The corona-crisis puts states back at the helm

Trillions have evaporated on the stock exchanges. Millions are out of work. The economy is in transition, but where is it going?  

EEB Policy Officer and author of ‘Frontlines. Stories of Global Environmental Justice’, Nick Meynen reflects on what (not) to do at this historic turning point. 

Nick Meynen

Crisis brings purpose, focus and urgency. Among other things, in my country, Belgium, this has helped politicians to avoid the embarrassment of breaking the world record ‘time needed to form a government’ for a second time.

The urgency to ‘save the economy’ raises the stakes. A risk is that badly-designed bailouts lock us into some very dark decades, yet some kind of intervention is essential to save lives and livelihoods. The amount of money needed to reset the economy is enormous, but the investment could transform the world forever. Whatever happens next, the state will have a huge role to play in the years to come.

Bad bailouts

After the 2008 crisis, most leaders reacted with The Shock Doctrine. Banks were bailed out and bankers had their bonuses back in no time. States gave quasi blank cheques to airlines, who then gave 96% of our money to their shareholders. All of this caused so much debt that states went broke, which was the trigger to cut back on health care, schools, public transport, pensions and everything of value for ordinary people. It’s called austerity, which increases inequality. Measures taken in response to a crisis should change the economy for the better. They should not waste public money and seek to return to Business As Usual, especially when Business As Usual is increasing environmental and social harm. We have choices. Iceland put some bankers in jail and chose to bail out households, with good results.

The sustainable state

Chandran Nair wrote in The Sustainable State that the state is the social body with the best combination of authority, accountability and legitimacy to achieve sustainable development. In times of crisis, states are indispensable. Faced with an acute health care crisis, the Spanish government just nationalised private clinics. Spain now also pays the price of privatisation due to woefully understaffed private care facilities for the elderly. We need strong, well-funded and resilient public health sectors which provide high quality health care services for all, at all times. Healthcare is a human right. 

But this is no longer only a health care crisis, the economy is in tatters too. Faced with this acute shock, Italy has re-nationalised its flagship airline and even UK Prime Minister Boris Johnson has temporarily re-nationalised the country’s railways. This doesn’t necessarily mean that suddenly, all these publicly-owned hospitals, airlines and railways will now work better, for both people and planet. But it is a golden opportunity to fundamentally reshape care, mobility and so many more sectors in ways that were hard to imagine a month ago. 

A government that owns airlines and railways could, for example, decide to order more trains and fewer planes. Most airline companies will not survive the coronavirus without taxpayer money, hence this is the time for governments to set them on course for a low-carbon future. Where easy land connections already exist, why not phase out short-haul flights of under 500km, now that 62% of Europeans say they want this and the airlines desperately need governments? Travellers can get around without flights between London, Paris and Brussels.

Thousands of aircraft have been grounded around the world as flights are cancelled.

States could also help people in the airline industry to retrain and find work elsewhere. After all, the whole sector is so far away from anything that could ever be called compatible with the aim to become climate neutral. Add a tax reform that ensures that fast trains become cheaper and flights more costly and you radically transform how we travel in the EU. There’s so much we could do right now, which is also why the EEB signed this letter from the large Stay Grounded network on how to best use this moment for really deep changes in aviation.

The commons

Another leap towards a sustainable economy can now be made by making more things open source. The world has received a head start in finding a vaccine for the latest corona-virus because a lab in Shanghai decided that rather than following the rules, they would make the gene code of the virus, which they had cracked first, available to everyone. They were punished for doing so, but they helped humanity as a whole.

Humanity has the brains, energy and willingness to overcome both the health, environmental and economic crisis. This potential needs to be unleashed.

What is more valuable: to fill the deep pockets of shareholders of some private company or fasten a great breakthrough that can save thousands (millions?) of lives? Humanity has the brains, energy and willingness to overcome both the health, environmental and economic crisis. This potential needs to be unleashed. A crisis is the time to allow governments to intervene, in order to spread knowledge faster. We could still reward those who invested millions of capital and years of time to get to a breakthrough (Professor Rik Pinxten, probably Belgium’s most famous anthropologist, proposes paying, for example, €10 million to inventors to take their solution and spread it). The very best vaccine or cutting edge solar panel should not be kept away from human society until shareholders of the company or one particular state earned billions from it.

It’s not all about states versus private companies. The Energiewende in Germany, for example, was full of cooperatives and municipalities producing green energy. But while renewable energy production has boomed, states have allowed total energy consumption to boom even more. Here too it is states that should act, by shutting down the most dirty energy projects that hurt our health and climate. 

Photovoltaic array and wind turbines at the Schneebergerhof wind farm in the German state of Rheinland-Pfalz. Image: Kuebi = Armin Kübelbeck (Wikipedia)

We need states on top of a crisis and we need them to allow for the possibility of the global community to come together and work on the solutions that we all need. A strong state doesn’t need autocracy, it creates space to unleash the great potential of the people working together in cooperatives, in social businesses, at municipal level and in the social sharing economy.

