Future Scenarios and Social and Economic Anwers to COVID-19’s Crisis

The Covid-19 pandemic is transforming our societies and has a direct impact on our economic systems that opens up many questions. What future scenarios do we have to envisage in the post-Coronavirus world? What economic and social responses should be given to this crisis? All the indicators point towards a historical fall, but how should be the recovery and the new models we want to build?

In the second session of the cycle on the impact of Covid-19, promoted by the Centre for Contemporary Studies, the Advisory Council for Sustainable Development (CADS) and the Ministry of the Vice Presidency, Economy and Finance, the economists Matilde Mas, Teresa Garcia-Milà and Núria Mas reflected on all these questions and drew up some of the policies that, in their view, should be applied in the economic reconstruction once the pandemic is over.

The debate, moderated by the Director General of Economic Analysis, Marta Curto, covered a wide range of issues, from the role of the European Union and its policies to the consequences of the coronavirus in the trade war between China and the United States and the setbacks in the globalisation process. Fiscal policies or policies to help workers and SMEs, transformations in the economic system or the need for a new social contract, were also discussed among other issues. In this sense, the speakers agreed that now is time to move towards fiscal union at a European level, with coordinated fiscal policies within the European Union. They also stressed that active employment policies must be put in place to promote talent and overcome the digital divide, and to accompany small and medium-sized enterprises so that they can become more competitive. According to the experts, it is important to have public policies in place by the time the European recovery fund is designed.

An expansive output

The event was opened by the Minister for Foreign Action, Bernat Solé, who defended the need to promote “a reconstruction that faces the economic and social inequalities accentuated by the pandemic”. In this reconstruction, he said, it is very important to guarantee transparency and fundamental rights. The Vice-president of the Government and Minister of Economy and Finance, Pere Aragonès, then intervened, stressing that companies and workers must be helped and the country must be prepared to overcome the challenges. “We have to raise our sights to project what country we want in a few years’ time, and incorporate the will for the future into current decision-making,” he said. Aragonès defended that there is an expansive exit from the crisis, in a Keynesian style, with three strategic axes: first, an economy for life, focused on care, research, health and welfare; second, massive digitalization and, third, the ecological transition. For his part, the director of the Centre for Contemporary Studies and of the IDEES journal, Pere Almeda, spoke about the following sessions of the cycle, which will analyse the impact of the pandemic on democracy, the climate crisis or geopolitics and the international system.

International context and globalization

Matilde Mas, professor of Economic Analysis at the University of Valencia and director of International Projects at the Valencian Institute of Economic Research (IVIE), focused her intervention on the international context, underlying the crisis in global processes. According to the expert, globalisation was already being questioned long before the pandemic. “I still think that it is a mistake to close down and return to autarchy, but free trade should be modified at least in three directions: to diversify suppliers, because we have already seen what it means for the factory of the world, that is, China – to collapse; to diminish borders, because the more borders you have to cross, the more difficult it is for supplies to reach you; and, finally, the most fundamental thing: to protect the groups that have been harmed”.

The professor also analysed the role of the United States and China, and assured that China has already gained hegemony at the expense of the United States, despite two important errors that make it lose moral authority: secrecy in the management of the virus and the lack of control in the sale of health material. As for the role of the European Union, the economist assured that it was a key moment to position itself as an arbitrator between the United States and China, but the EU has missed the opportunity in the midst of its own disorientation and the structural crisis it is suffering as a political project. “If we want to save the European Union as its founding fathers conceived it, we have to take very ambitious measures. However, it is very difficult for any system of mutualisation of debt to be accepted,” he said.

A ‘no blame’ crisis

In her speech, Teresa Garcia-Milà, professor of Applied Economics at Pompeu Fabra University and director of the Barcelona Graduate School of Economics, wondered about the meaning of the idea of overcoming the pandemic. “What does it mean to overcome this crisis? To return to no physical distance?”. In this sense, she stressed that the situation is one of great uncertainty, and that all future scenarios and predictions of economic decline and recovery are totally determined by the length of periods of confinement and return to normal. The expert stressed that the current crisis of Covid-19 is far different from the financial crisis of 2008. “The situation is very different from the last crisis we suffered; there is currently a supply and demand shock so that the global chain has broken down”. In addition, she said that one of the most interesting characteristics of the current crisis is that “now there are no culprits in terms of economic actors, such as a real estate or financial sector that can be held accountable. The overall impact is almost the same for everyone; the fall in GDP and employment is of great magnitude, never seen in such a short period, of 20 or 25%,” she said.

