Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

What kind of economy do people want if we ‘build back better’ after Covid-19?

Many people are debating whether the pandemic offers an opportunity to return to something better than ‘normal’ – in particular, moving away from using GDP growth as the sole indicator of progress. Developing greater economic and social resilience should be central to ‘building back better’.

Solving economic problems, especially structural ones, requires new thinking. Returning to normal activity will seem important in the short term in order to sustain employment and incomes. But it will not address the many systemic inequalities brought to light during lockdown. The debate about ‘resilience’, and tackling embedded structural challenges including inequalities – global, local and individual – demands a broader approach to the assessment of economic policies.

Is this economic crisis a turning point?

The Covid-19 pandemic is not the first severe global crisis in recent times. The global financial crisis occurred just over ten years ago. There are also longstanding crises affecting the UK and other developed economies: from hunger and homelessness to climate change. Public attention towards these issues tends to be primed by the level of emergency that people perceive. In May, 54% of the UK public were more concerned about the overall impact of coronavirus on humanity, as opposed to 30% more concerned about the overall impact of climate change on humanity.

How we evaluate the seriousness of a crisis, or the progress of the economy, depends on frameworks and measures that subsequently steer priorities in policy-making. Although the conventional approach of using GDP, a monetary metric standardised across countries, is practical and familiar, it means that many valuable things are excluded or undervalued in our understanding of economic wellbeing. This includes some things whose value has been highlighted clearly by the pandemic, such as unpaid household work (Coyle, 2020), biodiversity (Dasgupta, 2020) and the quality of relationships or community networks.

Valuable assets and activities like these make a difference to people’s wellbeing at any time, and it is widely accepted that the conventional measures do not capture them. GDP measures national output or income, and although this remains useful to policy-makers, it was devised during the Second World War, after which its use became widespread as an indicator of economic progress.

GDP was never intended as a measure of national economic welfare, although it became taken to be so in the post-war decades. Accounting for market activity and government spending, GDP leaves out a wide range of economic activity – including household work, unpaid care and some digital activity – which limits its usefulness as an overall measure of progress.

The coronavirus crisis does seem to make this a turning point in public attitudes to the economic system: polling evidence suggests that only 6% of the UK public want to return to the prior system, while 31% want to see ‘big changes’ to how the economy is run (YouGov, 2020).

What might these changes involve?

A number of recent opinion polls indicate a mood in which a majority of the UK public are eager for change: 59% said they wanted to see moderate or big changes in the way the economy is run (YouGov, 2020).

The UK is not the only country whose citizens view the crisis as an opportunity to change course during the recovery. Canadian polls demonstrate some public preferences that aspire towards a fairer economic system. For example, 67% said they were in favour of enhanced ‘broadband to ensure equal opportunity’; for 71%, it was extremely or very important that the recovery does not ‘let richer Canadians off the hook for contributing their fair share’; and 71% found it extremely or very important that the recovery ‘helps people who need it the most.’

The pandemic has magnified in many ways things that matter to people, and has in other ways allowed discovery or rediscovery of what is valued. This has occurred at the individual level, but also for society as a whole, where there have been many manifestations of appreciation for health and key workers at an organised level in advertising, and by families placing posters in windows and standing on their doorsteps to ‘clap for carers’.

The public desire for change can be realised through the two separate channels of private and public decision-making. Determining which channel is important for knowing if, and what kind of, government intervention would play a role in ‘building back better’. The government’s focus needs to be directed towards those policy areas where there are evident externalities and large distributional consequences.

Some shifts in economic outcomes and behaviour will occur from changes in private decision-making and market adjustment. For example, if the relative price of houses with advantageous gardens rises, this could lead to new designs of housing construction that accentuate private green space and minimise concrete. Fixing poor air quality or levelling up access to regional health services, on the other hand, will rely on public policy intervention.

What aspects of the economy need to change?

One of the features of the economic impact of Covid-19 is the way that it has accentuated and exposed inequalities in the range of options available to people. Individual, environmental and social characteristics put certain groups of people in particularly vulnerable positions. For example:

  • Those with underlying respiratory conditions are at greater risk in more polluted areas. Different levels of air pollution across Italian provinces have been found to affect Covid-19 outcomes adversely: poorer air quality is linked to higher rates of mortality (Becchetti et al, 2020).
  • Reasonable access to a quality green space during lockdown varied widely.
  • Children’s access to resources needed to continue undisrupted home education differed depending on school type (Sutton Trust, 2020) and was linked to parents’ education, income and time availability (Andrew et al, 2020).
  • Not everyone can afford to not go to work: those least able to work from home are the young, the least educated and minorities (Bell and Blanchflower, 2020).
  • Impacts of lockdown disproportionately affect women, especially single mothers (Alon et al, 2020).

Lockdown has been a reminder of the value of certain things, such as green spaces, and the role of certain occupations and institutions that allow for so much of our day-to-day activities. The opportunity to access clean air and green space are not measured in the current conventional framework.

In addition, there is some indication in the polling described above of the concrete shape that people think the recovery should take. For example, the aspiration for a green recovery is widespread among the public.

In a survey in April, 58% of the UK public agreed or strongly agreed that it is important that government actions prioritise climate change in the economic recovery after Covid-19 (while in India, Mexico and China, 80% or more of the public were in favour). By May, support for prioritising environmental protection in the recovery had risen to above 60% of the public.

