Exit from the lockdown: A socio-economic perspective

Updated: May 15

Contribution signée Sem Vandekerckhove (KU Leuven)

While the management of the corona epidemic from the onset was put in hands of medical specialists, the nature of an epidemic is primarily social, and therefore social strategies to avoid relapses and to design the social and economic sphere under and after the lockdown will be essential as long as there are no solid anti-viral therapies or vaccinations available. At the moment, there is no clarity with regard to the time horizon for this problem. Therefore, I propose an exit strategy that covers both phases (during and after), as the lockdown implies a shift of costs to the future, and the steps taken under lockdown may make the recovery easier or harder. Note that under ‘lockdown’, I understand social and economic life under a set of rules that restrict mobility: various degrees of confinement, border restrictions, no travel, restricted international supplies, etc. As the research on the social consequences of a large epidemic with worldwide confinement measures is at a very early stage, the outlook provided here is general and indicative, rather than decisive. The take-away message is that novel and extreme strategies need to be considered quickly, yet in coordination with other European Union Member States and external evaluators, to ensure strict goal-orientation.

Social life and the economy under lockdown

The first thing to set straight is that the lockdown is not a difficult and certainly not the most difficult time. Being in the hospital is difficult, being at war is difficult. Extraverted and introverted people, the rich and the poor, are all in a different situation (Baker et al., 2020; Carvalho et al., 2020; Inchausti et al., 2020; Jones et al., n.d.), but it is important to see that it is not unmanageable to maintain these constraints on social life for a prolonged period of–say–up to year. Life will be different, but people can easily adapt if they are informed and if their concerns are dealt with. This means problems such as loneliness, contact deprivation, household violence, crowded living with large families in small apartments, etc. need to be addressed. Easy solutions, such as making available study spaces for students, setting up help-networks for socially deprived people, and safe-houses in case of violence, can ensure that everybody finds a way through the epidemic. The crucial element is that problems should be communicated, if not it is impossible to solve them. The reduced capacity of welfare organizations (e.g. CAWs), should be overcome through intensified access roads (campaigns, virtual presence, click-and-collect, etc.). Note that most of these problems have also existed outside of the lockdown (e.g. Coene et al., 2018, chapter7), and the increase is not well documented yet. It may even be easier to address them, as other worries and distractions have been suppressed (e.g. street-life), life has slowed down, and people stay in place.

The second element to be understood is that the massive unemployment is untenable, as myself and other have argued in popular press (Vandekerckhove, 2020). The temporary unemployment scheme, which has been effective during the banking crisis (Struyven et al., 2016), may not be suited in case of a systemic change to the economy. It is unlikely that the “contact” or “mass” sectors (catering and accommodation, events, retail, travel agencies) will quickly recover. In some cases, this could take over one year, if we ever return to normality. Therefore, it is important to release the workforce from those sectors and reorient them to other sectors. If not driven by demand, this can even be planned: e.g. ensuring food production in absence of seasonal migrant labor, increasing delivery services to minimize gatherings in shops, obliging shopping assistance instead of self- picking goods, etc. These are ways to increase employment levels which come at a welfare cost, but which also contribute to new economic activities and avoid an economic collapse. People will be poorere.g.foodprices may increase due to ‘wartime inflation’ (Trevithick, 1975)–but there is at least a basis for sustainable growth. There would actually be nothing wrong with such price increases if they cause employment growth in this case.

A third consideration is that costs could already be absorbed. The costs of the lockdown measures are enormous, and transfers to people in need–whether social, economic, or medical–will remain in place for a long time. The risk of social upheaval should be avoided at all costs, and it is imminent. By now, the idea of a basic income is accepted: nobody in our country is supposed to be able to survive without any source of income. We want to avoid non-take up and administrative complexity. While there are some efficiencies to be found, tax increases will be unavoidable. In the recovery strategy below, I address this in more detail. At this point however, we should aim at minimizing costs. The solution is to make people pay who otherwise are taxed less, such as landlords and real estate companies. Renting prices are not relevant anymore as they depend of potential revenue (for business) and disposable income (for households) (Fox and Finlay, n.d.; Mc Quinn and O’Reilly, 2008). Those contracts could be revised, and for a significant period of time, e.g. half a year, perhaps even discarded. Any cost avoided now is a tax avoided later (Ricardian equivalence), as this allows a reduction of benefits and therefore creates margins for a broader scope and a longer payment period as well. Moreover, in case of lower benefits without a drop in purchasing power, we increase the income gap between work and unemployment, so that people will have more motivation to look for a job. This has been proven to work for the short-term unemployed (Collado, 2018). Of course, such a fierce measure is unpleasant, but Italy and NewYork have imposed more gentle but similar measures, such as non-eviction of tenant and mortgage postponements (Haag, 2020; Rome, 2020). Real estate business and landlords may be spared from later measures. It is more important now to save the economy than private interests.

