After the pandemic: Smart, green, fair (and healthy) global growth
By Carlota Perez and Andres Schafer
I n a recent article for The Bulwark, the renowned American conservative publicist and commentator William Kristol wrote that the three decades following the demise of communism in 1989 had been, in spite of all their discontents, “a time of unprecedented peace, prosperity and –– even with some backsliding in the last several years –– freedom.” That “interregnum”, Kristol says, has been brought to an end by the Covid-19 pandemic. “It feels like,” he wrote, “that era is now over.”
This is a remarkable statement, coming as it does from a convinced herald of the neoconservative worldview that arose triumphant after the fall of the Berlin Wall, and it adds to a broad political spectrum of opinions that regard the Covid-19 pandemic as “an inflection point”, to use Kristol´s own words. An unusual consensus in our polarized days. The wisdom of hindsight though, allows our generation to realize that historical moments like these are in fact recurrent. They happen in the midpoint of a development wave, when a set of revolutionary technologies finishes a traumatic period of installation and a technological revolution is finally shaped to give way to a new — and better — social, political and economic arrangement that merits being called a ‘golden age’.
To us, the most familiar of these episodes is the Great Depression of the 1930s after the crash that ended the ‘roaring twenties’, when in Europe Hitler and Stalin were offering bright futures to those who felt left behind and Roosevelt was trying to help them while confronting the resistance of the market fundamentalists in the US. The new understanding emerged only after the catastrophe of World War II, the Holocaust and the return of millions of young surviving war veterans, without a job or an education. Only then were the institutions and policies created to shape the paradigm of mass production and mass consumption, able to bring an era of unimagined prosperity; the post war boom that the French call ‘les trente glorieuses’.
When in the 1970s that revolution matured and could no longer increase productivity or markets, industry fled to lower wage locations and the advanced countries went into double digit inflation and double digit unemployment. Almost miraculously, the shelf life of mass production was extended with the late inclusion of China, South East Asia and Eastern Europe. That second life came on steroids: it was driven by the installation of the Information Revolution, the power of which started to transform, and most importantly, to globalise everything. The financial booms of this period culminated in three financial crashes that revealed their flaws–growing inequality in the advanced economies, de-skilling and job insecurity of vast swathes of the working population, climate change, migration crises — all of which became fertile ground for populism and authoritarianism. Now, after the dotcom bubble of 2000, the Big Recession of 2008, and the Great Lockdown of 2020, the system of growth based on mass production and consumption is staring at the abyss.
The Covid-19 pandemic has just precipitated something waiting to happen, in a context of free credit feeding a bubble of corporate debt and inflation of assets. It is not by chance that an unknown virus transmitted by zoonosis has been the trigger. The mass production paradigm was based, by definition, in the low cost of materials and energy, a high level of consumption, and the production of enormous amounts of waste. Having globalised and pushed the boundaries beyond the limits, we are experiencing the backlash, be it in form of hereto unknown diseases, massive wildfires, long droughts, worse hurricanes, pollution endangering life in the cities and plastic waste endangering wildlife in the oceans.
Technological revolutions mean ‘creative destruction’ and significant productivity leaps. Millions of traditional and stable jobs and skills are destroyed. And yet, the productivity leap is precisely what creates enough new wealth to make possible innovation, new work and new jobs, opening an entirely new perspective, new best practices, and new assumptions. They also lead to new lifestyles and to the possibility of lifting new layers of the population into the good life. The ICT revolution has already changed everything around us: the solution is right before our eyes. But a new consensus is necessary. It is time for the State to tilt the playing field in a different direction.
But why change direction? In order to create synergy across innovations and dynamic demand, which are the conditions for markets to produce healthy growth. The mass production prosperity depended on the welfare state, together with suburbanisation (affordable houses on cheap land) and the Cold War. But that revolution is now spent. The new wealth creating tools are those of the ICT revolution, and it is among the possibilities they offer and among the trends they have started that we must choose what to accelerate.
