## The Post-Pandemic Brave New World

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---

### Diagnosis: preexisting unsustainability and pandemic amplifier
- Over the past four decades almost all advanced economies have become more polarized, with increasingly unequal income distributions.
- Developing economies lifted billions of people out of poverty, but in the process they, too, created their own rising inequalities and social tensions.
- The global economy’s lopsided growth has brought us to the edge of catastrophic climate change.
- Political upheavals in one country after another meant the world could not expect to go on as before.
- The coronavirus caused the most dramatic societal disruption and economic collapse in peacetime memory, producing rapid and large policy shifts that put risks of workers and businesses onto the state’s shoulders on a massive scale.

### How the pandemic sharpened societal fault lines
- Intensified existing inequalities:
  - Lockdowns inflicted much greater hardship on jobs that could not be done from home; white-collar, knowledge-intensive jobs were relatively insulated.
  - Manual service jobs—hospitality and tourism, delivery, retail, and basic care—were disproportionately harmed because they require physical proximity.
  - Women and the young were hit particularly hard because they are overrepresented in many exposed sectors (as documented in the IMF’s latest World Economic Outlook).
- Rise of precarious and informal labor:
  - Nonconventional employment and contracting fit increasingly poorly with established welfare states in rich countries.
  - Informality remains an obstacle to safety nets in poorer countries.
  - Rapidly instituted income-support programs sometimes failed to reach intended recipients because governments could not identify workers most in need.
  - A growing “precariat” in rich countries contributes to thin financial buffers even among the wealthy world’s population.
- Technology and distribution of economic surplus:
  - The sudden shift to remote working may increase productivity for those with “modern” jobs, potentially exacerbating bifurcation between high- and low-quality jobs.
- Geographic effects:
  - The pandemic raised questions about globalization (contagion, supply-chain disruptions, scramble for imported medical equipment).
  - Regional inequality—stagnation or reversal of post–World War II regional catch-up since starting about 1980—could be affected as remote work changes where white-collar work is carried out.

### Policy objective: make work central and pursue large-scale change
- Two core propositions:
  - The nature and quality of work are central; reforms must focus on creating higher-quality jobs for more people in more places.
  - Reform must be big in scope and scale—ambition comparable to the New Deal or the Marshall Plan.
- Rationale:
  - Work is the intersection point for inequality, precarity, informality, geographic disparity, and technological change.
  - A much greater availability of high-quality jobs is the primary yardstick for success across policy areas.

### Programmatic policy recommendations (from The Economics of Belonging)
- Embrace productivity growth and technological upgrade by demanding more from employers:
  - Use wage egalitarianism and incentives to make low-productivity labor uneconomical and drive investment in productivity-enhancing capital.
  - Concretely: ambitious minimum wage increases and strong, strictly enforced workplace standards.
- Produce a high-pressure economy with strong demand growth:
  - Calibrate monetary and fiscal policies to keep demand always slightly ahead of capacity to encourage hiring and productivity-improving investment.
  - This is easier in large, rich economies, especially reserve currency issuers, placing onus on their policymakers to lead global demand growth.
- Lower the cost of leaving a bad job and finding a better one:
  - Expand spending on skills, active labor market policies, and social security reform to untie benefits from jobs.
  - Direct and unconditional payments—including a basic income or negative income tax—are presented as the most effective and quickest way to improve living conditions for the worst off and to overcome barriers to job switching.
- Reform tax systems to encourage high-quality work:
  - Shift taxes away from labor to encourage job-switching and hiring; compensate revenue loss by increasing taxation on capital.
  - Prefer a net wealth tax as more productivity-friendly than other capital taxes.
  - Significantly increase carbon taxes and redistribute proceeds as a “carbon fee and dividend” or “carbon checks.”
  - Fix international corporate taxation to level the playing field between multinational and local firms and expand governments’ capacity to tax capital.
- Reform finance and debt bias:
  - Make tax rules and financial systems less favorable to debt and more favorable to equity-type funding to support productivity growth and rebalance risk between workers and investors.
  - Convert COVID-related rescue loans that companies cannot repay into tradable equity stakes held by governments.
- Incentivize broader geographic spread of high-value-added jobs:
  - Invest in transport and IT connectivity, local infrastructure, and amenities; make financing available for new ventures in declining areas.
  - Use tax or regulatory incentives to shift good jobs from large central cities to more remote locations, leveraging the remote-work shift.

