Portal Economics

COVID-19 offers us an escape from a much bigger mess, but only if we're brave enough to try it.

Portal Economics

“It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.”
Arundhati Roy — The Pandemic is a Portal

When this is all over.

Five simple words, a mantra for troubled times, comforting us with the idea that it’s all temporary. When this is all over, we’ll take longer walks, watch our parents read to their grandchildren, laugh at our friends, and never take hugs for granted again. In a few months, the storm will pass, and we’ll emerge blinking into a world where the air has been washed clean, and the Himalayas, perhaps, are still visible on the horizon.

The uncomfortable truth though, is that as this first wave of lockdowns ease and we try to return to our normal lives, this isn’t going to be over. We now know a lot more about the nature of COVID-19, and it’s not looking good. Early reports suggested it was a standard variety respiratory disease. We’ve since learned that it attacks not only the lungs, but most of the body’s vital organs. Science Magazine describes it as a “ferocious rampage through the body, from brain to toes.”

It’s extremely contagious, with high lethality, yet can also be passed on by ‘super spreaders’ who don’t have symptoms. The virus is zoonotic (it comes from another species) and novel (our species has no preexisting immunity), which means it’s going to roam the world until enough people are immune, or until we create a safe vaccine and administer billions of doses. The former is unthinkable, because it would mean the death of millions, the latter is at least a year away, assuming everything goes perfectly (it won’t).

The implication is that we’re not just looking at a single lockdown, but at a succession of them — not just one mother-of-all-economic-shocks but overlapping waves of shocks that threaten the foundations of the global economy. If that sounds like an exaggeration, consider that the ILO is now predicting the loss of 195 million jobs (compared to 22 million in 2008–2009) and the IMF says the collapse in global output is likely to exceed that of any recession in the last 150 years — that is, in the entire history of capitalism. “We really are in uncharted territory,” says Liz Ann Sonders, chief investment strategist at Charles Schwab. “We have a monster mash-up of the Great Depression in size, the crash of 1987 in speed, and 9–11 in terms of fear.”

We’re not going back to normal.

Most of us are still trapped in the mental coordinates of a world that isn’t waiting for us on the other side. You can see this in the language journalists are still using. The coronavirus is a ‘strategic surprise’ and we’re still very much in the ‘fog of war,’ dealing with the equivalent of an ‘alien invasion’ or an ‘unexpected asteroid strike.’ As I said back in March though, this is not a natural disaster, like an earthquake, a one-off event from which we can rebuild. It’s not a war or a financial crisis either. There are deaths, but no combatants, no physical resources have been destroyed, and there was no initial market crash, although obviously the markets are now reacting.

The crisis is of the entire system we’ve built. In another article, I described this as the bio-political straitjacket. We can’t reopen our economies, because if we do then more people will die. We can’t keep them closed either, because our entire way of life is built on growth, and without it, everything collapses. We can give up our civil liberties, submitting to more surveillance and control, but as Amartya Sen would say, what good is a society if the cost of our health and livelihoods is our hard fought for freedoms?

Healthcare workers dressed in scrubs stand in a busy street in Denver, Colorado on Sunday, 19th April 2020, blocking hundreds of protesters demonstrating against stay-at-home orders issued by Governor Jared Polis. Alyson McClaren/Reuters

This picture is a pretty good snapshot of where most of the world’s liberal democracies stand right now. All three elements of the straitjacket are perfectly in play. On the frontlines, the healthcare workers, expected to survive on claps rather than protective equipment. Bearing down on them, an economy powered by fossil fuels and driven by people who still believe there’s no such thing as society. At the moment it’s stuck in neutral, but there’s a 3.6 litre V6 under the hood of that thing and eventually the urge to stomp on the accelerator is going to become overwhelming.

