The UK is in lockdown. In spite of his initial instinct to try to preserve civil liberties, Boris Johnson surrendered to the pressure and turned his country into a police state. But the talk is not of a draconian overreach but whether the Prime Minister has gone far enough. Public opinion is firmly on the side of the state taking control and seems to happily ignore the damage being wrought across the private sector. We may feel the repercussions of this sentiment long after the last Covid-19 patient leaves hospital. This crisis will set the political agenda for years to come and that agenda could include a much bigger role for the state.
The pandemic has put the state at the helm of the economy. As businesses reel, the state has stepped with loan guarantees and a pledge to pay the salaries of furloughed workers. But in some industries the state’s venture into private business goes much further. The UK rail franchise system, which is the closest Europe comes to a privately run railway network, has already been suspended to avoid the sector going bankrupt, with the risk transferred to the government and rail operators reduced to running the trains on behalf of the government in exchange for a fee. The measure is only intended to be in place for six months but few expect a return to the old model. The UK model of for profit railways is likely to be history. Parts of the aviation industry faces a similar fate, with plans being drawn up to part nationalise British Airways and other ailing airlines. Globally, the industry could ned as much as USD 200bn in state aid, according to the International Air Transport Association. Like in 2008, the state could end up with stakes in key industries. In 2008, there was a clear intention that public ownership of banks was a temporary measure and the state has now sold its shareholdings. It remains to be seen whether there will be an explicit exit strategy this time.
It also seems clear that public demand will be for much more generous funding for the NHS, and not only to build in surge capacity to deal with a repeat of the crisis. Public tolerance for perceived underfunding will be in short supply and no Prime Minister will want to face accusations of underfunding when the next winter crisis hits.
Soaring unemployment will see many more dependent on the government for their livelihood. Anecdotal evidence indicates that the rise in unemployment will be considerably bigger than under the Great recession. Some, like catering and hospitality workers, may quickly find reemployment when restrictions lift. Others may not.
The question is of course how extra spending can possibly be funded by a government that will find itself at the bottom of a gigantic fiscal hole after this is over. Will taxes rise? The Keynesians who dominate finance ministries across the West are unlikely to favour such pro-cyclical fiscal measures. Much more likely is increased borrowing. But some tax rises are probably inevitable, of course targeting ‘the rich’ as the personal finances of the middle class will have been destroyed.
It all paints a gloomy picture. But there is hope. The Great Recession in 2008 was for many on the left the crisis of capitalism of Communist lore and was supposed pave the way for the left to dominate Western politics. It never really happened. One reason may be that the left, while riding the wave of anti-capitalist sentiment, also embraced globalism and multiculturalism, impairing their electoral appeal. But history also has a stark warning. The upheaval of the 2nd World War ushered in the welfare state. In the UK, the Beveridge Report, the founding document of the British welfare state, was published during the war and tapped into the hope of a better world after the fighting stopped. Government spending as part of GDP rose from around 30% before the war to 35% after and over the next couple of decades steadily climbed to around 40% where it has stayed since.
The Corona crisis is likely to present the left with an open playing field in the battle of ideas. One thing is for sure: the state will come out of this looking indispensable. The image of the Prime Minister ordering businesses to close will not be a dystopian vision anymore, but for many a reassuring memory of government acting for the common good. The war like rhetoric and emphasis on national preparedness for crisis may silence calls for such policies as cuts to agricultural subsidies and strengthen the case for an interventionist industrial policy. At the same time, the national response to the pandemic has emphasised the collective and group effort over individualism and self sufficiency. Any argument for a smaller state may largely fall on deaf ears. That only makes it so much more important that we keep making it.