Economic Governance in a Post-Covid World
The COVID-19 crisis is the largest shock to the global economy since the Great Depression of the early 1930s. The impact has been highly destabilizing and global in scope and perhaps no statistic captures more eloquently its welfare costs than that for the first time in 3 decades in 2020 we saw a sharp increase in the number of people classified by the World Bank as “extremely poor;” about 120 million people joined the ranks of the very poor, a reversal likely to continue in 2021, the incipient economic recovery notwithstanding. Not surprisingly the crisis has raised multiple questions about our economic system, its resilience to shocks and, more generally, whether it is on a sustainable path. What are some of the lessons that can be drawn from this past year?
Restoring public spending priorities
COVID-19 has found the majority of countries totally unprepared to deal effectively with its devastating consequences. Even high-income countries have seen their hospitals and public health systems come under heavy strain. However, in the midst of the pandemic, according to IMF data, we continue to spend the equivalent of 6.3% of global GDP in subsidizing petrol, electricity, natural gas and coal, thus worsening climate change and also economic inequality, as 60% of the benefits of these subsidies end up in the hands of the richest 20% of the population. Faced with high levels of extreme poverty, malnutrition and illiteracy in the world, this represents a massive waste of resources.
There should be a broad debate about the priorities of public spending, against the background of future claims on public resources linked to population aging, climate change mitigation and adaptation, and the challenges associated with budgets already under strain as a result of the consequences of the pandemic.
Broadening the safety net is a good investment
One characteristic of coronaviruses and similar pathogens is that they pose risks to the entire human species. Smallpox, which until 1967 infected 15 million people annually and was fatal to 2 million of them, was eventually eradicated in 1980. Clearly one central part of the solution will be to expand access to health and basic social protections to a much larger percentage of the world’s population. Not only would this demonstrate solidarity, but also minimize the systemic risk from unprotected populations: vulnerable people must be protected to protect everyone. One important lesson from COVID-19 may be that, in a fully integrated world, solidarity and altruism are not just luxuries for the spiritually-minded but, in fact, are indispensable conditions for survival.
The moral/ethical case for better social protection
There is a moral case for better social protection, even if this means a fundamental rethinking of the structure of the budget. We live in a world in which a completely accidental event — the nationality of our parents — plays a fundamental role in the prospects we face as human beings. If our parents are Norwegian, we will have enormous opportunities to develop our inherent capabilities. For in Norway, it is highly probable not only that we will safely reach the age of 5, be well fed and educated, and have access to modern medical facilities, but a benevolent state will also provide for us in our old age, since in Norway economic policies have incorporated the concept of sustainability in their design, including in management of public finances and the responsibilities of the state to future generations.