### Reinterpreting macroeconomic and structural possibilities
- The pandemic has loosened old macroeconomic rules:
  - Politicians presiding over record-breaking deficits chose to sustain incomes and company liquidity.
  - Public spending structures shifted, including new wage-subsidy designs and large unemployment benefit expansions.
  - States have taken on risks previously borne by the private sector; many policy shifts are unprecedented or accelerate preexisting trends.
- Central bank thinking shifted toward greater tolerance for “running the economy hot” and accepted that low interest rates are likely persistent; this dovish stance aided early pandemic response and is likely to continue.
- Technological and organizational changes—particularly remote work and online consumption—are likely to produce permanent structural change in production and consumption patterns.
- Opportunities exist for lower-income economies:
  - Policy revolutions in rich countries can influence conditions attached to aid and debt relief.
  - Remote work expands prospects for attracting outsourced high-value-added service jobs.

### Strategic choice points for leaders
- Three fundamental questions policymakers face:
  - Reallocation or restoration?
    - Will policy nudges promote reallocation of capital and labor into new activities, or preserve precrisis allocations?
  - Building back better or back to business?
    - Use disruption to reengineer the economy (e.g., stronger climate goals, higher pay and standards) or minimize adjustment and restore previous patterns quickly?
  - Are states ready to embrace planning again?
    - Achieving sectoral reallocation, regional convergence, or “building back better” presupposes confidence in the state’s ability to coordinate and steer private behavior; planning fell out of fashion after the 1980s but signs suggest planning may be reemerging given climate, geopolitical, technological, and pandemic pressures.

### Key messages
- Most leaders vow to “build back better” and to oversee a reallocation of resources to more COVID-safe, greener, and more productive activities.
- This commitment at least implicitly entails a more active and strategic state role in the economy than most have engaged in recently.
- There is uncertainty whether many states have the capability, or their leaders the temperament, to govern the economy more actively and more strategically than before.

### Implications for policy and governance
- Expect increased state involvement in directing resources toward COVID-safe, greener, and productivity-enhancing sectors.
- Successful execution depends on state capacity and political leadership qualities.
- The coming period will test governments’ ability to manage a more strategic economic role.

*Source: Martin Sandbu, “The Post-Pandemic Brave New World,” Finance & Development, December 2020.*

### Section 1

### The Post-Pandemic Brave New World

### Diagnosis: preexisting unsustainability and pandemic amplifier
- Over the past four decades almost all advanced economies have become more polarized, with increasingly unequal income distributions.
- Developing economies lifted billions of people out of poverty, but in the process they, too, created their own rising inequalities and social tensions.
- The global economy’s lopsided growth has brought us to the edge of catastrophic climate change.
- Political upheavals in one country after another meant the world could not expect to go on as before.
- The coronavirus caused the most dramatic societal disruption and economic collapse in peacetime memory, producing rapid and large policy shifts that put risks of workers and businesses onto the state’s shoulders on a massive scale.

### How the pandemic sharpened societal fault lines
- Intensified existing inequalities:
  - Lockdowns inflicted much greater hardship on jobs that could not be done from home; white-collar, knowledge-intensive jobs were relatively insulated.
  - Manual service jobs—hospitality and tourism, delivery, retail, and basic care—were disproportionately harmed because they require physical proximity.
  - Women and the young were hit particularly hard because they are overrepresented in many exposed sectors (as documented in the IMF’s latest World Economic Outlook).
- Rise of precarious and informal labor:
  - Nonconventional employment and contracting fit increasingly poorly with established welfare states in rich countries.
  - Informality remains an obstacle to safety nets in poorer countries.
  - Rapidly instituted income-support programs sometimes failed to reach intended recipients because governments could not identify workers most in need.
  - A growing “precariat” in rich countries contributes to thin financial buffers even among the wealthy world’s population.
- Technology and distribution of economic surplus:
  - The sudden shift to remote working may increase productivity for those with “modern” jobs, potentially exacerbating bifurcation between high- and low-quality jobs.
- Geographic effects:
  - The pandemic raised questions about globalization (contagion, supply-chain disruptions, scramble for imported medical equipment).
  - Regional inequality—stagnation or reversal of post–World War II regional catch-up since starting about 1980—could be affected as remote work changes where white-collar work is carried out.

### Policy objective: make work central and pursue large-scale change
- Two core propositions:
  - The nature and quality of work are central; reforms must focus on creating higher-quality jobs for more people in more places.
  - Reform must be big in scope and scale—ambition comparable to the New Deal or the Marshall Plan.
- Rationale:
  - Work is the intersection point for inequality, precarity, informality, geographic disparity, and technological change.
  - A much greater availability of high-quality jobs is the primary yardstick for success across policy areas.

