In taking the steps needed to keep citizens safe, such as this man seen here in Toronto on March 20, 2020, we are necessarily shuttering our economies.Frank Gunn/The Canadian Press
Michael Sabia is Director of the Munk School of Global Affairs and Public Policy at the University of Toronto
COVID-19 is forcing on governments everywhere tough and unprecedented tests. How they react – the actions they take – will determine how people view the institution of government at least for a generation.
To be clear, this is not about the superficial idea of the political popularity of any particular government. This is more fundamental. It is about the ability of governments to act in ways that earn the social licence they need to govern. And remember, all of this is coming at us at a time when populists have already called into question whether the institution of democratic government can work in the interests of its citizens. The stakes are high.
Meeting this challenge will require governments to act boldly, decisively and with humanity. They need to leave their orthodox thinking behind and, most of all, avoid the trap of incremental, piece-by-piece action that is so often the reflex of bureaucracy.
Governments are facing three tests – none easy to pass.
The first and most basic: Will governments succeed in keeping their citizens safe from the virus? So far, reaction has varied widely. Boris Johnson and Donald Trump failed initially to grasp what they were facing. And even once they did, their actions have been incoherent and lacking any sense of a plan.
In counterpoint, Angela Merkel and Emmanuel Macron have been clear in their actions and credible in their communications. Here in Canada, we are seeing good co-operation among public-health authorities. Experts are advising political leaders who appear to be listening.
For the moment, let’s be optimistic and assume that each country in their own way will eventually do what is needed. It won’t be enough.
Meeting the test of safety is necessary but far from sufficient. Because in taking the steps needed to keep citizens safe, we are necessarily shuttering our economies. This is wholly without precedent.
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Hence the second test. Most governments are already seized with the economic consequences of their actions to protect the health of their citizens. Their response is often couched in the economic jargon of “stimulus.” In fact, it’s about basic stuff: ensuring people can buy groceries and pay rent when they are not working, and avoiding thousands of bankruptcies among small and medium enterprises.
But are they doing enough? It’s hard to think that they are, in a situation where Mario Draghi’s “whatever it takes” is the only benchmark that makes sense.
In Canada, the federal government’s Economic Response Plan is focused on the right issues. But at 1 per cent of GDP it is roughly equivalent to the actions taken to contain the economic fallout of the great financial crisis of 2008. The latter never involved shutting down an economy. Incrementalism is just not going to work here.
We need a plan, a public road map that gives Canadians confidence that if the situation continues to deteriorate, government action is locked in and ready to go. Second, because it has been overtaken by events, we need to set aside our traditional thinking about fiscal deficits. Canada’s ratio of debt to GDP is the best in the Group of Seven. We have the firepower. Use it.
The long-term consequences of doing too little too late are far graver than the consequences of doing too much. Third, the Bank of Canada needs to depart from its traditional thinking and be ready to launch a program of quantitative easing to buy long dated bonds, including those issued by the Government of Canada to finance additional spending. On a global basis, it is critical now to avoid any tightening of financial conditions as governments across the West borrow to fund essential relief measures.
A final test: Having essentially shut down their economies – for good reason – governments must begin turning their minds to how to get them started again once the immediate crisis begins to recede. This is uncharted territory.
Governments will need to lead on this. Leaving it to chance will only make the reignition process longer, more difficult and more haphazard. What’s more, we would forfeit a precious opportunity to shape our future economy. Remember Rahm Emanuel’s famous: “You never want a serious crisis to go to waste.”
That means governments need to begin thinking now about a new generation of infrastructure and spending on education. About clean tech and retooling our health-care system. And about refinancing for the long term a small and medium enterprise sector that will emerge from this crisis battered but still the engine of jobs in our economy.
Given the scale of investments likely required to reignite our economy, this is an opportunity to do things faster, more effectively and more coherently to secure our future prosperity in what will likely be a changed world.
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