In The Company of Strangers, Paul Seabright examined the risks that arise from unintentional interactions between each of us: millions of complete strangers across the world who intend us neither good nor harm. After noting World Health Organisation figures that in a typical year roughly 57 million deaths are recorded worldwide, of which 20 per cent were due to infectious or parasitic disease and only 1 per cent to war and violence, he concluded: “The most important immediate risk is infectious disease.” We can’t say that we weren’t warned.
Like the First World War, the pandemic came as a surprise, though not a bolt entirely out of the blue. Successive governments had rehearsed plausible responses to the possible outbreak of a dangerous disease, correcting some of the shortcomings that contingency planning had revealed. But the delay before adoption of social distancing and the hesitant shift to testing show that things have not worked out the way the British government had planned, just like in 1914.
Then, governments expected to meet their military needs by buying on the open market. By 1915, they found that the free market system was delivering poor results and failing to feed the war machine. As the historian Keith Hancock put it: “The governments in all belligerent countries were compelled to deal disrespectfully with the orthodoxies of supply and demand.” They intervened to produce better outcomes than what normal economic incentives did, which is what we need to do now and after the crisis has passed.
Today’s national emergency has confirmed the current inadequacies of an economic system that is predominantly market-driven. Like the 2008 financial crisis, it has underlined the limitations of the market mechanism and has led many, at all levels of society, to seek help from the state in troubled times. Without massive state intervention, today’s virus crisis could have killed hundreds of thousands and denied millions their livelihood by bankrupting British business, far more than it may do anyway.
The 2008 banking crisis showed that the risk of periodic collapse is inherent in the capitalist system, just as the risk of deadly disease is ever present. Both crises have spotlighted the stark injustice of extravagant rewards and celebrity status to people whose contribution to society is superficial at best.
Stratospheric pay to top bankers, pop stars and elite footballers sits alongside poor pay and scant recognition to key workers whose contribution is fundamental to civilised living, like NHS and social care workers, postmen and women, delivery drivers, everyone employed in the food supply chain, refuse collectors, utility workers and other public service workers. Lockdown hits some groups harder than others. The Institute for Fiscal Studies reckons that the people most likely to work in a sector that is now shut down are low earners, women and young workers.
Market forces alone don’t produce socially optimal results, and market prices don’t necessarily reflect social values. Market pressures, notably alleged nervousness among potential investors about public borrowing, have often been cited as reasons to slash spending on public services and freeze public sector pay. Yet when a crisis erupts market rules go out the window, and it is amazing what funds can suddenly be found without a squeak from the markets to shore up the system.
We need to invoke stronger action by the state: first to put right what the free market gets seriously wrong; and then to foster quicker innovation from the market system.
The place to start is by reforming the tax system to make it progressive, rather than proportional as it is now. Currently, allowing for taxes on spending as well as on income, wealth and capital gains means that high-income households contribute roughly the same share as their less fortunate neighbours. Progressive taxes like personal income tax are offset by regressive taxes like VAT.
Reform of income tax, national insurance contributions, inheritance tax and council tax could make Britain a fairer place as well as raise billions of pounds in extra revenue to pay for big improvements to our public services, including properly paying our NHS and social care staff, and other essential workers provided via private agencies.
Secondly, technical progress holds the key to faster economic growth. The focus of long run public policy should lie in encouraging innovation, both technological and organisational. By boosting investment in the social infrastructure of physical and human capital government can encourage innovation and thereby promote economic growth.
Mariana Mazzucato has made a convincing case that in modern advanced economies, the state can play an active and entrepreneurial role. She cites US evidence where the state has triggered technological advance in areas as diverse as aviation, biotechnology, computers, the internet, nuclear energy and green technology. In Britain, the state has a big role to play in promoting investment in the new high technology jobs of the future, such as in low carbon, in the digital economy, in renewables and bioscience.
Keir Starmer is right. There can be “no going back to business as usual” after this is over. The key workers who were last have got to come first. We have got to ask more from those who have more. We have to build a better world, one based on cooperation as well as competition, one that recognises that what brings us together in bad times and good are what Gordon Brown called “the shared needs, mutual interests and linked destinies that unite working people”.
The Covid-19 crisis has made the public realise the true value of our key workers, which is not reflected in their take-home pay. The case for a Universal Basic Income is getting stronger. Meanwhile, surely now is the time to propose an employment system which (above and beyond the safety net of a minimum wage) provides financial recognition to those in key roles? Perhaps in the form of a “key worker” bonus – although who would pay this and how the definition should be assessed requires detailed consideration.
Banks already provide an annual bonus pool for staff who have contributed most to that year’s profits. John Lewis provides an annual bonus to each “partner” or employee in the form of a percentage of their regular pay, which depends on how well the firm as a whole has performed in the retail sector.
Government support for sector bargaining could encourage key worker bonus payments to a standard common across the sector, which would be negotiable with the relevant trade unions. This would mean that pay packets reflected not just the scarcity value of the workers concerned but also the social value of the special contribution they make to society. Regulatory bodies could suspend, or ultimately remove, the operating licences of employers who fail properly to respect the part played by their key workers.
Labour should press for tripartite negotiations between government, employers and trade unions to agree a new world of work deal for when the lockdown ends.
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