Home > Uncategorized > Structural fragility and net effects

Structural fragility and net effects

from Jamie Morgan

Part 5 of Pandemic aware economies, public health business models and
(im)possible futures

An economy that grows through increasing final consumption is one that evolves with final consumption and so its reproduction, stability and growth are specially dependent on it and on the associated characteristics of work and financing. It matters how people are paid, how they are contracted, what levels of debt they take on in order to work  – for example reliance on a childcare industry – and what they are willing to do in order to consume, bearing in mind discretionary spending does not mean all consumption is freely chosen or can be foregone without consequences. If a consumption-focused economy has higher levels of sub-contracted employees, zero-hour employees and ‘precariously’ employed people within a ‘flexible’ employment market, then the very characteristics that have facilitated a version of relatively high employment can quickly lead to high unemployment. Unemployment feeds back on business and the economy through insolvency and bankruptcy and this can lead to a potentially devastating set of feedback loops, if savings are low, debt is high and wealth assets are lacking.

Given the decade long debate about the UK’s productivity puzzle and the evolution of its workforce before and after the financial crisis, it is relatively uncontroversial to suggest the UK has relatively high dependence on final consumption, a significant proportion of its population are precariously employed in one way or another, it has low levels of average savings, high levels of personal debt (secured and unsecured), high levels of working poor and a decade of reductions to local and national government welfare spending (based on real measures and prior to the recent commitment to ‘levelling up’ ). It is, therefore, for a wealthy country, especially economically vulnerable to pandemic, as is the USA. Drawing attention to this is not an exercise in carping, it is a necessary recognition that a pandemic can expose the underlying fragility of a society and economy with relatively high levels of inequality and ‘working poverty’. This matters for realistic planning in the near term. In the UK case, for example, it matters for how we address issues like furlough, and small business loans and grants after the first period of lockdown. And it matters for thinking about a more resilient society and economy in the long term. Public health business models seem to  require a new public health economics and public health government context. Without these, the adoption of public health business models seems likely to prolong and exacerbate an uncontrolled economic recession as net economic activity remains low and/or continues to fall, and this, clearly, runs counter to government policy intent. This is important to emphasise because it implies a significant shift towards government intervention in the economy in all senses and under quite different thinking than has been the direction of travel in recent years.

Ideologically, of course, talk of ‘levelling up’ notwithstanding, the current UK government seems peculiarly unsuited to a more pervasive government role and so any ‘force of necessity’ style of response, based on more pragmatic inclinations may be tempered. This too should be recognised, since it may lead to more tensions further down the road (calls for austerity, for example, despite current statements that there is no ‘appetite’ for this). It is also worth noting that the right wing of liberal conservativism tend to argue for a form of social Darwinism for people and organizations and this assumes long term outcomes are best left to self-organizing spontaneous systems – a frame of mind that leads decisionmakers to be reactive to problems rather than pro-active of problems; again, a perspective that sits awkwardly with our current and near future situation (which seems to demand a kind of perspective on planning and foresight that does not come easily to the current UK government, despite that it has also exhibited a tendency to centralise power and limit consultation and checks and balances).

Still, the need for a strict social distancing compliance version of a ‘public health business model’ is a situation of unknown duration (as noted it is subject to the contact tracing, treatment and vaccine situation). Strict social distancing may be short lived and it may be periodically required as waves come and go. There is, however, an ‘in the meantime’ and this in the meantime (as the previous illustrates) has the potential for temporary effects to become permanent consequences depending on duration. There is no reason why this has to be negative, but it may turn out that way depending on the road travelled.

Speculative futures

It seems likely that businesses that are able  will begin to adopt ‘pandemic prepared’ practices. This seems most readily conceivable for larger well capitalised enterprises in the retail/supermarket, chemicals and manufacturing sectors. The most obvious variant on this is a shift in the longer term from long global supply chains with single source procurement to shorter and more diversified supply chains, and this is likely to be combined with a move away from ‘just-in-time’ delivery systems to ‘just in case’ warehousing (a potentially radical change to the cost based model behind the turn to ‘lean business’). This involves a different use of space and a different use of technologies that are used to track, trace and coordinate. And pandemic awareness seems likely to also lead to further responses to the experienced problems of human occupied working space. The lessons learned for many businesses may be that automated systems using artificial intelligence (AI), machine learning and new generation mobile reprogrammable robotics are preferable to their human equivalents. Technology does not require distancing, cannot be infected, cannot get sick, does not face the challenge of commuting, requires no time off and does not need to be negotiated with. Covid-19, may, therefore, accelerate existing trend adoptions of new technology and encourage new investment in developing technologies.

