Global stock markets have tumbled as evidence emerged that several US states which have re-opened are seeing rising cases of Covid-19. Stock markets don’t actually tell you much about what’s going on in the real economy, but it is a sign of just how precarious investors think economic recovery is, as it hinges on avoiding a disastrous second upsurge of the virus.
This health dimension to the economic crisis is a problem which orthodox economic models are not set-up to deal with. In 2019, a group of Finnish academics wrote a paper for the UN Sustainable Development report which assessed that the “dominant economic theories, approaches and models” which underpin western economies today “were developed during the period of energetic and material abundance” and thus “almost completely disregards” the economy’s relationship to nature.
“No widely applicable economic models have been developed specifically for the upcoming era,” the academics concluded.
That’s not very promising, considering the current pandemic is recognised by everyone to have been the instigator of the greatest economic crisis since at least the 1930s, and perhaps in the whole history of capitalism. And of course the microbe threat (long warned about by scientists) is just one of many, the loss of biodiversity in what scientists call the “sixth mass extinction” and climate breakdown being two of the other urgent crises we face due to our systemic over-exploitation of the natural world. In this context, using old models to guide economic recovery is a bit like using a broken compass to guide you out of the wilderness.
The unique dimensions of this challenge is the first aspect we have to face up too. The second is the scale of the economic devastation we are dealing with here. New figures showing almost one-third of Scotland’s workforce – 800,000 people – have been furloughed or are self-employed and accessing grants highlights the gravity of the situation. First Minister Nicola Sturgeon was right to use the word “colossal” in describing the challenge at FMQs yesterday. New ONS data published this morning showing the UK economy shrunk 20 per cent in April means Britain is at this stage one of the most severely hit economies. We should be clear that the UK’s particularly weak position is exactly because it has made such a mess of dealing with Covid-19; countries that are doing best economically at the moment are the ones which contained the virus quickly. The depths of the economic crisis in Scotland and the UK only makes bolder thinking all the more urgent – tinkering around the edges will not stop an unemployment and poverty disaster at this point.
Common Weal today publishes part one of its ‘Resilient Scotland’ plan, which looks at what can be done between now and the Scottish elections in 2021. Its starting point is that the old economics of GDP growth, which takes no account of ‘externalities’ like environmental degradation, has to be binned, replacing “a profit-maximising ideology with a new focus on resilience”.
The good news is that Scotland is a country well placed to pursue this, as “very few nations anywhere in the world have anything like Scotland’s capacity to achieve this transition quickly.”
I will highlight just one aspect of the strategy proposed here, which gives an indication of the way in which the rules governing the Scottish economy need to change quickly. The multi-billion public procurement industry in Scotland must stop giving contracts out to multi-national corporations, where the money leaks out of Scotland into the pockets of the world’s richest people, simply because they have the capacity to assemble bids and offer a price to the Scottish Government and local authorities that medium and small sized Scottish firms can’t match. Public procurement should be entirely rebuilt based on giving contracts to firms anchored in Scotland based on the sound rationale that it makes sense for people and planet if the local butcher and baker provide food provisions for the local school, etc. This may sound like common sense, but it is totally at odds with EU procurement laws on “fair competition”, which takes as granted that what’s really fair is that a global corporate based in Luxembourg and avoiding tax can provide food to schools in the Lothians.
We need to think differently, we need to think big – and we need to not be frightened to tear up the old rules.
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