The Global Economy Has Outrun Its Social Contract

Economic Assumption of Rising Tide That Lifts All Boats Broken for India, and Others

By PALLAVI DAS

BHUBANESWAR, July 4, 2025 – The global economy is growing. But the social contract that once made growth meaningful, inclusive, and legitimized, is visibly breaking down.

The numbers look good—on the surface. Global GDP is projected to grow at 3.2% in 2025, according to the IMF. Inflation is cooling across major economies. Financial markets are buoyant, energy prices are relatively stable, and the world has avoided a major recession. And yet, beneath these metrics, there is a quiet rupture unfolding—between the economy’s expansion and society’s cohesion.

A Two-Speed Recovery

Since the pandemic, the world has entered what the World Bank calls a “tepid recovery trapped in uncertainty.” In high-income economies, unemployment has declined, real wages are stabilizing, and central banks have cautiously paused rate hikes. But in the Global South, the recovery is shallow, uneven, and debt-burdened.

According to the United Nations Development Programme (UNDP), over 60% of low-income countries are either in or at high risk of debt distress. In sub-Saharan Africa, interest payments are now the fastest-growing component of government expenditure. Meanwhile, more than one in four young people globally are not in education, employment, or training (NEET)—a figure that reaches 30–40% in South Asia and parts of the Middle East.

This isn’t just a lagging recovery. It’s a structural divergence between global capital and global society.

When Growth Doesn’t Deliver

In the three decades following World War II, the global economy rested on a basic promise: growth would improve livelihoods, create jobs, and reduce poverty. That promise no longer holds automatically.

We now live in a paradoxical world where economic output increases even as basic social protections erode. Between 1995 and 2021, global GDP more than doubled, yet the share of labor in national income declined in 63% of countries, according to the ILO. In other words, the wealth generated by workers is no longer flowing back to them.

What we’re witnessing is a delinking of economic performance from popular well-being—a phenomenon exacerbated by automation, financialization, and the hyper-mobility of capital.

In China, household consumption remains weak despite state-led stimulus, revealing the limits of infrastructure-heavy recovery. In Europe, real wages in several countries have not kept pace with post-pandemic inflation. In the United States, a booming stock market and strong job numbers coexist with a cost-of-living crisis and public anxiety over economic security.

The problem is not growth per se. It is that growth is concentrated, capital-intensive, and disconnected from the everyday lives of people.

India and the Illusion of Inclusion

India is currently one of the fastest-growing major economies, with GDP expected to expand by 6.8% in FY2025, driven by services, infrastructure spending, and resilient domestic consumption. Yet, growth masks internal contradictions.

According to CMIE data, youth unemployment in India remains above 17%, and female labour force participation stands at just 25%. The top 1% of India’s population controls over 40% of its wealth, per Oxfam. In urban centres, gig work and informal service jobs have proliferated, but without social security or upward mobility.

India is not an exception—it is a microcosm. The growth story is real, but it no longer guarantees distributive justice. The foundational assumption that a rising tide lifts all boats appears broken.

Global Capital, Local Discontent

There is a reason why mass protests, strikes, and electoral volatility are surging across regions with vastly different economic profiles—from Chile to France, Kenya to South Korea. What binds them is a sense that the terms of the economic deal have shifted without notice.

Global capital now moves faster than national governments can regulate. Labor markets are increasingly informal or precarious. Welfare regimes are under fiscal pressure. Social contracts, where they existed, are either being rewritten or quietly eroded.

The COVID-19 pandemic accelerated this breakdown. It widened pre-existing inequalities, disrupted education and employment pathways for an entire generation, and fuelled a mental health crisis now visible in economic data. The world responded with stimulus—but not with structural reform. The result is a fragile equilibrium: technically stable, socially brittle.

The Social Contract Was Always a Political Choice

It is important to remember that the social contract—the unwritten agreement between state, market, and citizen—was never automatic. It was politically constructed. The mid-20th century welfare states, the developmental regimes of East Asia, and the global poverty reduction agenda of the early 2000s were all conscious, institutionalized efforts to distribute the dividends of growth.

Today, those efforts have either stalled or reversed.

• In the U.S., income inequality has returned to pre-World War II levels.
• In the EU, austerity politics has left public services fraying at the edges.
• In Africa and Latin America, fiscal space is shrinking under the weight of debt servicing.
• In the Middle East, youth populations are growing faster than job creation.
• Globally, over 4 billion people remain without any form of social protection (ILO, 2024).

These are not technical oversights. They are political outcomes.

The Price of Disconnection

A global economy that outruns its social contract may produce impressive quarterly figures—but it corrodes the legitimacy of institutions, fuels populist backlash, and destabilizes democracy. The erosion of trust, the rise of political extremism, and the retreat into identity politics are not unrelated to economic alienation.

There is also an environmental cost. Growth that is disconnected from people becomes disconnected from the planet. Climate action becomes reactive rather than transformative. The social contract, if rebuilt, must now also include future generations and ecological limits.

Reimagining the Deal

The global economy cannot be “fixed” with GDP numbers alone. It needs a new architecture of inclusion. That means: Redefining what we measure: beyond growth to well-being, resilience, and sustainability; Rebuilding labor protections: especially for youth, informal, and gig workers; Rebalancing fiscal priorities: from subsidies for capital to investments in education, health, and care work; Reimagining international cooperation: debt restructuring, global taxation, and technology sharing. Above all, it means recognizing that the economy is not an end in itself. It is a means to human flourishing.

Towards a Shared Future

The global economy has not collapsed. But it has become dangerously untethered from the lives, struggles, and hopes of most of the world’s people. To rebuild the social contract is not to resist growth—it is to give it meaning again.

As we move deeper into the 21st century, the question is not whether the world can grow. It’s whether it can grow together.

(This is an opinion piece, and views expressed are those of the author only)

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