John Eatwell on society and the economy, post- the Covid pandemic
We are enduring the second economic crisis in twelve years. In 2008-9, thanks in no small part to the efforts of Alistair Darling, the financial system was stabilised, and by the first half of 2010 the UK economy was growing at an annual rate of a little under 3%.
The Coalition government’s austerity budget of June 2010 killed the recovery stone dead.
We won the war. But we lost the peace.
How do we assess the cost of today’s disaster?
The cost is not the £250bn increase in the budget deficit. The true economic cost is the loss of the production of goods and services because people are forced to stay home, retail and hospitality forced to close, factories idle, demand collapsed, companies failing.
Britain faces a major recession. Once furlough funding ends unemployment will soar. The Bank of England estimates that output will fall by 14% this year. On average, a cut of something over £4500 in families’ disposable income. That reduction will not be spread evenly. The greatest cost will be borne by those who, through no fault of their own, have lost their jobs, or lost their businesses – everyone whose source of income has disappeared.
We have learned a great deal about our economy and society in the past 4 months.
We have learned that our NHS is not funded sustainably so that it can protect us; and that our social care system is neglected, fragmented, and underfunded.
That the benefits system is unable to safeguard livelihoods when incomes drop unexpectedly, particularly for those in the gig economy or self-employed; and inequality is manifest not only in income, housing, opportunity, but in death from the pandemic.
That our system of government and politics fails to produce the cooperation needed to prepare for the next crisis.
And that we’ve been steadily removing the regulations and norms that provide protection when the lifeblood of our society is threatened — whether that lifeblood is biological, environmental, or economic. In the pursuit of short-term efficiency, we have created a world with fewer buffers to cushion those shocks.
In sum, neither our economy nor our society are resilient. An entirely new approach is necessary.
We must begin by building resilient social services, notably, but not exclusively, the NHS and social care. This will require well-trained, well-paid essential workers.
Ensuring a resilient labour force will also require immediate and medium-term action. The ‘Covid generation’ are already suffering falling real wages, fewer opportunities and stagnant or declining living standards. The Bank of England is the backstop for the financial sector. What will be the employment back stop for Britain’s youth?
Rebuilding our economy will require a resilient financial sector. Not just stable markets, but a funding system that does its proper job in supporting the production of goods and services on which our standard of living depends.
Britain is not alone in facing new economic challenges. The pandemic has exposed severe weaknesses in global production and trade, just as the crisis of 2008 exposed severe weaknesses in global finance. Countries are turning in on themselves. Twelve years ago, major cooperative efforts stabilised international financial markets. Now we need a resilient cooperative international trading system, lest Britain becomes marooned in a hostile world.
A resilient economy must be a sustainable economy. The pandemic, serious though it is, is but a warning of potential biological disasters to come. The floods of winter, the heatwaves of summer, the melting of the ice caps, the fires of Australia, are but the warnings of the ecological disasters to come. We are woefully unprepared.
Building that economy will not be easy. It will demand a new durable public and political consensus; otherwise short-term economic priorities and electoral cycles will soon get in the way. We must win the war, and, this time, we must win the peace.
Lord John Eatwell is a Labour Peer
Published 2nd June 2020