Business and political leaders in Europe are rejoicing as the economies of various countries are bouncing back to life. The much-desired normality seems to be roaring back. But just looking at economic data risks missing some significant trends that indicate that the public’s mood is not as exuberant as that of business leaders.
The long-term socio-economic impact of COVID is now being studied in more detail after two years of putting this issue on the back burner of political and institutional debate. We need to rely more on the assessment of institutions like the European Commission to understand who is likely to suffer most in the long term due to the disruption that the pandemic has on people’s lives.
The EC issued a technical note for the Eurogroup entitled ‘Adjustments to large shocks in the euro area – insights from the COVID-19 pandemic’. There is no doubt that prompt action by practically all EU governments has saved millions of jobs and prevented economies from experiencing depression rather than just a deep recession.
The Commission’s note appeals to governments not to withdraw fiscal support too soon. No one wants a return to the failed strategies of the 2008 financial crisis based on the implementation of austerity tactics.
The Commission argues: “The focus of policy intervention will need to shift from macroeconomic stabilisation to supporting and strengthening the recovery. This means, among other things, gradually shifting from preserving jobs to helping workers develop their skills and move, where relevant, to other sectors with better employment prospects.”
The human capital of younger generations is particularly at risk of long-lasting scars. The effects of the disruption in schooling will only be fully understood in the coming decade. Without targeted remedial action, this could widen the skills gaps that are already threatening vigorous economic growth.
The Commission is correct in its analysis when it says that “COVID may have a highly asymmetric impact on the labour market, increasing income differences between high-skilled workers and low-skilled workers in sectors badly hit by the crisis, like tourism. Intergenerational socio-economic differences are also widening with older citizens and higher earners increasing their savings throughout the crisis in contrast to young and lower-income earners who have felt the pressure of lower-income.”
Most politicians see economic growth as an accomplishment, instead of a means to an end or a side effect of enacting sustainable socio-economic policy
It is fallacious to conclude that most people want to return to the kind of normality that neoliberal policies created in the last four decades. The Pew Research Centre in the US suggests that economic dissatisfaction in the EU and the US has changed the public mood on the desire for reform. Of course, the easing of lockdown restrictions has been liberating. But an increasing majority of people want a change in economic direction as the social fabric of most societies is quickly crumbling.
A Pew poll revealed some realities that business and political leaders should not ignore. Roughly two-thirds of poll respondents in France and exactly half of those in the US, the UK and Germany said they wanted either a ‘major reform’ or complete reform’ of economic structures. Sixty-seven per cent of British people strongly support more regulation of business, whereas it is 58 per cent in France, 53 per cent in Germany and 46 per cent in the US. Ronald Reagan and Margaret Thatcher, the leading promoters of neoliberal economic thinking, must be spinning in their graves.
Polls are not always accurate, and the more research is done, the better we can tell whether the zeitgeist shift is indeed so impressive.
James Manyika, chairperson of McKinney Institute, argues: “There is this sense of inequality, of people, of place – work security had declined for so many.”
A McKinney survey found that half of Americans reported being on the financial brink and unable to cover more than two months of living expenses in the event of a job loss.
The solution cannot be keeping zombie companies alive at all cost. The ECB recently commented that “critics have raised the question whether our relief measures also support or create zombie firms – companies that cannot sustain their business over time and are artificially kept alive through loans. The ECB has repeatedly stressed that banks must maintain sound lending standards.”
Most politicians see economic growth as an accomplishment, instead of a means to an end or a side effect of enacting sustainable socio-economic policy. Tweaking outdated economic models will not bring about the change needed.
Conventional political wisdom may not be enough to once again invest in the well-being of society based on fairness and solidarity.