Challenges to social cohesion and approaches to policy reform

Now, at the end of the 20th century, many OECD countries face serious problems in achieving both prosperity and social cohesion. One important - and sadly neglected - source of these problems are the very policy systems that are meant to address them. I will argue that these policy systems - including taxes and transfers, regulations governing employment, welfare services, and many more - are imparting a serious long-term imbalance to their host countries, by making these countries increasingly vulnerable to economic, social and political shocks. Although these policy systems were originally designed with the express aim to cushion citizens from these shocks and to provide security against a variety of uncertainties, their long-term effect is turning out to be the opposite of what was intended. This paper examines how and why this has happened and then turns to some important, recent economic developments that are likely to make this problem more serious in the future. Finally, it examines a strategy for economic policy reform that addresses the problem and thereby provides a means for achieving more favorable economic and social outcomes in the years ahead.