ourEconomy: Opinion

The coming tsunami and how we prepare for it

Governments around the world must urgently invest to become more resilient to shocks, because more disasters are coming.

Sunny cropped.jpg
Sunny Hundal
24 April 2020, 10.00am
Unemployment lines
ABC News screenshot

It's natural to feel worried and anxious about the future right now. The last thing we want to hear is more bad news. This article isn’t exactly that. It's more of a warning. A warning to say that a tsunami is headed our way. This pandemic is more like an earthquake than a state of war; we have to start preparing for the aftershocks.

This is not an argument against the lockdown. We need to prioritise saving lives and stick with the lockdown. I’m not writing this because I want shops and businesses open immediately. I’m writing this because we need to prepare for what’s coming, because our governments sure didn’t.

Last weekend, both the Sunday Times and the Observer set out in detail how the UK government missed warnings and failed to adequately prepare the NHS and its workers – let alone the public – for the coronavirus. But that’s only part of our problem. They didn’t prepare to support the economy and freeze it during lockdown either. And we are about to pay the price for the lack of preparation.

The coming tsunami

Most people think once the lockdown is over we can go back to normality again. There may be a little downturn but since everyone will be back at work it will be short and swift, they say. Some call it a ‘V-shaped recovery’. But this is a fantasy.

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For most workers in Germany, Britain and the United States there is a vast difference in support from the government. That difference is having frightening consequences.

In both the US and the UK, support for business and workers had huge cracks. In March, Chancellor Rishi Sunak said bluntly: ‘We won’t be able to save every business’. The first support package for businesses was pitiful. The second ‘bazooka’ had so many holes and bureaucratic hoops it needed constant clarifications. There are alarming reports of tens of thousands of companies going bust. Even the government’s allies admit the government’s emergency loan scheme is failing badly under bottlenecks. Applications for universal credit have already shot up by 1.8 million. Surveys show job insecurity has shot up to record highs.

In America the picture is even more alarming. 26 million unemployment claims have been filed in just 5 weeks, and should zoom past 30 million by May. Trump’s $2 trillion package was mostly a big business tax-break. The speed and scale of job destruction in America over the last month has no precedent in modern history. Many say even those numbers are vastly understated. Keep in mind that we are just five weeks in.

Returning from this won’t be easy. Governments should have frozen everything: no bills and no rents. That way companies wouldn't face huge bills with no income. Self employed workers or small traders wouldn’t face going into debt either. Instead they outlined a bureaucratic mess that needed to be clarified constantly. They needed to prop up companies for just a few weeks but instead they are letting them fail.

It’s a very different picture in Germany. It wasn’t just better medically prepared for the crisis, it has done a vastly better job of protecting companies and workers by supporting both. The difference between how Germany and the US are handling this crisis makes a huge difference to the economy and jobs. The unemployment rate is only expected to rise to 6%. It's the same picture in better-prepared Taiwan. That difference will be more apparent over the coming weeks.

The second wave

It doesn’t end there. The lack of preparation and job losses will have ripple effects. Chinese manufacturing will take a huge knock when orders from the US and Europe drop like a stone. A million Bangladeshis have already been laid off. The whole world will be affected by aftershocks that will continue for another six months at least.

Until a vaccine is found – which may be 18 months away – many industries won’t be viable. Travel and tourism may take years to recover. Large events from sports to music will need to stay cancelled to prevent COVID-19 spreading like wildfire again. Concerts? Unlikely. Cruise ships? Who would be stupid enough to go on them again? Whole industries won’t be fully operational for at least a year, quite possibly longer. People will have to stay cautious and keep social-distancing for quite a while. That will cost millions of jobs too. These are not jobs we could have protected but they will hit the economy anyway.

Trump’s incompetence and dithering will cost more in the medium term too. It was bad enough he didn’t prepare in advance, but now he wants people back to work without preparing for widespread testing. That means the virus will continue to spread around, and parts of the US will keep stopping-and-starting. People will feel insecure and cautious about spending. China has been trying to restart it's economy and get people spending again but they are reluctant of course. They don't trust their own government. Will Americans trust Trump to keep them safe? Of course not. And that will have devastating consequences for the world economy.

In our circular world economy when someone isn’t spending, someone else isn’t earning. It leads to a vicious downwards spiral. All these people may find jobs again but that could take months, perhaps years. Companies will go bankrupt at an unprecedented pace. A lot of people will start to go hungry.

We need a 1950s style national renewal

The support packages announced in the UK and the US have been bandaids on top of gushing wounds. Our governments put the patient in the freezer without preparing them. Once the scale of the problem becomes clearer we will need bigger and more decisive action to stop our economies sliding further into depression. This is why we need to discuss this now. Waiting until later allows the government to set the terms of the debate and potentially introduce economically ruinous policies.

If governments choose austerity – i.e. cutting spending because they face a shortfall in tax revenues – the problem will be exacerbated. It will lead to a bigger drop in overall spending and a much bigger fall in jobs and spending. Governments made this mistake in the 1930s and it worsened the depression. As the New Statesman’s George Eaton points out, the last decade of cuts crippled the UK economy too: “Average real wages only regained their 2008 peak at the end of 2019. A decade of austerity, including the least generous NHS spending settlement in history, had enfeebled the public realm, and in-work poverty stood at a near-record high.”

There is only one way out of this coming tsunami. Governments around the world will have to spend money to create new jobs. We will need people back to work as quickly as possible by investing in infrastructure focused on the future. Clean energy, modern manufacturing and future technologies. Millions of people will need to be reskilled. We need a better planned 1950s style Marshall Plan for all our economies.

We will need to make our country far more resilient to shocks because more disasters are coming. Remember those apocalyptic Australian wildfires? That was only in January. Climate change will make our worlds far more unstable. We need to invest to ensure this can’t happen again.

Making that case won’t be easy. But it has to be done. And it starts now.

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