Wednesday, 2 September 2020

Economic Crisis: Can Things Change for the Better?

Crises may bring forward positive change. For example, the UK government is cushioning the economic impact of COVID-19 lockdown by using tools broadly developed as a result of the great depression – mostly by Keynes and his disciples. Here are four examples from history:

1. WWI and Women Working

Little more than a century ago, women in the UK weren’t allowed to own property, open a bank account or work in a legal or civil service job. The suffragettes had rightly been protesting but British society needed a shock to put theory into action. That massive shock was the first world war.

Between 1914 and 1918 more than a million women joined the workforce to keep the economy going. They worked in many jobs that were not previously open to them – in factories and shops, as drivers and even for the police. They did a sterling job, and for less pay than their male counterparts.

The long – and still ongoing – process that would recognise women’s skills and talents in the workforce was accelerated.

2. WWII and the NHS

Another crisis, WWII, was the catalyst for the creation of the UK National Health Service (NHS). Before the NHS, when someone needed to use medical services, they were expected to pay the hospital or a private doctor. The war effort necessitated government-supported medical services to become available for everyone.

The national recovery agenda had the NHS established in 1948. Even though the NHS has gone through many changes since then, it continues to operate under its founding principles and is funded from general taxation to provide free healthcare for all.

3. More people go to University after recessions

It is well established that recessions and the lack of jobs may encourage more people to pursue education, whether undergraduate or postgraduate. Importantly, this progress is also maintained in subsequent generations – if your parents go to university, you are more likely to go to university.

A more educated workforce tends to make an economy more productive, profitable and versatile. Higher education also has knock-on beneficial effects on a society’s health, crime rate, election voting and volunteering.

4. Dotcom Bubble and Creative Destruction

Economic crises often lead to the abandonment of inefficient or out-of-date structures. New and healthy entities emerge in their place through what Austrian economist Joseph Schumpeter called “creative destruction”. The dotcom bubble provides a great example.

In early 2000, the Nasdaq stock exchange crashed, ending years of rising share prices of online companies. Many underperforming firms closed. These were based on the growth hype around the internet and the favourable credit and tax environment of the late 1990s. At the same time, the crash accelerated the rise of eBay, Google, Amazon and other tech companies.

Good news is currently scarce and overshadowed by death and uncertainty. Yet things may improve, and hopefully soon. Approved COVID-19 therapies will roll out and many others will be developed. The only damage that cannot be undone is the loss of human life and for that we must all do our best to protect our fellow citizens.

In the meantime, let’s focus on the opportunities for positive change this pandemic has highlighted. Stronger public health, reduced unnecessary commuting, less pollution and international pharmaceutical cooperation can improve our world. So too with less politicking, corruption and increased empathy for the poor. Everyone can do their bit to turn this pandemic into an opportunity for good.


Alexander Tziamalis & Konstantinos Lagos, Four ways economic crises can change things for the better

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