Robert Boyer on the Covid-19 Pandemic

Interview with Robert Boyer on his latest book, Les capitalismes à l’épreuve de la pandémie (La Découverte, 2020)conducted by SASE Executive Director Emerita, Martha Zuber

Isn’t it difficult to write about a subject that is still evolving every day? What made you take up the challenge?
For researchers who consider that, in response to any perturbation, economies always end up converging on their long-term equilibrium, the present situation is quite unexpected: a virus from abroad implies a shutdown of the economy, but the end of lockdown does not lead to a return to “business as usual”. What a mystery! Other researchers, on the contrary, have long mobilized the concepts and methods of a different paradigm, that of régulation theory. They see the eruption of a mysterious pandemic as a dream opportunity. My book analyzes the interaction of a series of processes affecting virus propagation, political decisions, economic dynamics and, last but not least, valuations by financiers who face unprecedented uncertainty. The sophisticated methods of mathematical finance have no reference point when no expert in epidemiology has the relevant knowledge concerning Covid-19 and when governments have to improvise and implement unorthodox and very large state interventions. Initially, most experts anticipated that the treatments invented to overcome the Great 2008 Crisis would be effective.  For me, it was tempting to capitalize on my previous research about recurring but always different crises, as well as my early specialization in the economics of health. I could revisit the succession of great pandemics and their impact on growth as well as new institution building. Hence, a clear conclusion: the ongoing, complex causalities begun in 2020 do not mimic those observed back in 2008. This is why the gigantic reflation programs turned out to be unable to propel a fast and complete recovery.

In your book, you argue that it is useless to compare the current pandemic crisis to previous public health crises, or to the 2008 financial crisis. What do you see as particular to the current pandemic crisis?
Surprisingly, all the great pandemics since 14th century seem to exhibit the repetition of a typical configuration among four key actors. The doctors are challenged and have to make progress in their understanding of bacteria and viruses; nevertheless, their new knowledge generally comes after the victory over the epidemic. Political authorities, both local and regional, aim at limiting the demographic losses as their primary concern, which is at odds with calmer periods when economic prosperity matters most; they design quarantine measures and documents limiting individual mobility. By contrast, merchants and economic actors complain and fight against all these limitations that are wrecking their business. Finally, religious people consider that each epidemic is a message addressed by God or Nature to sinners, and they point out culprits to be excluded from society. These roles can be seen at play again in the current pandemic—but this does not mean that the pandemic is easy to master. Indeed, each virus has its own characteristics that are only discovered gradually, too late to inform a strategy that must be decided upon urgently and without knowledge of its suitability. Deciding in radical uncertainty is by no means equivalent to reacting to risk that can be illuminated by historical precedents.

Likewise, the 2008 crisis cannot be a benchmark because it came about due to the bursting of a speculative bubble fed by the securitization of toxic real estate credit. The crisis was generated by endogenous forces and the feared depression was quickly stopped by the bailing out of large and concentrated financial entities. The massive state interventions restored confidence in financial stability, allowing firms and households to once again make their decisions with a more assured vision of the future. No equivalent way out of sanitary insecurity has yet emerged for three reasons. First, the return to optimism is up to the finding of a treatment and/or vaccine (i.e., the outcome of a process that is in the hands of medical and pharmaceutical researchers, not central banks and treasuries). Second, economic policies have to monitor the explosion of public debt, and, in line with different macro-economic and monetary theories, many prognoses are conflicting: either a silent euthanasia of the rentiers or a complete distrust in monetary stability. Third obstacle: because viruses cross national borders, their eradication has to be reached at the world level, whereas the competitive struggles for medical masks during the first wave are shifting to the production and appropriation of vaccines. The outcome could be detrimental to the protection of the weakest groups and countries. Hence, Covid-19 could continue to propagate all over the world with adverse economic consequences. Clearly, some past pandemics have had a long-lasting impact on living conditions, wellbeing, and welfare. It is prudent to expect the same from this one.

Several months on, one of the most contentious political battles has been the economic costs associated with the outbreaks and the lockdowns. Are the lockdowns worth it?
It must be understood that the lockdown decisions by most governments were responses to the radical uncertainty regarding the lethality of Covid-19 and not the outcome of in-depth rational analysis, which will only be feasible ex-post, when the pandemic is over. In early 2020, the sources of inspiration for public authorities in charge of public health were both historical and contemporary. On one side, the reference to the early invention of quarantine by municipalities was mobilized and lockdowns were then implemented not only at the level of regions or large cities but at that of nation-states. This synchronization deploys impressive spillovers at the world level and it exacerbates the risk of a cumulative depression. On the other side, after some hesitation, the Chinese government decided to employ a drastic lockdown in Wuhan, the origin of Covid-19, along with an intensive campaign of testing, tracing, and isolating the contaminated population. This appeared as a possible strategy elsewhere, but most other governments had to comply with the basic rights that guarantee the free mobility of citizens. Thus, the lockdown in democratic societies did not have the same power to eradicate the virus, because it was milder and systematic tests were not available. Consequently, China could fight efficiently, and even eradicate the virus, as was observed from June to November 2020, whereas the first wave got out of control in the United States and a second one is now spreading in Europe. Clearly, the unequal ability to implement and legitimize a drastic and thus efficient lockdown explains three contrasted trajectories (see the graph on Covid-19 mortality here). The economic recovery is lagging in the United States and the European Union because the threat of Covid-19 disrupts social networks and economic activity. By contrast, Chinese public opinion perceives that sanitary security is back, allowing for the “new normal” (i.e., rising living standards along with rapid technological advances of domestic firms). Outside of China and other Asian countries, the massive public support of locked down firms and redundant workers casts doubt on the sustainability of public finance at the very moment when there is a new surge in cases, hospitalizations, and deaths. This opens creeping social and political crises.

