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6 April 2020

Why the coronavirus crisis will force the UK to adopt a transformed economic model

To build a resilient economy it will not be enough to talk about public ownership and redistribution: we need to talk more about the activities we value. 

By James Meadway

Covid-19 will force a deep realignment of the economy. The global scope of the health crisis, the profound economic shock it necessitates, and its legacy of debt and heightened risk aversion are enough to bar a straightforward return to the pre-Covid world. The appalling demonstration of our society’s great (and increasing) vulnerability to environmental shocks, and the trauma they cause, could make us think a significant shift in societal values lies ahead. Unfortunately, avoiding a return to the past also means rejecting the post-Covid alternatives that have been dusted off across the political spectrum in recent weeks. 

On the right, calls for post-crisis austerity are already being made. These are predictable, and misplaced: as Paul Johnson of the Institute of Fiscal Studies has suggested, the debts now being incurred by governments to cope with the immediate crisis are so large that they make arguments for spending cuts to address them implausible. 

If double-digit budget deficits come to endure, and UK government debt far exceeds 100 per cent of GDP (as is possible), the scale of spending cuts required to reduce either would come with exceptionally high political costs. After months of seeing the value and necessity of both a well-funded health system and a welfare system that can offer support in times of shared hardship, it is unlikely the British public would be inclined to make those sacrifices. 

But the fundamental problem with the prescriptions circulating on the right – a rapid return to work, and a doubling-down on economic growth, as the Sunday Telegraph’s editor Allister Heath has advocated – is that they will collide with the likely economic impacts of Covid-19. In the short run, the significant debts now being accumulated in the private sector will be an obvious financial barrier to growth, but might be solved relatively easily through write-downs and write-offs – if the guardians of sound finance on the right are feeling brave, this is an option they could take. 

Beyond that immediate post-Covid debt crisis, the presence of a known pandemic risk in the world economy will cause distinct changes in the pattern of economic activity. Growth has been anaemic across most of the developed world since the 2008-09 financial crisis. For the UK, the past ten years have been spectacularly bad – the worst growth performance of any decade since the Second World War. There are good reasons to think that this reduced level of growth is now a near-permanent state of affairs. 

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And there are plausible reasons to suspect that in a post-Covid global economy long-term growth will be even harder to achieve, with shrunken supply chains, reduced international trade, and new, permanent costs of testing and surveillance. All of these impose expense on economies without necessarily producing more output. 

Chasing growth via private sector cost-cutting in such conditions will prove counterproductive, and doubly so in combination with public sector austerity. Debates around economic policy in Britain had already been turning away from growth as a goal, with arguments over Brexit far more likely to centre on questions of sovereignty or democracy. That tendency looks likely to continue, post-Covid, with the issues of economic resilience, individual security, and social justice coming to the fore, and the state occupying a far bigger place in the economy.

No one on the left should believe this provides a political guarantee of success for them. Declarations that Covid-19 has vindicated Corbynism are likely to prove ultimately wide of the mark.

Recent weeks have amply demonstrated the British state’s incapacity, from the failure of political leadership to the lack of resources available to the NHS. Rebuilding will require increased public expenditure and competent national political leadership.

A bigger state, however, is not necessarily a better state. It is easy enough to imagine a resurgent right accepting both more state spending and greater authoritarianism – think Viktor Orbán’s Hungary. Too much of the Corbyn programme, by the end, had become focused on expanding the state as a desirable goal in and of itself. And too much of the economic approach reflected a technocratic view of the economy as a machine for churning out fiscal goodies, to then be redistributed by the state. 

If we are building a resilient economy, it will not be enough to discuss public ownership and redistribution. We need to talk more about the kinds of activities we value, on a smaller scale, and how we will better support what Karel Williams and others have called the “foundational economy”: the unglamorous services essential to modern life, such as healthcare and food supply.

Resilience means not just a state-led “Green New Deal” but thousands of small-scale adaptations, including increased support for essential activities that are currently undervalued, such as care work, that also have low environmental costs, and greater support for the circular economy  recycling and reusing wherever possible. And it means thinking more about how we can adapt our economy and society to a changing planet in ways that are socially just.

Justice doesn’t only concern the fair distribution of goods. If the state has grown, and, for example, mass surveillance for disease and the more intrusive use of data become the norm, it will be essential for the left to conduct arguments not on growing the economy as an end in itself, but on the issues of civil liberties and rights, democracy and transparency, and the distribution of justice. The new left-right divide on the economy is as likely to fall on these lines – for or against democracy; for or against civil liberties – as it is to fall on the old divisions of growth and public ownership.

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