withdrawing super
(Image: AAP/Dan Peled)

The COVID-19 crisis is changing the way we live and how our economy works, and that looks set to be the case for an extended period. The crisis also requires new thinking about the role of the state in a liberal democracy.

We are already seeing new experiments to refashion liberalism — often in surprising ways that transcend traditional ideological divides.

We have seen a conservative government in the United Kingdom provide an 80% wage subsidy to private-sector firms up to a relatively generous cap.

We have seen a conservative government in Australia — one that has made scolding over “debt and deficits” the centerpiece of its political brand —providing a $130 billion wage-subsidy package.

And it has even worked cooperatively with the Australian Council of Trade Unions to fashion the JobKeeper package and to make changes to workplace laws.

Those measures are likely to be temporary, but even once a vaccine is widely deployed and this particular crisis is over there will no doubt be pressure to redesign for the 21st century the liberal economic model of the last 30 or so years.

Two broad options around work have already been discussed in light of globalisation and automation: a universal basic income (UBI) and a jobs guarantee. The COVID-19 pandemic has further highlighted how fragile work can be in a radically interconnected world.

The wage subsidies that are part of packages in the UK, Australia, the United States and a number of western European countries are not UBIs in the traditional sense. They are generally more targeted at specific workers in specific firms hit hardest by the pandemic.

But they are wage-replacement schemes.

Spain has already announced that it intends to enact a true UBI after the crisis, with their minister for economic affairs stating, “We’re going to do it as soon as possible. So it can be useful, not just for this extraordinary situation, and that it remains forever.”

It’s too early to know what that might look like, but may get some idea from similar pitches — such as 2020 Democratic primary contender Andrew Yang’s plan to provide every American (including the very wealthy) with a US$12,000 per annum “Freedom Dividend”.

A jobs guarantee, by contrast, would involve the government ensuring that there was meaningful and productive work for anyone capable of performing it.

That might involve work on government-led infrastructure projects, environmental remediation like cleaning up beaches and waterways, or a range of other socially productive uses of labour. Programs like this formed a key part of the US government’s response to the Great Depression, the New Deal, through the Works Progress Administration.

It is important to distinguish between what is a good policy response during the crisis, and what will make for good policy after the crisis.

Right now, replacing income is key. This pandemic is an economic challenge the likes of which we have not seen in the modern economic era. The 2008 financial crisis involved large demand shocks. People didn’t want to spend money and that meant others didn’t want to produce, which gave them less money to spend, creating a vicious downward spiral in economic activity.

It also involved a massive disruption to the proper functioning of financial markets. The Great Depression had similar features.

The COVID-19 crisis involves both demand shocks (like those of 2008 and 1929) and supply shocks. Significant parts of most economies have shut down either by government mandate (think restaurants, tourism, or sporting and cultural events) or because people understand that close physical contact is too risky.

Worse still, these supply shocks can spill over into demand shocks as a recent paper by four leading economists shows (see what an academic presentation during a lockdown looks like). The correct policy response is something like the UK government’s wage replacement scheme. The Australian scheme is directionally correct, but too small.

A jobs guarantee would make little sense right now because we want people not to work in many circumstances, to prevent the spread of the virus.

One thing that wage replacement in the present crisis shows is how expensive a UBI would be. The UBI Center (a think tank that provides open-source tools that allows one to assess various UBI proposals) calculated the cost of Andrew Yang’s “Freedom Dividend” as being US$2.8 trillion per annum, based on the 236 million adult citizens in the US. That’s more than the entire federal budget. Even a relatively modest, say, AU$20,000 a year UBI in Australia would be more than our total budget.

A UBI that is truly universal is prohibitively expensive. So, while wage subsidies that have elements of its features are right during the COVID-19 crisis they won’t be affordable afterwards. In addition, a UBI in normal times does not provide the meaning, sense of purpose, and social connections that a job does.

In short, a job is about more than a pay cheque.

Post crisis we are better served by a jobs guarantee. This still involves a fairly dramatic rethinking of liberal economic orthodoxy, but automation, globalisation, and the possibility of another pandemic make it an important and necessary change.

If the income generated by a job in a jobs guarantee program were, say, 90% of the minimum wage (in a country with a reasonable minimum wage like Australia), then it would encourage the private sector to keep people where possible, but create meaningful alternative options for those who can’t find work. Long-term, that’s a better plan.

The other great long-term challenge that we face — one that will still be there post crisis — is how to address climate change in a meaningful way.

We have advocated for some time now the Australian Carbon Dividend Plan, where a $50 per tonne tax is placed on carbon emissions and all of the money generated is returned evenly on a per-capita basis to all voting-age Australian citizens. That would put $1300 per annum into the pockets of every such person.

Now that is meant to compensate for the increased costs of goods and services because of the carbon tax while preserving incentives for behavioural change, but the average household would still be $585 a year better off after the price increases.

And because the dividend is the same for all citizens, those at the lower-end of the income distribution do even better on net — $1,305 a year better off for the bottom 20% of households. If they lower their carbon footprint they would do better still.

That’s a relatively small basic income relative to, say, Yang’s Freedom Dividend. But it does address the other pressing challenge of our time, climate change, which has understandably received less attention during the pandemic.

Right now, replacing people’s incomes is critical to ameliorating the devastating economic effects of the COVID-19 crisis. But when the crisis has passed, income replacement of various kinds — especially a UBI — will no longer be the appropriate policy.

But the crisis and the government’s response will likely prompt new thinking about the role of the state in a liberal democracy. 

Some of that thinking has to be about how best to get through the pandemic and its economic aftershocks — and in that case largescale wage-replacement, or even some form of semi-universal basic income, seems like the most effective and appropriate response.

But some of it needs to be future-oriented, and focused on a post-pandemic world. 

And in that world, a jobs guarantee and a carbon dividend are two new things that governments could do to protect the economically vulnerable — and the planet — in ways that are truly sustainable.

Rosalind Dixon is a professor of law and director of the Gilbert +Tobin Centre of Public law. Richard Holden is a professor of economics at UNSW Sydney.

Peter Fray

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