麻豆传媒

麻豆传媒's Emeritus Professor Nigel Jump writes the next in a series of economic blogs looking at the impact of covid-19 on the economy.

CURRENT SITUATION

We enter 2021 in a parlous state economically: with

1. extremely low growth and inflation;
2. very high un/under employment and public debts; and
3. great uncertainty about the future path of industries, incomes and well-being.聽

In this post-Brexit world, even if the deal is better than no deal, the pandemic finds us in what has been described as an 鈥渋llusion drenched in nostalgia鈥�.聽 Unless entrepreneurial spirits identify new opportunities quickly and until public and private sectors work together to invest in skills, capacity and innovation, welcome to a poorer Britain than might have been expected a few years ago.

There is hope in the prospects of vaccinations that tame the pandemic and allow the release of built-up savings into expenditure.聽 There is risk, however, in the unpredictability of trade and other relationships across and along supply chains - and in the likely course of household and corporate demand: consumption and investment.

Under the Brexit trade deal, the UK has left the EU鈥檚 single market and the customs union.聽 The deal avoids tariffs on goods but requires a new raft of paperwork from exporters and separates Northern Ireland.聽 Moreover, it does not cover our services trade with Europe, notably financial services and many distribution functions.聽 New arrangements and barriers for travel, trade, immigration and security co-operation are coming into force. 聽The Brexit deal is thin, yet it drives a need for deep adjustments in the way competitive business and production are organised.

CURRENT PROSPECTS

Longer term, the question is what form the 鈥榥ew world order鈥� takes and whether it achieves a sustained and sustainable recovery.聽 Will we return to 鈥榥ormal鈥� or adopt new values and targets?聽 In particular, how will we address the growth possibilities of climate change?聽 There appear to be three broad, but not mutually exclusive, scenarios for an eventual UK economic recovery:

听听听听听听听听听听听 Stealth: security becomes a dominant driver of policy and popular value.聽 The 2020 crisis teaches us that resilience is vital and 鈥榡ust in case鈥� domestic provision is, at least, as important as the efficiency of 鈥榡ust in time鈥� globalisation.聽 Countries become more isolated and more inequality and stagnation may be risked as, on average, the rate of real GDP growth achieved stays lower than before.

听听听听听听听听听听听 Wealth: economic actors pursue a return to 鈥榥ormal鈥� as soon as possible, putting low priority on damage to the environment and future viability, and seeking current jobs at any cost.聽 Short-termism means real GDP is stronger than in other scenarios, but the inequities exposed by the crises of 2008 and 2020 are unresolved, indeed they may have worsened.

听听听听听听听听听听听 Health: a 鈥渘ever again鈥� reaction to the pandemic produces a strong change in popular and political values.聽 Energy and natural resource transitions are pursued, and the economy turns greener.聽 Social care is properly addressed and more training and education, especially for young people, is provided.聽 Real GDP growth is middling but potentially spread 鈥榤ore fairly鈥� across the UK鈥檚 regions.

In practice, elements of each of these three scenarios are likely to occur.聽 Whatever the eventual mix, it implies a rethinking of the value and values of the economy for individuals, workers, households, firms and industries.聽 In the near term, this probably means a slow process of adjustment with the hope of a better future.

We could be approaching a turning point in which economic and environmental policy could be less about addressing 鈥榤arket failure鈥� and more about encouraging 鈥榙ynamic change鈥�.聽 The relevant (economic and environmental) output and employment 鈥渕ultipliers鈥� for growth can be encouraged to work together (at last) and excess savings (at ludicrously low interest rates) may be released to make 鈥済reen and social鈥� investment.聽 To begin to pay down massive public debts, the priority needs to be on generating clean growth, rather than the severities of austerity, default or higher inflation.

Endogenous technological progress is the target, based on a policy with 鈥榞reen鈥� incentives and the creation of 鈥榥ew鈥� markets.聽 We need to invest now in innovation and design that create products and services for a sustainable future.聽 The emphasis should be on growth in value rather than growth in resource use.聽 The goal becomes to avoid economic growth based on running down natural and social capital and to favour the building of human and physical capital (whilst anticipating risk management for resource stocks, such as fossil fuels, that will become worthless).聽 Innovation in these areas of knowledge and technology can improve productivity and lead to better economic and environmental outcomes.聽 Investment in natural capital, especially renewable stocks, (such as biodiversity and habitats), and in flows of environmental services, can yield new forms of sustainable regional development.

After the pandemic, it is to be hoped that technology, behaviour and policy will shift, indeed tip, through a 鈥榥on-mean reverting supply shock鈥�.聽 This just means the pursuit of a structural change in economic goals and practices: a new economic revolution in activity and jobs rather than a return to previous 鈥榥orms鈥�.聽

Dorset firms need to anticipate the new growth potential by investing in new activities and markets.聽 This can help solve challenges such as:

1. the energy transition for local rural communities away from fossil fuels (oil, LPG gas etc) for heating and towards sustainable fuel sources
2. the provision of effective and decent social and health care, and
3. the creation of new, lower emission employment opportunities based on new skills.聽

Companies and businesses that evolve solutions for these and other areas of activity and need will be among the winners in the long-term recovery.聽 Answering social and climate issues by increasing productivity, creating jobs and improving living standards and wider well-being, offer profitable opportunities for local and wider growth.聽 The public agencies need to get on board with incentives for local firms to adapt, reform and innovate in this fashion.

So, here鈥檚 hoping for a happy and prosperous New Year for us all, based on a fundamental shift towards more sustainable value and values. 聽Perhaps, we can use Lockdown 3 for some fundamental thinking about these futures.