Shaping the 'new normal'.

AuthorBailey, Dan

The scale of the British state's economic response to the pandemic-induced downturn makes it clear that, temporarily at least, the Conservative government's antipathy towards economic interventionism and concerns over government debt have been shelved. In this context, the question is not one of the capacity to mobilise resources but rather the extent and character of the government intervention. The struggle to define the 'new normal' of the post-pandemic era has already begun.

Whatever 'new normal' emerges, it will be strongly shaped by the economic policy response to the Covid-19 crisis. The Conservatives' crisis response is intended to preserve (at great cost) the economic status quo for the post-pandemic world. This approach neglects the numerous parallel deep-seated pathologies characterising the UK economy. These include rising inequality, low productivity and investment, Brexit-related disruptions, and the need to decarbonise the economy by 45 per cent in the current decade to meet obligations enshrined in the Paris Accord. With these deep-seated challenges in mind, the resources being mobilised during this downturn should not simply be focused on preserving the economic status quo, but rather situated within a broader strategy of transformation. This raises a series of key questions which will shape the UK economy for a generation. Can crisis interventions ensure people's livelihoods but also tackle other deep-seated challenges facing the UK economy? Can crisis interventions form part of a 'just transition' towards a greener economy?

Episodic capitalist crises present opportunities for radical transformation--though, as 2008 shows, those opportunities can also slip by. The scale of interventionism in response to the Covid-19 crisis is, in fact, close to what is demanded by the climate crisis; we might see in that some partial cause for hope. This article sets out some key elements of the policy agenda for a crisis response that is attuned both to the short-term crisis of Covid-19 and the medium-term crisis of climate. This agenda seeks to decarbonise the UK economy whilst remaining attentive to the need to ensure equitability and the provision of basic needs for both current and future generations. It is comprised of four primary elements. The first element is a green fiscal stimulus in the nascent low-carbon economy. The second is the subjection of companies seeking state aid to an assessment of the economic, social and environmental impacts of that aid, in order to determine the extent and type of support offered. The third element is a requirement that, when state support is extended, an equity stake is taken in companies and used to inaugurate a UK sovereign wealth fund. The fourth is a reversal of welfare retrenchment in order to 'flatten the curve' and provide a robust safety net during the downturn and sustainability transition. These strategic and conditional interventions would ensure that public money is used to create value for the state and simultaneously promote a transition towards a more resilient and sustainable economy for the post-pandemic era.

Financing preservation rather than transformation

The fiscal and monetary expansion we've witnessed (which has included a blurring of the border between the two, something I have previously argued in favour of (1)) has allowed the government to introduce a startling repertoire of crisis management policies. This has revealed the paucity of the austerity logic and the blase refrains of unaffordability directed at Green New Deal proposals in 2019. As Alyssa Battistoni notes in this issue, the $2 trillion Green Stimulus package proposed by supporters of a GND in the US was called unthinkable until the Trump administration introduced a $2 trillion stimulus of its own (one which lacked any green credentials). Yet the fiscal expansion to date may only represent the opening salvo in attempts to stave off a capitalist crisis resulting from a virus for which there is no existent vaccine.

These remarkable crisis interventions have re-drawn the relationship between state and markets, but, crucially, Sunak's policy package seeks to keep the 'old normal' on life support. It seeks to prop up zombie businesses through the pandemic-induced downturn via a generous helping of state aid. It constitutes the construction of an emergency 'bridge', hastily erected to rescue the existing economic model. This is reminiscent of the crisis management approach taken in 2008, where the bailouts similarly sought to repair the pre-existing growth model rather than transform the model based on a recognition of its evident failings. (2) The indiscriminate and unconditional use of public money in that period of crisis management should alert us to the need to be more strategic now. As Christine Berry wrote in 2016, the state's majority stake in RBS was 'a golden opportunity to start taking control of our banks, building a system that really puts people and communities in the driving seat'. (3) We can't let such golden opportunities slip through our hands.

Our economic model is already suffering from significant, deep-seated issues. The dismay at rising inequality, falling living standards, declining social mobility and failing public services should alert policy-makers to the dangers of perpetuating the economic status quo. Poverty and inequality have both exacerbated, and...

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