S&T- Crisis and Innovation -Part I

Margaret MacMillan, the eminent historian, has compared this crisis to the French and Russian revolutions – points at which the river of history changed course.

And it’s almost certain that as a result of this crisis there will be big changes: expectations of the state’s ability to look after its citizens will be higher; the public and financial markets may be more accepting of government borrowing; government will be expected to manage the labour market to provide a minimum level of security for vulnerable workers. It will be a far cry from the free-market, small state policies of the 1980s and 1990s.

Yet it is far from obvious that this crisis, even one that is deep and severe, will lead to a turning point of the kind that MacMillan suggests.

COVID-19 might prove similar if we emerge from the pandemic with as much continuity as change. Many systems, including banking, financial markets and food production, have carried on working much as they ever did. There is pent-up desire to get back to activities once regarded as normal: eating out; socialising with friends; weddings; holidays; visits to the cinema, concerts, festivals and football matches.

A crisis only becomes a turning point when it becomes a ‘critical juncture’ – one of those rare moments when institutions, norms and rules are unfixed, new possibilities for future development open up, new ideas gain currency and social and political forces emerge to take them forward. The choices made in those moments can have lasting effects on how society develops. The US New Deal in response to the Great Depression and the creation of the British welfare state after the Second World War were both critical junctures.

The Black Death created a critical juncture in the 14th century because the death toll produced such a labour shortage that the status quo could not be restored. Peasants in some parts of Western Europe were able to shake the foundations of the feudal order, winning greater economic and political freedoms. In much of Eastern Europe however, landowners responded by becoming more authoritarian, imposing an intensified serfdom. The two parts of Europe developed in very different ways thereafter. Western European societies became more broadly based, inclusive and productive; Eastern European economies became even more extractive and unequal, ruled over by an implacable feudal elite.

That story told by Daron Acemoglu and James Robinson in Why Nations Fail explains the role of the plague this way: “The Black Death is a vivid example of a critical juncture, a major event or confluence of factors disrupting the existing economic or political balance in society. A critical juncture is a double-edged sword that can cause a sharp turn in the trajectory of a nation.” But as the Black Death showed, that turn could go in any number of directions depending on the way the forces at play amplify what can be small differences in the institutions of different societies.

A critical juncture is a relatively short period of time when a broader than normal range of options is open to society. The choices made between those options, by people and organisations with the power to make the choices, will have a significant, long-term impact on how society develops. Is what we are going through now what the philosopher Gershom Scholem called a ‘plastic hour’ when obdurate systems resistant to change suddenly have no option but to open up?

A crisis can create transformative change in four ways. All four are at work in the COVID-19 crisis. It remains to be seen whether these four will make this a critical juncture.

A crisis can rapidly accelerate changes already underway as society suddenly goes much faster along the path it was already on.

The most obvious example of acceleration is the rapid spread of digital services, not only for shopping but also for work and public services. The British government has been able to channel furlough payments to millions of employees and loans to thousands of businesses, thanks to digital service platforms that have been a decade in their development. The crisis has propelled a step change in digital services around the world. Indonesia is just one place where a mobile phone based primary health care system has been scaled rapidly. What was once niche has become mainstream.

The acceleration of digitalisation will have knock-on effects. Home will become even more important for people as a place from which to work and shop. That may change the geography, patterns and routines of work: suburbs and small towns with good internet connections may become more attractive. By accelerating digitalisation, societies will have different options for how they organise themselves. Looking back, historians may pinpoint the crisis as the time when the potential of digital services to radically transform where and how we work were made real.

A crisis can also create a dead end. The path comes to an abrupt halt; in the worst case, it goes over a cliff. That shock forces people to change how they work and live, as old models are no longer viable. Even if it’s not obvious what new models will take their place it is clear that people need to explore and experiment to find them. Historians will look back and identify this crisis as the moment when some old systems finally ran out of road.

For some industries, the dead end has been looming: high streets and the retailers still on them. The crisis has merely brought forward the end. In other cases, the discontinuity has been much more sudden and shocking because it was so unexpected. Entire industries that had viable business models have been brought to their knees by the need for social distancing: among them hospitality and tourism, cultural and creative industries which depend on live performance for audiences. Some of these industries may snap back into shape once effective vaccines have been distributed widely enough and people can eat in restaurants, gather for weddings, board planes and go to concerts. Yet, even so, the crisis will leave lasting scars. Some of the theatres and restaurants that have closed will not reopen. Some consumers jolted out of old habits may permanently revise their behaviour, especially in the light of climate change, which might mean people flying less. In many poor communities high streets could become deserted.

Like the pits, steel works, car factories and docks that closed in the midst of deep recession, never to reopen, at least some of the restaurants, shops and cultural venues closed by COVID-19 may never return. The geography of that impact is likely to be highly uneven.

What do you do when you reach an unexpected dead end? You trace your steps to take forks in the road you previously ignored. That may be what will happen if the crisis brings about a flight from large cities and less commuting, in favour of suburbs and provincial towns where local services, high streets and spaces, like libraries and parks, might fill up again, bringing with it a provincial renaissance.

When society accelerates along one path, while another comes to an abrupt dead end, then society’s arc of development shifts. A crisis then becomes a turning point.

A crisis becomes a turning point when society changes the path it is on. Critical junctures are forks in the road, or, more radical still, a leap to a completely different path, which comes about in part through conscious, deliberate, collective choice.

