Friday, June 12, 2020

Don't expect things to return to normal anytime soon - if at all

(First published in the Manawatu Standard, Stuff regional papers and, June 10).

I’m writing this on Monday morning, several hours ahead of the expected announcement about the move to Covid-19 Alert Level One.

I keep hearing people - business people especially - say they can’t wait for things to get back to normal, but it’s quite likely they never will.

The coronavirus pandemic has had such a profound social and economic impact that things are unlikely ever to be quite the same again. We are experiencing a once-in-a-lifetime reset. 

On a personal level, people have discovered new ways of living which many seem reluctant to give up. For the duration of the lockdown, New Zealand became a quieter, slower place.

People’s habits changed, and with them, their expectations and aspirations. Parents enjoyed time at home with their families and were in no hurry to go back to high-rise workplaces and the rat race of the daily commute. Even after the country re-opened for business, downtown Wellington was reported to be eerily quiet.

If there’s to be a return to normality, it may be a long time coming. In the meantime, office buildings may remain half-empty and all those retailers selling nice-to-haves, as opposed to essentials, will have a hard time of it.

On a broader level, Covid-19 has destroyed wealth and disrupted economic activity on an unprecedented scale. In the process, it has demonstrated just how fragile the global economy is – or was. 

Countries that four months ago were on an economic roll - most notably the United States, but New Zealand too - now face the prospect of a long and arduous rebuild.

Companies that seemed solid and profitable, such as Air New Zealand, were exposed as being ill-prepared to cope with a sudden, catastrophic reversal of trading conditions.

No sector has been hit harder than international travel and tourism. Think of the vast amount of capital tied up in all those idle cruise ships and airliners, and of all the jobs lost when they were laid up. No one can be sure when, or even whether, that business will crank up again.  

Neither can anyone say with certainty whether the West will regain the level of affluence that has made the past few decades some of the most prosperous in human history.

I believe we will, because market economies are remarkably resilient. But in the meantime, those who deride capitalism are enjoying an “I told you so” moment.

They point to the economic damage done by the coronavirus pandemic as proof that boom-and-bust capitalism is wired to fail, often at the expense of those least able to cope with adversity.

It’s certainly true that at times like this, big government comes into its own. Socialists argue with some validity that when capitalism implodes, it’s the state that comes to the rescue.

Just as happened during the Great Depression, dire conditions have made it possible for the government to take charge of the economy on a scale that wouldn’t normally be politically acceptable.

The effects are likely to be long-lasting, and while they may be beneficial in the short term, history suggests that the interventionist state that is now seen as benevolent will eventually come to be viewed as stifling and sclerotic. That’s exactly what led to the neo-liberal revolution of Thatcherism and Rogernomics in the 1980s.

In the meantime we not only face a deep recession, but future generations will be burdened with eye-watering public debt that must someday be repaid, as a few clear-eyed economists keep reminding us.

For Jacinda Ardern and her government, the past four months must have been a nerve-wracking balancing act. Did they, as some commentators argue, shut down the economy just to save a relatively small number of lives that in many cases would soon have been lost to old age or ill-health regardless?

It was an agonising judgment call for any government, and perhaps only time will tell whether they got the balance right. The Swedish experience suggests they did.

As an aside, it will strike some people as deeply ironic that the government placed such weight on the value of human life when only weeks before, Labour and Green MPs had jubilantly passed legislation removing the last token protection for life in the womb, even to the point of denying medical assistance for babies aborted alive. It’s a strange world, to be sure.

Footnote: This will be my last column. This decision was entirely my own and is unrelated to the recent change in the ownership of Stuff, which I welcome as a return to New Zealand control. My thanks go to the editors who published my columns - especially to my good friend Bill Moore, a former editor of the Nelson Mail, who originally gave me this platform in 2003 - and to the readers who read them, including those who were sometimes offended by what I wrote. As someone once observed (it may even have been me), columnists who never upset anyone are probably not doing their job.

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