There’s plenty to be outraged about here, but no obvious solutions. Our political factions have spent so long arguing that Oceania has been at war with Eurasia that we can’t imagine any other way. The crisis is being spun into a partisan Rorschach test in front of our eyes. The conservatives favour a swift economic restart and bemoan the comeback of the state. The progressives urge more intervention, and insist on longer lockdowns. Everyone ignores the socialists, who circulate manifestos and anxiously thumb their revolutionary rosaries. The realists fret about the rise of nationalism and the ascendance of China, while the pluralists scratch their heads over the failure of global governance, and the retreat of globalisation.

Lost amidst the ideological squabbling are those hit hardest by the pandemic, the migrants, day labourers, refugees, the urban poor, the undocumented, the homeless and the marginalised. As the rich loot the coffers (the cost of tax breaks for the wealthiest one percent in the US government’s $2 trillion stimulus was greater than the amount funded for all hospitals in America) and the chattering classes (yep, that’s me) learn how to bake sourdough, millions are left without protection from both the virus and the lockdown measures, stranded as support networks collapse, and already precarious sources of income disappear.

The debate about the correct response to COVID-19 is utterly inadequate to the brutal realities of this moment. What’s happening now is going to transform everything, in ways large and small, a forever fork in the road, and it’s going to get a lot, lot worse before it gets better.

This is not a rant, nor is it a counsel of despair. There’s hope on the horizon. In her extraordinary essay, The Pandemic is a Portal, Arundhati Roy explains that pandemics force us to think the world anew; they are a gateway between an old world and a next, new era. As we step through we can drag our old ways with us or we can “walk through lightly, with little luggage,” honouring our dead by having the courage to try something else.

There are people lighting the path, if we’re willing to look. In the last decade, the ideas of two economists, Mariana Mazzucato and Kate Raworth, have been slowly but steadily gaining traction, adopted by cities, countries and even entire continents, making the rare leap from ivory tower to the real world. In combination, they give us a way to escape the straitjacket. Cometh the hour, cometh the man, as they say, although this time around our cliches are evidently in need of some long overdue diversity training.

Let me try to explain.

CONTENT WARNING: Political Economy Stuff ahead. It gets pretty dense through this next section. I know that this isn’t everyone’s cup of tea; if your eyes start glazing over, remember it’s not your fault, it’s mine for not making it accessible enough. Bearing this in mind, and in the interests of really beating our titular metaphor to death, I’m going to use the central motif of a portal — a circle — as a guide.

Let’s start with two circles, illustrating the status quo.

In 1981, in his inaugural address, Ronald Reagan declared “Government is not the solution to our problem; government is the problem.” In the forty years since, this view has come to dominate economic policymaking in the West. The market, if left alone, will drive innovation and allocate resources in the most efficient way, creating a bigger pie and leaving everyone better off. The state’s role is to uphold property rights, perhaps do a bit of regulatory ‘nudging’ here and there and take care of ‘externalities’ like, uh, climate change. As Evgeny Morozov points out, these ideas were based on blueprints from the Cold War: more competition and less solidarity, more creative destruction and less government planning, more market dependence and less welfare.

Over the course of a few, crazy months in 2008, the accepted wisdom was turned on its head. We learned that at the heart of our profit-driven, private financial economy is a state-managed entity, the central bank. When markets function normally, it remains in the background. As soon as they break down though, it becomes the ‘lender of last resort.’ In country after country the state made loans, bought assets from private banks, funds and other businesses desperate for cash and because it was the ultimate backer of currency, its budget was unlimited.

Once the crisis passed however, memories faded. Even though the ‘states bad, markets good’ story had been exposed as a sham, for a generation of policymakers trained at the same universities, the old habits died hard. They looked at the huge debts racked up by governments and concluded that budgets should be re-balanced and public services cut, staking out a battleground over which the left and the right have been fighting ever since. The left has spent the last decade calling for fairer distribution, higher taxes, and more public spending, while the right insists we need lower taxation, less wasteful government, and more growth and efficiency.

Almost every political fight, including the culture wars, can be traced back to this false binary. States versus markets. Equality versus efficiency. Redistribution versus growth. Those circles haven’t just remained separate — they’ve drifted further apart. The growing ideological rift explains why the last few years have felt so gridlocked, with our elected representatives seemingly incapable of addressing 21st century challenges like inequality, forced migration, privacy, climate change, ecological collapse… and of course, pandemics.

