(annotated speaking notes at a recent panel discussion, by British platfrom IORMA, Jan. 14, 2021)
The Corona-induced Crisis is Different
The severe Corona-induced crisis has massive effects on society and economy. Most of all, it shows how important public goods provision is for our societies: the inadequate preparation for pandemics, the large gaps in providing adequate education during lockdowns, the obscene enrichment of the already rich as a result of the stock market boom, the need for public programs to keep people in work and maintain their incomes, the need to help businesses through the crisis – all this comes on top of the climate/environmental crisis which threatens to severely impair our ability to live on as before.
For the first time since World War II the global economy last year shrank by around 5%, massive unemployment and underemployment, withdrawal from the labor market, financial stress, homeschooling, an absence of social contacts – all this comes in addition to around 2 million Covid-related deaths. Countries have been hit very differently: the UK by -11%, the Eurozone by -7%, only China‘s economy grew last year.
The illusion, harbored by many global institutions, economists and politicians, of a V-shaped recovery, is just that: the recovery, if and when it comes, will be slow and protracted. Significant amounts of money have been spent by governments to combat the crisis. In Europe, around 10% of GDP were expended last year, probably similar sums will be spent this year.
The pervasive „spirit of austerity“, prevalent in rich countries for decades, has been suspended. It is of utmost importance that we do not commit again the same mistake made during the financial crisis of 2008 ff.: a short boost of government spending, followed in 2010 by a return to austerity: the effects were devastating, the eventual recovery very slow, the human costs and material losses to the population staggering.
Corona on Top of Rre-existing Climate and Social/political Crisis
The Corona crisis has exacerbated already existing dysfunctionality of the economy: the previous policy regime is responsible for the existential climate crisis, severe environmental degradation, glaring and increasing polarization of incomes, with poverty rates in the richest countries of the world between 10% and 15%: an absolutely shameful occurrence, leading to political polarization, the rise of dangerous populism and social disintegration.
Private vs./and Public Consumption
In most of the European countries policy makers want to „build back better“, so they say. Especially they aim to restore the purchasing power of private consumers. No wonder, since modern economies are based on the strength of private consumption. Consumption commands around 70% of GDP in the USA, 62% in the UK, 53% in Germany, 55% in France, 52% in Austria, 45% (!!) in Sweden. Consequently, the Anglo-Saxon countries spend less on investment (US 20% of GDP, UK 18%) than Continental ones (Germany 22%, France 24%, Austria 25%, Sweden 25%). And maybe as important: less on government spending (USA 14%, UK 18%; Germany 20%, France 23%, Austria 20%, Sweden 26%).
Government‘s contribution to GDP is important as a demand factor, but even more so as an indicator of the role of government (leading or merely reacting) in the economy and society.
The question which confronts policymakers is, into which direction Corona crisis fighting should lead our economies. Given the glaring failures of social conditions and environmental/climate degradation, all our countries (but especially the US and UK) need to invest much more into the provision of public goods: health, education, long-term care, environment, social security and social cohesion. If we want to create better, more sustainable, societies – as agreed by all countries by means of the „Sustainable Development Goals“ in 2015, we must invest more into public consumption – at the expense of private consumption. The private market may be good a providing consumer goods, but not at providing public goods.
The Role of Essential Workers
The Corona crisis has put a very fat finger on the importance of adequate provision (and spare capacity) of public health, of good education. It has shown to everybody who wanted to look the extraordinary value provided by the „Essential workers“ in the health and care sectors, in the supermarkets, in delivery, in education, in sustaining our infrastructure. However, the public appreciation of our essential workers seems to have ended with public applause: they are still among the worst paid, working under the most dangerous (infection) conditions. A small one-time bonus was all they received.
If we want to rely on their invaluable services in the future, we need to make sure they receive adequate wages and the best working conditions. Since many of them work in the public sector, and since many of their services are not subject to international competition, it is up to the governments to increase their wages. This will also show their private employers the way forward.
Public Investment for Public Goods
Within the relatively small share of government expenditures in GDP public investment is low as has fallen for many years: among the OECD countries, only Japan (4%) and Sweden (4.5%) have GdP shares of significance. Nearly all other countries are below 3%. But it is public investment which can build the Green and Social infrastructure which we need to build a better society. In many cases public investment can team up with private investors to build for the future, but the public sector is needed to show the way, because it is the obligation of the public sector to provide the necessary public goods.
The future emphasis of public consumption over private consumption as the objective of economic policy requires a change in the dominant paradigm: in Europe after World War II until the early 1970s, the role of government, the share of public expenditure in GDP, the provision of public goods, was mainstream. Only after the „neoliberal revolution“ of the 1970s and 1980s, the freeing of financial markets from national regulation, the attacks on labor unions, and the concomitant idealization of the „free market“ did the fetishism of personal consumption take hold. It has created an extremely unequal society, has reduced job security („zero hour contracts“), has devastated the environment by disregarding its costs. If we want a „good life for all“, a better society, we need to re-direct our economic policy, towards public consumption. Primitive rules, like the EU Stability and Growth Pact, with its emphasis on continuous austerity, must make room for co-ordinated monetary and fiscal policies, guiding the economies towards more common public goods. Social policies must be part and parcel of such a functional economic policy, not ex-post remedies for the worst devastations the free-market ideology wreaks. That environmental degradation is approaching irreversable tipping points must guide a new economic policy which must go beyond creating the „right incentives“, but also intervene directly. We have been able to force drivers to use seat belts, to stop smoking, to drive on the correct side – not via incentives, but direct regulation. The same, and stronger, must apply to preserve the basics of our livelihoods.
A New Way to Govern
We do not only have „market failure“ as an argument in favor of the public provision of public goods. We also need to take seriously the many examples of government failure: overboarding bureaucracy, corruption, self-dealing, lack of entrepreneurial spirit, cost overruns, and many more. However, only the state has responsibility to promote the public good, a Good Life for All. In many countries, during the past decades, the state has attempted to shift this responsibility to the private sector, by outsourcing many tasks. The number of „incomplete contracts“ in doing this, in a lack of enforcement of the contracts, in a lack of accountability of the private enterprises fulfilling genuinely public tasks is staggering.
We also know that top-down projects, one-size-fits-all rules and regulations, do not work. Also the power of vested interests, of powerful lobbying groups in influencing, and even capturing, government needs to be reined in. We need to involve citizens, concerned and others, organized civil society, as well as non-organized groups in deliberation and also decision-making. Unless the public is more strongly involved in the major policy decisions, be it the distribution of government funds, be it individual public goods projects, it will try to circumvent them, boycott them, make them impossible.
A stronger emphasis on public goods provision – with strong involvement of citizens and private sector business – also needs new and innovative governance structures. The old structures lead to the dysfunctional society and economy which we all have suffered for the last decades.