Coronavirus: The Great Disruption

The end of Ideology?

Stimulus packages giving direct handouts to millions have made mainstream what would once be considered radical. Meanwhile, the pandemic is sparking renewed innovation and community spirit. The world post-Covid-19 will be different - and perhaps better.

As an economist, the most striking thing to me about national governments' policy responses to the Covid-19 crisis is how quickly all have shed long-held ideologies about the role of government, and especially government spending.

Central banks priding themselves on political independence and financial conservatism have rushed to essentially print money to support banks and businesses, and fund record fiscal deficits enacted even by right-leaning governments.

These include the German government, addicted to running chronically high budget and current-account surpluses, and famous for advocating austerity measures to its more profligate European Union neighbours like Italy and Spain.

In the United States, objections of some Republican congressmen to enhanced unemployment compensation payments because they might encourage recipients to "choose" to not work were readily rejected by fellow Republicans.

In both countries, government officials indicated that, if necessary, they would take ownership of some private companies in key strategic industries, despite repeatedly criticising China for its state ownership and industrial policy.

The Trump administration is even seeking to increase participation in "Obamacare" (the Affordable Care Act that Republicans have been undermining since its passage in 2010), to ensure that more Americans have the health insurance they will need during the pandemic.

Beyond protecting its beloved but beleaguered National Health Service, the United Kingdom's Conservative government is propping up other public services - like railways - privatised by its heroine the late Margaret Thatcher, or downsized under previous austerity regimes.

In the short to medium term, these statist policies will continue and even expand, with further massive government spending packages expected in the US and Europe when the current packages run their course. In the longer term, there will be costs, such as debt repayment, to be reckoned with. History also tells us that many of these policies will be difficult to walk back, especially if they prove to be as successful as we all hope.

THE END OF GLOBALISATION?

The travel restrictions and business shutdowns that are a key part of controlling the pandemic have dealt a particularly heavy blow to globalised sectors - travel, tourism, manufacturing, higher education, with ripple effects on trade - and business processes such as inventory minimisation, logistics, meetings and conferences, call centres, outsourced services and the like.

Many business adaptations in the short run and through a likely long recovery period - telecommuting, virtual meetings, remote services, automation, reconfigured supply chains, workforce distribution, avoidance of dense urban clusters - will become permanent, given the heavy fixed costs, learning and other benefits that will accompany them, and the risk management and advance preparation required for the other epidemics and climate change-induced disasters that will follow Covid-19.

 
 

Globalisation will resume, but so will the de-globalisation (reduced growth in international trade, investment and people flows) that preceded Covid-19 from technological, organisational, political and environmental forces.

A partial counter to this is a return to the multilateral cooperation through international institutions undermined by the Trump administration and so much needed now on both the disease and financial fronts.

There is also a major risk that shunning outsiders and turning inwards to protect oneself - with the authorities, even at the sub-national levels of a Chinese province or an American state, prioritising resources for their own residents or citizens and enacting export and movement bans - will in the longer term reinforce protectionist and nationalistic impulses that have bred populist movements in many countries.

Taken together, the end of ideology and the diminution of globalisation flag the demise of the "neo-liberalism" that has defined international economic policy orthodoxy since the end of the Cold War.

  • Coronavirus: The Great Disruption

  • The coronavirus pandemic raging across the world is taking a huge toll on lives and economies.

    Already touted as the biggest global crisis since World War II, it has forced countries to take unprecedented measures - slamming borders shut, quarantining millions, shutting down workplaces and schools, and giving out massive stimulus and job rescue packages.

    As the crisis unfolds, expect orthodoxies and established relationships to be challenged, with some upended and others reshaped.

    How will global institutions, nations, economies and societies respond?

    To make sense of the impact and fallout of the Covid-19 pandemic, leading opinion leaders share their views of this global upheaval with The Straits Times in Coronavirus: The Great Disruption, a special series that runs in April in the Opinion section.

ENHANCED INNOVATION

On the bright side, Covid-19 is already spurring government research funding and public and private sector innovation - in biotech, healthcare delivery systems and financing, and technology-enabled services including in the arts and entertainment - already emerging from the fire and ashes of this collective disaster, and with the help of cross-border knowledge-sharing and collaboration.