The fourth change to be expected is that the social sphere can be redefined. As we will remain under the threat of a relapse of the epidemic (Pueyo, 2020), hygiene measures such as a mask-for-all strategy (Longrich and Sheppard, 2020) and physical distancing will remain necessary, but more flexible forms of confinement should be thought of. Yaneer Bar-Yam and others have suggested to redefine social spheres by connecting safe- cells: units of people who have passed a quarantine phase and are all safe (Shen and Bar-Yam, 2020). As soon as within the secure social circle an infection reoccurs, the cell disbands, and people return to smaller groups or self-isoloation. This may allow families and workplaces to reunite fairly quickly and is very intuitive (it is one of the reasons why confinement rules are violated today). It should be supported by technology, and it can complement health certificates (Eichenberger et al., 2020) and track-and-trace apps that are under development. Let me remark that if there is no guidance for this behavior, it may spontaneously occur, for instance when people avoid certain neighborhoods, businesses, or social groups. More than 15 years after the SARS outbreak in Hong Kong, such behavior is still present (cf. doctoral research of Julie Metta on the use of disposable cups inside coffee shops in certain areas, out of fear for infection).

The two-third/one-third strategy for economic recovery after the lockdown

There are two scenarios for the economy after the lockdown: either a vicious decline and full economic collapse, or a sharp drop in welfare followed by a period of growth, as in most post-war economies (Boskinand Lau, 2000; Dowrick, 1989; Van Raemdonck and Diehi, 1989). In either case, everybody will lose. A strategy for the second scenario I propose is called the “two thirds–one third” approach, and it’s a blunt suggestion. Outside of the Marshall plan, there have been other post-war recoveries, but none in the context of a global supply shock.

In the first step, the government should define all social groups in our society and rank them from weak to strong. E.g. migrants, workers, car-drivers, notaries, airlines, pharma companies. It is impossible to ensure the broad population, the poorest of which have been hardest hit by the epidemic (people in retail, catering, care–often women and migrants), will accept further losses, if taxation is not strongly progressive (Edlund,1999; Klor, 2003; Marhuenda and Ortuño-Ortín, 1995; Mitra et al., 1998; Scheve and Stasavage,2010).

The second step is to tax each group or take away rights and subsidies, in order to create revenue for the state or reduce expenses, but to not only take away two third of this sum, but also to return one third to each of those groups. This one third allows a social and economic reorientation. Importantly, the focus of these reinvestments should go to the local level for the weaker groups, and the national or international (EU) level for the stronger groups. The reason for this is to on the one hand ensure social support, and on the other hand to prevent protectionism.

  • I give some examples, but this should be a matter of consensual political decision making:

  • Borders remain closed, so costs for asylum seekers will diminish, yet we should invest in asylum procedures in consulates outside the EU to ensure every recognized refugee enters in a legal way and can receive the necessary guidance and training to integrate in our society.

  • Workers may lose their holiday allowance and will not be able to go on a journey beyond our country, but one third of the sum can be invested in national recreative facilities, parcs, outdoor swimming pools, etc.

  • Company cars on lease should be exempted from fiscal benefits, but investments in electric charging poles and home grids can be intensified.

  • Airport taxes in Europe should be high and uniform, so that the number of travelers drops significantly, so that they can be traced and overall mobility is reduced, yet on third can be invested in improved logistic chains and emergency transport within the European Union.

  • Pharmaceutical companies may be required to produce based on demand by the Member States of the European Union, but all states can invest in increased supply of laboratory and bio-engineering graduates.

It is clear that under normal circumstances, none of these measures would even be thinkable, as many have already been suggested and discarded in the course of time, yet never as a trade-off and necessity with guaranteed net losses.

A backstop for strong reforms

Minimizing costs, reorienting the economy, and maximizing the real and virtual social sphere, are the challenges ahead during the corona epidemic. There is no strategy without losses, and no strategy without sacrificing rights (e.g. privacy, ownership, social rights), at least not temporarily. However, as the market mechanisms are now entirely disrupted and dysfunctional (e.g. PPE pricing and bids), social life as well as the economy can be reoriented in a sustainable way. This requires social cohesion, political coordination, and entrepreneurial enthusiasm. It is entirely feasible, but not with the political structure and the interest groups that have slowed down the modernization of the welfare state. This is already understood in the Asian perspective on the society in “old Europe” (Goossens,2020). We need a new outlook, driven by shared targets instead of zero-sum games, by collective rather than private interests, by results rather than competences and efforts, and by openness and investments rather than strict austerity and protectionism. This holds for all spheres of life, and if we manage to deal with this challenge, we can overcome many issues that were holding back and dividing our country in the last decades.

The measure proposed above are radical and we cannot even imagine how the normality may be changed due to the prolonged epidemic threat (Leung et al., 2020). Under these circumstances, countries will make right and wrong decisions. For instance, while some proactive measures in Eastern Europe may have been successful in fending off a large outbreak, there are worries about democratic aberrations, notably in Hungary. The European Union Member States are interesting policy laboratories, and they can use the supranational governance (European Commission, the Council, or a committee) to keep the Member States in check, acting as a watchdog, not for legal changes, but for the social consequences. This process can be supported by national and international policy evaluation researchers to assess the direction and social equity of the measures taken, and call for a backstop when needed.


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