Contours of a Post-Covid Economy

12 June 2020

How a future economy could and should look – in 14 points.

by Kurt Bayer

  • The Coronavirus crisis has made several things very clear: public health is an essential public good; personal interaction and a slower pace of daily life are important; our society relies much more than previously imagined on the largely underappreciated work of ‘heroes’ (far too martial a concept); and responsible action by the state is vital when markets fail or disappear.
  • Moreover, the crisis has shown that if the economy closes down for as little as three months, that has immense social, emotional and material consequences. The process of overcoming these will be arduous and protracted.
  • There is, however, the chance that people will realise that all this damage, the clear evidence (previously also visible) of climate change and the threat of a breakdown in social cohesion make a transition toward social, environmental and economic sustainability both necessary and possible. Nevertheless, this will only come about if society is successful in overcoming resistance to change from those vested interests that previously profited from the situation.
  • This will entail a political power struggle. The coming challenges of combating climate change and social dissolution will be greater than those of overcoming the Coronavirus crisis; but mastering them is essential for the survival of the planet and of our societies.

In this article, I outline briefly some of the major challenges that the Coronavirus crisis has created, and suggest what actions are necessary to address them. In a forthcoming analysis, I will present more detailed proposals.

1. A good life for all: Many people have recently experienced a slower pace of daily life and have come to reassess what is really important for their well-being. This new realisation needs to form the basis for a reprioritisation of the economic and social policies intended to achieve a good life for all, with more attention paid to the well-being of the population at large in an environment that is undergoing rapid structural change and that faces severe challenges.

2. A living wage (at least): The many heroes in social and medical care, in retail and delivery, in public and private infrastructure are grossly underpaid and frequently have unacceptable working conditions (e.g. workers on zero-hour contracts, slaughterhouse workers, agricultural seasonal workers, workers in the hospitality sector, etc.). It is not enough to applaud them: their pay and conditions must be improved so that they can enjoy at least a living wage. Basic tools to ensure this include collective bargaining, legal provisions for a viable minimum wage, and health and safety inspections to maintain decent working conditions. The much-vaunted ‘success’ of the low-wage sector (e.g. Germany’s Hartz IV provisions) is a scandal and does nothing to safeguard the competitiveness of the economy. The richest countries of the world cannot afford to have swathes of the population living in poverty.

3. Significant retraining and financial aid for affected workers: The reintegration of furloughed (short-time) workers and the unemployed into businesses will require significant retraining and financial aid. Legal provisions to cut working time could help to reduce the number of unemployed.

4. Proper social security and pensions provisions for cultural workers: The Coronavirus crisis has demonstrated the social value of all forms of cultural activities in a civilised society. It has also highlighted the precariousness of the living conditions facing many people engaged in cultural activities. As a minimum, our societies must make sure that cultural workers have access to the social security and pension systems. Society needs to co-finance that.

5. A green industrial strategy: Efforts to tackle the climate crisis require not only massive investment in ‘green’ areas (public transport, housing stock insulation, energy supply and distribution, etc.), but also the transformation of a vast array of economic activity that damages the environment: a green industrial strategy needs to map out the path for the most damaging sectors (e.g. steel and cement production, the automotive industry, oil and gas, the paper industry and air travel). Existing firms should be required to draw up ‘living wills’ – like the banking industry – in which they show how best to transition toward environmentally friendly production. As manufacturing’s financier, the banking sector needs to be involved in this strategy. Transformation will involve huge amounts of ‘stranded assets’, which will need to be written off quickly.

6. Fairer taxation: The society of the future will require an adequate tax system. The present practice of relying primarily on contributions from labour (income taxes) and households (VAT) to finance the necessary welfare state spending is counter-productive. The taxation of dead (non-productive) assets, inheritances and social and environmental ‘bads’ (e.g. CO2 and other emissions, gambling, speculative trading) would lead to fairer taxation, with less pernicious consequences for well-being.

