The responses to crises come in two phases. First, governments respond in predictable ways, consistent with how they have acted before. But then crises have a longer-lasting power, and that is to shift our thinking about what governments should do. The coronavirus is a totemic case in this respect. It is likely to produce the biggest paradigmatic shift in economic policy that Europe has witnessed since the 1980s. So, as governments switch to new policy instruments, the biggest economic casualty of the coronavirus across Europe looks set to be neoliberalism.
Having spent several months in Italy and recently having returned to London, I am struck by how our national responses to the virus display many predictable characteristics. The laissez-faire instincts of the British prompted Boris Johnson to only “advise” the public on what they should do. It was as if the captain of the Titanic was saying to his passengers, “Given the new circumstances, you may wish to avail yourselves of a lifeboat.” The informality of his response involved an ambiguity – different ministers were giving different messages – but it also provoked a response from civil society that was well ahead of official government policy. Indeed, people started panic buying in irrational ways.
Bizarrely, the threat of a respiratory illness led consumers to buy as much toilet paper as possible. And, while Johnson was suddenly saying he was basing his policy on expert advice – not a reference point for him in the Brexit debate – he chose to listen to British academics modeling likely behavior patterns on shaky assumptions rather than the medical science influencing most other countries.
The British response was not entirely unique. Sweden, for example, also chose a more relaxed approach. But, by contrast, the state traditions of Southern Europe led to a very different, rules-based response. Italy closed schools and universities, required all non-essential shops to shut down, and decreed that everyone going out on to the street should first download an official form and declare why they were venturing out. Of course people had to fill in a form: The administrative culture requires it, as it does in France and Greece. More importantly, people complied, perhaps because of the clarity of the firm message. Shoppers waited dutifully outside supermarkets, 2 meters apart, quiet and respectful of the regulation. There has been no panic buying.
The Greek case is even more interesting. A government machine short on expertise and resources, with inherent problems of coordination across different departments, it looked as ill-equipped as any to face the onslaught of the pandemic. But these known weaknesses appear to have triggered their own solution. Prime Minister Kyriakos Mitsotakis has appeared decisive. The task force he created, headed by the respected immunologist Sotiris Tsiodras, has enabled a clear voice to be heard for official policy on the virus. In parallel, Nikos Hardalias has been promoted to deputy minister to centralize government decisions and actions. Instead of inefficiency, there has been quick and efficient action. And, despite a health system denuded by recent austerity, the results so far have been impressive. Greece has a far lower rate of infections or deaths than most European countries. Bravo!
Beyond these crisis management strategies, the economic implications of the pandemic are, of course, huge. And it is these expected consequences that are already shifting thinking about what governments can or should do in the economy. We do not begin from a tabula rasa. Already, the international financial crisis had prompted a greater central bank and government activism. A populist turn meant Boris Johnson’s government committed itself, before the pandemic was known, to major public investment. Now his government is making almost daily promises to spend more taxpayer’s money: One day it is a promise to give away 35 billion pounds, almost the next day there’s more promises. He says he wants to “hug” every worker with state subsidies of incomes – clearly, for fear of the pandemic producing an economic depression. Similarly, US President Donald Trump last week agreed a new $2 trillion package of spending with Congress. Anglo-Saxon conservatism – indeed, neoliberalism – is on the defensive truly like never before. But the effects are wider.
German Chancellor Angela Merkel has announced the biggest rise in public expenditure in German history. The ordoliberal principle of stable public finances has been cast aside. The principle has been abandoned and it will not be easy to resuscitate it.
Crises provoke emergency responses, but they can also have longer-term legacies. The response to the Second World War was for governments to take on more responsibility for the level of employment, welfare and public infrastructure. National responses today are returning to that frame of mind. Such intentions run deep in the public psyche. They are not easily forgotten. The aftereffect of the coronavirus may well be that we are all social democrats now!
Kevin Featherstone is Eleftherios Venizelos Professor of Contemporary Greek Studies and director of the Hellenic Observatory at the London School of Economics.