Welcome back to Free Lunch — I hope all our readers are in good health and good spirits, as far as circumstances allow.
If Easter had been a few weeks earlier this year, the world would have changed beyond recognition from when I went on holiday (the ultimate staycation) to when I came back. As it was, most of the world was already locked down at the start of the month, and most of it still is now as I return. The most significant thing to change in the time I have been away in terms of economic debate is that the discussion on exit strategies has taken off in earnest.
That is good news, insofar as it reflects that the outbreak is sufficiently under control in many countries for them to just about begin lifting the restrictions on social and economic life somewhat. There is a vigorous debate taking place on which restrictions to lift when and how, and how to manage this differently in different countries.
But underlying these specific discussions there is a deeper philosophical and ideological question: whether the aim should be to return to the previous normal as fast and as far as possible, or to rebuild the economy in a different and better way. The FT editorial column, for example, has called for a rethink both of the social contract and of corporations’ pursuit of efficiency.
How people align this big question is to some extent predictable, as it maps on to differences in world views from before this crisis. So it is striking, but not surprising, that the fronts in the culture war seem to transfer quite smoothly on to the contest for the post-Covid-19 society, as my colleague Robert Shrimsley points out in his column for the UK.
The most solid arguments on both sides recognise the central importance of the fact that we have willingly shut down swaths of economic activity for the sake of a higher priority for people’s wellbeing. French president Emmanuel Macron speculated in his interview with the FT last week that this would bring a profound anthropological and psychological change to politics, as notions of what is possible, reasonable and necessary would be very different from before. His example was air pollution:
We will exit this crisis, and people will no longer agree to breathing polluted air. You’ll see something that was already rising in our societies, people will come out and say “I don’t want to breathe this air . . . you have accepted the idea of shutting down everything to stop Covid, but now you are ready to let me go on breathing bad air.”
Against this is the argument that precisely because we have shut down so much activity, we cannot now think about anything that makes it harder for businesses to get back on their feet. Any “nice-to-haves” such as environmental and social reform that would have been costly to business before must be out of the question now.
How people judge this will be linked to how they value the partial benefits, such as cleaner air, from the shutdown. The more you cared about, say, pollution before, the keener you would be to use the opportunity to lock in the gain. The less of a concern you thought it was before, the more unwilling you would be to let it prevent the earliest possible return to the status quo ante of economic life.
Here are three areas that have caught my attention, where this disagreement is playing out:
First, urban planning and city transport. A number of cities, most notably Milan, have decided to reopen mobility in a way that favours cyclists and pedestrians and reduces access to cars, compared with before the shutdown. The mayors of Manchester and Liverpool have called for a similar rethink.
Second, the ultra-low oil price could fundamentally change the world’s economic structure and national and global energy systems — at least if it persists. And there are reasons to think it will for some time. The current excess of supply making its way into storage will continue to weigh on the oil market even when demand picks up again. And demand is not likely to pick up to previous levels if businesses and economies decide to hold on to some of the practices they have learnt in the lockdown, such as remote working, doing without travel and shifting less physical stuff.
A sustained long oil price drop may wipe out many production companies and might kill productive capacity if oilfields have to be shut down. Some will say this is risky because it could lead to a price increase in the medium term. Others will say that given the threat of global climate change, learning to live with a permanently curtailed consumption of oil is a blessing in disguise — it will move us faster to where we think we need to be in cutting carbon emissions.
Third, in-person shopping is a big casualty of the crisis. Perhaps the current episode will deal it the death blow in favour of online retail. But as Mary Portas argues in an FT op-ed, we may instead see a shift to higher-quality physical retail experiences — shops with creative expression and not soul-killing homogeneity.
My own instincts are those of a cautious radical. As readers of Free Lunch will know, I have written about many things that can be improved in how our economies work, but some of these can be best fixed with large and disruptive changes. There are losers from all good reforms, and many changes demand big adjustments from businesses and individuals in order for them to benefit from a better system. But the disruption has now happened in any case; much of the cost of shifting economic activities away from business as usual has already been paid. It therefore makes enormous sense to look for opportunities to steer the economic revival we hope to engineer soon, on to a different track.
Next month, Free Lunch will look at a number of areas where this moment should be seen as an opportunity for radical reform. What are your own thoughts? We would love to hear from Free Lunch readers where they come down on these big questions, and other examples they can think of where things may be rebuilt very differently — send us your thoughts to email@example.com and we may pick up some of your contributions next time.
Until then, stay safe and stay well.
• The European Council — the EU’s national leaders — have a video summit today, where they will discuss a common fiscal response to the economic fallout from the Covid-19 crisis. Finance ministers had already agreed to work on a “recovery fund”. In my FT column this week I covered the Spanish proposal for how to design a recovery fund, and argued it was the best plan for meeting both economic imperatives and political considerations.
• One of the big clash points between EU member states is the question of joint borrowing. Economists Sebastian Horn, Josefin Meyer and Christoph Trebesch perform a public service in reminding us that joint borrowing by EU countries has a long, and largely unproblematic, history.
• What will be the productivity effects of the world’s sudden jump to remote working? Filippo di Mauro and Chad Syverson argue that technology adoption can bring productivity benefits, while Nicholas Bloom worries a reduction in face-to-face contact will hurt innovation and creativity.
• Global remittances are expected to fall by 20 per cent this year, adding to the pain for low and middle-income countries.
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