7. Making the financial sector serve the real economy: Speculation-driven financial markets have been a major cause of multiple crises. The transition of the financial sector toward its original function of serving the real economy would significantly reduce speculative elements. The business of financial markets should not be additionally fuelled by letting them handle the financing of the transition: their necessary intermediation should consist of the issuance of very long-term, non-tradeable bonds, central bank financing and some other instruments. Additional efforts will be needed to eradicate the growing (unregulated) shadow-banking sector.

8. A new digital strategy with a focused on social innovation: Austria (and a number of other  EU countries) is lagging behind the world leaders in the digitalisation of the economy and society. Digitalisation must be geared to serving society and promoting the innovative power of the economy. This requires a society-oriented digitalisation strategy, with an emphasis on social innovation (instead of mainly being geared to business needs). There ought to be strict regulation of social media, including the fair taxation of all suppliers of services. A media strategy for print and electronic media needs to safeguard socially valuable content and ensure the viability of high-quality media.

9. A new education strategy: The lockdown has brought into focus the importance of education and training at all ages. It has also shown that in a number of countries the curricula are outdated and no longer reflect either the changes in population or the needs of a good society. A new education strategy needs to be developed.

10. Safeguarding public health – as a combination of health in the narrow sense, people’s economic situation and their position in society – has become newly visible as an overarching policy goal. Political decisions require ‘risk-based’ decision processes and information systems. The Coronavirus has shown the importance of ‘resilience’ in the efforts to tackle the crisis. This leads decision-making in business and politics away from short-termism, and toward a longer-term and more holistic approach. Safeguarding and improving public health is a public obligation, and thus further privatisation should be avoided. The pharmaceutical industry has revealed itself as strategically important for public health. Its research, product, distribution and pricing policies need to be strictly regulated.

11. A new breed of ‘interpreters’ to bridge the gap between the general public and science: During the Coronavirus crisis, decision-makers have prided themselves on being informed by ‘scientific evidence’. This has increased public awareness of the importance of scientifically based policy advice and has demonstrated how far removed many of the models used are from real life; but it has also shown that there is no one scientific truth. Scientists in the same field frequently hold different opinions, and the situation becomes even more complicated when scientists from different fields are involved. In order to help decision-makers and the public to understand better the basis for specific decisions, a new breed of ‘interpreters’ needs to bridge the gap between the general public and science. In addition, transparency of decision-making is essential if the population is going to own and support the decisions – and comply with them.

12. We have learned that the state, as regulator and financier, has an indispensable part to play in a crisis. This role will need to be filled during the prolonged phase of recovery and transformation, if not for longer. The part requires the highest quality of human and material resources available to the state, but also high-quality decision-making processes. Weaknesses in this area have become especially clear and costly. If, as seems likely, state-provided capital is required to enhance the balance sheets of private companies and help them with the transformation, government will need top-quality specialists who can effectively represent the public interest in business decisions.

13. Each individual EU member country can set the above processes in motion, but an overarching global or regional (EU) framework would help enormously. The most recent proposal by the EU Commission (‘Next Generation EU’) contains several promising areas to finance the Green Deal and a number of labour market activities. This is too little, however. The EU must use effective tools to stop tax competition on corporation taxes, to combat tax avoidance/evasion in both EU and overseas tax havens, and to reorient its economic policy toward a good life for all.

14. The Coronavirus crisis has opened our eyes to the need for a radical transformation of our societies and economies toward safeguarding public health, combating climate change and confronting the increasing weakening of social cohesion in our societies. It is clear that the powers that be – those with a vested interest – will oppose this transformation with all their lobbying and political might. They have been able to ‘capture’ the political processes that benefit them. For this reason, the necessary transformation will come not from within the existing ‘system’, but rather from influential ‘countervailing powers’. This requires civil society, cultural activists and the many micro-, small and medium-sized entrepreneurs to stand up and make their voices heard.