Over the last four decades the mantra has been less state intervention in the economy. This was the economic doctrine that the UK prime minister Margaret Thatcher in Europe and president Ronald Reagan in the US preached. They did this on the back of the experience of industries that had been nationalised since the end of World War II to save jobs. State intervention in the economy was seen not to have worked.

Nationalisation was more prevalent in Europe than in the US, also because of a number of socialist left-wing led governments in a number of European countries. In fact as Thatcher was preaching less government intervention in the economy, French president François Mitterand was nationalising banks.

Since then, when things got bad, governments were asked to intervene, as had happened during the international financial crisis and subsequent economic recession a decade ago. The same thing is happening now with the spread of the coronavirus and the lockdown in most countries. Businesses and individuals (families and employees) want the government to support them in a significant way in these difficult times to safeguard jobs and investment and avoid poverty.

In Reagan’s America, the state was still very active and ran up a huge deficit as a result of heavy defence spending and tax incentives for businesses. So up to a certain extent less state intervention in the economy went only so far. In Europe it was different, as state-controlled enterprises were privatised and social welfare budgets shrunk in real terms.

The pick-up in the global economy is likely to be far slower than it has been in previous recessions

COVID-19 may change all this. Very high unemployment and health considerations are seen by many as two very good reasons why ‘Big Government’ is good. There will of course be a price to pay.

Although national debt may not be seen as a constraint today as governments seek to contain the pandemic and prevent an even worse economic recession, it may start to be seen as such by financial markets, credit rating agencies, and possibly some governments. At some point in the future governments may be required to pay back that debt.

Governments that are supporting the business sector heavily will expect these businesses to avoid exploiting more tax-efficient jurisdictions. These businesses will be expected to pay all the taxes due in their home country.

Whereas for the last 40 years the individual took priority over the common good, the expectation is that from now on the collective will take centre stage. For how long this will be the case remains to be seen. However, it may not prove easy to remove certain forms of financial support once they have been introduced, especially if the pandemic will never really go away and there will always be the risk of further waves.

Another issue that needs to be factored in is the attempt by some governments to restrict civil liberties in their efforts to control the pandemic.

What come to mind immediately are what happened in Hungary and the increased electronic monitoring of people’s movements. So ‘Big Government’ may well extend beyond the economic sphere. A great deal depends on the shape of the economic rebound. A V-shaped economic recovery looks highly unlikely today. It is more than likely that it will be a U-shaped recovery with quite a prolonged bottom. In other words, the pick-up in the global economy is likely to be far slower than it has been in previous recessions.

If this will prove to be the case, then the government’s role in the economy will continue to be more significant than in the last four decades, and rolling it back may eventually prove to be impossible, just like the loose monetary policy that central banks around the world have been adopting for the last number of years has proved very difficult to roll back.