The pandemic of COVID-19 has clearly proven the ability of
governments to take dramatic measures to mitigate an existential threat, as
well as people’s ability, at least in the short run, to adapt to new restricted
lifestyles imposed by these measures. A second message is that the timing of
the enactment of measures is crucial for their effectiveness in saving lives. A
third message is that the response to COVID-19 came from national states, while
International Organizations lack in terms of explicit imminent response.
The measures that can help solve the health crisis can make the
economic crisis worse and vice versa. The aim of health-related measures (mainly
strict social-isolation) is to spread the pandemic out over time, to “flatten
the curve of the pandemic”. Flattening this curve buys time for drastically
raising the capacity of the health-care sector: more beds, more ventilators,
more face masks, more tests, more health-care professionals, more vaccine
funding, more testing, more tracking. Flattening the infection curve, however,
inevitably steepens the macroeconomic recession curve and puts in danger all
supply chains, including those crucial for human survival (food and medicine).
A modern socio-economy is a complex web of interconnected stakeholders and
supply chains: workers, businesses, suppliers, consumers, technology providers,
civil society, financial institutions, policymakers, politicians. Strict
isolation measures lead to the shutdown of this complex web and threaten to
destroy the linkages that allow the socio-economy to function.
How can we avoid the pandemic turn into a major economic and
financial crisis that will long outlast the health crisis? The first economic
priority should be to ensure that the work force remains employed even if
quarantined or forced to stay home. Second, governments should channel
financial support to public and private institutions that support vulnerable
citizen groups. Third SMEs should be safeguarded against bankruptcy (the need
for taxpayer money to support large non financial corporations is much less
obvious). Fourth, policies will be needed to support the financial system as
nonperforming loans mount. Fifth, fiscal packages, comparable to the crisis
related loss of GDP, will have to be financed by national debt.
Should we worry about the level of the debt? Yes, to the extent
that is possible we want to avoid another debt crisis, but most importantly, we
want to avoid an unsustainable recovery after the end of the pandemic. For the
latter, we should make sure that finance is disproportionally directed to those
with a socially, economically and environmentally sustainable profile, or at
least those that commit to transmit towards such a profile in the medium run?
As I will explain below this is our only hope for avoiding reoccurring
existential crises, and as such it should attract national and international
consensus.
Importantly, there is serious scientific speculation that COVID-19
might be connected to the climate crisis and the related loss in biodiversity.
Deforestation drives wild animals closer to human populations, increasing the
likelihood that zoonotic viruses will make the cross-species leap. Moreover,
the Intergovernmental Panel on Climate Change warned that global warming will
likely accelerate the emergence of new viruses. What one cannot help but notice
is that the response to the COVID-19 pandemic is very different to the lack of
effective action on climate change, the other existential crisis of our times.
One should ask why.
As communicated by scientists, climate change has the potential to
end up killing more people than COVID-19, but the deaths reference of this
crisis is hidden in the jargon as “increased frequency and severity of natural
disasters” and is spread over decades. These characteristics make the wider
communication of climate change as an existential emergency, challenging. To
add to the difficulty of effective policies against climate change, they
require international cooperation -stabilizing climate requires all nations to
reduce their emission, which seems to be much more demanding than unilateral
national policy decisions. Timing is also important. Systemic change is needed
On the other hand, there are aspects of the climate change crisis
which are easier than the COVID-19 crisis. As Thomas Sterner (2020) puts it,
the climate crisis requires policy changes that are less disruptive,
economically, socially and culturally, than the measures being taken right now to
tackle COVID-19. For example, GHG emissions could be dramatically reduced
through a gradual increase in a worldwide-agreed carbon price, combined with
increased availability of affordable alternative fuels, green-technology and
the relevant infrastructure to support their use at massive scale. Such
policies, if implemented efficiently, could be imperceptible in the daily lives
of most people and businesses.
Recent generations, including
ours, lived -and are still living- through at least four global crises: the
financial crisis 2007-08, the Great Recession during the late 2000s and early
2010, the climate crisis, the COVID-19 crisis. If we continue attempting to
face each new crisis with the same socio-economic model that gave rise to the
crisis, we will fail to find a sustainable and resilient socio-economic-
environmental pathway. In downturns, as Darwin surmised, those who survive “are not the
strongest or the most intelligent, but the most adaptable to change.”
I believe that we can even do better than just react to crises by
adapting to the new crisis-born reality.
We can use the science -as we are using science currently for
designing measures to restrain the diffusion of COVID-19- to design economies
that will mitigate the threats of climate change, biodiversity loss, and
pandemics. We
need to
leverage the power of people to achieve the vision of a
prosperous, inclusive, climate and pandemic resilient society with a circular,
net-zero emissions economy. The IPCC report explicitly refers to the need for
“rapid far-reaching and unprecedented changes in all aspects of society”.
Incremental changes will not be enough.
What is needed now is a
fundamental transformation of economic, social and financial systems that will
trigger exponential change in strengthening social, economic, health and
environmental resilience. We need big thinking and big changes. System
innovation and transitions thinking can help and calls for intense public
participation.
Following the 2008 financial crash, we saw public funds flow disproportionately
to polluting industries and to society’s most wealthy. This must not happen
again. We must start investing in what makes our socio-economic system
resilient to crisis, by laying the foundation for a green, circular economy
that is anchored in nature-based solutions and geared toward public wellbeing.
Now is the time to usher in systemic economic change and the good news is that
we have our blueprint: it’s the combination of UN Agenda 2030 (17 SDGs) and
European Commission’s European Green Deal. Now is the time, for financial
institutions and governments to embrace EU taxonomy for sustainable investments
(2019), to phase out fossil fuels by deploying existing renewable energy
technologies, eliminate fossil fuel subsidies
- amounting to 5.2 trillion per annum - and redirect them to green and
smart climate mitigation and adaptation infrastructural projects, invest in
circular and low carbon economies, shift from industrial to regenerative
agriculture, exploit the limits of the digital revolution and reduce
transportation needs.
A decisive march along this sustainable pathway will enhance
economic and environmental resilience, create jobs, and improve health and
wellbeing in both rural and urban communities. The transition should be
inclusive and “leave no one behind”, that is why finance should be directed not
only to those who are sustainable or have the potential to become sustainable,
but also those who are willing to commit, and be monitored henceforth, to
learning how to become sustainable.
Never waste a good crisis!
References
EIT Climate-KIC Italy, March 2020. https://italy.climate-kic.org/news/covid-19-che-sia-unopportunita-per-un-esperimento-di-massa-never-waste-a-good-crisis/
Pierre-Olivier Gourinchas, 2020. Flatten the Curve of Infection
and the Curve of Recession at the Same Time. Now Is the Time to Inoculate
Against the Economic Mutation of COVID-19. Foreign Affairs. March/April issue. https://www.foreignaffairs.com/articles/world/2020-03-26/flatten-curve-infection-and-curve-recession-same-time
Sachs Jeffrey, March 2020. Our Best Hope for Fighting Coronavirus.
CNN Opinions. https://edition.cnn.com/2020/03/22/opinions/coronavirus-lockdown-fight-jeffrey-sachs-opinion/index.html
Prof. Phoebe Koundouri,
Athens University of Economics and Business, is Co-Chair of UN SDSN Greece and President-elect of the European Association of Environmental and Resource Economists.
