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I am a semi-retired former Scottish trade union policy wonk, now working on a range of projects. All views are my own, not any of the organisations I work with. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Thursday, 16 April 2020

Lessons to be learned from the pandemic

The Covid-19 pandemic has immediate implications for its victims and those in health and care treating them. There are also medium and long-term implications to consider if we are to avoid the mistakes of the past.

The immediate implications are primarily for those working in the health and care sector. Testing has been inadequate, and the provision of Personal Protective Equipment (PPE) has been nothing short of scandalous. Both of these also apply to a much wider group of key workers in the public and private sector who have kept essential services going. This requires a much greater effort in both supply and distribution to protect those who are literally putting their life on the line for the rest of us.

For the economy introducing “suspended animation” policies will reduce the burden on governments because there are fewer bills that it needs to subsidise. This reduction of bills will give governments more breathing room to support the paused economy for a longer period of time. That’s why mortgage holidays, rent delays and similar policies are the right approach and stand the best chance of avoiding a standard recession spiral.

The crisis has also highlighted structural issues that we need to address. The Archbishop of Canterbury put it well in his Easter address: “The next wave coming is the economic one … We have a choice there as a nation and as a society and as a world. Do we take hold of our destiny and make sure the differences are mitigated, abolished where possible – or do we just let things happen, do we let the market rule, in which case there will be enormous suffering.”

Even some of the harder headed media recognise that change has to happen. A Financial Times editorial said; “Governments will have to accept a more active role in the economy; see public services as investments rather than liabilities; make labour markets less insecure. Redistribution will again be on the agenda.”

Here are some of the longer-term lessons being discussed:

·      Economy: As the Fraser of Allander survey and the OBR signals, the economic numbers are bad now, and likely to get much worse in future. It is absolutely right that governments do whatever it takes to support people and the economy through this pandemic and the job retention scheme was vital, even if other measures have many gaps in them. 

We also have to recognise that economy was in a poor shape before the pandemic hit. The reason the UK government has been pumping so much money into the health service, into wage subsidies, into support for the self-employed and for small businesses is that they were all only just managing before the crisis broke. The fundamentals of the economy are not as strong as some claim. Ultra-low interest rates have left no buffer and global supply chains exploiting marginal efficiencies have been found wanting.   

When it is over, there will be calls to tackle debt, and some will want to repeat the mistakes of the 2008 crash by instituting another round of austerity. In practice, most of the state debt we owe to each other, and we can meet obligations denominated in pound sterling. 

The conventional wisdom is that ‘monetising the debt’ is inflationary. However, there are no indications that inflation is a problem today. Lerner, an associate of Keynes, decried arbitrary government deficit and debt ratios as an inappropriate focus of economic policy. He also demonstrated that deficits do not need to be fully funded through bond sales. The UK’s experience after the second world war suggests that such high public deficit and debt levels do not in themselves prevent strong recovery or put an intolerable burden on the state. There is no rational case to inflict further damage to the economy through Austerity Mark 2.

A significant number of companies will do the right thing, and they should be supported. Consumers will remember those who have behaved badly. Nationally it has been the predictable names – Ashley, Green, Branson etc. But also, locally. Just look at community Facebook groups to see which local businesses have shown an amazing community spirit and those who haven’t.  

To ensure the economic effect of the pandemic is minimised, we must ensure there is money in the pockets of those on the lowest incomes. This will provide the greatest boost to demand. And public spending must not be targeted in any drive to reduce borrowing.

·      Private debt: Economic recovery could be undermined by household and business debt, which is vastly higher than after the second world war. Many people in Scotland and the UK are constantly a couple of weeks from going bust and have no savings cushion.  Economic growth before the banking crash was over-reliant on increasing household debt. Both have eased somewhat since the 2007-09 crisis (see chart below), but household debt, in particular, is rising again – driven this time by credit card and student debt rather than mortgages.

