The virus pulls no punches: it’s ruthlessly exposing the inbuilt weaknesses in our economic system. We don’t see an economy that’s hardly growing as temporarily lacking some lustre or just taking a well-earned break, we see it as a festering wound that requires instant treatment. So policymakers bring out the fixes and the palliatives to stitch things back up, and do everything they can to ensure the economy doesn’t shrink. None of us could handle that – or could we?
I’m not at all surprised, then, that it takes only a few days of reduced activity for us to get deeply concerned about companies going to the wall and the self-employed running out of earnings; to be totally stressed out by the fear that our economic system might grind to a complete halt; and to further pump up our gigantic debt mountain.
We’ve built an admittedly efficient but fragile and not at all resilient system. So, let’s talk about how we could – and should – do things differently. Onwards to a resilient system, full of things that economists would decry as inefficient.
Real but self-created problems
I don’t want to belittle the issues that people are facing right now. The uncertainty of not knowing whether you’ll still have a job to return to; whether you’ll be getting any work orders after this; how long it will take before you can reopen your business – these concerns are very real.
But the fact that we’re in this situation is our own doing; we’re all responsible. A system focused on ultimate efficiency, one in which buffers don’t count. As long as you can hop from job to job, self-employed people or SMEs won’t fall off the moving train. As long as you get enough money out of your job or business to pay your rent, mortgage and other outgoings, and have a little left for fun stuff, the train will happily chug along.
It’s also a highly efficient system because of extreme specialisation in manufacturing chains. And so, we suddenly found out that LCD screens and essential car parts are only made in the Hubei province of China, where the coronavirus outbreak began. Incredibly efficient and cheap, yes – until it shuddered to a halt.
And now the economic train is beginning to leave the rails and there’s no time to prepare. That’s something we should have done in the past years, but we were way too busy ratcheting up the train’s speed.
So we’ll have to weather the storm without buffers. No financial buffers in a world in which the debt mountain has grown only bigger. That’s true for companies, but just as much for many governments. In that sense, we’ve learned precious little from the 2008 financial crisis. No economic buffers, as we think spreading risk – in the shape of more manufacturing sites, more clients or more products – is not efficient. And no social buffers, as social contacts must also be efficient in an individualistic society.
This brief analysis of what makes our system vulnerable also suggests what we could do better. In a word: focus less on just economic growth and efficiency, and more on resilience and creating more diversity.
We don’t have to go far to learn how to do that, we just need to look around ourselves, at nature. Natural systems aren’t efficient at all. Way too many seeds fall off the trees, for instance, as it’s highly unlikely that a new tree will grow from every single seed. Many animal species tend to have lots of offspring, as the chances are slim that they’ll all survive. We’ve turned all this on its head. Wastefulness is a waste, whether it’s time or a system. Rubbish may be waste, but wastefulness serves a purpose: it makes the system more resilient.
Importantly, greater resilience in the economic system implies buffers, the most visible being financial buffers. What does it say about an economy that the government jumps into action to shower billions at the slightest sign of adversity? Are we unable to solve anything ourselves? And does everything need saving if we’re looking to make the system more resilient? The ‘solution’ is essentially part of the problem.
Too much of the same thing makes us vulnerable. That’s true for everything and no less true for the economy. Many more different types of production and consumption, local as well as global production – it all makes for a more resilient system. And so what if it’s not always efficient in economic terms? We’ll be getting more social connection and more sustainable production in return.
So much for my analysis. My next column will outline an agenda for repair work.
This is a translation of a column published earlier on DuurzaamNieuws.