If 20th-century economist John Maynard Keynes was still with us he would marvel at the unprecedented stimulus being pumped into the global economy. This is an approach to economic dislocation modelled largely on his The General Theory of Employment, Interest and Money, first published in 1936.
The stimulus approach was a key feature of the international response to the 2008 global financial crisis. Governments and central banks supported substantial pump priming, along with new quantitative easing measures. COVID-19 has seen the same measures pushed to new heights, including direct grants to businesses to keep them going. While unemployment has risen steeply as economic activity declines, these measures have softened the destructive effects of a full economic shutdown.
The pandemic and the response to it also reopen debate about the extent of the role of government and the private sector in both a local and global context. A surprising editorial in the Financial Times last month praised the way governments have reacted to the COVID-19 pandemic, urging them to spend large to avoid prolonged mass unemployment. The editorial spoke of the need for a new social contract — not a subject we expect to read in the financial press.
In a similar vein, the Australian philanthropist and fund manager, Kerr Neilson, recently told The Australian Financial Review of his unease at the tendency to “socialise loss and privatise profit” in a time of crisis.
Both these observations reveal how this crisis has changed the national conversation, not forever perhaps, but for the foreseeable future. After such a crisis, societies and their economies do not return comfortably to familiar contours. They go to a new place, a commonly described “new normal”.
“The Australian community faces a huge dilemma: the clear logic of investing in the public service, or carefully managing a massive deficit and the country’s credit ratings at a time that necessitates prudence.”
The popular American historian, Barbara Tuchman, in her book A Distant Mirror: The Calamitous 14th Century, describes how the Black Plague led to major social and economic upheaval that changed Europe forever. So, too, it is likely the COVID-19 pandemic will profoundly and permanently change many aspects of our lives: in commerce, government, global travel and international education, as well as some established social mores. The crisis makes it certain we will recontest the argument about where public sector activity stops and private sector starts, as Kerr Neilson pinpointed.
Since the 1980s, the question of how big or small government should be has largely been settled in Australia. The COVID-19 pandemic, however, will provoke potentially unpalatable debates about many aspects of government policy and service provision. How will governments explain to families that free childcare — available elsewhere in the world — was achievable during the crisis, but is no longer so. Or to say to families for whom unemployment is entrenched that you need to return to Newstart, which every expert describes as inadequate? It could be argued the Commonwealth government has implicitly acknowledged this in its per capita allocations of JobKeeper and JobSeeker. With this recontesting of ideas, which for decades looked settled, we are in for a very interesting national conversation.
The prime minister has acknowledged this by swiftly flagging the need for industrial relations reform, urging business and unions to “lay down their arms” as discussions begin. At the same time, a deeper debate on the nature and structure of superannuation is occurring for the first time in 40 years.
While most Australians appear relatively comfortable with the short-term but far-reaching curtailment of civic freedoms and temporary suspension of normal accountability systems, they will become uncomfortable if there is no clear end in sight. Governments during the pandemic have been very clear about defining the boundaries and timeframes for public health advice and the reopening of the economy and the public has appreciated this. Governments should now also set boundaries and timeframes for the restoration of civil liberties. This is a matter also worthy of rigorous public debate.
No-one knows how long this crisis will last, but we all require some process that gives us reassurance that our country is not, even inadvertently, walking away from our democratic norms. A fundamental commitment to the idea of democracy is important.
“Governments should now also set boundaries and timeframes for the restoration of civil liberties. This is a matter also worthy of rigorous public debate.”
In this regard, it has been interesting to reflect on the trust of our citizens in the nation’s key leaders, public experts and institutions. Institutions that were feeling the heat of a trust deficit over the summer of 2019 are now widely admired and carefully listened to. It is also interesting to see expertise once again so prominent every night on the evening news bulletins as we watch our chief medical officers, Treasury officials, the Reserve Bank and others speak authoritatively on the day’s developments.
The nature and quality of our public service should also be up for debate. While the swift, and in hindsight, correct response of senior public servants and experts to the COVID-19 crisis has served the country and its citizens well, the 2019 review by David Thodey AO FAICD into the Australian Public Service (APS) — of which I was a member — pointed to the need for urgent improvements, including leveraging the full potential of digital systems and data analytics, and the reskilling and renewal of the public service. The review noted a lack of expertise in a range of areas because investment in systems and public servant numbers has long been constrained compared to other sectors. This is another element of the discussion about where government ends, and the private sector starts.
While our medical and economic experts have excelled during the pandemic crisis, we have contracted out so many vital policy functions that we are falling short in many areas. It was clear throughout the APS review that government systems, particularly in the social security area, are not up to the task and have not received the required investment. This was voiced many times by public servants who made submissions to the review. The COVID-19 crisis underscores the need for greater investment in the public sector, but it comes at a time when all government budgets are stretched almost beyond their limits.
The Australian community faces a huge dilemma: the clear logic of investing in the public service, or carefully managing a massive deficit and the country’s credit ratings at a time that necessitates prudence.
Voices in the community are already calling for cuts to the public service. (Note: the NSW government announced a public sector pay freeze in late May.)
This is another debate we will have: smaller or larger government?
Glyn Davis AC is CEO of the Paul Ramsay Foundation and distinguished professor of political science at the ANU Crawford School of Public Policy.