A Covid-19 context could thus alter the social meaning and intent that influences how technology is adopted and developed. The very point could be to displace jobs rather than merely to modify jobs and so displacement rates might begin to exceed creation rates: automated freight, automated warehousing retrieval and packaging systems (with lonely supervisors),  Amazon’s new generation supermarkets with no checkout (and no dangers of ‘dirty cash’ use), ABB robotics resizable production line systems, more use of drones for delivery, more investment in automated transport systems for goods.

At its bleakest this suggests a new wave of structural unemployment as a learned response to Covid-19’s current economic devastation. It is worth noting, of course, that there were bleak forecasts of enduring mass unemployment after the global financial crisis, and whilst unemployment did rise, in the UK it did not rise as expected or endure as long as some anticipated. But, as we have already suggested, the further flexibilization of the economy and growth through final consumption etc. occurred in sectors that have already absorbed labour and these are the ones already suffering and most likely to continue to suffer drop-offs in economic activity because of Covid-19. This encompasses great swathes of SMEs and the self-employed that constitute a significant portion of contemporary employment.

Rationally, of course, pandemic proofing our health and social care services means greatly increasing investment in these sectors and thus potentially employment (as well as in the UK, wages – if the government is to follow through on its ‘front-line’ heroes rhetoric). There is a strong argument for government investment in infrastructure to offset any enduring effects of the pandemic on economic activity (and this could lead to quite different ownership and incentive structures around some kinds of new technology). So, it is an open question quite how Covid effects and longer term structural effects will interact. Still retail, tourism, hospitality, and leisure are all caught in a potential pincer, and they all involve structurally vulnerable workers – those with low wages, less savings, fewer wealth assets and less capacity to cope with Covid-19 now and structural changes later. So, the consequences may be severe, especially in the initial context of a longer more severe  domestic and global recession.

In any case, the longer ‘in the meantime’ lasts then the more incentive there may be for businesses who can to begin to think along displacement lines – and the less scope there will be for job creation in existing sectors. So, the worse case may be the situation governments have to manage and it seems prudent to be thinking about this. In so far as we are being speculative, the worse case is also strong motivation to start to think differently and this may in turn create quite new path-dependencies. If we have long term Covid-19 unemployment and increasing and persistent structural unemployment because of technological responses, then government policy may need to transition from temporary ‘emergency responses’ (grants, subsidies, furloughs, tax and payment holidays, loan guarantees etc.) to enduring real institutional changes – to the financing of the state and to support for how people are treated as citizens with economic obligations.

Non-mainstream ideas may become the mainstream when policymakers are suitably motivated (war and depression, as Roosevelt illustrates). And there are already existing speculations on how the ‘fourth industrial revolution’ might affect our world (work emanating from McKinsey, Deloitte, the World Economic Forum, the TUC etc.). Covid-19 adds further pressure to a basic problem: it may be ‘rational’ for an individual business to automate and displace workers (if they can and are allowed to) and the rationale for this may be ‘we want customers and clients, but no workers’; but every worker is somebody elses’ customer or client, so the unintended consequence can be a lack of ‘critical mass’ of clients or customers – an enduring systemic dysfunction. All of which is to say no more than that pandemic awareness, pandemic planning, Covid-19 realities and business investment priorities may profoundly alter how we think about the relation between work, society and the state, which may, in turn, bring ideas like Universal Basic Income (UBI) into the mainstream. Equally massive increases in state debt and ongoing needs to address state financing may profoundly alter how we think about the sources and scope for state financing.

We embraced fiscal policy, stabilisers and ‘multipliers’ almost a century ago and may find ourselves embracing Modern Monetary Theory (MMT) in the future. MMT argues that sovereign states with their own currency are currency ‘issuers’ not just ‘users’ and so have great scope for financing up to a point dictated by ‘full use of resources’. Mainstream opinion is highly sceptical at the moment (not least because of the – false – claim that the necessary outcome is hyperinflation). UBI and MMT may seem unlikely right now, but a capitalist society of the kind we live in with its inventions such as a limited liability joint stock company with legal personhood,  complex technologies, administration, institutions and conventions, and massive wealth was unthinkable before it was thought of (a ridiculous statement, but significantly so). Our ‘normal’ is not natural and there is no reason why the future of normal has to be the familiar and many reasons why it may need not to be.

