Don’t save the economy. Change the economy. – POLITICO

Dennis J. Snower is president of the Global Solutions Initiative and professor of macroeconomics and sustainability at the Hertie School.

BERLIN — The coronavirus pandemic will change the world, and that transformation will come with huge economic challenges. Whether we meet them will depend entirely on our willingness and ability to adapt.

So far, governments are doing the opposite. They are attempting to preserve the status quo — to keep money flowing to people who have lost their jobs and to businesses that have been shut down.

Such measures were a welcome stopgap in the first few weeks of the pandemic, but sticking to this strategy in the months ahead can only spell disaster. Unless governments adapt to the new circumstances, they will tumble toward economic meltdown and financial instability.

The ammunition that has already been fired is truly spectacular, and more is on the way, after German Chancellor Angela Merkel and French President Emmanuel Macron agreed to a blueprint for a €500 billion recovery fund to help the hardest hit EU countries.

Governments in rich countries are paying firms to retain idle employees and to support the unemployed.

If the world were facing another Great Depression — with excess production capacity and unemployment everywhere — such a macroeconomic stimulus would be appropriate.

But we are facing a different danger. The economic problem created by COVID-19 is the Great Economic Mismatch.

Even as large parts of the global economy have been closed down by social distancing, there’s been an explosion in the dem and for goods and services that meet our health needs and that are compatible with keeping safe: medical supplies, food deliveries, the associated financial, logistical, marketing and distribution services.

The problem we are facing is how to overcome the mismatch between excess supply of resources in some sectors and excess demand in others. With the World Health Organization warning that the virus may never go away, it’s a problem that will likely persist for months if not years.

Currently, governments in rich countries are paying firms to retain idle employees (the U.K. government, for example, is paying up to 80 percent of the wages of furloughed workers) and to support the unemployed (in the U.S. government, more than 33.5 million people have filed for unemployment since the start of the crisis).

A far better use of this money would be to use it to promote a redirection of labor from the collapsing to the exploding sectors. Governments could provide nationwide support for job search and matching services to promote this redirection and facilitating the repurposing of equipment and real estate from where it is currently idle to where it is vitally needed.

Such a policy regime would help people move from the physically interactive old world to a new world in which much consumption and production is compatible with social distancing.

Instead of shopping physically downtown, consumers need to be able to efficiently place their orders virtually. Maps on digital devices can link familiar outlets to apps facilitating deliveries. Commercial real estate could be repurposed.

Many restaurants could be converted into delivery services and the space that is thereby freed up could be used for testing facilities, medical centers, logistical support hubs and temporary accommodation for medical staff. Theaters, operas and sports venues might launch drive-in performances and events that are compatible with social distancing (as the English National Opera is planning).

Some of this restructuring is already taking place as free enterprise responds to the pandemic. On its own, however, this market activity will not be sufficient to avoid major economic disruptions, since the social gains from matching supplies and demands far exceed the private gains. Government support is essential.

Fortunately, the funds for such support are already potentially available through the many generous government rescue packages. All that is required is that these packages — currently financing unemployment benefits, loans, guarantees and grants — be redirected into support for hiring and training subsidies, investment tax credits, employment services and online resource-matching platforms.

Though some sectors — such as aviation and various forms of tourism — will be unable to make the transition profitably, most other jobs are amenable to reframing. Even jobs that currently cannot mostly be done from home — such as food preparation and serving, public transport, installation and maintenance, cleaning, protective service, construction, extraction, education, manufacturing, retail sales, farming and fishing, forestry, as well as community and social service — have the large, untapped potential to be transformed into physically distanced activities.

Protection from pandemics will likely come to be viewed as essential as protection from floods or fires, and investment in such protection will be seen as essential.

Needless to say, the transformation would involve a loss of productivity, since working at a distance requires more space, equipment and digital infrastructure than the current forms of work.

For other jobs that are more compatible with distanced work — such as architecture, engineering, legal work, office support, management, business and financial operations, arts and design, and programming — the productivity loss would be substantially lower.

But these productivity losses are the irreducible minimum cost of maintaining social distancing. The choice that policymakers currently face is between paying this cost or paying the far higher cost of supporting people and businesses whose productivity has vanished.

Readapting in this way is also a smart long-term investment.

It may well take a long time before the pandemic is over, since the virus cannot be defeated anywhere unless it is defeated everywhere in this globalized world. And once this has happened, people around the world will expect their politicians to deliver more resilience to health shocks. They will expect government to allow them to carry on working, to keep the economy alive, and to keep the wheels turning, all while protecting their health.

The coronavirus pandemic has changed the world. It’s time for us to catch up | Mark Kolbe/Getty Images

Protection from pandemics will likely come to be viewed as essential as protection from floods or fires, and investment in such protection will be seen as essential, perhaps even a human right. Such resilience will need to be built up in advance. Readaptation policies would permit us to start doing so now.

These policies also give policymakers an exit strategy from their costly fiscal commitments. Once economic activity has been redirected to where it is needed, no further support would be required. As a result, it would become less likely that the current health crisis leads to the public and private over-indebtedness that could precipitate the next financial crisis.

The lesson we should learn from this pandemic is that social distancing need not mean lockdown and economic paralysis. It is only because we are unprepared that social distancing now requires many of us to stay home. If we readapt our economies, we could practice social distancing while keeping our economies alive.

The coronavirus pandemic has changed the world. It’s time for us to catch up, and get out ahead of it.


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