The UK Government recovery programme party addresses corporate debt by providing businesses with loans and generous payback conditions and other support. To achieve a sustained recovery, the government might need to have household debt partially cancelled, or at least frozen.

·      Tax avoidance: The sight of Richard Branson calling for state bailouts from his tax haven should be a defining image of this pandemic. Sadly, it is probably not as simple as saying no to the tax dodgers because jobs and supply chains who do pay taxes could also be victims. However, that doesn’t mean that taxpayer support comes without strings. It should be used to take an equity stake in these businesses and change the business greed culture. Global action would be good, but we must not wait for that to happen.

·      Employment: As the STUC and TUC have said as we clap key workers each week; ‘Public sector workers are for life, not just for a crisis’. The gratitude is also striking because it highlights just how much we under-value these same people in normal times. We now see that we can do without celebrities, but not shelf-stackers. Many of the people we rely on most – social care workers, cleaners, retail staff - are among the lowest paid and least secure workers in the country. They deserve better, and we need a different approach to wage inequality and employment security in future. The crisis has also shown that new ways of working are possible.

·      Preparedness: There can be little doubt that governments were poorly prepared for this crisis, despite past emergency planning exercises that highlighted many of the issues we face today. Clearly, we had an insufficient stock of the right types of PPE, but it has also been a failing of logistics. The NHS has centralised the buying and distribution of its core supplies on the grounds of efficiency. That may work well in normal times, but as soon as the pandemic hit that supply chain was overwhelmed. For those outside the NHS, particularly in the fragmented social care system, there was no system to support them.

The inability to follow the WHO’s instruction to “test, test, test”, points to the UK response as one of the severest failures of public administration in our history. This also points to the importance of supporting public research rather than relying solely on drug companies who will always prioritise research that delivers short-term profits. With Trump closing down public research facilities in the USA, Britain and Europe needs to step up to the plate. 

‘Unprecedented’ may be the word of the year but governments have struggled to communicate effectively. The public accepts that scientists and medics do not yet understand all aspects of this virus. But that is not an excuse for the lack of honesty and clarity around issues that politicians are responsible for. This includes basic information and some pretty appalling commentary – Priti Patel and Matt Hancock in particular. We are self-evidently not ‘all in this together’ as it is the poor and BAME citizens who are hit hardest. 

·      Health and social care: With the understandable focus on the NHS, it took some time before our already stressed social care ‘system’ came under the spotlight. It took a pandemic just to get a Scotland wide agreement to pay all social care staff straight away. As the CEO of Enable put it: “it requires commissioners to enter complex negotiations with multiple providers (with a total of around 1,000 different third sector and private sector social care providers operating in Scotland this must have been tough); and – most importantly of all – it has meant the frontline staff delivering care in our communities have had to wait many months for a backdated uplift to (hopefully) be secured and paid – all subject to the outcome of those negotiations.”

The case for a Scottish Care Service that sets a national framework while leaving delivery local is now overwhelming. Perhaps it is also time to think about some radical ways of funding social care, including Andy Burnham’s plan to tap the wealth of the older generation, so everyone contributes 15% of their assets on retirement, usually through equity release on their property.

·      Social security: Many more people from all walks of life have discovered what the poor have known for years – our social security safety net doesn’t work. Universal Credit, with its five-week waiting time for a payment isn’t fit for purpose. 

A poll for the Food Foundation showed that more than 1.5 million adults in Britain say they cannot obtain enough food. Half of the parents on low incomes with children eligible for free school meals said they had not yet received any substitute meals to keep their children fed. Around 830,000 children are therefore likely to be going without daily sustenance.

The need to protect incomes has led to a call to adopt Universal Basic Income. Personally, I have been a sceptic on structural and cost grounds, although I agree that it is worth trialling in a serious way. 

What is not in doubt is the need to build a stronger safety net. Total out-of-work payments received by UK employees are on average around 34% of their previous in-work income – the third lowest among 35 OECD advanced economies. At 15% of average earnings, the main adult unemployment payment is worth less than at any time since the creation of the welfare state in 1948.