This is not just a healthcare crisis

The very same crisis logic leading governments to take control of the healthcare system and ensure adequate funding needs to be applied to our equally acute social, ecological and economic crises. The belief that the invisible hand of the free market will bring out the best for humanity just doesn’t pass a reality check. It has outsourced extraction and production to where the negative health impacts and deaths associated with them are cheaper. It has externalised the real costs of everything from extraction to production and trade, constantly pushing global trade volumes. It has caused a social and environmental nightmare – as well as helping this virus to go global in record time. Our leaders have become good at accounting tricks and playing the blame game, but the data are just as inconvenient as true: the concentration of greenhouse gases in the air keeps rising year after year (see the Keeling curve) and inequality keeps rising (see the Elephant curve). No ‘solution’ to this crisis should bring us back to the social and environmental carnage that the pre-corona economy caused. This is a time to leap forward, not backward. 

Trade: time to become less vulnerable, more resilient

Trade between continents will need serious reconsideration too and the EU is in dire straits. Today, Vietnam is saying it will no longer export rice. Kazachstan first banned grain exports and now has an export quota. Other countries are starting to stockpile. How many of us realise that the EU, with its long supply chains and dependence on monocultural farming, is reliant on imports from other parts of the world for many staples and many food items we take for granted? What happens when more and more countries stop exporting food? Food prices will skyrocket, hurting the poor hardest. Europe is record-vulnerable to global trade disruptions. It desperately needs more resilience. 

Let’s be clear: a shock in the global supply chains is not the time to cut a trade deal with Trump or Bolsonaro, to import chlorinated chickens or Amazon-rainforest-destroying products. This is a time to withdraw the mandates given to trade commissioner Phil Hogan to pursue these bad deals and to strengthen regional intra-EU trade and supply chains for a more climate friendly and resilient food system. 

First and foremost, local production needs a boost, for example through locally embedded Community Supported Agriculture farms, socially just food waste prevention initiatives and everything that leads to a fairer distribution of the resources that will still be available in the near future, in this case food. Secondly, the regional trade within the EU needs to be resilient, to become more self-sufficient than we are now. At the member state level, food diversity is limited but at the EU level, a lot of food resilience can be achieved if we work together more closely.

Who should make money: banks or states?

It will be a matter of time before governments will need to support many of the big banks as well. Will we just ‘stabilise the financial system’ and ‘go back to normal’ with massive bailouts and ‘quantitative easing bazookas’ from central banks, leading to ballooning debt for all of us? Who will pay that bill in the end?

Maybe now is the time for Sovereign Money Creation (SMC): where money is created by the central bank and credited to the government’s account to be spent in the economy. Currently, private banks create almost all credit. These credits are not based on sustainability criteria. Governments are better placed to steer the economic transition. 

The ECB is already taking unprecedented steps. The €750 billion Pandemic Emergency Purchase Programme (PEPP) makes sure governments can borrow on markets at an affordable price which helps to finance the urgent measures that are needed now. The ECB further asked banks to halt any dividend payment until the end of October 2020. However, this does not guarantee solvency. It only transfers the problem to governments – who will face huge debts. 

We all remember the Greek debt crisis from 2008 to 2018, that put Greece into debt payments beyond 2060 and triggered a eurozone debt crisis. This crisis needs better solutions. The so-called helicopter money allows direct funding by the central banks where it’s needed – for us citizens. This is how households are bailed-out. 

Another step would be to issue Eurobonds aka Coronabonds, thus creating new “common” debt on the European rather than the national level. These bonds could help to share the burden of the coronavirus impacts. Some have warned that the European project risks falling apart if European leaders can’t create Coronabonds to help the countries who suffer most. A petition calling on leaders to create Coronabonds has already gathered tens of thousands of signatures. 

In Europe, of all places, we should know by now that there is only one thing more dangerous than powerless states: states that are too powerful. Now more than ever, European leadership is needed to think beyond boxes and borders. 

Leaping away from the Great Acceleration

As the EEB’s EU policy director Patrick ten Brink wrote in an opinion piece last week : “If this crisis is handled badly, we risk facing consequences as severe as the Great Depression of 1929. If handled well, we can get through this together, save lives and societal wellbeing, transform our socio-economic models to ones focused on people and the natural world and boost global partnership for sustainable development.”

Many free-market dogmas have long stood in the way of the urgent transition to an economy that can shift from the Great Acceleration to something we can call sustainable. In most Western European countries, the state did steer some of the most strategic parts of the economy for decades after the last world war. State banks, railways, airlines, water supply, healthcare: all of that was fairly normal in Europe – until former UK prime minister Margaret Thatcher brought neoliberalism from the US to Europe, back in the eighties. 

There’s no such thing as a light switch between casino capitalism and soviet communism. There are at least 50 shades of green, red and brown economies. For decades, the pendulum has been swinging towards dismantling governments in favor of private interests. The corona-crisis just upped the price tag of that historic swing. Now more than ever we need a new economic system that has one overarching goal: to ensure people and nature can thrive together.

The following EEB staff also contributed to this piece: Patrizia Heidegger (Director Global Policies), Patrick ten Brink (Director EU policies) and Katy Wiese (Policy Assistant).