Opinion: Covid exposes capitalism’s flaws

If there is an economic lesson from the past 12 months, it is this: Covid-19 is the moment to do capitalism differently. The pandemic showed our economic system is not simply in crisis, it is structurally flawed.

Gig economy jobs are not protecting workers in hard times. Rising inequality means people turn to loans to make ends meet, lifting the ratio of private debt to disposable income. For all the talk of stakeholder capitalism, businesses still prioritise distributing short-term gains to shareholders. State capacity is hollowed out and outsourced to consulting companies. All the while, future crises like climate change have been made worse — indeed, 53 per cent of the Covid-19 recovery funding allocated to energy companies by G20 governments has been handed to fossil fuel projects, equivalent to around $151bn.

If we are to build back better in the coming year, we need to design policy in terms not of levelling but tilting the playing field — in the direction of equitable, green and sustainable growth that favours all stakeholders and solves our greatest societal challenges. Fortunately, for the first time in a generation, government has the upper hand. Here is a six-point plan on how policymakers can seize the moment.

First, as trillions of dollars are being injected into the economy for the purpose of recovery, the stimulus cannot be just about shovel-ready projects. As I argue in my forthcoming book, Mission Economy, investment must be driven by goals and moonshots around our biggest societal challenges. The UN Sustainable Development Goals provide the north star — targets around strengthening health systems, reimagining the future of mobility and narrowing the digital divide. We need a redesign of industrial strategy and procurement policy to focus on these goals and bottom-up experimentation to reach those goals.

Second, we must learn from the mistakes made after the financial crisis when companies were bailed out only to see their profits soar later. In bad times their risks were socialised, in good times they were privatised. One way is to impose strict conditionalities on government assistance, so that it protects the public interest. In France, bailouts for the car and airline industries were linked to emission-reduction requirements. In Denmark, state aid was denied to companies that use offshore tax havens. This should become more normal. Conditionalities are about moving away from a subsidy mentality towards a problem-solving one.

Third, decades of privatisation, outsourcing and budget cuts in the name of “efficiency” have harmed government responses to the Covid-19 crisis. Proper investment in dynamic state capabilities is why, say, Vietnam can rapidly set up low-cost testing of children during a pandemic, but rich countries such as the US and UK lag behind. Theodore Agnew’s comments that an over-reliance on consulting companies “infantilises” government are spot on. We should heed his advice and allow “our brightest [public servants] opportunities to work on some of the most challenging, fulfilling and crunchy issues” of our time.

Fourth, in an era when most global flows of money were reinvested into finance, insurance and real estate, it is good news that the UK government is considering building an infrastructure bank. The strength of public investment banks is that they “pick the willing” — they provide patient, long-term finance to actors that will address concerns identified by government policy, such as a green transition. We also need new measures of success that go beyond gross domestic product, and policy evaluation methods that go beyond cost-benefit analyses.

Fifth, not only businesses but workers and public institutions create value. A citizens’ dividend, giving people equal shares in a fund tied to the national wealth, would transform the story of government intervention and create a more equitable economy. Giving the population a direct stake in the value that a country produces would be a concrete way to socialise both risks and rewards. Just as important, is the process by which different voices come to the table to design our future, for example, via citizens’ assemblies. 

Sixth, science and medical innovation thrive and progress when researchers exchange and share knowledge openly. This is especially true when it comes to developing, manufacturing and distributing a vaccine during a pandemic. A “people’s vaccine” means making sure patents promote collective intelligence in the form of a patent pool. Pricing and distribution must allow global access. The same principles should govern digital platforms. The internet and Global Positioning System were both outcomes of public investment. We must ensure they are used to create public value and to eliminate the digital divide.

In sum, “building back better” requires a fundamentally new relationship between all economic actors willing and able to tackle complexity to achieve outcomes that matter.

This article was first published in The Financial Times on 28 December 2020.

Links

• Original article in The Financial Times
• Professor Mariana Mazzucato’s academic profile
• UCL Institute for Innovation and Public Purpose
• UCL Faculty of the Built Environment