Which brings us to 2020. In the last few months, the playbook from 2008 has been dusted off. As of the 10th of April 2020, governments across the globe had announced $10.6 trillion in stimulus measures, the equivalent of eight Marshall Plans. “POW!#*@ BAM&$# SMASH! @#$% KABOOM* #!@?% That’s the sound of the Fed’s big bazooka” goes one typical report. Once again, we’ve been treated to a crash course in how much power the state does have — how much it can accomplish when it realises it must act boldly or risk being seen as fundamentally illegitimate. Bloomberg journalist Pankaj Mishra sums it up nicely: “It has taken a disaster for the state to assume its original responsibility to protect citizens.”

However, while the bazookas have temporarily shored up the financial system, this time around the economic collapse is going to be much bigger, and the bailouts are going to be a lot more expensive. The central bankers are using the tools of the last crisis, but few seem to be wrestling more broadly with the question of how the world is changing and what our economies are going to look like on the other side.

ENTER STAGE LEFT: Mariana Mazzucato

Mariana Mazzucato “What is economic value and who creates it?” at TED Summit 2019. Image credit: TED

One person who has been wrestling with that prospect is Mariana Mazzucato. While many of her colleagues have spent the last decade scolding capitalism, she’s been re-imagining its basic premises. Where does growth come from? What is the source of innovation? How can the state and private sector work together to create the dynamic economies we want? She started asking these questions in 2011, appalled by cuts to public services in the United Kingdom, and angered by the prevailing narrative that such measures were necessary to boost competitiveness.

Mazzucato decided to delve deeper into the history of the world’s most innovative companies, and discovered that the long-accepted binary of an agile private sector and a lumbering, inefficient state was a myth. Her research revealed that government agencies have played a critical role in the development of most of the general purpose technologies that now drive economic growth, such as the internet, GPS, the smartphone, clean energy, fracking, and pharmaceuticals. All of these were funded in their early stages by public dollars.

Silicon Valley luminaries such as Apple, Google, Tesla and SpaceX, she argued, owe their success at least as much to state-funded research as they do to visionary founders. As she says in a recent profile in Wired, “History tells us that innovation is an outcome of a massive collective effort — not just from a narrow group of young white men in California. If we want to solve the world’s biggest problems, we better understand that.”

Echoing Amartya Sen, Mazzucato believes that in order for societies to succeed they need both the invisible hand of free markets and the visible hand of good governance. In this view, the relationship between our two circles is very different. Rather than pulling in different directions, they’re symbiotic. For as long as we can remember, we’ve been told that all the exciting bits of the economy belong to the private sector, but she turns that idea on its head, showing us that the state has been there all along, an unloved and underappreciated driver of innovation and co-creator of wealth.

Not only has the state been stepping in as the lender of last resort when markets fail, it’s been acting as an ‘investor of first resort,’ creating and shaping new markets, embracing uncertainty, and taking risks nobody else is willing to shoulder. Our failure to recognise this has allowed an overly financialised business sector to get away with murder. Private companies have been able to suck value out of the economy for decades, piggybacking off basic government research and then using the profits to buy back their stocks, inflating the value and rewarding CEOs and shareholders. Again and again, we see this story playing out in industries like airlines, banking, pharmaceuticals, tech, property and agriculture.

This time around, she says, when big business comes begging for help, the state should wise up, and socialise both the risks and the rewards, embracing its ‘entrepreneurial spirit.’ If the public sector is crucial to major technological developments then taxpayers should get a larger share, through royalties or equity, or by including conditions that steer businesses towards value creation instead of value extraction. More research and worker training — less share buybacks and golfing.

Of course, when public investments go wrong, there’s the danger of public uproar. Mazzucato suggests that to counter this, the rewards should be made more explicit. “Voters will be more willing to accept the (inevitable) failures” she points out, “if they see that those are compensated by important success.” A lot of this requires a shift in language. She argues that progressives are losing around the world because they focus too much on redistribution and not enough on the creation of wealth.

