A Social-Green Deal, with just transition—the European answer to the coronavirus crisis

Concluding the Social Europe series on ‘just transition’, Maja Göpel zooms out to elaborate the shift in narrative entailed.

The biggest difference the coronavirus crisis has brought to political discourse is the destruction of an assertion: markets are best left alone to find solutions, quickly and efficiently, to any big problem. Getting through a massive health crisis and its impact on our societies is only possible with very well calibrated co-operation—among scientists, states, business and the public.

Taking a lot of formerly unthinkable social, political and economic measures is necessary to avoid massive disruption in the short term but without rolling back a transformation that was already in train. That transformation, towards a carbon-neutral European continent, regenerated soils, protected biodiversity and oceans and a circular economy, has been the subject of strategies designed to avoid crises of the magnitude we are witnessing today.

During the first shock weeks, with the goal to flatten the curve of infections, a lot of measures have to be reactive. But proactive measures are needed to guide the recovery and clear vision on its direction is an important ingredient in times of high uncertainty.

Widespread trust

For the first time in years we witness widespread trust in government decisions. Scientific evidence is released next to reports about political actions. In an unprecedented way, monitoring real-life developments—the number of infected people or the latest evidence—precedes the reporting of stock markets. News organs which formerly defended individual freedom against any suggestions to change lifestyles are shifting the moral consensus by condemning the hedonists who still splash out with no interest in the consequences for others or the health system.

And, despite being drastic, the political measures are still widely accepted—because they affect everyone. The support packages, at least in some countries, span direct incomes for the self-employed, compensation of wages and fixed running costs, payments for parents who need to lower their working hours to look after children, direct support to hospitals and guaranteed loans to companies. The terms ‘solidarity’ and ‘community of fate’ (in German Schicksalsgemeinschaft) have become widely used.

Yet, overall, the poor will be suffering the most during this crisis while the distributive effects will be favourable to the already privileged and well-off. And this is where the next round of measures needs to marry economic, ecological and social goals if the emergence of trust in well-calibrated co-operation is to prevail. The more outspoken the will to find crisis-management measures which do not bounce back but bounce forward—into sustainable and thus more resilient societies which leave no one behind—the more that trust will consolidate.

Three big narratives

For this to happen, letting go of three big narratives, and their respective manifestations in economic advice and models, is key. They were strong for 40 years but had widely lost credibility before the coronavirus emerged. Clinging on to them now would be the best recipe to destroy trust and the idea of a community of fate.

1. Wasteful economic growth based on fossil fuels and the destruction of ecosystems can continue.

Since Kenneth Boulding’s 1966 essay, ‘The economics of the coming spaceship Earth’, it has been clear to those who listen to natural scientists that humanity is indeed a fate community on a collision course with its own future. It took decades of further proofs (torpedoed by those whose business models would die), decades of rapidly expanding encroachment into ever more areas of life on the planet and decades of rebounded technological-efficiency gains until the young generation stood up and said: enough.

Coming out of the coronavirus crisis well can only work with a new generational contract, which acknowledges how solidarity to save lives goes in both directions. Adding the insights from research on planetary health (relationships between changes in ecosystems and humans) makes this very clear: eliminating animal habitats increases zoonotic spillovers of viruses on to humans and their immune systems, while public health is run down through pollution, low-nutrition food and hazardous chemicals. New pandemics are to be expected.

Neither of the generational threats will thus cease to be: systems thinking shows how they are linked. Pursuing recovery plans whose success is only measured by a quick GDP growth return at all costs must therefore be avoided. It is high time to introduce differentiated measures of wellbeing and true-cost accounting, with respect to the ecological and health impacts of the business models and production chains behind economic activity. High wellbeing with low ecological footprint should be the new competitiveness benchmark of the European Union.

2. Ensuring liquidity at the top will grant investments that trickle down to the bottom.

Some seriously have the nerve to demand a quick reduction of taxes across the board—in particular the alleviation of company owners and corporations, so they can reboot the economy. From an economic point of view one wonders where the demand would come from to make tax beneficiaries want to invest but from a societal perspective it is hard to think of anything more toxic today, given the distributional effects of cheap money after the 2008 crisis. There was then a lot of interest in assets because rent for houses and land are long-term, guaranteed—albeit unearned—incomes. The other attractive outlet was the stock market, including the manipulation of one’s own share price through buybacks. This is fortunately ruled out for the now-agreed stimulus package in the United States.

Meanwhile, the biggest concern for normal people and small businesses in recent years in Germany has been the rent hikes for housing, office and retail space or land. And there has been growing uneasiness about increasing wage differences between sectors and tasks, the care sector being an example of wage erosion.