More urgently, 33% of the UK public thought that tackling climate change should be a priority now alongside tackling the coronavirus (YouGov, 2020).

Related question: What has coronavirus taught us about working from home?

Related question: How might the crisis affect children from poorer backgrounds?

What would ‘building back better’ involve?

As the crisis has been unfolding, international organisations, policy practitioners, civil society groups and academics have been arguing for a narrative of ‘building back better’, both in the UK and across the globe.

The notion of ‘resilience’ is consistently being used alongside this term in commentaries. It is sometimes used in the concrete context of responding to Covid-19 and building preparedness for future pandemics (World Health Organization, 2020).

But in a more profound sense, resilience relates to building a society on more integrated and solid systems that are less prone to disintegration from disruption, and better positioned for adaptation and flexibility (Hynes et al, 2020). This is widely understood to consist of replacing a short-term approach with a longer-term one, and likewise, in replacing a strong focus on efficiency with a more holistic systems approach.

Greater economic resilience is linked to broader diversification. This can be in a context of levelling up across regions, broadening diversity of representation in governance, business and education, reconsidering pay in vital sectors and jobs, and in all of these aspects focusing especially on the groups or areas being ‘left behind’.

Issues that were already perceptible before the crisis are becoming widely visible during the pandemic. Regional inequality is one issue that has played out particularly severely: there are large disparities in Covid-19 cases and deaths among English regions, the most affected being London, the North West, the North East and the West Midlands. Within regions, in the most deprived areas of England, for example, deaths caused by Covid-19 have been more than twice those in the least deprived areas (Health Foundation, using ONS data, 2020). These outcomes are exacerbations of longer-standing regional and health inequalities, fuelled by socio-economic factors.

Related question: Which parts of the UK have been hit hardest by the Covid-19 crisis?

Related question: Why are people in some socio-economic groups more vulnerable to coronavirus?

The crisis is pushing many individuals into accelerated innovation in ways to work, communicate and balance various aspects of day-to-day life, and certain benefits of these innovations have been apparent. Notably, there have been lifestyle and environmental changes. Commuting, for which an hour a day reduces life satisfaction by 0.12 points, has been reduced by this same amount for 10 million people; 15 million people have seen a move from bad to good air quality; and carbon emissions were reduced by just over a half due to reduced travel and production, that is, by about 19 million tonnes (Layard et al, 2020).

The limits of GDP as a tool for measurement of economic progress have been noted for some time (Coyle, 2014). Basing economic policy decisions on this indicator alone can be damaging for numerous other dimensions of economic life, such as environmental sustainability (Costanza et al, 2009), the happiness or job satisfaction of workers, and the quality of interpersonal networks.

On this basis, a ‘beyond GDP’ narrative has already developed. The Stiglitz-Sen-Fitoussi Commission report in 2009 made a large impact in driving this concept forward. International organisations, such as the OECD, the United Nations, development banks and the European Commission have responded to growing concerns about the world’s focus on GDP as an indicator of economic prosperity, and have been developing new approaches to assessing how much progress is genuinely occurring.

Many of the proposals involve dashboards incorporating a number of indicators, such as the OECD’s Better Life Index or the Social Progress Index. The United Nations Sustainable Development Goals are a prominent example of a multi-indicator approach to assessing economic progress.

Another approach is the concept of inclusive wealth (World Bank, 2018). Aggregate wealth, understood broadly to include produced but also natural, social and human capital, is being given increasing attention as an important indicator of progress.

The development of new indicators that can broaden the perspective on progress has duly accompanied these narratives. In turn, concrete data from these broader indicators have been used to support policy-making. For the last decade, the UK’s Office of National Statistics (ONS) has developed a wide range of wellbeing indicators, including personal wellbeing, the environment, relationships and what we do.

The indicators, which most often measure subjective wellbeing, are used to monitor changes in levels, in policy-making processes and to inform public decision-making. Wellbeing data, for example, was used to inform the UK airports commission on airport expansion. The ONS and other statistical agencies are developing of a wider range of indicators of progress, including human and natural capital. Some governments are adopting explicit wellbeing frameworks: for example, New Zealand uses a Living Standards framework, and the city of Amsterdam adopted a ‘Doughnut Economics’ tool in April.

Conclusion

‘We know this is not just about GDP figures; this is about employment, skills, equalities, climate change, and the success and strength of the British economy for the future’ (Post-pandemic economic growth, BEIS Committee).

An independent advisory board report to the Scottish Government articulates that ‘building back better’ is not just about getting back to ‘normal’ or business as usual, but rather paving the way to a ‘fairer, more robust and resilient economy’.

The report reflects aspirations from engagement with businesses, trade unions, the third sector and wider civil society. Similarly, The Future we Want platform established recently at the Cambridge Institute for Sustainability Leadership aims to spark dialogue on recovery between stakeholders including the business community, government, civil society and academia. The method of broader stakeholder engagement in guiding the recovery is reflected in the aspiration for inclusivity in design and outcome as an important value in itself.

Emerging recovery plans are reflecting a commitment from governments to respond to the opportunity that the current situation presents for changing course, and aligning policies and plans to citizens’ aspirations and changing economic narratives.

Many dimensions come together to make up the quality of our lives. They are interconnected and interdependent, which make simple solutions difficult to come by. Yet there is eagerness for an economic paradigm that recognises many dimensions of the ‘good life’, building on a growing body of research and policy concerning a broader understanding of economic progress.

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Author: Julia Wdowin
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