Maybe COVID-19 can revitalize a sense of community and solidarity.
Most economic crises spring from characteristics to do with the economy itself. COVID-19 comes from outside, as though we had been hit by a meteor. This means that we have fewer historic lessons to draw on. Nevertheless, history is important, because the past shapes how we think about the present.
Crises uncover weaknesses
One lesson is that crises expose weaknesses in our economic system. This leads the crises to become more severe than the cause alone would dictate. The COVID19 crisis seems to uncover especially two flaws.
Firstly, many companies have little equity. Particularly in the U.S., this is partly because they have paid out large sums to their owners mainly through share buybacks, something that also weakens solidity. Some companies have also expanded greatly with borrowed capital. Secondly, the crisis reveals the frailty of global supply chains, especially for small countries dependent on trade.
Another well-known characteristic of crises is that they intensify ongoing developments. After the financial crisis in 2008 there were tendencies towards a retreat in globalization, these are likely to pick up now. The innovation economist Schumpeter thought crises carry the seed of new growth. As the saying goes, necessity is the mother of invention. Crises also tend to kill off weak companies and free up resources. Lastly, in crises costs of for example property, capital and some service tend to go down, making it cheaper to start companies.
Political consequences
The great depression is important to the history of many European countries, but above all to the U.S. President Franklin D. Roosevelt become famous for his ‘New Deal’ by which the state spent money to stimulate demand and economic activity. When Presidential candidate Joe Biden supports a ‘Green New Deal’, he tries to take advantage of the historic power of this expression. An equally important part of the new deal was to reform the U.S. financial system, to reduce the risk of further crises and to ensure the financial sector served everyone. President Obama was criticized for not using the global financial crisis in 2008 to do the same.
The Nordic Model also stems from the 1930s, when the labor movement was integrated into society in several ways. Firstly through the crisis settlement between the labor party and the farmers’ party which made Johan Nygaardsvold Prime Minister. Of equal importance was the agreement between the major labor union LO and the association of business NAF. This was an expression that laborers and businesses respected one another and has functioned as a sort of constitution for the labor market ever since.
Global leadership is essential
The world has handled crises better under clear global leadership. This was absent after the First World War, but following the Second World War, the U.S. had the will and capacity to lead. Today is different. Though nobody can challenge the economic or military strength of the U.S., its situation is nowhere near what it was after the war.
The nationalism and incompetence of President Donald Trump has caused enormous damage to the U.S. reputation. Most of all to moral authority. China challenges the U.S. in important respects, but as long as it remains a dictatorship with concentration camps, it is difficult to imagine it as a global moral leader. The consequence of this is that Europe needs to take more responsibility for handling the crisis itself.
More solidarity
An important lesson from the Second World War was that many countries expressed a gratitude to the soldiers that fought for them. When they returned home, they received reasonably priced housing, education and healthcare.
We can only hope that the corona crisis has similar consequences as we become aware of the value of essential workers. The importance of health care workers and first responders may have been clear to us for a while, but less so cleaners, waste collectors, truck drivers and cashiers.
The Cold War was also important to maintaining the ideals of solidarity from the 1930s and the Second World War. The western democratic and market economic model of society was in a lasting conflict with the communist model of society. The conflict was not only between countries, but also between voters, companies and labor unions inside countries. The capitalist market economy had to win hearts and minds and show that it benefited everyone. This ideal has been lost somewhat after the wall fell in 1989. Maybe COVID-19 can revitalize a sense of community and solidarity.