Garcia-Milà said there has been a rapid and forceful response in terms of economic and monetary policy, but not in the fiscal area, and noted that the difference between Europe and the United States regarding fiscal policy is very large. “Europe learned to speed up monetary policy measures after the slow reaction in 2008, and this time the European Central Bank was ready. But in fiscal matters, each European country has undertaken its own policy, and this shows, once again, that Europe is weak in this area”. For this reason, she argued that now is the time to discuss this issue and move towards a model of greater fiscal intervention; the pandemic could therefore be a window of opportunity to deepen European integration. “We hope that this crisis will lead the EU to seek solutions, just as the previous crisis helped us to move forward”.

The economics of the new normal

For her part, Nuria Mas, head of the Department of Economics at IESE Business School, focused on three key ideas. The first, related to the health emergency situation: we must be able to create a climate of trust so that the risk is perceived as reasonable. In other words, if people go out and buy, they can do so by accepting a risk that can be assumed, and the economic actors can be in a position to resume their activity. Thus, if a second wave arrives or there is a resurgence, it will be very important to have a rapid response and efficient management.

The second idea highlighted is that we must bear in mind that this crisis is different from the previous one. “It affects certain sectors and people very differently, and it is essential to preserve the industrial fabric during the time these sectors are not working,” she said. Third, she stressed that it is essential to focus on a plan for recovery. “We must keep our eyes on the future and be clear about which sectors will allow the economy to grow in the new normal. Not all sectors are equally well positioned, and we must choose in which strategic areas more resources should be allocated based on a shared diagnosis between governments, social agencies and entrepreneurs”.

The economist said that this crisis acts as an accelerator of trends that already existed, derived from the problems of the global value chain. It is, therefore, like a parenthesis that forces us to rethink issues such as the aging of societies, the pension and the health systems. It also makes us think about the changes and transformations that need to be faced, such as the technological transition.

Strategies to face the future

During the exchange of opinions among the speakers, various strategies and public policy proposals emerged to face the future. Matilde Mas spoke, for example, of increasing resources in the health field, investing in R+D, making institutions stronger, ceasing to use the frameworks of war – since tangible capital has not been destroyed – and reflecting on the environment, public transport and the rural world, key factors in the impact of Covid-19. Another point on which the speakers agreed was the need to fight the digital divide and increase training in this area.

In relation to this last topic, the experts defended the need to deepen the knowledge economy and transform it through active employment policies. “In the face of uncertainty, there is adaptability. The hotel and catering industry, shops and the leisure sector will be greatly affected, and we must consider modular solutions that respond to the different stages of the lockdown easing”, said Teresa Garcia-Milà, “We must pay special attention to SMEs, with active employment and continuous training policies. There is digital training and, in some cases, if we need more professionals, also health training”, said the expert. Likewise, García-Milá defended the need for a labour reform to protect workers and make productivity grow.

Regarding the great consensus between Catalonia, Spain and the European Union, Nuria Mas assured that it is necessary, but it is even more important to have clear goals. “At the European level, a diagnosis will be articulated between the actors who actively participate in the economy; an alternative to the already improbable measure of the ‘coronabonds’ is the increase in the EU’s budgetary items”, she stressed.

New taxation?

Asked about fiscal measures and the possibility of raising tax rates, the speakers agreed that not always the easiest and most popular measures are the ones that work best. Matilde Mas spoke of the chronic problem of public underfunding, and said this is the real problem. Therefore, in her opinion, what needs to be done are structural reforms to resolve this situation, and a social pact to carry it out. Teresa Garcia-Medio said that there is already a redistributive structure, but one that is poorly designed, based on income from work. She also pointed out that there are many cases of tax fraud, and that we must try to find a model of collection based on consumption and not on the country where we operate.

Núria Mas added that it is necessary to think of a design that does not harm collection and that does not encourage capital flight. “We have to think about the design of taxation in such a way that it takes into account a global balance, since companies always have alternatives”. She also brought another issue up: expenditure management. “When we talk about sustainability of fiscal policies, we must also think about spending. We are often good at adding, but not so good at taking out; there are things we will have to do differently to achieve efficiency; knowing what to do without is the most important thing”.

Questions and Answers

In the final part of the session, the experts answered to questions from the audience, which had come in through the Youtube live chat and via Twitter, with the #IdeesCovid19 hashtag. In their answers, the speakers reflected on globalisation and the financing of the so-called intangible assets.

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