Post-War Social Compact
The post-war social compact — the implicit and explicit arrangements between capital, labor, and the state that governed advanced economies from the late 1940s through the early 1970s — exchanged higher productivity for higher wages, stable employment, rising living standards, and expanded public services. Combined with the Bretton Woods financial system, the welfare state, the G.I. Bill and the expansion of higher education, and progressive taxation that funded public investment, the compact produced the golden age of the 1950s and 1960s. The mechanisms that redirected productivity gains from capital to labor were not market outcomes. They were deliberately constructed through collective bargaining, legislation, and political consensus that the compact's alternative — unconstrained market capitalism — was socially and politically intolerable after the catastrophes of the 1930s and the two world wars.
In the AI Story
The compact's architecture included strong labor unions with effective collective bargaining rights, progressive income and corporate taxation, public investment in education and infrastructure, and an implicit understanding that economic growth would be broadly shared. The specific institutional forms varied across countries — the American variant differed from the European, and the Scandinavian variant differed from both — but the functional logic was consistent: the technology's gains were distributed through institutional mechanisms rather than left to market forces alone.
The compact began to erode in the 1970s, under pressure from stagflation, globalization, and the political assault on organized labor. The subsequent four decades saw the steady weakening of the mechanisms that had redirected productivity gains, with the result that the gains of the ICT revolution flowed disproportionately to capital rather than being distributed broadly. The deployment phase of the ICT revolution, which should have produced a new social compact adequate to the digital paradigm, did not.
The compact's relevance for the AI moment is that it demonstrates both the possibility of broad distribution and the fragility of the institutional arrangements that produce it. The compact was the product of specific political conditions — strong labor movements, the shadow of depression and war, fear of communism, the political salience of the working class — that are not replicable. The AI age requires its own compact, constructed from whatever political coalitions can be assembled in the twenty-first century's political conditions.
Origin
The post-war social compact has been analyzed extensively in political economy. Perez's framework treats it as the canonical example of the deployment-phase institutional architecture that produces a golden age.
Key Ideas
Productivity for wages. The core bargain exchanged higher output for higher compensation.
Institutional, not market. The distribution was achieved through deliberately constructed institutions.
Variant forms. American, European, and Scandinavian variants shared functional logic.
Erosion since 1970s. Weakened unions, globalization, and political assault eroded the compact's mechanisms.
Precedent for AI. Demonstrates possibility; does not provide template.
Appears in the Orange Pill Cycle
Further reading
- Tony Judt, Postwar (2005)
- Wolfgang Streeck, Buying Time (2014)
- Paul Pierson, Dismantling the Welfare State? (1994)