Without a synergistic direction provided by government policy innovators act at high risk. And so do investors. Lacking secure productive choices, they will look for profit no matter what or where. This is why the no-strings-attached bailout of 2008 ended mainly exacerbating income polarisation and leveraged debt. As ECB-Chief Christine Lagarde put it, this time it is crucial to prevent cautionary savings (another word for non-productive investments) and orient such saving to (productive) investment, providing people with credible answers, e.g. a framework. We need a high-productivity recovery geared in a sustainable direction.
This will forcefully mean to leave behind the American Way of Life, because it is the shifts in lifestyles which occur with each revolution that shape new demand, which in turn shapes innovation and investment. We may call this new direction smart, green, fair (and healthy) Global Growth
“Growth” is necessary for the majorities in the developing world that want their fair share in global wealth as well as for the vast segments of population in the advanced economies that look back at half a century of hollowing out their livelihoods (in the words of the IMF). At bottom, the no-growth advocates and free-market supporters consider the practices of the mass production paradigm as equivalent to growth, which is why they both come to regard economic growth and environmental preservation as mutually exclusive.
“Smart green” means that the new paradigm relies on the input of cheap information and computing power thanks to the ICT revolution, instead of the cheap energy and resources of the previous paradigm. Thanks to this, growth can be sustainable, both economically and environmentally. The Information Revolution is already helping to increase energy efficiency and development in renewable sources. It is also creating a new economy, shifting production to intangibles and services, and away from physical goods, and where the democratization of access to learning, information, entertainment, political participation and social communication becomes more and more important than the possession of objects.
Given the borderless character of the internet, the ICT paradigm has naturally led to globalisation and, given its intangible nature, it is our best chance to make the future sustainable. What needs revision is the way globalisation has been done, focused mainly on cost cutting, with little regard for social consequences, loss of resilience, environmental damage or security issues arising for the countries involved. A Golden Age globalisation must be a positive sum game. In the age of mass production, cheap materials and energy from the ‘third world’ were a necessary part of the equation to counterbalance the high salaries that sustained demand in the advanced world. This time, only full global development, by means of differential yet flexible and resilient specialisations across the planet, can sustain demand for trade as well as wellbeing among advanced, emerging and developing countries. Only the ICT-enabled innovation to better harness energy and natural resources, can bring better life standards globally, while lessening the environmental impact,.
The digital revolution has also deeply changed the way production and work function, leading to more horizontal and participatory structures in place of the old control pyramids. Most surviving companies have adopted the new paradigm, but the majority of governments have not. Apart from redesigning their organisations to make them innovative and agile, governments need to revise all the policies designed for the mass production world and rethink them for the current revolution, strongly aiming at social and environmental sustainability. This will centrally include taxes and welfare provision. Measures to encourage job creation and some form of income support in the post Covid-19 emergency are undoubtedly necessary. A universal basic income might turn out to be the most appropriate safety net in the Information Age. Together with universal education and healthcare, it would provide the necessary baseline for everyone to participate fully in a prosperous society.
The Covid-19 pandemic laid bare the social flaws in our system. We suddenly realised that the relevant jobs in the crisis were underpaid and badly rated: nursing and care personnel, delivery persons, bus and metro drivers, garbage collectors, schoolteachers… The pandemic also made clear how important primary and preventive health care are. At this level, ways of cooperation and collaboration arise between citizens and health providers. As global wealth spreads, so does life expectancy, widening the gap with retirement age. Not only prevention or early detection, but also a ‘healthy’ lifestyle will be decisive to rise to this challenge.
The surprising difficulties encountered in facing the pandemic make us realise how far we are from being ready to face the unpredictable consequences of climate challenges and planetary limits. If we are to dream a prosperous world, we must take advantage of this experience to turn the economic reconstruction into a complete renewal for a new future. Smart, green, fair (and healthy) global growth is the direction to follow. Will we do it?
In successive blogs, we will be discussing what each element of the new direction implies and why it’s important.