Chris Kelsey, Co-editor, Business News Wales
For decades the guiding principle in economic policy has been that government should intervene in the market as little as possible.
The public sector was inefficient and a drag on the private, free markets were best at directing resources where they were needed, taxes should be as low as possible to provide incentives for enterprise. That government is best which governs least.
This free market doctrine began to look a little inadequate in the financial crisis of 2008, when governments stepped in to give billions in bank bailouts at the cost of driving up their budget deficits. The eurozone crisis of 2012 also saw bailouts as EU countries tried to stop their weaker neighbours crashing out of the single currency.
But these bailouts were followed by years of austerity as countries tried to bring their borrowing costs down and impose financial discipline on their more indebted neighbours.
Now countries around the world are facing a bigger economic shock than the 2008 crash or the eurozone crisis. Millions of workers have lost their jobs or been furloughed; cafes, shops, restaurants, sports venues and cinemas closed down; businesses and the self-employed lost income. The downturn is undoubtedly severe, although many confidently expect a rapid rebounce once countries lift their lockdowns.
It’s hard to think of parallels for such a deliberate, if forced, shutting off of economic activity. Even wartime restrictions on travel, working and shopping were not as severe. It’s hardly surprising then that governments have reacted with a massive intervention unseen for generations; paying wages, guaranteeing loans, handing out grants, deferring taxes, and boosting benefits.
What does all this mean for the future?
Supporters of Jeremy Corbyn have crowed that it proves the rightness of the policies he espoused. Boris Johnson’s government had already publicly abandoned austerity as it sought ways to hold on to the former Labour voters who supported it in December’s election. Are we about to enter a new era in which governments play a more interventionist role?
Despite all the talk about a changed world post-Covid-19, it’s probably too early to herald the end of free market policies. Conservative governments are not going to become social democrats overnight.
Nevertheless, the landscape will surely have changed. It will be harder to hold the line that governments can’t massively spend, even if everyone recognises that this was an emergency. The crucial importance the internet has played for millions of new homeworkers will lend credence to the argument that broadband should be considered a public utility. People will expect more to be spent on the NHS and other care and emergency services, to make them better prepared for the next health crisis. One reason the Germans have coped better with Covid-19 is the fact they have four times as many hospital beds per head than the UK.
So how will Covid-19 affect the way capitalism works in the 21st century?