Conclusion: Parochialism and possible worlds

Talk of ‘our world’ and ‘worse cases’ is, of course, parochial in three ways and I conclude with this. First, it is parochial because the focus has been the wealthy world and the UK in particular. Covid-19 is a  global problem and whilst it is not inaccurate to suggest economies like the UK’s are peculiarly vulnerable to pandemics, this is not the same as suggesting UK society is of a type likely to suffer most from pandemic. It is poorer countries with fewer health services and more dependent economies that may suffer most in the long term. This may rebound on economies and societies like the UK in that long term – if we do not offer support (not least through the effects on agricultural supply lines).

Second, it is also parochial to focus on economics and economy, since the broader significance of Covid-19 may be geo-political in a regional and global sense. Covid-19 has added an additional dynamic to the tensions within the EU affecting its unity (Hungary’s shift towards dictatorship, Italy’s displeasure over German resistance to pandemic bond financing etc) and to the UK’s exit from the EU (Brexit negotiation is one issue, pressures on other countries’ membership another). Covid-19 has also added an additional dynamic to the dysfunctional relation between American exceptionalism, the presumption of American global leadership and ongoing relations with East Asia and Europe. Covid-19 has exposed similar fragilities in the US economy as it has in the UK one (if not more so, since the US lacks a universal health care system), but it has also exposed and underscored that the current President is not interested in global leadership (symbolically or materially). Whatever one thinks about the American President or issues of global ‘leadership’, this does affect global cooperation at the UN, via the WHO and through the G20 and G7 – at least at this highly significant time. It is not clear yet whether Trump’s erratic behaviour will have long term effects on isolationism versus global institutionalism, but the longer Trump or someone of similar mind (if not personality) is in power in the USA then the more the ‘new international normal’ becomes either chaotic or a power vacuum that China or others seek to fill and this matters for the political economy.

Third, whilst political economy is an important focus and way to view the world and is often a useful way to think about worse cases and possibilities. The economy is, in the end, a means to an end. It is easy to forget we have to survive long enough to have a future. As climate scientists have been warning now for many years, there is a ‘Climate Emergency’ that has to be addressed: net zero carbon emissions by 2050, a 45-55% reduction on current emissions levels by 2030 (within the context of other environmental problems that need to be addressed). I started this essay by suggesting that our civilisation has the capacity to cope with Covid-19, eventually. For that to be more than hubris, then Covid-19 needs to be an object lesson in re-embracing expertise, and that should not mean just epidemiologists, virologists etc. Covid-19 and the Climate Emergency share a common feature: lack of preparation and early action and these follow from our civilizational tendency to discount the future. This is not something we can continue to do.

  1. Meta Capitalism
    May 28, 2020 at 5:21 am

    I thought of you when I read this quote from “The Fissured Workplace” by David Weil –

    “As major companies have consciously invested in building brands and devoted customers as the cornerstone of their business strategy, they have also shed their role as the direct employer of the people responsible for providing those products and services. In all of the above cases, the jobs shifted away to be done by separate employers pay low wages; provide limited or often no health care, pension, or other benefits; and offer tenuous job security. Moreover, workers in each case received pay or faced workplace conditions that violated one or more workplace laws.”

    Start reading this book for free: https://a.co/f4rKkDe

    David Weil addresses these issues in great detail.

  2. Ken Zimmerman
    June 17, 2020 at 3:46 pm

    Seems to me we should think in terms of the goals we want to achieve, not the direct problems created by a pandemic economy. First, people need things for living. Such as housing, clothing, food, etc. Can we still produce these in sufficient number in a pandemic context? I think the answer is yes. Here, this might be a good time to deploy the robots that clearly can take many of these activities out of human hands. Second, certain actions must be taken to protect people from the pandemic’s impacts and to develop vaccines and other medications for the pandemic and other illness and health issues. Third, humans must continue to learn, imagine, and create, Not just for the pandemic concerns but also for the many other concerns (from space travel to international relations to scientific research to ensuring the continuing functioning of democracy and civil government). Much of this (e.g., voting and campaigning) can be performed via electronic meetings and legislative sessions. The more direct and effective route to meeting all these goals, in my view is to “defund societies.” In other words, take money out of the loops through which the above three goals are satisfied. Money is not necessary for human physical, social, and psychic satisfaction. Although money has been inserted into that role for centuries. Protecting people from diseases and providing the resources for health also requires no money. Research, medical facilities, doctors and other personnel, etc., yes. But not money. Finally, democracy does not require money. In fact, in many instances money is shown to corrupt democracy and democratic institutions, My proposals, for whatever use they may be.

    • Craig
      June 17, 2020 at 6:34 pm

      Money is one of humanity’s greatest inventions and is a facile and imminently fungible tool for direct and hence democratic distribution. Its present dominating and monopolistic paradigm of Debt Only is the problem, not money itself.

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