*Jean Paul Fitoussi and Khalid Malik (*)
-The opening sentence of the first UN global human development report in 1990 states ‘people are the real wealth of nations.´ While the sentiment remains profoundly true and the focus of every annual human development report since then, it has been rarely the case either in terms of policy or investments or even politics. Covid-19 by bringing out the many contradictions of the current system presents a rare opportunity to understand where the fault lines are and what is needed to address them. Crisis may well become an opportunity. This crisis is also the first experience where almost everywhere people’s health and well-being had to be put first. And this has highlighted what might be needed to reach this goal and in the end what counts less.
The new structural pivots:
1. A shift in who is essential to human survival. Not just the bankers or even the industrialists, but rather those who grow our food (the farmers), those who distribute them (truckers, delivery people), health workers, those who produce essential manufacturing goods, including testing kits, those who support learning (teachers), security (frontline police forces) and those who man the on-line delivery systems. Yet, most of them have not, to say the least, benefited historically from the system as currently organized: they rarely have stable jobs, or benefit from health insurance or receive adequate recognition/status from society.
2. Which supplies are necessary to human survival? Global supply chains have laid bare the consequence of what happens when ‘my country first’ policies are put in place to selectively stop movement of goods and services and secure/protect urgently needed supplies. Price gouging of urgently needed supplies drive access out of reach of poor countries and the poor generally.
3. Debt and finance-who needs what? Moral hazard considerations now part of the DNA of global capital markets have shifted the relationship between debtors and creditors. Usury laws, a recurring feature in earlier periods, have been weakened to the point of being almost non-existent in protecting debtors. Now is the time to consider new guiding principles in moving forward:
1. Focus on human security as an essential contribution to well-being. Defined as ‘freedom from fear and freedom from want’, this concept, first introduced in the 1994 Human Development Report should now guide larger security questions. People and society first and foremost have to be protected. By shifting 5 percent of the almost 2 trillion dollar spent on global military spending in 2019 could be a first Covid dividend. But they may well be other candidates, say the first 50 monopolies of our planet.
2. For societies to prosper, we need to double-down on securing a better balance between markets and the people, to marry better ‘the invisible hand of the market’ with the ‘visible hand of good governance’. But how both function rests on empowered individuals and communities with capabilities that enable them to ‘live the lives they value’. Progress is neither automatic nor inevitable. It is the product of enhanced capabilities coming together in a functioning society.
3. Macro-economic policies and indeed all policies are the means to an end, not ends in themselves. Economic variables such as growth, inflation and employment remain important. Our interpretation of them however should be in light of their value to individuals and society. It is time to revisit the ends that governments pursue and to set up a policy hierarchy. Human development and its determinants should the first on our agenda. As the crisis intensifies, policies should be massive enough to have a chance of success. Being cautious will not help and policies that only pursue intermediate ends (debt, for example) are bound to fail. Take Europe. We should not risk a repeat of the past policy on sovereign debts. Until now the EU has only provided a low level of support, 500 billion euro. Europe should not miss for the 10th time its appointment with history. A 3rd meeting of the European Council called for the end of May should become the turning point for collective action. With that in mind, the following recovery steps could be considered:
a. Protect jobs. They are a source of income and self worth. They serve to stabilize societies. Countries like France, the UK, Finland and Norway are subsidizing employers to maintain staff. In the long run, this is better and probably less expensive than expanding unemployment insurance and related relief measures. This should become the default of all governments, rich or poor.
b. Support SMEs as a priority-they are after all the largest employers, and only later large enterprises. The current financial system rewards risk but not prudence. Few large airlines for instance set aside funds for a rainy day when making large profits, instead concentrating on stock buybacks. Financial support to large companies should be conditioned on their commitments to set up ‘rainy day funds’. A similar logic applies for SMEs. States could create new financial mechanisms to insure SMEs by putting up seed capital. These are the new ‘stabilizers’ that are now needed to protect the system going forward. There may be others as well. What is clear is that finance should be put at the service of the economy, not the converse. Traditional ideas of being financially prudent may only lead to credit rationing.
c. Debt. Not to worry about it. All the resources and financial instruments of the state have to be mobilized to recover from the Covid crisis. Any way there is no other choice, if we want to protect society and revive economies. An analogy with the Second World War is appropriate. As production ramps up and salaries are restarted, even increased for essential staff, the resulting increase in demand will lift GDP and reduce debt/GDP ratios. Otherwise, perversely, debt may be both higher and unsustainable. We have to create a situation that allows people to save an amount of capital that is greater than the increase in debt. Otherwise even present levels of capital would be lost. An increase in debt will not mean a decrease in the wealth of nations.
d. Reduce stress, uncertainty and ‘vulnerability’. Universal health care, education and economic security, will reduce profoundly the stress people go through in many countries. And, essential staff should be just that, essential. They are entitled to stable, predictable incomes and privileged access to health care. Markets are unlikely to function well without such support and guarantees. In the end, governments have to ensure that stability.
e. Experiment with new approaches to production and consumption. The way supply chains are set up makes it difficult for producers to connect directly with consumers or protect essential supplies.
On line technologies can be further developed to help farmers for instance connect directly with consumers. Security of food and of critical supplies may require a rethink abut what must be produced locally and nationally.
f. Last week the G-20 endorsed debt moratoriums for poor countries. But that is not enough. We should consider deep downward adjustments in levels of debt. The system is not stable if individual countries are devoting large portions of their revenue to debt repayment. Set limits, say not to exceed 20 percent of government expenditures or a certain percentage of export revenues. After all what is key? People’s lives and their prosperity. The IMF should do more as well, and expand dramatically SDR distributions to developing countries so that they have more fiscal space to meet the crisis.
g. Finally, restore the balance between public and private goods, otherwise the ‘invisible hand of the market’ will only produce unequal outcomes. This analogy is true for global cooperation as well. Since its inception, the HIV/Aids crisis resulted in a tragic 40 million deaths globally. Global cooperation led to new institutions and new funding that in turn led to a coordinated, successful effort in containing its impact. New, innovative global funds could be considered that reinvest in public goods including health and education that help people live better lives and secure a sustainable future. In the end, we need to do all the above and more. We should not be surprised that the Covid crisis may well be a dress rehearsal for the larger adjustments that we may need in responding to climate change and in building a sustainable world.
*Jean Paul Fitoussi Emeritus Professor, Sciences Po and Khalid Malik former Director, UNDP Human Development Report Office