NEF has proposed a Minimum Income Guarantee to sit alongside the other support schemes. This would be a comprehensive, sufficient, non-conditional, non-means tested at the point of access, minimum income floor to catch everyone who is currently missed out by the job retention scheme and the self-employed income support scheme.

·      Housing market: Governments moved quickly to remind mortgage holders of existing provisions for mortgage holidays. They were much slower to intervene in the weakly regulated private rented sector, which so many now rely on. The pandemic may well have long term impacts on the housing market, including house prices and construction. 

Instead of simply patching together a housing market that was already failing, we could take the opportunity to rethink our whole approach to housing. This could include restoring the historical link between house prices/rents and local incomes; a massive programme of social house building and renovation; effective regulation of the private rented sector; and building houses for people rather than investment.

·      Food: The weakness of global supply chains and the need to take climate change action will inevitably strengthen the case for local food sourcing. This is a two-edged sword as it may well have an impact on some Scottish exports, including whisky and salmon.

·      Industrial strategy: The crisis has highlighted the absence of an effective industrial strategy. The shift to a service-based economy and the reliance on ‘just in time’ global supply chains has to end. For example, China is the only immediate high-volume source of clinical gowns, and there are similar problems with other PPE. 

Relying on a cottage industry of 3D printers is no way to run a country. We need a new industrial strategy that supports Scottish and UK ownership, and that includes using the pandemic support measures to take strategic stakes in companies. Only ten out of the top fifty Scotland’s firms are owned by shareholders in Scotland, and of these only four are in manufacturing.  We have to break the short-termism of investment companies who prioritise dividend payments at the expense of investment.

·      Community: The pandemic has highlighted the importance of strong communities, supporting and looking out for each other. In the main, people and communities across Scotland stepped up to the plate. Even the Tory Prime Minister made a point of saying that there is such a thing as society, in a deliberate attempt to distance himself from the Thatcher doctrine.

This crisis will also have a long-term impact on the economy of local communities, and we must, therefore, put a renewed focus on initiatives like Community Wealth Building. It will be the foundational economy that takes us forward – not global supply chains. 

·      Global solidarity: A new sense of community is not an excuse for isolation and protectionism. We are not alone in this crisis.  People right across the globe feel the same uncertainty, fear, despair and isolation. Pandemics do not respect national boundaries and abandoning the global south is not only morally wrong, but it is also in all our interest. As the Pope put it: “Indifference, self-centredness, division and forgetfulness are not words we want to hear at this time. We want to ban these words for ever!”

·      Climate crisis: Global emissions have crashed during the crisis giving us a glimpse of what the world might look like without fossil fuels. But hopes that we will emerge into a healthier, cleaner world will depend on the long-term political decisions made about what follows. We must ensure that the postponement of the COP26 talks is used effectively. As Nicholas Stern has said; “There is an opportunity in the recovery from the Covid-19 crisis to create a new approach to [economic] growth that is a sustainable and resilient economy in closer harmony with the natural world.” 

We should not assume that these lessons will be learned. After all, not much changed after previous events, including the 2008 banking crash. As Kevin McKenna put it: “Each of these seemed to provide opportunities to step back and evaluate the choices and behaviours which led to them. But after a respectable period of moral introspection the bacchanal resumed.” 

Hedge funds have already proudly announced the billions they have made from disaster capitalism. The Tories, despite appearances, have not turned into Corbynites. These are temporary measures to preserve capitalism.

The problem will lists like the above is that they can become a shopping list of all the ‘good’ things progressives would like to see. This pandemic has exposed many social ills, and it is those that we should address first.  Yes, they must be radical, but they must also be relevant to recent learned experience if they are to attract wide public support.

Overall, we must ensure that the lessons are learned. These include the importance of community, the impact of globalisation and the vital role of the state, local and national when nothing else stands between the people and penury or even death.

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