### Programmatic policy recommendations (from The Economics of Belonging)
- Embrace productivity growth and technological upgrade by demanding more from employers:
  - Use wage egalitarianism and incentives to make low-productivity labor uneconomical and drive investment in productivity-enhancing capital.
  - Concretely: ambitious minimum wage increases and strong, strictly enforced workplace standards.
- Produce a high-pressure economy with strong demand growth:
  - Calibrate monetary and fiscal policies to keep demand always slightly ahead of capacity to encourage hiring and productivity-improving investment.
  - This is easier in large, rich economies, especially reserve currency issuers, placing onus on their policymakers to lead global demand growth.
- Lower the cost of leaving a bad job and finding a better one:
  - Expand spending on skills, active labor market policies, and social security reform to untie benefits from jobs.
  - Direct and unconditional payments—including a basic income or negative income tax—are presented as the most effective and quickest way to improve living conditions for the worst off and to overcome barriers to job switching.
- Reform tax systems to encourage high-quality work:
  - Shift taxes away from labor to encourage job-switching and hiring; compensate revenue loss by increasing taxation on capital.
  - Prefer a net wealth tax as more productivity-friendly than other capital taxes.
  - Significantly increase carbon taxes and redistribute proceeds as a “carbon fee and dividend” or “carbon checks.”
  - Fix international corporate taxation to level the playing field between multinational and local firms and expand governments’ capacity to tax capital.
- Reform finance and debt bias:
  - Make tax rules and financial systems less favorable to debt and more favorable to equity-type funding to support productivity growth and rebalance risk between workers and investors.
  - Convert COVID-related rescue loans that companies cannot repay into tradable equity stakes held by governments.
- Incentivize broader geographic spread of high-value-added jobs:
  - Invest in transport and IT connectivity, local infrastructure, and amenities; make financing available for new ventures in declining areas.
  - Use tax or regulatory incentives to shift good jobs from large central cities to more remote locations, leveraging the remote-work shift.

### Reinterpreting macroeconomic and structural possibilities
- The pandemic has loosened old macroeconomic rules:
  - Politicians presiding over record-breaking deficits chose to sustain incomes and company liquidity.
  - Public spending structures shifted, including new wage-subsidy designs and large unemployment benefit expansions.
  - States have taken on risks previously borne by the private sector; many policy shifts are unprecedented or accelerate preexisting trends.
- Central bank thinking shifted toward greater tolerance for “running the economy hot” and accepted that low interest rates are likely persistent; this dovish stance aided early pandemic response and is likely to continue.
- Technological and organizational changes—particularly remote work and online consumption—are likely to produce permanent structural change in production and consumption patterns.
- Opportunities exist for lower-income economies:
  - Policy revolutions in rich countries can influence conditions attached to aid and debt relief.
  - Remote work expands prospects for attracting outsourced high-value-added service jobs.

### Strategic choice points for leaders
- Three fundamental questions policymakers face:
  - Reallocation or restoration?
    - Will policy nudges promote reallocation of capital and labor into new activities, or preserve precrisis allocations?
  - Building back better or back to business?
    - Use disruption to reengineer the economy (e.g., stronger climate goals, higher pay and standards) or minimize adjustment and restore previous patterns quickly?
  - Are states ready to embrace planning again?
    - Achieving sectoral reallocation, regional convergence, or “building back better” presupposes confidence in the state’s ability to coordinate and steer private behavior; planning fell out of fashion after the 1980s but signs suggest planning may be reemerging given climate, geopolitical, technological, and pandemic pressures.

*Source: Martin Sandbu, “The Post-Pandemic Brave New World,” Finance & Development, December 2020.*

### Section 2

### post-pandemic-brave-new-world-sandbu - Section 2

### Key messages
- Most leaders vow to “build back better” and to oversee a reallocation of resources to more COVID-safe, greener, and more productive activities.
- This commitment at least implicitly entails a more active and strategic state role in the economy than most have engaged in recently.
- There is uncertainty whether many states have the capability, or their leaders the temperament, to govern the economy more actively and more strategically than before.

### Implications for policy and governance
- Expect increased state involvement in directing resources toward COVID-safe, greener, and productivity-enhancing sectors.
- Successful execution depends on state capacity and political leadership qualities.
- The coming period will test governments’ ability to manage a more strategic economic role.

### Attribution
*MARTIN SANDBU is the Financial Times’ European economics commentator and author of The Economics of Belonging.*

*From: post-pandemic-brave-new-world-sandbu - Section 2.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2020/december/post-pandemic-brave-new-world-sandbu.pdf_