By Professor Ronald MacDonald, Adam Smith Business School, University of Glasgow*
The current crisis engulfing the whole global community in the coronavirus (COVID-19) pandemic is unique in the sense that all governments are facing a stark trade-off between the health and wellbeing of their populations and maintaining the economic efficiency of their economies.
In this essay we consider the kind of opportunities, radical reforms and potential policy actions and directions that governments can take post-pandemic.
Our conclusion, stemming from our overview of these issues, is that a new form of social contract will be needed as we move out of the pandemic. The essay fleshes out what that social contract might look like. We consider what the world could look like in the aftermath of the pandemic, with a particular emphasis on the UK and Scottish economies, and what action policymakers could take to address its impacts. Along the way we also explain some of the important financial and economic repercussions that the pandemic has created and their implications.
The lockdown has temporarily led to significant reductions in emissions, which may affect public attitudes towards such things as air pollution. More generally, the prioritising of society’s wellbeing over economic growth and efficiency during the current crisis suggests that society may now be ready to deal with the other major crisis of our time – namely climate change. Although addressing climate change will need a coordinated global response, one of the main themes of this paper is that there will be considerable advantages to the UK and Scotland, particularly in terms of addressing the large scale unemployment that will be the inevitable result of the pandemic, were they to instigate a wellbeing fiscal stimulus, and one that has a major focus on greening the economy, rather than a traditional fiscal stimulus.
Of course, the huge uncertainties that currently exist with respect to the virus – whether a vaccine will actually be discovered, whether the virus will mutate and create the need for a range of vaccines and so on – make such an endeavour a considerable challenge. But there are already features of the pandemic, and particularly the reaction of governments across the world to the pandemic, that allow some informed projections of what the world might look like post-pandemic.
Collective action and the implications for social capital
Collective actions taken at a national level in many countries have also been reinforced at a local level. For example, in the UK, there has been much evidence of local voluntary groups forming to assist the most vulnerable. If the kind of collective actions that we have seen during the pandemic are continued going forward this could have important implications, in turn, for the building of social capital.
At the heart of social capital building and a thriving civil society is the concept of trust. Imparting, or re-imparting, trust from local communities up to business communities, tiers of government and beyond should be a key strand of economic policymaking in the post-pandemic period. Such local collective actions and the underlying community resource input suggests that society values social support and resilience differently to the market.
The market society – wellbeing measures vs economic growth
There is now increasing evidence that people would prefer to prioritise health and wellbeing and other societal values over economic growth once the crisis is over. A move from a narrow focus on GDP to a holistic measure of wellbeing could have significant ramifications for the kind of economy society wants to create.
Pre-pandemic our economy relied on large scale borrowing by households to sustain consumption, a booming housing market that has dramatically skewed wealth and an expanding gig economy providing relatively low paid and insecure jobs. But with a considerable proportion of the population facing uncertain employment prospects and with the stress created by issues of resilience in the health and social care system this could lead to a major reprioritisation of our society. The impact will be uneven across sectors and geographies and the transition will in all likelihood be bumpy.
The predictability of the crisis and the public good aspects of the pandemic.
Given it is currently not clear if a vaccine will be developed for the virus, that mutations of the virus will occur and other similar sorts of viruses will occur on the future, it is imperative that, at a national level, investment needs to take place to build much greater resilience in our health and social care systems and particularly in public health with better monitoring and research. In this regard and in preparing for future pandemics and reacting to them, it is important to consider the ‘public good’ nature of public health. However, to avoid the free rider problem it would seem critically important going forward that there is some system of commonly accepted global rules so that a coordinated response to future pandemics is in place to the benefit of all in the global community
The pandemic, globalisation and resilience in the public and private sectors
The current crisis could drive the final nail into the coffin of the current period of globalisation. The pandemic has exacerbated existing trends to limit trade and capital movements, particularly with the shutting down of global supply chains, and, relatedly, just-in-time delivery methods that are so central to globalisation. The demise of the current globalisation era might therefore be associated with greater emphasis being placed on generating more local resilience in both the public and private sectors rather than global efficiency.
Technology, technological changes and their implications for where people work, their leisure and public service provision
There will be technological changes that are likely to be permanent post-COVID. In a Scottish context, teleworking could significantly reshape how people live and work especially in the central belt, and in the other Scottish cities. Even if the world were to return to normal quickly, there must be potentially significant wellbeing gains for people, efficiency gains for businesses and significant environmental impacts for the wider community. There will be massive impacts for other areas such as retail and the hospitality and leisure sectors as well as potential opportunities and new value in areas such as digital health, which has been an important element in patients receiving treatment and diagnosis during the lockdown.
Inequalities and stakeholder capitalism
Prior to the pandemic, inequality was a key focus across the social sciences. In the essay we don’t have space to review the various policies that have previously been proposed to tackle the many inequalities in our societies. However the ‘collective action’ referred to earlier and the underpinning of many businesses with public funds throughout the crisis suggests that perhaps the time may now have come for the stakeholder model of capitalism to replace the current shareholder model.
Tax reform opportunities
As the economy begins to recover post pandemic, the deep scarring created by the policy reaction to the pandemic, the inequalities noted above, along with the need to address the large outstanding debt stocks referred to in the paper, will at some point require taxes to change. The post-pandemic period would represent an ideal opportunity to reform the tax system in anticipation. Furthermore, taxation reform that contributes to the aim of sustainably decarbonising societies would be an important new way of raising revenue while simultaneously helping to address the climate emergency.
Climate and environmental change
Repairing the economic damage caused by the pandemic by a rapid return to business as usual could be environmentally harmful, as was the case after the 2007–08 financial crisis. By 2010 emissions had reached a record high, partly because measures implemented by governments to stimulate economies had limited regard for the environmental consequences. If the same happens this time there will be little if any hope of meeting the emissions goals of the 2015 Paris Agreement, which were set to limit global warming to 1.5°C to 2°C.
There are also economic advantages to green stimulus policies over traditional fiscal stimulus. For example, construction jobs for renewable energy installation or retrofitting buildings cannot be offshored and they are labour intensive. In Scotland there are a number of ‘greening’ initiatives that could be got off the ground very quickly to boost economic growth, wellbeing and reduce unemployment in Scotland.
Read the full essay
* I would like to thank Dr Don MacRae for his helpful comments and discussions on a previous draft of this paper.
To cite this article: MacDonald, Ronald. The Post Pandemic New Normal: The likely Socio-Economic Implications and Policy Choices facing Scotland and the UK, Policy Scotland, 11 June 2020, https://policyscotland.gla.ac.uk/post-pandemic-new-normal
Image credit: gbs097 on iStockphoto
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