ENHANCED SOCIAL SAFETY NETS

Covid-19 has also thrust into the limelight the responsibility governments have for the livelihood and well-being of their citizens.

Besides the usual business bailouts and subsidies, the massive fiscal rescue packages enacted include many months of major income transfers from governments to individuals, not just employers, workers or the unemployed.

Suddenly, policies considered radical just a few weeks ago have become mainstream. The US' US$1,200 (S$1,707) payment to all but the wealthiest individuals looks like a universal basic income (proposed by unsuccessful US Democratic presidential candidate Andrew Yang), while the job preservation requirement for loan forgiveness to small businesses echoes the "federal job guarantee" (proposed by "socialist" Bernie Sanders).

More significantly, shutdowns have made everyone aware of who, besides health workers, are the truly "essential workers" in a society - grocery store, warehouse, transport and delivery workers, cleaners and home-care aides, who are also the lowest-paid and most exposed to health risk from the virus.

In the US, especially, they, like the restaurant, hotel, personal service and other gig workers who are most likely to lose their jobs in this crisis, typically lack sick leave and health insurance, and are unable to afford childcare or save out of their low wages.


An empty street amid the coronavirus outbreak in Barcelona, Spain. Covid-19 has thrust into the limelight the responsibility that governments have for the livelihood and well-being of their citizens, says the writer. Besides business bailouts and subsidies, the massive fiscal rescue packages enacted include many months of major income transfers from governments to individuals. PHOTO: NYTIMES

The US fiscal package extends sick leave and eligibility for unemployment compensation to many who did not qualify before, a de facto acknowledgment that these are "basic needs".

Some essential workers have gone on strike, demanding "hazard pay" and better safety protections at work, while some have received wage increases and bonuses from large employers like Walmart and Amazon.

Other citizens support their demands, since they keep us all safe. In my affluent, highly educated community, consumers have begun demanding that establishments they patronise pay "a living wage", avoiding those which do not.

Highly paid professionals able to work from well-equipped home offices and to provide their children with private resources (home computers, software programs, Wi-Fi, streaming video, help with schoolwork), while benefiting from home-delivery services, have become aware of the precarious circumstances of their service providers and families, whose health and well-being suddenly become a common good.

The crisis highlights the increased economic inequality that most advanced countries have experienced in the past few decades, and its aftermath is likely to see popular pressure for a stronger social safety net.

 
 

More generous redistributive measures previously resisted by vested interests and ideologues will be enacted, now that the benefits to all from employment and income maintenance become obvious, and the collapse of market-invested retirement portfolios increases the need for more generous public pension provision.

Theoretical concerns over "moral hazard" in entitlement social safety nets, as in the financial and business sectors whose losses have been socialised, have evaporated, and the bureaucratic complexity needed for them to serve multiple goals and constraints, jettisoned.

ENHANCED COMMUNITY ENGAGEMENT

One reason behind increased public support for strengthened social safety nets is the community spirit engendered by the crisis which can be seen across many societies.

Especially but not only where central governments have been slow to act, local authorities (provinces/states, counties and metropolitan areas), businesses and citizens have taken the initiative to organise grassroots collective actions to protect themselves, promote self-reliance and support one another.

Local regulations and peer pressure enforce shutdowns, social distancing and mask-wearing, for the community good. There is also a surge in volunteer services (providing childcare, transport or shopping errands) for healthcare and other essential workers and the vulnerable; charitable donations to non-profit groups like food banks and homeless shelters; support through patronage for local businesses under stress; and the sharing of ideas, resources, books and online activities for homebound children, the elderly and alone. In most places, though, the presumption will be that social assistance for business, workers and individuals be limited to fellow nationals.

 
 

THE BOTTOM LINE

When the crisis abates, global economic growth will probably be permanently lower.

But with more equitable resource distribution, greater social security, a cleaner environment (reduced transport, travel and congestion), better health (less pollution, more home cooking), perhaps even closer family relations fostered by social distancing, friendship bonds through social media, and enhanced community spirit, the future, though different, need not be worse than the past.


 • Linda Lim is professor emerita at the University of Michigan in the United States.

 
A version of this article appeared in the print edition of The Straits Times on April 08, 2020, with the headline 'The end of Ideology? '. Print Edition | Subscribe