After the pandemic: Why Europe must restore its economic and social safety margins

A pandemic is reminding us that we often distribute rewards in our society in inverse proportion to real social usefulness. 

Image by Number 10

Like an engine pushed beyond its tolerances, our world is running dangerously hot. Literally so, of course, in terms of global heating. But also figuratively, in terms of how we now run our economies and societies. In the name of efficiency, we have become ever more focused on building profit margins at the expense of safety margins, convincing ourselves (like those Queenslanders arguing that another decade or two of coal mining should be alright, even while bush fires raged in the next state) that we can get away with extracting a bit more before we do irreparable damage – and that we can safely remit any problems to the next generation.

We in Britain have suffered especially from this mind-set since the 2008 financial crisis. The imperative to restore public finances was real enough. But the priorities the British government chose – to slash welfare and public spending, while cutting taxes on businesses and the well-to-do – owed everything to the legacy of Margaret Thatcher, and the opposition of private sector “wealth creators” to the undeserving “wealth consumers” in the public sector.

The government’s approach has been one of “press to test” – see just how low you can drive state spending before the results become intolerable. Quite a long way, it seems: British society as a whole seems untroubled that we have become a nation of food banks, and that homelessness is once again commonplace. Meanwhile, vital public services may have avoided collapse (and, yes, become more efficient), but they have been hollowed out. The National Health Service has lost thousands of beds and staff; the previous pattern of winter flu crises alternating with periods of recovery in the summer months has been replaced with a system operating at maximum capacity all year round. And as business experts have highlighted the cost of capital investment, so the government has driven down the stock held by public services – which was fine until they needed lots of ventilators, personal protective equipment, virus tests, and intensive care beds in a hurry. “Just in time”, pushed too far, may turn out to be “just too late”.

“Enterprise” and “efficiency” have manifested in a culture with a strong whiff of Ponzi about it

Social care for the elderly and the infirm has been similarly stretched to breaking point. Residential care homes, and indeed pubs, provide particular illustrations of where the unchecked pursuit of profit and “shareholder value” has led us. Private equity firms bought up thousands of such institutions – partly to squeeze the businesses harder, but mainly to extract the value of the buildings in which they operate, by loading their new holding companies with debt. Such financial engineering secures massive short-term returns for the new owners. But, of course, this is a trick that can be performed only once – and that transforms the individual home or pub from a somewhat staid, unexciting business, secure in its own premises, into a fragile concern that has to run ever faster to help service corporate debt. And, if the concern falters – as many hundreds have – it will simply be closed and sold off.

Thus, “enterprise” and “efficiency” have manifested in a culture with a strong whiff of Ponzi about it: take what you can now, and leave someone else to deal with the consequences. The past decade has seen astonishing self-enrichment of British company bosses and financiers. Nor have governments resisted the temptation; the (now-abandoned) Private Finance Initiative, embraced by left- as well as right-wing administrations, was a thinly disguised “buy now, pay later” scam on n heroic scale.

Now, a pandemic is reminding us that we often distribute rewards in our society in inverse proportion to real social usefulness – unless anyone can see virtue in the activity of the hedge funds that have made vast profits in recent weeks by shorting airline stocks? We are rapidly rediscovering the value of all those public sector workers whose numbers have been driven down and whose pay has been frozen for much of the past decade – healthcare workers, most obviously, but also teachers, who have long been expected to provide welfare services to their pupils as well as teach them, and are still needed (despite school closures) to provide childcare services to other key workers. Less conspicuously but just as importantly, thousands of civil servants have been working round the clock to design and organise an unprecedented raft of emergency measures. Not to mention, of course, all those essential workers in the private sector – supermarket staff, delivery drivers – who risk their health for minimum wages.

As we look up at the quiet of empty skies above us; rejoice at the return of marine life to Venice’s canals; and marvel at the dramatic improvements in air quality in the world’s cities – so we can hope that the unfolding tragedy of the coronavirus will at least have long-term environmental benefits. We may, for example, conclude that periodic shutdowns of normal human activity, if pre-planned, would be a blessing – how about an annual World Respiration Month?

So, good may come of ill if we emerge from the crisis determined to cut our economic and societal systems some slack: to accept the need to pay a bit more for greater resilience; to act on the need to treat with more consideration those upon whom we depend when a crisis hits, even at times when the essentiality of their roles is not so obvious; and to rebalance the values we attach to wealth generation and protection on the one hand, and societal well-being on the other. We need to extract less and conserve more – to think less about profit margins, and more about margins of safety.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.


Senior Policy Fellow

Subscribe to our weekly newsletter

We will store your email address and gather analytics on how you interact with our mailings. You can unsubscribe or opt-out at any time. Find out more in our privacy notice.