Government agencies have an opportunity in the wake of this crisis to rebrand themselves as the heroes rather than the naive patsies. Instead of using words like regulate, fix or spend, they should be talking about how the state finances, creates and invests. That’s a lesson we could learn when it comes to the mind-numbing energy ‘debate’ here in Australia, and it’s one that climate change activists could take to heart around the world, too. If we continue to depict the state as only a facilitator and administrator, and tell it to stop dreaming,” she writes, “in the end that is what we get.”

The good news is that a lot of people are listening. In the past few years, Mazzucato has been everywhere. She’s a rockstar economist, advising everyone from Cyril Ramaphosa to Nicola Sturgeon and Alexandria Ocasio-Cortez. Her most influential piece of work however, was the design of the European Union’s new, €100 billion research and innovation agenda, centred around five mission areas: adaptation to climate change; cancer; healthy oceans and waterways; climate-neutral and smart cities; and soil health and food. That program was signed into law in 2019. When asked about what it meant to her, she replied, “I’ve influenced politicians, but having a parliament vote on something I wrote is just fantastic. That’s what I want: to bring about change.”

What Mariana Mazzucato is offering us here is something both broad and scarce: a compelling new story about how the left and right can work together to get us to a better future. It tears down the artificial binary between saving lives and saving livelihoods, interlinking the circles of the state and the market and showing us they are intimately involved in delivering both of these goals. It’s a huge step in the right direction, a way to do capitalism differently.

On it’s own though, it’s not enough, because waiting on the other side of this crisis is an even bigger curve that needs flattening.

When this is all over.

It’s not just a comforting mantra for those of us stuck at home. It’s a policy prescription. In the corridors of power, the discussion is focused doggedly on defeating the virus, facilitating recovery, restoring growth and getting back to normal. There will be other pandemics in the future though, potentially worse than this one, and looming large on the sidelines, the heavy weight of climate change. Going back to normal guarantees more trouble down the line. Framed this way, COVID-19 isn’t a disease, it’s a symptom. As systems thinker Gregory Bateson has written, “That is the paradigm: Treat the symptom to make the world safe for the pathology.”

The true disease, the ‘pathology’ he’s talking about here, is an economy that’s built for perpetual growth. For the past century, this has brought untold benefits to humanity — if you’ve been following our work at Future Crunch for any length of time you’ll know we think that’s something worth celebrating. Thanks to the miracle of growth and the extraordinary inventiveness of capitalism, our species has lifted billions out of poverty, dramatically improved global health, expanded literacy and education, and given three quarters of adults on earth access to the greatest information resource in human history.

The miracle cannot continue forever. Global economic development has also fuelled a dramatic increase in our use of Earth’s resources, first driven by the resource-intensive lifestyles of today’s rich countries, and more recently redoubled by the rapid growth of the global middle class. In our modern day excitement about all the bits, bytes and electrons, it’s easy to forget that the global economy is still built on atoms. Our system of just-in-time, industrialised manufacturing — from food production to the making of electronics, vehicles, packaging, plastics, textiles and buildings — is anchored in linear, carbon-intensive supply chains that replace natural ecosystems with man-made toxicity.

Graffiti in Hong Kong subway station, December 2019. Translation: Graffiti reads: “We can’t return to normal, because the normal that we had was precisely the problem.” Image credit: /u/efggfw

At some point, we’re going to hit a wall. If we get a ‘V-shaped recovery’ and manage to return to our former average annual growth rate of 3%, the global economy will be three times bigger by 2050 than it is today. Let that sink in for a minute. Even if we can do what Mazzucato suggests, and get states and markets working together to, say, clean up our entire energy system and provide healthcare for all (and that’s the biggest ‘if’ of all time), we’re still going to be making and consuming an unimaginable amount of stuff. Our ecosystems won’t be able to handle the load. Our two century long experiment with industrialism is self-terminating. Either we figure out a way to end it ourselves, or it does the job for us.

