The Covid-19 pandemic has laid bare many frailties in economies, government systems and business models; and exposed the costs of “progress” borne by society and the environment. Caught flat-footed, and wrestling to get a proper grip on a myriad complex and interrelated issues, policymakers have scrambled for solutions.
Ronak Gopaldas and Adrian Saville
While the immediate policy response focused on public health implications, attention soon turned to managing economic fallout and ensuring rapid recovery. Yet, in an environment where rethinking is urged, policy responses have overwhelmingly lacked imagination. The knee-jerk policy reaction has been to labour furiously on getting the world back to work.
Indeed, an emphasis on a “V-shaped” recovery has dominated the discourse, with a fixation to ensure that the recovery is not some other shape, like U, W or, worse still, L. This hair-trigger reaction to restore growth at all cost is particularly evident in the developed world. The US and Japan lead the way, having primed their fiscal pumps by 10% and 7% of gross domestic product (GDP), respectively. To this, we can add massive monetary programmes that add another 11% of GDP in Japan and 6% in the United States.
With policy reactions generally taking the form of throwing money at the problem, this is not just shortsighted but arguably regressive. Even more than this, there are three key reasons why this drive for business-as-usual-as-quickly-as-possible is a poor outcome.
Fiscal, monetary flamethrowers
First, the fiscal and monetary policy flamethrower approach does not acknowledge the material shift in economic landscape and public mindset since the onset of Covid-19. Simply copying and pasting policies designed for a changed context will not yield the desired outcomes. Policy configurations must reflect behavioural and business model shifts and square up to the fact that we are in a different time. There is no template for managing such a situation and, as such, new – or what some will regard as unconventional – approaches are a precondition.
Furthermore, because the problems are substantially greater in magnitude, the remedial actions need to have far greater breadth and depth than before. What we need is policy “sincerity” that reaches for the core of the illness, rather than policy that rushes for remedies that don’t cut to the fundamental social and economic weaknesses that brought us here. These weaknesses include political narratives that encourage nationalism, lowest-cost supply chains that promote concentration and inject industrial risk, a consumer orientation that places luxury ahead of lives, and the building of boundaries in a world where “the enemy” has no regard for human barriers like trade tantrums, border walls and door-slamming economic exits.
Second, even if we are wrong in our diagnosis of the ailments, the most widely offered solutions overlook the limitations of conventional fiscal and monetary policies in the “new normal”. Conventional policy is unlikely to work in a world where social distancing is expected to be the norm.
Stimulating the demand side of the economy when society’s ability to engage economically is restricted will be partly effective at best, and entirely miss the target at worst. Indeed, access to cheap money cannot have the desired effects unless people can spend, build, grow and be productively engaged. The fiscal pump and monetary hose may feel like sensible short-term “firefighting” measures, but they do not address the core issues of creating meaningful employment, looking after livelihoods, and building a shared prosperity.
With 30 million Americans unemployed in 2020 (not to mention 122 million Indians and possibly five million South Africans), interest rates do n0t matter nearly as much as cash flow – and cash flow becomes academic when the source of the next meal is unknown. This humanitarian dimension, rather than the myopic obsession with growth, must form the bedrock of policy responses. Policymaking options need to stretch far beyond interest rate cuts and tax deferrals to include business remodelling more than business rescue, universal basic incomes more than unemployment insurance, and looking beyond food parcels to a vision of meaningful work.
Third, with no clear indication of how long the pandemic will last, long-term policy formation has become even more complicated than usual. This is especially true amid a realignment of system architecture – the future of capitalism and globalisation is likely to change radically, while localisation and digitisation are simultaneously on the rise. With societies, economies and industries undergoing wholesale change, it is paramount that policies square up to the real problem – which is not about V-shaping back to where we were, but rather how we reshape of our social and economic conditions, starting with the pandemics of inequality and the failed socioeconomic fabric.
Back to the drawing board
Against this backdrop, it is incumbent on us to undertake a wholesale interrogation of the design, role and effectiveness of policy. Is policy fit for purpose in the changed context? What problem is policy solving, and at what visible and invisible costs? What are the policy impacts, who is benefiting, and does policy take us to a different place?
The pandemic has brought the world to a shuddering halt, highlighting that the status quo is unsustainable. It is difficult to put this point any more clearly than novelist Arundhati Roy when she writes: “Our minds are still racing back and forth, longing for a return to ‘normality’, trying to stitch our future to our past and refusing to acknowledge the rupture. But the rupture exists. And in the midst of this terrible despair, it offers us a chance to rethink the doomsday machine we have built for ourselves. Nothing could be worse than a return to normality.”
Reflection allows us to dispense with the hopelessly tortured term “new normal”, and instead talk about the “new”. We must envisage this new paradigm in practical terms. What might this look like?
