And here we are: it is the holiday season and we are about to turn the page of this dreadful year strained by the SARS-CoV-2 pandemic. Hopes are high for a better 2021, with vaccines getting approved and arriving momentarily, but unfortunately not in time to save more than 1.7 million people that have passed away due to the outbreak (WHO, 2020). With a definite turn of the calendar page into 2021, and with the hopeful turn of the page in the pandemic, the present blogpost also marks the end of this small series of three brief opinion articles aimed at lifting our spirits, by contrasting the grim scenario of the pandemic with happier hopes and wishes in the construction of the “new” normal.

Aligned with the previous entries in this series (Human Capitalism & Smart Green Lifestyles), this blogpost shares hopes and wishes associated to the evolving role of state, with attention focusing on the European Union, which in 2020 experienced historic landmarks in its path of integration. Anticipating the words below, my third hope for the post-pandemic relates to a reinstated “role of the state”, evolving in affirming itself farther from the ideological debate of left and right and closer to the practical actions needed to propel a more just, more equal, and more fraternal, human fulfilling and greener society. 

# 3 – A Better State:

My last blogpost ended with questions related to the role of governments in periods of crisis. Indeed, this is likely to be one of the most important questions going forward (EBRD, 2020), when the social fabric is expected to be tested by the mounting social and economic challenges arising in the wake of the pandemic. This year, governments and central banks have gone the extra mile to protect the most vulnerable and the established social contract – e.g. ECB's €1.85 trillion Pandemic Emergency Purchase Programme (ECB, 2020) in addition to its Asset Purchase Programme, and EC's €1.8 trillion stimulus package (EC, 2020) – but now that vaccines have arrived and the expectation is for the immediate health crisis to subside, it might be more difficult for policymakers and governors to keep pace with the stimulus required to soft the lengthier effects of the economic and social crisis that has already kicked in. Indeed, not only will maintaining the current expansionary fiscal and monetary policy be politically challenging, but also soon questions on the health crisis response will turn to questions on public debt sustainability, further stressing the already tense social fabric (Eurostat, 2020; IMF, 2020).

Angrynomics – a recent and interesting book from Eric Lonergan and Mark Blyth (Lonergan & Blyth, 2020) – is particularly effective shedding light on society's ailments that can topple our current version of Capitalism – v.3.0 according to the authors. As the book's title suggests, people are angry, frustrated, stressed and anxious, with the pandemic further aggravating these powerful feelings. And people certainly have the right to be angry, as the foundations of our democratic societies are increasingly eroded away from the motto of "Liberté, Egalité, Fraternité" – a legacy of the Age of Enlightenment on top of which modern democracies have been built. Indeed, as highlighted in Piketty's “Capital in the Twenty-First Century” (Piketty, 2014), the way we currently organise our economy – an open market economy based on private property – has within itself powerful convergent and divergent forces, bringing us on one hand impressive advances in technology and knowledge, and on the other rising income and wealth inequality. A strong driver for our current world of increasing inequality is the divergence between the private rate of return on capital, “r”, and the rate of growth of income and output “g”. Indeed “The inequality r > g implies that wealth accumulated in the past grows more rapidly than output and wages” (Piketty, 2014, p. 748), unbalancing the return across factors of production. With return on labour constantly lower than the return on capital, those with little capital accumulation and who are not exposed to the financial markets see themselves condemned to lower rates of return, in a world of greater income and wealth inequality.

This surely raises questions on our perception of social justice, particularly in a year in which the pandemic provided a clearer distinction between essential and non-essential workers. On this topic of justice, it seems that those considered essential workers are more likely to be the ones condemned to lower rates of return, as their only factor of production is their labour, and their meagre savings, by their dimension and susceptibility to risk, have more difficulty accessing instruments with potential higher financial returns. Conversely, those non-essential workers – I'm unfortunately and inevitably thinking of the casino finance and hedge funds–, by departing from a higher capital accumulation base, can access optimized investment routes with potential higher financial returns. It is indeed unfortunate that our collective perception on the financial world is so negatively influenced by those mastering these complex trading tools for portfolio risk optimization – think of short selling and derivatives –, when finance should focus on what it was made for: linking financial resources to entrepreneurs, whose efforts and innovations directly contribute to the advancement of our world. Moreover, another common perception is that we ought to have learnt more from the 2008 financial crisis. Certainly, Bank's capital requirements are higher and there are now mechanisms aimed at mitigating ensuing public debt crisis in the face of public bailouts, but the sentiment is that “finance keeps financing finance” and central banks continue happily dancing to the music. Perhaps this is the reason why, despite the macroeconomic stimulus, inflation fails to kick in.

We need a better state if we wish to protect prosperity and our way or life. Indeed, the ailments of injustice and inequality are righteous reasons for moral outrage, standing as “market failures” that require assertive public action. As always, the devil will be in the “operational” details, but maybe we need direct public intervention to bridge the divide between wall street and main street. Maybe we need to consider the expansion of central bank's mandate and a more direct deployment of stimulus. Maybe we should think about a form of universal income that precludes and eradicates the most extreme levels of poverty from our societies. Maybe we need public policy directly encouraging local fraternity, enhancing family and community engagement. 2020's pandemic crisis cannot be a lost opportunity to evolve our democratic open market societies, as the alternative cost is too high. History tells us that anger is a fertile ground for tribal rage and for the arrival of extreme and autocratic political movements, both on the left and on the right. The window of moderation, that has given us so much prosperity, freedom, and knowledge may close with the change from moderation to oppression. It is time to keep the barbarians (and tribal politics) at bay.

On this note, we are surely travelling choppy waters, with recent years being an interesting roller-coaster for the European Union. We've had the debt crisis and the southern "PIGS", we witnessed EU's difficulty in providing a coordinated initial response to the SARS-CoV-2 pandemic and we are hopefully arriving to the grand (and depressing) finale of the BREXIT soup opera. But the EU, in the likes of a Fenix, was borne from the ashes of a World War and history also tells us that adversity can bring the best in us. Indeed, there are good reasons to have strong hopes for the future of the European project, as 2020 also brought us key milestones in the ongoing process of European integration. In addition to the approval and adoption of the EU long-term budget 2021-2027 – €1.074 trillion under the multiannual financial framework for 2021-2027 –, the envisaged operation of the €750 billion under the NexGenerationEU has implied EU Member States' authorisation for the European Commission to borrow on the markets and distribute the amounts where they are needed the most. This represents a de facto mutualization of European debt, specifically via the ongoing ratification of the Own Resources Decision (Council of the European Union, 2020) which affirms solidarity within the European family.

All in all, this brings me to my final wish and perspective of hope from this blog series: that from the ashes of the pandemic we can forge a better state and a better European Union. A better state is not necessarily “more” state. A better state means a state that acts in the face of social injustice and counterweighs increasing income and wealth inequality, rebalancing capitalism towards human realisation within the boundaries of sustainability. This aligns quite well with the hopes and wishes presented in the previous blogposts of the series, hence the evolving nature of the associated illustration.

Opinion Article originally published in “Bloco Zero” (https://bloczero.wordpress.com/2020/12/31/hopes-and-wishes-for-what-comes-next-3-3-a-better-state/) where detailed references are provided. Reproduced here with the permission from the author- João Nolasco.