Writing these words feels deeply uncomfortable. They sound radical. I understand this, which is why I’m so hesitant to put them out there. Serious people dismiss de-growth as unrealistic, an idea from the fringes, stuff for anthropologists, ecologists, and Russell Brand. You can’t just slam on the brakes, they say. Look at what’s happening right now; the consequences are catastrophic. That Dodge Ram is built for forward motion — we might be able to replace the engine with a battery, but there’s no way we can stop it.

It’s also dangerous. How, for example, are we supposed to build all those roads and hospitals, or make all those wind turbines and solar panels, if we’ve got an economy that’s going in reverse? Not to mention, it’s all very well for those of us sitting at the top of the pile to say ‘stop’ but what about the bottom billion, still waiting for their chance to climb the socioeconomic ladder? In the last three decades China has grown its GDP per capita by a factor of eight, and in the process pulled off the single biggest transfer of wealth to the global poor in human history. It’s unfair to insist other nations shouldn’t follow suit.

We’re stuck between a rock and a hard place. No country has ever ended human deprivation without a growing economy. And no country has ever ended ecological degradation with one. Nobody’s been able to show us a way out.

Until now.


Kate Raworth “A healthy economy should be designed to thrive, not grow” TED 2018

Like Mariana Mazzucato, Kate Raworth started asking questions in the wake of the last financial crisis. She went a step further though, and decided to tackle the most sacred cow in all of economics — the assumption that economies should always grow.

She explains that it wasn’t always this way. Today, we think about economics as a technical subject, a game of graphs and numbers. The first economists however, were more like moral philosophers, trying to articulate what a society’s goals should be, and what the best way of getting there was. In the early 20th century, that changed. Economics became more ‘scientific,’ shaking off questions about what ought to be and focusing instead on explaining the complexities of the economy itself. Discussion of the economy’s goals disappeared from view, creating a moral vacuum at its heart.

Into that space stepped a measurement — gross domestic product, created in the 1930s as a way for policymakers in the United States to track the country’s recovery from the Great Depression. What was initially a snapshot became a time series, and over the next half century, GDP growth evolved from being a political goal to a political necessity, and eventually, de facto policy. Today, if you pick up any popular economics book, or follow any famous economist on Twitter, you’ll see that they talk about efficiency, productivity and growth as if these values were self-explanatory.

They’re not. For as long as any of us can remember, our proxy for progress has been an ever-rising line heading upwards and to the right. However, as Robert Kennedy said more than fifty years ago, that line measures “neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.” We can now add another criticism to his list. If we continue using GDP growth as our metric for success, then we’re going to destroy the conditions that gave rise to human civilisation itself.

We need new metrics, and we need a new mindset. “What we have are economies that need to grow, whether or not they make us thrive,” says Raworth. “What we need, especially in the richest countries, are economies that make us thrive, whether or not they grow.” When she tried to represent this visually, she came up with… yep, you guessed it… Two circles. Welcome to her genius idea — doughnut economics.

In this diagram, humanity’s resource use radiates out from the centre. The inner ring, the social foundation, represents the minimum that we need to live a thriving life. Below it, falling into the hole, are all the people who don’t have access to basic needs such as food, water, healthcare, education, political voice and housing, things that everyone needs for a life of dignity and opportunity. As a society, our primary goal should be to get everyone over that boundary.

However, in doing so, we can’t let our resource use overshoot our ecological limits, represented by the outer ring. Beyond that lies critical planetary overshoot in the form of ocean acidification, chemical pollution, air pollution, biodiversity loss, topsoil loss, and climate change. In the middle lies a sweet spot — shaped unmistakably like a doughnut — that is both an ecologically safe and socially just space for humanity. Our task in the 21st century, she says, is an unprecedented one: to bring everyone into that safe and just space.

