The September Economic Outlook Report – Coronavirus: Living with Uncertainty -from the Organisation for Economic Co-operation and Development (1) is worth reading; not least because it fires several shots across the bows of the course the UK government is already pursuing and warns of the consequences.
It makes four key points.
- China is the only large economy that is recovering this year.
- Global co-operation is needed both to fight the virus and ensure an economic recovery.
- Premature attempts to balance budgets and revert to fiscal conservatism will choke off any recovery.
- A Green stimulus is both necessary to avoid climate breakdown AND to ensure an economic recovery and this has to be state led.
All quotes from the original document. Emphasis and bullet points added.
- “China is the only G20 country in which output is projected to rise in 2020, helped by the earlier timing of the virus outbreak, rapid control of the virus, and the policy support provided to enable a quick rebound in activity. (p6) “A sharper-than-expected recovery took place in China, with activity returning quickly to pre-pandemic levels by the end of the second quarter, fuelled by strong infrastructure investment”. (p 2) Put simply, this means that China squashed the virus with a thorough lockdown that lasted just six weeks, keeping deaths and economic damage low. After which, the state invested directly in infrastructure. Putting public health first with a zero COVID approach provided secure foundations to reopen the economy. The state investing directly built on them. Trying to recover without squashing the virus is trying to build on shifting sands. The current talk in the West of “living with” the virus and the sort of push me pull you, hockey-cokey lockdowns, alongside eat out to help out schemes and such, guarantee that there will neither be an elimination of the virus nor an economic recovery with any momentum behind it. The ongoing Chinese recovery has also had a beneficial impact on the rest of the world economy, limiting the extent of its decline; a reality not noticed in the West, buried under the avalanche of diversionary accusations and aggressive moves on trade sanctions coming from the White House.
- “Global co-operation and co-ordination are needed to tackle the severe health challenges all countries are facing. No country is able to obtain the range of products necessary to combat COVID-19 purely from domestic resources… Greater funding and multilateral efforts are needed to ensure efficient production of medical products and allow affordable vaccines and treatments to be swiftly available everywhere, rather than being limited to particular countries. ” (p9) “Enhanced global co-operation and co-ordination is essential to mitigate and suppress the virus, speed up the economic recovery, and keep trade and investment flowing freely”. (p 9). This is in line with the “win win” approach advocated by the Chinese, and the opposite of the zero sum almost mercantilist operations of the US administration; which has defunding the World Health Organisation, imposed sanctions on Iran and Venezuela, and ramped up its trade war with China while the Pandemic has been in full flood. The OECD projects upside and downside scenarios, with a fuller recovery if global co-operation and fiscal support are worked through, and a stunted one if not. They project that the downside scenario is more likely. Its quite clear where the responsibility for that lies.
- “The aim must be to avoid premature budgetary tightening at a time when economies are still fragile”. (p 2). “With the recovery remaining hesitant, sporadic outbreaks of the virus still occurring, and many sectors still struggling to adjust, fiscal and monetary policy support needs to be maintained to preserve confidence and limit uncertainty“. (p8) “Premature withdrawal of fiscal support in 2021 would stifle growth, as occurred in the aftermath of the global financial crisis in many countries” (p 10) ) This is stating directly that obsessions with deficits, all the arguments about balancing the books and not spending more than you earn, and all the household budget analogies that sustained the austerity narrative for the last ten years would choke off any recovery now as effectively as they did in 2010.
In the UK we have a government that thrives on ambiguous, even contradictory, policy statements spiced up by overblown rhetoric – we are opening up, while staying alert, going back to work while preparing for another lockdown, having a border check in the Irish Sea while not having a border check in the Irish Sea, proclaiming “world beating” systems that don’t work, launching a “Moonshot” initiative for universal mass testing involving a supposed £100 billion investment in technology that doesn’t exist yet and which the Prime Minister forgets about two days later. These sustain themselves in the air until they confront reality and then come crashing down. To have your cake and eat it you have to be powerful enough to impose the costs of that onto other people. The UK is now far weaker than the mental habits of its ruling class allow for, hence a style of politics that is quite delirious by historical standards. Despite arguments that are still being heard here that there will be no return to austerity, the signs of what the government will do are not good.
- the impending abandonment of the furlough scheme on the argument that “the country can’t afford it”- in contrast to the extension of these in Germany, Italy and France – leading to impending job losses estimated at between 700 000 (the Daily Telegraph) and 2 million (The Guardian).
- the failure by central government to shoulder the COVID costs imposed on local authorities which, combined with a loss of income from business rates means they face a £2 billion shortfall in income this year, which will mean cuts to services and local public sector jobs.
- the abandonment of the evictions ban, leading to a quarter of a million people facing the possible loss of their homes.
- the increasing practice of companies like British Airways sacking staff then re-employing them on worse terms and conditions
- resistance to any demands for financial recognition of the value of front line workers and a continuing wage freeze for most public sector workers.
The paradox of this is that the UK government has no strategy beyond hoping that people will go out and spend – which is rather tricky if you’re scared of losing your job, or have already lost it, or having your wages cut and may be evicted from your house because you can’t afford the rent.
4. Governments need to invest directly “Prospects for a sustainable recovery could also be strengthened if governments move beyond income support and stimulate aggregate demand directly through public investment. With long-term interest rates close to zero in many advanced economies, the social rate of return on public investment is likely to exceed the financing costs for many projects. Investment is particularly needed in areas that have large positive externalities for the rest of the economy and where under-investment might otherwise occur due to market failures, including in health care, education, and digital and environmental infrastructure.” (p11)
“Government efforts to support the economic recovery also need to take advantage of the opportunity to incorporate the necessary actions required to limit the long-term threat from climate change.
- Sector-specific financial support measures should be conditional on environmental improvements where possible, such as stronger environmental commitments and performance in pollution-intensive sectors that are particularly affected by the crisis.
- The potential for an extended period of substantially lower fossil-fuel prices than previously expected further raises the urgent need to introduce effective incentives for firms to invest in energy-efficient technologies.
- Governments can also help directly by implementing well-designed investments in low-carbon infrastructure and making use of opportunities to support behavioural changes that may help a low-carbon transition, such as facilitating teleworking and enhancing widespread availability of high-speed broadband in rural areas”. (p13)
This is in marked contrast to the UK government’s pressure to workers who could work at home to go back to the office, its failure to put any environmental conditions on bail outs, its removal of subsidies on renewable energy, its spending nine times as much on road building schemes as on energy retrofitting for homes.
The OECD Report provides an implied critique of what we are already seeing from the UK government that Labour could use to focus a “national consensus” on green recovery and social justice that already exists (2) but is belied by the Government’s approach. Nothing would be worse than ignoring this to try to triangulate with Johnson instead.
2. The All Party Parliamentary Group on the Green New Deal Reset Report published on Thursday showed among other things that two thirds of the public think the Government should intervene to make society fairer, 66% of UK adults want the government to prioritise health and wellbeing, 65% support rent caps, 57% support some form of universal basic income, 63% support a jobs guarantee, over 90% think NHS workers and care workers should get better pay and conditions, more than 70% think nurses and carers should be paid more, over 82% think supermarket staff and delivery drivers should have better conditions, people who have been able to work flexibly during lockdown, want to be able to continue to do so for some or all of the time in future and there is majority support for investment in local community hubs, green spaces on the high street, residential spaces and cultural ventures, the development of local neighbourhoods so they are more varied and welcoming, more green spaces, and access to green space for all and permanent reductions in traffic. Full report here. https://reset-uk.org/