Through Mohamed A. El-Erian, Chief Economic Advisor at Allianz and President of Queens’ College, University of Cambridge
COVID-19 has energized an economic, social and political phenomenon that was partly visible before the pandemic but, so far, lacked sufficient roots and momentum. Current events and history suggest that this phenomenon will be with us for some time, can bring great gains for society, but also may be overtaken.
After nearly four decades of deregulation and liberalization, the governments of many advanced countries have backed down and reinserted themselves into the daily lives of their citizens. The catalyst is a pandemic that has inflicted enormous human suffering, disrupted lives, worsened the tiercé of inequalities (of wealth, income and, above all, opportunity), exploited economic and social vulnerabilities, exposed the glaring fragilities of our systems and institutions, and simultaneously eroded social cohesion and individual resilience.
Most people can agree that governments had no choice but to step in and prevent a calamity from becoming a multigenerational disaster. By setting aside all known limits on government budgets, states have provided unprecedented direct income support to citizens while protecting many businesses from bankruptcy. They have funded innovation and vaccine deployment on a scale previously unknown. Some are moving forward with massive infrastructure programs. And the list continues.
While the scale and scope of these interventions were unexpected, historic, and truly amazing, the direction of travel is nothing new. At the start of the pandemic, the public sector had already grown and was intervening after too many years of weak and insufficiently inclusive growth.
Responding to intense feelings of alienation and marginalization in parts of society, both sides of the political spectrum were busy developing new approaches. This was seen not only as an economic and social necessity, but also as politically attractive. Responding to widespread grassroots pressure to address massive failures in the provision of essential public goods, such as protecting the planet, anchoring corporate social responsibility and improving governance, governments have come together. interested in launching multi-year responses involving many segments of society.
Meanwhile, run by the US Federal Reserve and the European Central Bank – the two most systemically important monetary institutions in the world with powerful printing presses in their basements and an appetite to keep those presses running at speed turbo – central banks had maintained and intensified their post-market intervention in 2008 in a way that was previously unthinkable. They too began to be pushed to support a broader set of public goods, including climate policy and tackling inequality.
While all of this was notable before the pandemic, it pales in comparison to today’s realities on the ground, as well as what lies ahead.
COVID-19 has also accelerated the process of corporate concentration and power, especially in Big Tech. Faced with pressures fueled by numerous increasingly visible incidents in the private sector, involving national security, data breaches, fake news, platform surveillance, behavioral manipulation and other issues, governments are considering also in a broader and more serious way to broaden and modernize their tax jurisdiction over the economy.
Judging from history, this pendulum swing is likely to be long lasting and far reaching. If the government’s return is well designed, it offers us the opportunity to tackle long-standing challenges, implement mid-term fixes to avoid futures, adapt to new realities and come out stronger. and wiser from a terrible pandemic. But it will require a certain degree of self-discipline that governments – and even central banks – have often struggled to impose in the past: that of preventing market failures from being compounded by failures of public sector institutions. and governance. There are already concerns about civil liberties, misallocation of resources and inflation.
Coming out of the 2008 global financial crisis, many policymakers declared “mission accomplished” by winning the war against what could have been a multi-year global depression. In their rush, they inadvertently lost sight of the importance of securing lasting, lasting and comprehensive economic peace as well.
Today, vaccines and continued vigilance against infections and new viral variants offer us encouraging prospects for winning this new war, this time against a pandemic. Whether we can win the peace too will depend, to a large extent, on how governments navigate their much greater involvement in our lives.