The OECD “war on Covid-19” and the “underlying vulnerabilities” of our economies
How about starting with social dialogue and bargaining rights, investing in public services, fair trade and corporate accountability?
The OECD was quick to react to the Covid-19 crisis.
When launching a new platform on the crisis on 20 March, the Secretary General Angel Gurria called for a “sizeable, credible, internationally co-ordinated” response to deal with “the immediate public health emergency, to buffer the economic shock and develop a path towards recovery”. The OECD is well placed to support such actions, being a truly multi-disciplinary Organisation with no real equivalent internationally. The key question that arises is whether the OECD can demonstrate enough flexibility in drawing lessons from this crisis and from the previous 2008 crisis to avoid repeating the mistakes of the past.
There is no doubt that the on-going pandemic, as the OECD Secretary General puts it, constitutes the “economic, financial and social shock of the 21st Century” of the size and magnitude of the Global Financial Crisis of 2008. The current COVID-19 crisis brings a “double whammy” — combining a supply side and a demand side shock with containment measures putting our economies into “deep freeze”.
The immediate priority is to address the public health crisis and its immediate effects. The OECD puts forth three spending priorities that governments should advance jointly in order to provide an immediate buffer to our economies and speed up the recovery: health care, people and firms.
The OECD has released a mapping on employment and social measures taken in response to the crisis. A good mapping, but one that for TUAC, regrettably omits the crucial role of trade unions and their employer counterpart.
Beyond short-term measures, the OECD calls for “immediate, large-scale and co-ordinated actions” to support the economy, thereby relaying previous calls for “whatever-it-takes” measures to avoid a complete collapse of the economy.
Despite initial steps central banks’, G20 and G7 co-ordination remain too slow and timid. This is especially true for the G20, which ironically was designed to precisely deal with global crises like the current. Assuming that support measures come indeed in time and are sufficient, the other key question is for how long they should last?
The fiscal stimulus packages introduced in 2009 were withdrawn abruptly in 2011, in the midst of the Greek financial crisis and the Toronto commitment of the G20 to cut public deficits by a third in just three years. This sharp turn towards austerity ended all hopes for a sustained recovery.
Let us not repeat the mistakes of the past. We need emergency support now to avoid a complete collapse of the economy followed by coordinated and sustained fiscal stimulus. The crisis is here to stay and will need continued support by governments well beyond the next 12 months.
Moving to the more systemic challenges of the crisis, the OECD Secretary General lists a number of “underlying vulnerabilities” existed well before the COVID-19 outbreak but which now “risk worsening the downturn”.
An important vulnerability mentioned is “the gaps in income, wealth and job stability in many countries, which threaten a large part of our populations”. This is absolutely true. However, if income inequality has gotten out of control, it is first and foremost because of the continuing loss of bargaining power of people and of workers in society and the economy. Surely other factors play a role (e.g. technological change, unfair and unbalanced trade), but the primary factor is the continuing erosion of both collective bargaining and trade union density across OECD economies — spurred by the flexibilisation of labour markets. This is also nourished by the structural reforms of the last crisis. This should be acknowledged and feed into today’s crisis response. We cannot continue to accept more and more individualisation of risks in labour markets.
The second vulnerability listed by the Secretary General are the “stark weaknesses” of our health systems, both in infrastructure and service but also in the delivery and access to vaccines and treatments.
There are some hard lessons to draw for international organisations such as the OECD, which in the past has overplayed on the rhetoric of smaller and more “agile” government administrations and public services for fear of “crowding out” private business dynamism and entrepreneurship. This is a rhetoric that in practice has led to cuts in public services and essential infrastructure, including the very same hospitals that today are at the frontline of the crisis.
The primary answer and solution to the crisis will therefore be in the real economy, in public service workers and those people who are at the frontline of the crisis. It will be in social security schemes that ensure health care for all. Quality public services with universal coverage must be a priority for OECD recommendations.
The third set of vulnerabilities listed are the “trade tensions between major economies” which “may not only affect badly-needed medical supplies (…) but also generate supply-chain disruptions in food or other essential goods and services, (and) increase the risk of a more severe outbreak, as well as of a deeper and longer-lasting recession”. Hence, the crisis offers another opportunity for the OECD to call for removing trade restrictions, and then again to accelerate and deepen trade liberalisation.
There is of course a lot of potential for trade liberalisation to support sustainable growth. But it was not meant to end in a situation where 50% and up to 80% of production in certain sectors would be controlled by a single country. And, of course, it definitely was not meant to lead to a race to the bottom on labour rights and sustainability.
Trade restrictions may hamper the immediate response and need to be addressed to ensure delivery of emergency health measures. However, the underlying and fundamental vulnerability of our economies lies in the unbalanced and unfair trade system that still prevails. As the TUAC writes in its policy paper on the crisis
“The disruption to global supply chains triggered by the coronavirus has brought to surface the risks of over-reliance and geographic concentration, particularly in China and other Asian countries”.
The last vulnerability mentioned, almost in passing, is the high level of corporate debt. The numbers are indeed alarming reaching USD 13.5 trillion worldwide according to the OECD’s own account. Thanks to low interest rates and ultra-accommodative monetary policy, corporations have indeed been able to raise massive amounts of money. But where did that money go? It definitely did not land in the real economy and in real productive investments. It was burned and wasted in speculative share-buyback programmes, whereby businesses manipulate stock markets for short profits to shareholders (already fed with generous dividends). As noted in a recent OECD paper “until 2018, capital expenditures have been lacklustre for much of the post-crisis period. A key factor in this corporate behaviour is that, in aggregate, corporates have preferred to pursue share buybacks to boost returns on equity through financial leverage rather than invest in new business initiatives”.
Assuming that we are ahead of another round of massive bailing out and public equity stakes in private businesses, corporate accountability will emerge as a key political economy matter, as it did in 2009–2010. Back in September 2008, the TUAC warned against badly managed bailing out operations. Let’s not repeat the mistakes of the past.