Raworth has been drawing this doughnut in meeting rooms and at conferences around the world for years. She recounts the story of how in 2011, in the run up to a conference on sustainable development, she showed it to European officials and the British representative piped up. “We hear the Latin Americans talk of ‘Pachamama’ and find it all a bit fluffy” he said — waggling his hands in the air to illustrate — “but I can see that this is a science-based way of saying something that’s actually not so different.”

Change of course, doesn’t happen overnight. It’s a hard slog. Raworth is just the latest in a long line of thinkers who’ve been making similar arguments for decades. It doesn’t matter how good your idea is, you have to repeat it over and over again until the small ripples turn into larger ones. The doughnut has made an appearance at the headquarters of the OECD, World Bank and the UNDP, at the World Economic Forum, and in 2015 during late night negotiations on the UN Sustainable Development Goals, insiders reported that a large version sat on the table as a reminder.

Over this time, the concept of the doughnut hasn’t changed — but the world has. 2020 now feels very different to 2011. This pandemic is forcing us to look for a new compass, and what previously sounded radical suddenly looks sensible. The City of Amsterdam certainly thinks so. A few weeks ago, it announced that its post-pandemic recovery strategy will be based on “the world’s first City Doughnut” economic model. The world is now going to learn what it takes for a city of 1.6 million people to make the difficult choices and emotionally confronting decisions required to make the transition to a circular economy. This is an idea whose time may finally have come — those two concentric rings, after all, don’t just look like a doughnut.

They look like a portal.

When this is all over

The next time you catch yourself saying it, remember:

It’s not a mantra.

It’s not a policy prescription.

It’s an invitation, to rethink the kind of world we want to live in.

Our two guides, Mariana Mazzucato and Kate Raworth, offer us a pathway out of this mess and a compass to guide us there. Are their prescriptions unrealistic? Perhaps. Optimistic? Definitely. But remember, over the long term, the future is always decided by optimists. As Kevin Kelly says, to be an optimist you don’t have to ignore the many problems we create; you just have to imagine improving our capacity to solve problems.

So imagine an economy on the other side of the portal, one built not on the principle of efficiency, or even sustainability, but on adaptability. Instead of insisting that we should return, or stop, or reverse, we have a chance here to achieve dynamic balance. Growth can happen — yes Marc Andreessen, it’s time to build — but there are social and ecological boundaries that make it clear what the right thing to build is, allowing us to differentiate among sectors that should grow and need investment (clean energy, public transport, education, health) and sectors that need to radically de-grow (oil, gas, coal, advertising, finance).

On the other side of the portal, we’ve still got access to the dynamism of the market, with its unparalleled ability to create, innovate and allocate efficiently. However, it’s backed by an innovative state, one that’s willing to fund basic research and take risks on brand new technologies the marketplace hasn’t even dreamed of. The state is also there to protect citizens from the market’s inevitable swings, crashes and wealth-concentrating effects, providing healthcare, liveable wages, housing, basic income, political voice, and freedom from discrimination.

Linear supply chains are replaced by circular ones, agriculture is transformed from an extractive to a regenerative activity, and ecosystems are treasured for what they truly are — the source of all life — rather than for just the economic services they provide. As biomimicry thinker Janine Benyus puts it, ‘when a bird builds a nest in a tree, it takes care not to destroy the surrounding forest in the process’. An economy designed like this would be far better equipped to deal with future shocks. Decentralised, clean energy infrastructure would be more resilient in the face of natural disasters, and healthcare would cease to be zero-sum, in recognition of a truth this current pandemic is showing us all too clearly — the health of one is the health of all.

This is of course, a far more ambitious agenda than what’s on the table in even the most progressive countries right now, but it’s one worth fighting for every inch of the way. We know there aren’t any members of Congress or chief economists or mayors reading this — but we do know there are plenty of deans, lecturers, teachers, speakers, managers, writers and journalists whose voices can be heard above the din. This one was written for all of you. We need a new message.

Don’t wait until it's all over.

Great! You’ve successfully signed up.

Welcome back! You've successfully signed in.

You've successfully subscribed to Fix The News.

Success! Check your email for magic link to sign-in.

Success! Your billing info has been updated.

Your billing was not updated.