The new benchmark today has to be to ensure liquidity at the bottom and correct how much goes to the top. Lowering value extraction through rent-seeking was already overdue and cannot be postponed if incomes are reduced massively. At times of income uncertainty, wealth should not be enhanced but drawn down via taxation for the public spending which boosts economic security and activity.

Too much focus on the big companies, to the detriment of small businesses, leads to a loss of diversity, creativity, innovation and resilience. Sectoral priorities should be identified—big tech firms particularly stand to weather this crisis well and are champions in avoiding taxation. Strengthening the entrepreneurial base of the economy can reshape the work of the future and combine the bouncing back of stable economic circuits with innovation potential and public trust in the fair sharing of burdens.

Any tax reform should be differentiated and comprehensive, following the principle of just transition—supporting desirable future outcomes with respect to the sustainable quality of products, the circular design of production chains and the regeneration of rundown ecosystems. Shifting the tax base from labour on to natural resources incentivises all of this and would provide a system-wide signal.

This should be combined with a new definition of productivity which includes prevention and care as qualitative performance measures and in compensation schemes. A health sector driven by short-term, economic-output goals cannot maintain staff or beds beyond instant use rates, while cutting down the time to speak to patients or the amount of personnel available does not help to build relationships from which people can develop knowledge and skills about how to stay healthy.

An agriculture sector driven by the same goals of high output at lowest possible cost is not able to design its fields and harvest cycles with biodiversity and aesthetics in mind or maintain the quality of soils, water and nutrients, instead of using chemicals and industrialised animal treatment to boost short-term outcomes. If the understanding of productivity and company reporting included positive social and environmental effects for the system in which the particular activity takes place, the entire logic of good value creation and business performance would shift.

3. What serves the financial markets will serve the performance of the real economy and society as a whole.

Taking systemic social and environmental effects into account has not been a concern of most actors in the financial markets in recent decades. On the contrary, the mantra of turning money into more money generated a lot of morbid practices. Pursuing speculative gains from betting deals with no link to the real economy reflects the sector’s myopic, extractive view of performance and its insulated, high-tower existence. The EU has tightened supervision of short-selling in the coronavirus crisis but it could simply ban it.

Excessive short-term orientation through the quarterly expectations of shareholders made it particularly difficult to allocate money for a preventive approach in productive practices, because this would require redundancy—a prime quality of resilient systems but anathema to economic-efficiency and dividend thinking. Ensuring high-quality maintenance of basic infrastructure is difficult under pressure for quick returns.

The same holds for the allocation of upfront capital investment to transform products, processes or supply chains towards more sustainable solutions. If soils need about seven years to rebuild the natural regeneration circuits which allow for synthetic-free farming, this is way beyond the horizon of impatient capital.

Mission-oriented finance or mission-oriented innovation have become terms for public-private partnering on the important longer-term goals of the Green Deal as it has been proposed. What also needs to follow suit for trust to prevail is a proper intent to reform the financial sector and make it accountable to the public. Recent work on an EU taxonomy for sustainable investments is therefore a huge step in the right direction but it needs to be allied to reforms of corporate reporting.

What value is and who should get compensated for it with which claims—work which the economist Mariana Mazzucato and others have pioneered—will be a good starting point for investment in reducing the fragility of our systems. Productive activities need to be funded and protected first and longer-term outcomes given equal weight.

The financial system is nothing without a real economy, run by real people, who co-operate to create the things necessary for survival and wellbeing. With so much government activity and spending involved, the outcome of the corona-linked support packages has to be one of definancialisation. It is not private investors who provide the risky money needed in times of emergency or transformation: it is the public.

A Social-Green Deal

The deal that should follow the short-term rescue measures and guide the path out of the coronavirus crisis and thereafter is the Green Deal with more courage. Franklin Roosevelt was very clear that his New Deal was not going to leave all institutions and players as they were. The medium-skilled and the pioneers of good business practice were to become the backbone of the future economy, including a sponsored civilian conservation corps to enhance the value of natural resources. People-centred and future-focused crisis management means investing in good education and skill development for all, including an update of what and how we teach and learn.

An upgraded Social-Green Deal and tighter co-operation between member states is an expression of the call for solidarity which the crisis has evoked. After the narrowly national reactions to its onslaught, it is very important to widen the community of fate (at least) to a European scale—and to shape a European identity cognisant of the multiple webs of global connection on which our wealth depends and through which our choices affect lives outside the continent. While measures will have to be adaptive during the transition, the direction of the emerging social contract needs to be put firmly on the table to sustain the trust and will to co-operate.