– Dr Michael Thoene
When I first prepared my academy presentation on future investments, very few people could have foreseen the impact that COVID-19 would have on us just a few short weeks later.
We are settling into a new reality, schools have been closed, travel bans imposed, quarantines set up and socialisation minimized to almost zero. Every day something new is added to counter the exponential growth of COVID-19 cases, and everything else must take a back seat in order to ensure that the healthcare system is not overstretched.
As a result, politics is called for in three dimensions. It must offer the health services everything that is needed to provide optimum care for the sick; it must regulate and prevent anything that could facilitate the spread of the virus and finally, the politics must try to contain and partially compensate for the economic damage caused by the pandemic.
The economic damage as a result of the pandemic has been substantial, the Dow fell from record highs at the start of the year to bear-market territory in a matter of weeks. Supply chains have been heavily impacted with disruptions globally, especially as China is the source for many companies, and governments are increasing their debts significantly in attempt to combat this virus.
You might ask, what do long-term future investments have to do with revving up the economy? At a first glance, not much, and that’s the way it should stay. There should be no link between the fiscal measures against COVID-19 and long-term investment and sustainability. This is because for economic recovery, the foremost aim is to rescue jobs and firms and, after that, to boost general demand again. If governments try to combine this policy with extra requirements for sustainable and transformative future investments, it can reduce the immediate impact of the stimulus significantly.
The idea of killing two birds with one stone is desirable, but it is this impulse that will slow down economic recovery. We saw this happen after the 2009 crash, especially in the economic stimulus packages that followed – one example that occurred in Germany, is that the investment aid to local authorities was partly linked to energy efficiency improvements and the creation of barrier-free access. This combination led to many run-down municipal buildings in North Rhine-Westphalia to become slowly – very slowly – run-down properties with triple glazing and wheelchair ramps. Looking back at 2009, we can see that governments often were determined to use well-intentioned criteria in the economic revival, but this often led to it becoming slower and actually pushing up the prices in narrow markets instead of achieving broad volume effects.
What should be done in this situation is that governments should distinguish between the now acute economic challenges of corona and of the long-term future investments in order to take them both seriously. Right now, everything needs to be focused on the COVID-19 crisis but problems will occur if we forget about the long-term challenges that nevertheless need to be tackled. COVID-19 has understandably put other challenges, such as future investments, into perspective. But their overall importance is not going to shrink – a rather large problem has just come up on top.
We are in the midst of a crisis; we do not know how deep it will be. However, we can already foresee one thing for sure: In the end, the levels of national debt all around the world will be very high (again). In other words, once this crisis is over, the sustainability of fiscal policy will be much worse, we will have “sustainability gaps” that are significantly larger because of soaring debt in all public budgets. This wider gap highlights that the financial capacity to solve societal problems will have declined – which indicates poorer prospects for future investments.
However, wider sustainability gaps do not mean we will definitely be worse off. It means that if we do not change anything things will get worse. So, to ensure that they don’t, governments will need to have stronger ‘sustainability thinking’, they will need a philosophy that reflects government performance in the overall context of past, present and future needs. The resources, but also the energy for political action, which are used for acute crisis management, will actually help us in the future to deal with other challenges.
During this crisis, we can’t let the long-term prospects frustrate us, but instead let them motivate us – they should motivate us to make changes and modernise in order to achieve sustainability, and on that basis, intergenerational fairness and sustainable development.
