The way we think about this COVID-19 crisis is that this is a sudden event, and that it might be gone in a short time — a few months, causing tremendous pain, but still for a short amount of time.
If this was a recession then the template from the financial crisis would be up to the task — a massive fiscal stimulus to fill in the gap that is filled by the lack of demand, or to supply liquidity into the financial system. These kinds of packages are supposed to be short-acting, but sudden, meant to generate consumer and corporate confidence so people can recover financially and economically. With the injection of funds into the economy and the markets, people can pick up the pieces — survive and pay the bills that still have to paid, have the money to buy rent and continue on with life. Companies can use the funding and temporary financing to get their businesses going, continuing to operate. The injection of funds into the economy creates liquidity for everyone, which gives everyone the confidence to keep going with their lives.
Only the State can Create Demand
A Depression on the other hand, is a totally different thing altogether. It is a collapse of economic activity — a disruption of both supply and demand activities. This Depression is obviously due to the COVID-19. The pandemic spreads due to human contact, preventing most usual economic activity and transactions. People are not able to gather together and work with each other to accomplish goals. Much of the usual service economy we need — dining, and playing — cannot be conducted. A Depression would mean a small revolution in the way the state sees itself in not just making up the hole left by the private sector, but to reshape the country and the relationship between state, society and the economy. In this Depression, the state has to step up and embark on social reinvestment, so that the economic activities can resume. In such a Depression, the state IS the economy — creates demand and supply dynamics, and generates employment.
Raise the Floor
COVID-19 has upended society and economy that depends on it. If nothing else, this should have people realise the importance of various professions that have usually been marginalised in the rest of society but are in fact extremely important, and should force a reckoning of some sort. COVID-19 forces societies to think about how they value jobs and the relationship between compensation and jobs, and the socio-economic structure behind them. For instance, warehouse pickers and food-establishment workers — the cooks, for instance, turn out to be much more important than they are valued. Delivery workers also belong to this category — there will have to be an expansion in the social protections given to these class of workers. Healthcare workers up and down the hierarchy — from cleaners, to nurse assistants, to the actual nurses, and the doctors — all these people turn out to be valuable. Yes, doctors get paid well, but so should nurses and care providers. And the people who run and maintain the infrastructure — those should be paid well too, so they can sustain their livelihoods and pay their bills. Raising the minimum wage, and improving social welfare should be the approach we take post-COVID-19.
Accompanying this “Raise the Floor” of society should be a rediscovery of the vital role of the state. Only the state has the scale and the legitimacy to act on such a massive scale — to protect the population from threats, especially from disease. Generally speaking, the state had been embarking on a deregulatory regime (from the 1980s to now), in a bid to maintain ‘competitive’ — slashing taxes, reducing funding of welfare programmes, in a bid to attract investments, or to maintain the presence of important industries. The state should now be back in the driving seat of society — not so much as diminishing the role of markets, but structuring it more heavily towards social goals. A reinvestment in social welfare is required, but more than that, to be driving important public goods, such as infrastructure and in time especially, the digital networks. Reinvesting in public goods will also go into education — improving teachers’ pay and in improving educational infrastructure and resources — books, IT, various services.
The economic Depression in the aftermath of COVID-19 should result in the state in affected countries creating economic demand by reshaping markets and industries. It should create jobs — creating public works — infrastructure, but also working to level previously-tolerated-but-unjustifiable social inequalities.
New Manufacturing Opportunities
States could further reshape markets by having some industries being based in their territories — these essential industries. Healthcare supplies and pharmaceutical manufacturing distribution will probably be decided based on national prerogatives, not supply chain efficiencies. Every country will probably want to have a healthcare manufacturing capability of some sort, regardless of cost. The definition of essential industry could expand to include other industries — maybe even the stockpiling of raw materials to keep these industries going as well. All of these will produce demand and further soak up unemployment.
Changes to Trade
This COVID-19 Depression would also require an international effort to reform trade — the emphasis on comparative advantage will still stand, but some of that will give way to the idea of self-sufficiency. Markets will adjust, but trade will not be as free. There will be ‘inefficiencies’ — more stockpiling, more duplicating facilities around the region, more protections of local manufacturing capabilities, no matter how inefficient. Although inefficient they will present an opportunity for countries to climb the ladder of industrialisation and development — if they seize this opportunity.
A Path Out: A New Social Compact
The path out of this pandemic is quite clear. This is a Depression, and countries must act decisively to become demand creators. They can seize this opportunity to create the socio-political environment to enact expansive socio-economic workers and give protection to those who need it most — the essential workers and those living in precarious circumstances, those of whom we fail to notice as important. Countries can seize this opportunity to change their social compacts, and provide decent jobs to those who need it by embarking on massive infrastructural programmes to improve the quality of life and create a new social level, providing resources to all to get a good start in life.
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