Regional economies often have to go through such shifts, according to Bjorn Asheim, one of Europe’s leading scholars of regional economic development. Regional economies have a strong tendency to extend the path they are already on, refining existing knowledge and reinforcing existing relationships, serving existing markets with familiar products. However, to create new opportunities for growth, regional economies have to leap to a new path – Asheim calls it a long jump – which requires exploring new markets, engaging with unfamiliar knowledge and making new relationships. Out of all of that a new way forward emerges. Long jumping is a risky business. The shock of a crisis may yet force us to become long jumpers, to find a new path.

The most obvious example of such a long jump is the remaking of our approach to work. Enforced and prolonged distance working is making many employees and employers reassess the importance of having everyone in the office all of the time – or even having an office at all. Home is becoming a workplace for many more people. Many offices, and so the services that cluster around them, will never be the same. Organisations and management hierarchies will be reshaped; people may even be forced to rethink what an organisation is.

At the same time as opening up these opportunities to work differently, many people will find some forms of work much harder to sustain: the frontline staff who have continued throughout the pandemic; the people laid off from jobs in hospitality. Just as digitalisation and automation accelerates, eliminating many routine jobs, so job creation will slow in sectors such as hospitality and services (where it was such an economic lifesaver after 2008). The consequent rise in unemployment among low-skilled workers will likely force the government to sustain a more activist approach to managing the labour market, quite possibly borrowing from European welfare systems that subsidise wages to keep people in jobs for as long as possible.

New models of work will emerge from the crisis and, with that, perhaps a new social safety net offering workers a job guarantee and a measure of security married to flexibility. Ideas for reshaping the labour market figure prominently in the policy platform Joe Biden’s campaigned on in the US presidential election, including a higher minimum wage; three million new jobs in education, childcare and elderly care, with better pay and benefits. Democrats are pushing for more universal benefits for sick pay and family leave. Experiments with universal basic income are becoming practical realities in some places.

What started as a health crisis could leave its lasting mark by creating a new way for society to organise work, one which would have seemed a pipe dream even in 2019. That would be a turning point: a shift onto a new path.

The final option is that the crisis might create so many opportunities for change, on so many different fronts, that rather than creating a clear turning point – a choice between one path and another – it becomes more akin to a large roundabout, with many different exits as society spins around searching for a way out. That may be the best description of the state we are in now, a kind of vortex in which everything moves very fast but stays roughly in the same place because for the moment at least we are going round in circles.

The possibilities are endless. Crisis could lead to: the spread of digitalisation of public and private services; a new economic role in managing work for a larger state with a more relaxed approach to borrowing; a reformed system of social care, in the wake of the toll on older people and their carers; something like a universal work and income guarantee for young people; new alliances between local government and mutual aid groups in civil society; a digitally enabled primary health system, including track and trace technology as standard; a new society-wide commitment to tackle structural racial inequality; a recovery with a Green New Deal at its heart; a return to normality circa 2019. Precisely because it reaches so deep and wide, this crisis may create so many different possibilities that nothing as coherent as a single ‘turning point’ emerges. Instead different parts of society take different exits scattering in different directions pursuing fractured experimentation.

That fragmentation may be the most plausible outcome because there are as yet no clear political and economic actors with enough support to take society in one direction or another. The nationalist and populist wave may have reached its peak. Everyday radicalism, experimenting with new policies, organisations and institutions, may be rising. New coalitions may be forming on the horizon as we embark on a green transition. But as yet there is nothing coherent enough to take society in a definitive direction. It will depend on what coalitions form around which programmes in the next year or so.

These are the four ways in which a crisis can generate lasting, potentially transformative change: accelerator, dead-end, turning point and roundabout. This crisis clearly has the potential to be a critical juncture but that depends on which exit we take from the roundabout. And that will depend on who gets to tell the story of the crisis, how we make sense of it all.

That is the conclusion Mark Blyth comes to in his study of such moments in Great Transformations: Economic Ideas and Political Change in the Twentieth Century. According to Blyth, a professor of international political science at Brown University in the US, a crisis becomes a turning point when its story gets told in a certain way which determines what an adequate response looks like.

The first is whether the crisis is seen as an external threat or an internal challenge. Those in power, seeking to justify their actions, will want to present COVID-19 primarily as a global pandemic: an external threat of unprecedented scale. Their challengers will have to persuade people it was also an internal challenge, exposing deep seated weaknesses and failings. Perhaps Joe Biden’s victory also marks a tilt in favour of the latter account.

The second contrast is whether we are all in this together or whether the crisis has exposed and deepened structural social inequalities that need to be tackled. Do we bask in the warm glow of collective goodwill or face the hard and costly reality of inequality?

The alternative narrative is more difficult to convey. The pandemic exposes the limits of individualism; responding to it depends on solidarity and fellow feeling. One person’s health depends on the health of others. Yet that will not yield an agenda for reform unless we also address the growing evidence that we are not in this together, that the economic and health burdens are unequally shared across class, race and age. The post-war welfare state emerged from the fellow feeling of the war but also a recognition of the unequal burdens, carried by older people and women. It was both an expression of solidarity and a critique of unacceptable inequality.

Challengers will need to get this balance right to create a credible narrative. The uneven impact of the economic crisis, the unemployment and business closures that will follow the end of the pandemic, could provide the basis for such a narrative.

Milton Friedman, the intellectual inspiration for the free market policies of Ronald Regan and Margaret Thatcher once wrote: “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions taken depend on the ideas lying around. That I believe is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

The problem is not a lack of ideas. Many of the ideas that might provide the ingredients for a critical juncture are lying around: a version of universal basic income, combined with a Green New Deal, greater local and deliberative democracy and more responsible corporations to create an economy organised around an ethic of care, regeneration and stewardship rather than money, profits and growth.