The responses to crises come in two phases. First, governments respond in predictable ways, consistent with how they have acted before. But then crises have a longer-lasting power and that is to shift our thinking about what governments should do. The corona-virus is a totemic case in this respect. It is likely to produce the biggest paradigmatic shift in economic policy that Europe has witnessed since the 1980s. So, as governments switch to new policy instruments, the biggest economic casualty of the corona-virus across Europe looks set to be neo-liberalism.
Having spent several months in Italy and recently having returned to London, I am struck by how our national responses to the virus display many predictable characteristics. The laissez-faire instincts of the British prompted Boris Johnson to only ‘advise’ the public on what they should do. It was as if the Captain of the Titanic was saying to his passengers, ‘Given the new circumstances, you may wish to avail yourselves of a lifeboat’. The informality of his response involved an ambiguity – different ministers were giving different messages – but it also provoked a response from civil society that was well-ahead of official government policy. Indeed, people started to ‘panic-buy’ in irrational ways. Bizarrely, the threat of a respiratory illness led consumers to buy as much toilet paper as possible. And, while Boris was suddenly saying he was basing his policy on expert advice – not a reference point for him in the BREXIT debate – he chose to listen to British academics modelling likely behaviour patterns on shaky assumptions, rather than the medical science influencing most other countries.
The British response was not entirely unique. Sweden, for example, also chose a more relaxed approach. But, by contrast, the state traditions of southern Europe led to a very different, rules-based response. Italy closed schools and universities, required all non-essential shops to shut-down, and decreed that everyone going out on to the street should first download an official form and declare why they were venturing out. Of course, people had to fill-in a form: the administrative culture requires it, as it does in France and Greece. More importantly, people complied, perhaps because of the clarity of the firm message. Shoppers waited dutifully outside supermarkets, two-metres apart, quiet and respectful of the regulation. There has been no panic-buying.
The Greek case is even more interesting. A government machine short on expertise and resources, with inherent problems of coordination across different units, it looked as ill-equipped as any to face the onslaught of the pandemic. But these known weaknesses appear to have triggered their own solution. Mitsotakis has appeared decisive. The taskforce he created, headed by the respected immunologist, Sotiris Tsiodras, has enabled a clear ‘voice’ to be heard for official policy on the virus. In parallel, Nikos Hardalias has been promoted as Minister to centralise government decisions and actions. Instead of inefficiency, there has been quick and efficient action. And, despite a health system denuded by recent austerity, the results so far have been impressive. Greece has a far lower rate of infections or deaths than most European countries. Bravo!
Beyond these crisis management strategies, the economic implications of the pandemic are, of course, huge. And, it is these expected consequences that are already shifting thinking about what governments can or should do in the economy. We do not begin from a tabula rasa. Already, the international financial crisis had prompted a greater central bank and government activism. A populist turn meant Boris Johnson’s government committed itself, before the pandemic was known, to major public investment. Now his government is making almost daily promises to spend more taxpayer’s money: one day it is a promise to giveaway GBP£35 billion, almost the next day there’s more promises. He says he wants to ‘hug’ every worker with state subsidies of incomes – clearly, for fear of the pandemic producing an economic depression. Similarly, Donald Trump last week agreed a new $2 trillion package of spending with Congress. Anglo-Saxon conservatism – indeed, neoliberalism – is on the defensive truly like never before. But the effects are wider. Angela Merkel has announced the biggest rise in public expenditure in German history. The ordo-liberal principle of stable public finances has been cast aside. The principle has been abandoned and it will not be easyt to resuscitate it.
Crises provoke emergency responses, but they can also have longer-term legacies. The response to the Second World War was for governments to take on more responsibility for the level of employment, welfare, and public infrastructure. National responses today are returning to that frame of mind. Such intentions run deep into the public psyche. They are not easily forgotten. The after-effect of the corona-virus may well be that we are all social democrats now!
It was originally published in Greek in the Newspaper Kathimerini, Sunday 29 March 2020