse social structure

It goes without saying that none of this is inevitable. The prospects for social renewal will be sharply determined by the health of the global economy and the absence or presence of war. Many other features of the emerging order will only become clear with the passage of time: whether, for example, businesses will take on greater social responsibilities or stick to a narrow focus on shareholder value; whether there will be a further commoditisation of everyday tasks or conversely a return to self-provision in the home (as is already happening to some extent with education, health, childcare, cooking); whether levels of taxation will continue to be roughly frozen at the widely varying levels they reached in the early 1980s; and so on. Yet, despite these caveats, the overall shape of the new order is already becoming clear. TOP

Changes of order do not happen spontaneously. They evolve both from below and from above, emerging from the interaction of complex processes of organic change, involving millions of individual decisions, experiments and innovations, with the attempts of states to impose form through laws, institutions and rules. They build on deep predispositions towards pro-social behaviour, cooperation and trust that are hard-wired into our biology, as well as on self-interest. And they are also shaped by the states that - in the OECD countries - spend a third to two-thirds of economic income, maintain law, punish violence, regulate markets, currencies, organise and fund, either directly or indirectly, schools, welfare and health, collect data, imprison people, govern who can go where, as well as regulating the legal and fiscal status of relationships, the rights and responsibilities of parents.

Neither side of this equation can be relied on. Governments can all too often be obstructive; myopic; too tied to the status quo; slow to adapt and unenterprising, which is why governments themselves have to change radically if they are to play a constructive role in social change. But too little government can be as much of a problem as too much: certainly recent history shows that societies with weak governments are rarely blessed with stronger and more self-reliant people, more dynamic economies and a richer civic life.

Underlying much of the previous discussion is what I have called the question of ‘connexity’. Is it possible to create new forms of stable order in a much more connected world where people and communities have wider choices about who they deal with, trade with, communicate with, join together with? Is it possible to avoid the tensions between freedom and interdependence? Is it possible to combine economic dynamism with the community, mutual responsibility, commitment and care, which are the preconditions for a good society that meets the needs of its citizens?

This paper has offered affirmative answers to each of these questions. Globalisation is neither a force of nature that must be unthinkingly embraced, nor a monolithic threat that must be resisted at all costs. It is not inevitable that globalisation will lead to a descent into widening inequalities, mutual incomprehension, weaker communities and social conflict. New bonds and commitments are emerging spontaneously and they can be encouraged – whether at work, in families, or in communities.

Many governments have already shown that they can combine cohesion and competitiveness in ways that respond to global challenges while also drawing on the specific circumstances of their own history, culture and institutions: delivering welfare in much more active, integrated and personal ways; providing lifelong learning; managing health holistically; making public services more responsive; devolving power down from national governments; empowering third sector and community organisations; and offering citizens new guarantees based on a new balance of rights and responsibilities. There is much further to go, and much more to be done to link government, business, non-profit organisations and the wider public. But social renewal is achievable.

The emergence of any new social and economic order is accompanied by disorganisation, confusion and chaos. During such periods it is natural to want to cling onto the securities of the past. Usually, however, periods of ‘unsettling’ are followed by periods of reconstruction – what the Japanese call ‘kakumei’, or the renewal of order. We are now at just such a moment. For too long the debate has been polarised between an unthinking celebration of the new economy and an unthinking defence of the old post-war social order. Now the debate needs to reconnect the economic and social; to address in detail the practicalities of renewing social systems, welfare, education, health and law enforcement; and, insodoing, to strike a new balance between expanding freedom and the growing interdependence of a connected world. TOP