A New Economic Model
How can we build back better?
There is much political debate about building back better post Coronavirus - with a little less detail about how exactly this might happen. Perhaps the sands of time and change have ushered in an opportunity for a new kind of economic model.
It is clear that inequality, poverty, public health, immigration and the environment are critical areas for debate and significant opportunities for improvement. And yet fighting the pandemic is emptying state coffers.
A recent study by Cambridge University reveals that young people (below the age of 40) are less satisfied with democracy and more disillusioned than at any other time in the past century, especially in Europe, North America, Africa and Australia. They are most dissatisfied in the Anglo-Saxon economies.
The main reason behind the disillusion with democracy was inequality of wealth and income, the report said, citing figures showing that Millennials make up around a quarter of the US population but hold just 3% of the wealth. Baby Boomers held 21% of the wealth at the same age.
So, on the one hand you could argue that the macro and political circumstances are there for a new economic model to emerge, and on the other hand you could argue that cash strapped governments will not have the financial clout and political will necessary to embrace such change.
A growing number of economists believe that the Western capitalist approach needs to change. That we are too free wheeling, too private sector focused. Too much about small government.
And yet Western voters do not seem to want a return to socialism, while communism remains somewhat of a bad word. How do we reconcile these contradictions?
Perhaps some kind of blended solution could point a way forward.
Countries are spending a vast amount on public health in the current cycle, beating back Coronavirus. As a result, state intervention is growing and government leaders have given themselves a more controlling hand on the tiller. There is political appetite for greater state intervention, more investment and more debt - in the name of taking us to a better place.
Behind the scenes, technology and automation keeps rolling on. Lockdowns have shifted more human activity and spending online while artificial intelligence and big data have matured to the point where robotics and analytics can genuinely change our future.
Advances in digital analytics enable us to be more precise about where risks lie and target solutions to the myriad of problems that we face. So it would seem logical that public sector investment to solve health, inequality, poverty and climate issues would be more likely to work.
Given that most countries are busy solving the Coronavirus crises they are at least spending less money fighting wars. As a result they can spend more money on other things. For instance, NASA is currently investing sizeable amounts of money, with a number of contractors and initiatives, to ensure that astronauts can live and work on the Moon for significant periods of time by 2030. Presumably as a first step to living on Mars.
We are indeed in a very different place. And maybe this means we need a different kind of economic model. One that combines capitalism with greater state intervention and investment in the big problems of our time, to ensure that we get faster up the universal ladder of equality, openness, health, happiness and environmental progress.
A state that fully embraces capitalism and the massive contribution that the private sector can bring to every walk of life. So, on the one hand government will need to maintain a light hand on the tiller of commerce and yet put a slightly heavier hand on our stored-up macro problems.
Government leaders may have to look at more progressive tax rates so that the richest 1% in particular pay a higher level of income tax while they also close down loopholes and malign tax avoidance schemes.
Government will also have to get better at taxing online activities now that more of our transactions are digital. At the same time they should use technology to fully digitise the public sector so that more money can be spent on critical economic interventions such as youth training and education rather than people based administration.
A new economic model will likely also need to embrace the concept of a universal basic income (UBI). Indeed, you could argue that the new lockdown norm has necessitated it. Some eminent economists argue that we are at the beginning of a rolling lockdown society with lockdowns coming every few months or years thanks to future pandemics and climate crises. One day we might have to lockdown to stop us driving fossil fuel cars or eating red meat, if we hit major climate tipping points.
A universal basic income of a few hundred dollars per week might have been a fairer and potentially a more productive tool for supporting society through the current crisis. Early trials in a number of countries show that a basic income improves health and wellbeing while enhancing trust in government.
Equally, governments will need to get better at making public-private partnerships work and their strategic and economic systems and priorities will need to be bang on to ensure that state intervention and investment is efficient, productive and provides the short and medium term return that society will require.
Government leaders might want to treat their citizens as investors and provide them with regular investor style updates on their interventions. We would need more advanced government investment tools and reports so that we can easily understand how public sector investments are performing versus other comparables in both the public and private domain. We could use natural capital mechanisms to structure green investments and stock market style investment reports to help us better understand intervention in specific sectors.
We might even have to push government to write better policy documents that are more like an investment prospectus and maybe consider keeping them to rules such as no more than a 10 point policy plan per term and only being able to make 3 major state investment interventions at a time.
It will also prove critical that targeted public sector investment in private sector organisations or initiatives, gets linked to the delivery of clear, legally enforceable actions that support the government's policy priorities.
Perhaps the future is about fusing the best of capitalism with the best of state interventionism. Part USA and part Sweden. Making more of an impact tackling the big issues that only government can - just done a little better!
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