Could they be prevented, and should we restrict our liberties in order to emulate the “Chinese way”?  As luck would have it, Taiwan provides a good example to be considered to fight the next pandemic. Public authorities learned from the SARS episode that China was the source of new virus transmitted from animals to humans. As soon as they got the information from Wuhan about a new contamination, they tightened the borders—especially for travelers coming from China. The government delegated the fight against infections to a specialized institute, in charge of coordinating information gathering, organization of tests, and follow-up on infected people and their isolation. This early reaction prevented the acceleration of cases observed elsewhere and the healthcare system was not flooded with Covid-19-related hospitalizations. What a contrast with the panic, improvisation, and late reactions in so many other countries. In my book, I summarize this analysis with a simple motto:

Learn from past pandemics and organize the health system accordingly or improvise awkwardly in an emergency and accept considerable loss of life.”

Thus, it is possible to do away with costly lockdowns and restrictions on public liberties while promoting economic activity: sanitary security is a premise for social peace and economic prosperity. But will governments learn this lesson?

Compared to many countries, France has what is considered to be a first-rate social safety net.  Yet you call the French government to task for what you say is its chronic underfunding of public health and other realms. Can a change in direction toward a more sustainable and welfare-oriented economy (for which you plead in your book) in a country such as France be maintained if other European countries do not make similar changes?
The French welfare system was built during the post-WWII Golden Age, when large productivity increases made it easy to have a compatibility between increasing standards of living, a high productive investment rate, and the permanent extension of education, healthcare, pensions, family policies, and so on. The progressive exhaustion of this regime makes policy choices more difficult, and under the pressure of international competition, the governments have given priority to firm competitiveness (though wage resilience has continued to be the driving force in the growth regime). It has become increasingly difficult to finance healthcare because medical advances make hospitals more costly, due to the generalization of new medications and the emergence of chronic illnesses that are difficult to fight against. Consequently, all administrations in France since the 1990s have tried to curb healthcare costs: they have been partially successful, since the relative wage of medical personnel at the hospital has been steadily declining and the number of beds has been dramatically reduced because they represented fixed costs. The priority given to cost reduction has been associated with a lesser resilience facing unexpected events such as heatwaves, and of course a dangerous pandemic. The French healthcare system, deemed by the HMO as one of the best in the world back in the early 2000s, has brutally revealed all its weaknesses: lack of intensive care unit beds and specialists, and poor coordination among clinics, general practitioners, and medical laboratories.

Paradoxically, France suffers from the mismanagement of two major institutional assets inherited from the past: a good and egalitarian health care system and an education system open to upward social mobility. The regression we see originates in the slow de-industrialization process and the poor dynamism of the economy, which no longer generates sufficient added value for financing the public goods the citizens are so fond of. Lastly, we must remember that the European Union explores various brands of welfare capitalism according to which education, health, and culture are basic cornerstones. In theory, they should contribute to the competitiveness of all member states, since the anthropogenetic model proposed in my book delivers a positive and increasing sum game, at odds with the zero-sum game implied by a world of unbridled competition. This principle should be taken into account by the ongoing reform of European institutions.

What do you see as a way out of the crisis?  And what comes after?
In the short term, all governments should maintain strict regulations concerning mobility, distancing, and precautions in order to curb the spread of Covid-19 and thus limit the overburden imposed on hospitals. They should continue until the vaccine is implemented on all continents and in all societies, and then confidence would be restored for entrepreneurs, workers, households, students, civil servants, bankers, and financiers. The World Health Organization should be elevated to the same standing as the International Monetary Fund or the World Trade Organization. Once expectations are stabilized, a series of virtuous circles could help reopen national economies to the delivery of everyday necessities. Nevertheless, it cannot be the return to a mythical Golden Age or status quo. Correcting the underinvestment in the prevention of pandemics should reorganize the priorities of healthcare systems. Similarly, education systems should be reformed in the direction of an egalitarian access for all, because it is a requisite for alleviating social divides evidenced by the vote for Brexit in UK and the clash of two Americas in the 2020 presidential election. Such a shift from private consumption goods toward education, health, and culture could alleviate the pressure on natural resources, reduce CO2 emissions, and slow down ecological damage to biodiversity. This could mean a rather smooth transition toward ecologically sustainable socio-economic regimes. The final touch, two decades ahead, would be a complete redesign of international relations through the institution of key Global Commons: sanitary security, scientific advances, ordered international mobility of citizens, regulated international trade and investment, and of course financial stability, so costly for economic prosperity and social cohesion. The next and coming financial crisis could teach us this forgotten lesson once again.