For starters, it’s hard to escape the conclusion that big government is back, with Covid-19’s huge fiscal debt and monetary hoses being added to other “peacetime” interventions in the post-pandemic war.
Next, the furious debate over “lives versus livelihoods” is likely to be replaced by a drive for “lives and livelihoods” in communities, companies and countries. Those who ignore this call will be met by growing social tension and public intolerance. Then, policy will focus on prosperity and well-being to replace the policy obsession with economic growth; and successful policies will be made up of public and private, not public or private. All these themes are underpinned by the overwhelming need for seismic behavioural shifts which focus on the twin priorities of building trust and ensuring societal well-being.
Covid-19 has made it clear that fierce policy, with public buy-in, can flatten curves. If that is the case, it lays bare the call to flatten the most peaked curve of them all: inequality. What the pandemic has reinforced is that inequality is not just a matter of fairness, but a matter of social stability and public health security. The recent ruling by an Italian high court that stealing small amounts of food to stave off hunger is not a crime because the “right to survival prevails over property” has added a legal justification to the moral imperative to address this issue. All of this is about much more than rethinking risk, rethinking supply chains, migrating from physical to digital and waging war on disease. We need to rethink the entire, broken system.
beyond doomsday machine
Encouragingly, certain countries and companies are already showing the way. In what was described as a “game-changer”, under the leadership of Jacinda Ardern, New Zealand’s national Budget is allocated on the basis of what best encourages the “well-being” of citizens, rather than focusing on traditional measures like productivity and economic growth. New policy guidance suggests all new spending must advance one of five government priorities: improving mental health, reducing child poverty, addressing the inequalities faced by indigenous people, thriving in a digital age, and transitioning to a low-emission, sustainable economy.
Similarly, Estonia, through the savvy use of technology and digitisation, has created an efficient and caring state in an inclusive society, improving living standards and elevating levels of public trust. The purchasing power of Estonians has increased 400% over the last two decades, while life expectancy moved from 66 years in 1994 to 78 years in 2017. Estonia is ranked among the top countries in terms of economic freedom and stands out in the OECD’s “Better Life Index” which looks beyond the “raw numbers of GDP” to consider jobs and earnings, housing, personal security, education and skills, environmental quality, civic engagement, social connections and work-life balance.
These examples offer a blueprint of what a future that places the collective good at the centre of decision-making may look like. But this is not limited to a country level. Since the onset of the pandemic, British restaurant chain Leon has reinvented itself by converting 57 sites into shops selling groceries and takeaway meals. The rapid shift was designed to save Leon’s 1 500 jobs, prevent its 70 suppliers going out of business and help “reignite” the wider industry. The result? A net increase in turnover.
There are many more examples of firms that are responding to the public health crisis in novel ways, including Best Western hotels providing beds to medical staff and patients, AB InBev adapting manufacturing to produce disinfectant alcohol and hand sanitiser, and a Spanish consortium of companies repurposing 3D printers for ventilator creation. Another of the more striking examples of such innovation comes from Zipline, a drone-delivery start-up which is delivering medical supplies to hard-to-reach clinics across Ghana and Rwanda. The great hope is that such endeavours are more than a flash in the pan and that they will offer a community-centric template of how businesses can remodel. If not, then this “repurposing” is the business model equivalent of a V-shaped recovery – it’s the target but misses the point entirely.
Good economics, good business
What these examples suggest is that countries and companies that dovetail social value with shareholder value are those that will succeed, and that necessity will drive innovation. But this requires a recalibration in priorities which, in turn, requires discarding assumptions previously thought to be sacrosanct. Winners are likely to come from countries and companies that embrace, rather than resist, these changes.
In 1970, Milton Friedman famously argued that the only social responsibility of business was to maximise profits. The experiences of Leon and others show that this can run the other way around – maximising social good may produce bigger profits by first ensuring business survival through business relevance.
In “Good Economics for Hard Times,” two winners of the 2019 Nobel Prize in Economics, Abhijit Banerjee and Esther Duflo make the case that, “People can flourish without endlessly accumulating more stuff. Another world is possible.” Indeed, rather than rebuilding the broken machine and chasing “the growth mirage,” this crisis gives governments, businesses, countries and communities the chance to concentrate on what matters and to take specific measures with proven benefits, such as helping the poorest members of society get access to healthcare, education, and social advancement.
Through Arundhati Roy’s portal it becomes a world of “both/and”, rather than “either/or” and a world of “us and ours”. Both lives and livelihoods, growth and prosperity, employment and the environment, health and well-being. Covid-19 demands that we rethink, revisit and reimagine policy that is fit for purpose.
The alternative is a cure that curses us to recover quickly to more of the same. DM
Gopaldas is a director at Signal Risk and a fellow at the Gordon Institute of Business Science. Adrian Saville is the chief executive of Cannon Asset Managers and Professor of Economics, Finance and Strategy at the Gordon Institute of Business Science.