Declan Jordan: New economic thinking is needed as we emerge from the pandemic

'We now need now to consider not just when we will emerge from the pandemic, but how we will emerge,' writes Declan Jordan
Declan Jordan: New economic thinking is needed as we emerge from the pandemic

The Taoiseach is planning society's exit from Covid lockdown, but the Government has some fundamental questions to consider when life gets back to normal.

While we are not at the end of the pandemic in Ireland, there is a sense with the vaccination roll-out and the easing of restrictions that we are, at least, near the beginning of the end.

Our attention is turning to what our society and economy will look like after Covid.

Many of the economic, social, and environmental challenges that we faced at the start of the pandemic persist. 

The housing and homelessness crisis has not been resolved. The increase in the potential for continued remote working has pushed up house prices outside of Dublin and in rural areas.

People are moving out of the more expensive urban areas in search of value. The difficulty is that this increases an existing tendency towards sprawl in our settlement pattern.

Sprawl imposes significant costs on the provision of services and worsens our car dependency. Measures to address our carbon emissions are hindered by this development.

While our towns and villages need plans to help them thrive, the National Development Plan that stressed the need for more dense development seems to be a casualty of our rush to the countryside.

The rise in house prices is also driven by two underlying and persistent issues. The first is the lack of housing supply, which has been worsened by the lockdown. 

The second driver is the increase in household savings, estimated to be close to €11bn. The pandemic has seen a dual economy emerge.

Those in jobs that could be done remotely have benefitted economically in the last year or so. Their salary has continued, but the costs associated with getting to and being in work have fallen.

At the same time, many in lower paid, service jobs have had to rely on the pandemic unemployment payment. Many that were already on lower incomes have seen their financial position become even more precarious.

The so-called K-shaped recovery, with growing income and wealth inequality, is a real prospect now.

Also, the climate emergency remains exactly that. Although emissions fell while we put our economies in cold storage, it is clear that the reductions are temporary.

A more fundamental and systemic change in how we organise and measure economic and social progress in a more sustainable way is needed. New approaches are needed at international, national, and local levels.

Perhaps what is most worrying, as we begin to emerge from the dreadful pandemic period, is the lack of evidence on new thinking and new approaches to these significant social and economic challenges. We can look across the Atlantic where the first 100 days of the new Biden administration has seen dramatic shifts in the focus of policy.

There are plans for unprecedented levels of government investment in social programmes, infrastructure, and environmental action. Some of this will be funded by higher taxes on the wealthy and on businesses.

The reaction in Ireland to this new approach is to fret about what it means to Ireland’s corporate taxation model. 

Why are we not even considering, for example, that a minimum US corporate tax rate removes the advantages of Ireland’s 12.5% rate and provides scope for an increase in business taxes? Also, for many years arguments for a wealth tax — as a means to address economic inequality — have been ignored in Ireland. As the pandemic intensifies inequality here, it is now past the time to consider such measures.

It may be unrealistic to expect our government to have had the scope to consider ways of addressing the many social and economic challenges we face in the full glare of a global pandemic.

Declan Jordan, lecturer at Cork University Business School
Declan Jordan, lecturer at Cork University Business School

However, the national conversation seems to be completely focused now on getting 'back to normal'.

The thinking seems to be that if we can reopen the economy then pent-up consumer demand will get us rapidly back on the road to recovery. The Government, to its credit, has not been found wanting in putting additional income supports and business financial assistance in place.

The hole in our public finances will be substantial, though we will not be alone in that, as other countries have similarly met the Covid crisis with a wall of borrowed money.

The implicit assumption that generating ever faster economic growth will fix the debt problem ignores the reality that the same approach as before will not address the problems we faced when the pandemic struck.

We now need now to consider not just when we will emerge from the pandemic, but how we will emerge.

What type of economy and society do we want to have post-Covid? What do we value and how can we structure the economy within the society and environment we want to see?

It is to these bigger questions that we should start to focus our attention.

  • Declan Jordan is a senior lecturer in economics in Cork University Business School

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