One of the biggest lessons from the pandemic so far is that capitalism needs to be done differently. The gig economy isn’t able to protect workers during hard times. Businesses continue extracting state funds for dividends and executive compensation. The private debt to disposable income ratio increases as people resort to taking out loans to survive. Moreover, the social and economic gaps that existed before the pandemic are growing and have worsened the spread of the virus. Research suggests that populations within lower economic classes are more exposed to the disease and are more likely to die from it. As for the healthy individuals among this strata, they will still experience loss in the form of income due to lockdown restrictions.
A crisis of this magnitude demands state intervention. The trouble is a different framework from the one being used is needed. Since the 1980s, governments have taken a less significant role and allowed companies to drive and generate wealth, only stepping in when crises arise. Waiting for a massive hit to the system before taking action means that preparation has been poor. Along the way, cuts to public services, like the NHS, have weakened response further.
It’s fair to say that people, for the most part, can find common ground on three fundamental tenets. The first being that full-time employment should provide sustenance by way of housing, everyday essentials and savings. Second, that everyone should have access to free (or at least affordable) healthcare. Third, that taxes should be paid equitably. But is a system that favours capitalism capable of addressing these social concerns?
Today, wealth inequality is at its worst. In America, the top 0.1% own the same amount of wealth as the bottom 90%. This individual greed is undoubtedly reprehensible, but it’s even more prominent within billion-dollar companies who notoriously skirt exorbitant amounts in taxes. Many of these large corporations have seen a sharp decline as a result of the pandemic and are now turning to government bailouts to stay afloat. Bailouts, ironically, afforded by taxpayer money. Focusing on sectors like the airline industry (which have experienced widespread disruption) interesting arguments arise. Its history of irresponsible practices like low staff wages and environmental damage puts into question whether their operations should even be allowed to continue. Alternatively, it might be time to reevaluate their private status and consider nationalisation should they refuse to use money responsibly. This isn’t to say that we should now resort to socialism. It is important to understand that capitalism can work. The free market is a force for good and is capable of stimulating economic growth to bring considerable advances in global health, innovation and prosperity. But if companies are to operate within the free market, they need to align their actions with the needs of society. This starts with developing business models that centre sustainability as well as the drive for growth and profit.
The pandemic, as crises often do, has revealed deep flaws within current economic systems. The corporate governance structure which seeks to maximise shareholder value largely ignores broader stakeholder value. It is time for policy-making that prioritises sustainable growth, benefiting all stakeholders and tackling major societal challenges. This means preserving jobs to boost economic productivity whilst providing workers with adequate conditions, reasonable pay, safety and legal protection. Other long-term goals include moving to a zero-carbon economy. Stimulus packages can’t only be about corporate recovery. They must also seek to strengthen public systems like healthcare and education as well as improve social mobility and reduce the digital divide.
Furthermore, strict conditions on government bailouts need to be imposed to maintain public interest. For instance, in France, government assistance for the airline and car sectors was tied to the reduction of emissions. In Denmark, businesses which utilised offshore tax havens were denied grants. In terms of medical and scientific innovation, it is cultivated by researchers being encouraged to trade and share in information openly. The COVID-19 Technology Access Pool (C-TAP) — a pool for intellectual property, health research and data – offers a practical solution. We have seen the benefits of such initiatives with the development, production and rollout of coronavirus vaccinations.
World leaders are also calling for changes to the system. French President Emmanuel Macron stated that “we will get out of this pandemic only with an economy that thinks more about fighting inequalities” arguing that financialisation had placed emphasis on “profits that are not linked to innovation or work”. He believes that a modern democracy should evolve past its fears around government intervention. He went on to say that “the capitalist model together with this open economy can no longer work in this environment“. Managing director of the International Monetary Fund, Kristalina Georgieva, said that “unless capitalism globally brings people closer together, we won’t be winners after this crisis” adding that the pandemic created a wider gap between richer and poorer nations. German Chancellor Angela Merkel reiterated this point by highlighting the challenges faced by vaccinations being unequally distributed around the world.
History has shown how crises can overhaul the political economy. The New Deal and bigger government came out of the Great Depression. World War II led to the British welfare state. The backlash to runaway inflation in the 1970s resulted in Reaganomics and Thatcherism, with tax cuts on the wealthy and disrupted unions. This pandemic could be the catalyst for yet another economic reset.