The Great Reset agenda

ARTICLE: In every crisis, there is an opportunity. And there is certainly a godsent opportunity in the Covid-19 crisis for developing countries like Pakistan to get rid of the wasteful Washington Consensus and bring the State back in the public domain rather strongly. Even the developed world, already in a bind because of the galloping inequality resulting from ever shrinking governments in rich countries seem all set to use the pandemic to reset its economic agenda by expanding the role of the government.

The pandemic has indeed decisively weakened the more than half a century old neoliberal hold on the global economy. As a result, 'free market economy' along with its underpinnings, the so-called 3Ds - decontrol, disinvestment and deregulation, and the 'trickle- down' theory seem to be on what is called the 'great reset' agenda in global terms.

Klaus Schwab, Founder and Executive Chairman, World Economic Forum (Now is the time for a 'great reset' - 03, June 2020) maintains that in response to the opportunity provided by the pandemic crisis many companies in the developed world had stepped up to support their workers, customers, and local communities, in a shift toward what he sees as a kind of 'stakeholder capitalism'. Other experts in rich countries worried about the side-effects of naked capitalism are talking about replacing it with what they term as social capitalism or decent capitalism. The neoliberals seem to have recognized that it will require stronger and more effective governments to overcome the side-effects of ever shrinking governments, 'though this does not imply an ideological push for bigger governments, instead it will demand private-sector engagement every step of the way.'

Klaus Schwab claims: "The great reset agenda would have three main components. The first would steer the market toward fairer outcomes. To this end, governments should improve coordination (for example, in tax, regulatory, and fiscal policy), upgrade trade arrangements, and create the conditions. Moreover, governments should implement long-overdue reforms that promote more equitable outcomes. Depending on the country, these may include changes to wealth taxes, the withdrawal of fossil-fuel subsidies, and new rules governing intellectual property, trade, and competition. The second component of a great reset agenda would ensure that investments advance shared goals, such as equality and sustainability. The European Commission, for one, has unveiled plans for a €750 billion ($826 billion) recovery fund. The US, China, and Japan also have ambitious economic-stimulus plans. The third and final priority of a great reset agenda is to harness the innovations of the Fourth Industrial Revolution to support the public good, especially by addressing health and social challenges."

The following three opinions (How the world can 'reset' itself after Covid-19 - 03 Jun 2020) as quoted by Kate Whiting, Senior Writer, Formative Content at the World Economic Forum, make it clear further that the great rest agenda of the developed world would enhance the government's role in all future socio-economic activities in rich countries.

"I think the key is to put the health of people and the planet first. That's what's happening on Covid-19, but it has not yet happened on climate change in many cases, because the fossil fuel interests and the large industrial farming interests want to keep things the way they are," says Jennifer Morgan, Executive Director of Greenpeace International.

"The public sector will have a bigger role to play in future. I believe it's very important for countries to recognize there are essential services that need to be provided in terms of healthcare, education, good governance and a social safety that cannot be compromised on. What's needed is to ramp up production of alternative forms of energy. And second, to have infrastructure that's much more climate-friendly. In both these measures, the public sector can play a very big role," contends Gita Gopinath, the International Monetary Fund's (IMF) chief economist.

"70% of the world's population has no social protection. It must be respectful of public services rather than simply trying to profit from them. While short-term measures such as income support are vital now, post-reconstruction policy frameworks are needed in the medium- to long-term. In short, we need to shift our economic focus away from profit. We want an end to the profit-at-all-costs mentality, because if we don't build an economic future within a sustainable framework in which we are respectful of our planetary boundaries, and the need to change our energy and technology systems, then we will not have a living planet for human beings," holds Sharan Burrow, General Secretary of the International Trade Union Confederation (ITUC).

The problem to understand is that not everything that is profitable is of social value and not everything of social value is profitable. Reality TV, fashion, sports and gambling are all of questionable social value, but each is quite profitable and exists in the private sector. On the other hand, few would argue that the Defence Services, Coast Guard, police department and fire brigade could not exist if they were required to be profitable. To reiterate, the key issue is this: not everything that is profitable is of social value and not everything of social value is profitable. The proper role of government is the latter.

It is not the business of governments to be in business. Sounds logical. But in poor countries, especially those which are totally dependent on imported fuel, the governments need to be necessarily business-minded so as to be able to not only rationalise the dependence, but also reduce the burden on the import bill by being an expert of the market as are the international oil sharks, racking in millions on price fluctuations of as little as a minimal most fraction of a cent.

Donor-driven poor countries need business-minded governments even more because if you are not well-versed in what is happening in international trade, more likely than not you are going to end up returning almost the entire aid back to the donor country in import bills. Also, it is only a business-minded government, which can make a distinction between an enterprise that yields profits of immense social value and those that yield purely financial profits.

A government without business know-how would hardly be able to maximise social benefits of a public sector entity at a minimum financial cost. In most developed societies, this is done by keeping the private sector's profit motive within reasonable bounds by establishing legally sound autonomous statutory regulatory mechanisms.

And even after such mechanisms are developed, air, road and rail transport, energy-related units, public schools and public health institutions, at least up to primary levels, public transport and housing would need to be kept under government control, no matter how much the cost.

A big chunk of unnecessary financial losses that the public sector entities of social value are incurring currently can be eliminated by cutting down on waste and replacing inefficient managements with efficient ones but not by firing employees. Also, their burden on the budget could be significantly eased if the government were to collect the taxes that are due to it from all its citizens who earn taxable incomes including from agriculturists and professionals like doctors, lawyers and engineers and private educational institutions and hospitals.

In advanced countries, the period after World War II was one of inclusive economic growth as more and more use of state capital was the name of the economic game then. Indeed, income inequality fell and stayed low in most Western countries roughly between 1910 and 1980. In the earlier years of the 20th Century, there was a clear trend of state intervention in the economy, albeit institutionalized differently across countries. Key features were nationalization, increased provision of welfare, public health and education, and the development of public amenities. Arguably, the most important aspects that directly affected income inequality were state involvement in wage setting and redistributive taxes and transfers. In many countries there were moves to centralize collective bargaining over wages and conditions of work. Taxation was changing as well. In most Western countries, income tax became a major revenue source in the early 20th Century.

There is, therefore, a lot of economic sense in discarding the practice of using private capital through markets and instead investing the limited resources we mobilize through various means, including costly borrowing in public-sector projects aimed at expanding the much-needed physical infrastructure, like irrigation systems, power plants, roads, bridges, housing schemes, motorways and metro buses, etc. Such projects generate all kinds of jobs and most of these are highly labour intensive. Also, such projects do give a fillip to the manufacturing sector as demand for building material, such as cement, electrical fittings, plastic materials, etc., goes up. More jobs would mean more disposable incomes in the hands of more people belonging to all classes: upper, middle and lower. More money in the hands of more people would mean steep escalation in the demand for all kinds of essential and non-essential consumer goods, necessitating expansion in production capacities of the goods in demand leading to significant growth in the real economy.