Weekend Roundup: Post-COVID Capitalism

Policy innovations are underway to make the economic system more fair.

Nathan Gardels

FDR was stricken by the polio virus of his time. (FDR Presidential Library & Museum/Margaret Suckley)

The mark of visionary leadership during a crisis is the ability to see through the fog of uncertainty and imagine the path to a better future not before considered possible. The political genius is to capture the passion behind hopes dashed and turn them toward transformative change through which they can be ultimately realized.

This is what Franklin Delano Roosevelt and his team, especially his Labor Secretary Frances Perkins, famously did for America in the 1930s. Through imagination, policy experimentation and persistence against the stakeholders of the past in the depths of the Depression, the raw and raucous capitalism of the Gilded Age that had generated so much inequality was finally tamed. The Works Progress Administration put people to work, tough financial regulation and progressive taxation were enacted and, for the first time in the U.S., a Social Security Trust Fund was invented to cushion the elderly after a lifetime of labor. Later, Medicare was added. As a result, up to the 1980s, inequality diminished, the middle class flourished and social stability was maintained. With the dreadful experience of fascism behind it and communism at its doorstep, Europe spun an even more protective web.

The policy architects of that period across the West well understood that they were building a safety net not only for the people, but for the capitalist system itself. If it wasn’t made more fair, it would all collapse in social upheaval, taking prosperity and liberal freedoms down with it.

These thoughts come to mind today as we are entering the next phase of coping with the economic consequences of the global pandemic. Attention is now turning from the bed capacity of intensive care units to constructing a new post-COVID social contract.

The stakeholders of the status quo who want a return to the stock-buyback-business-as-usual of easy-money financialized capitalism, are gearing for battle. But policy imagination in the public interest is already stirring, and experiments are underway that seek to avoid the mistakes of the 2008 meltdown when government was called in to nationalize the risks of failure while the gains of recovery were privatized. If anything, the too-big-to-fail banks that fomented financial implosion are bigger today than before, and the inequality gap among the public, whose tax resources financed the nationalization of risk, has only grown wider.

Lesson learned, the awareness of fairness hangs in the air of the coronavirus crisis. In return for bailing out Lufthansa, the German government is taking a 25 percent ownership stake in the troubled airline on behalf of the public so they will share in the upside of profits when travel rebounds.

In Brexiting Britain, the government has set up a £250 million ($308m) “Future Fund” to spur investment in technology and life-science startups, thus positioning itself to reap the potential of high-growth returns that would accrue to the public purse. Though some have criticized the fund for shutting out matching investments from venture capital angels who might otherwise get a tax break, it nonetheless establishes the principle that the public will share rewards and not just risk.

The U.K. government has also launched Project Birch to bail out “viable companies which have exhausted all options,” taking on equity shares to escape the over-indebtedness trap. As a former chancellor of the exchequer, Alistair Darling, put it, “Taking equity might be a good thing for the taxpayer to do. If you’re lending money, say to an airline, it’s only right the taxpayer gets its fair share of the success at the end.”

In the U.S. the Berggruen Institute has pulled together diverse influencers from across the spectrum such as top hedge-fund investor Ray Dalio and Nobel laureate Joe Stiglitz to explore the concept of “pre-distribution” and “universal basic capital.” The essential idea is that, to the extent there is any cash infusion of public funds into private companies to stave off the risk of bankruptcy, any rewards down the road should also be shared by the public. This could be done by pooling all those ownership shares into a national endowment fund that would build wealth over time, the returns from which would be used either for key public investments such as infrastructure, or distributed to citizens as dividends. This notion extends to public sharing of profits in companies that benefit from basic government research, particularly in the key resource of the future, intellectual property.

This approach does not fit neatly into any left or right ideology. In fact, a public endowment that pays dividends to citizens in this way already exists in one of the most conservative American states. The Alaska Permanent Fund channels a percentage of revenues from the Trans-Alaska Pipeline into a capital endowment from which the returns on investment are paid out not only to present residents but also with an eye toward future generations when oil resources are depleted.

Another conservative state, Texas, has long-established endowments to fund public goods. The Texas Permanent School Fund, which has nearly $40 billion in assets, is an endowment drawn from mining of mineral resources and state lands that are sold or leased for oil production. It is used to fund primary and secondary education. The state also has a Permanent University Fund that finances the University of Texas system and Texas A&M University.

For the moment, visionary leadership of FDR’s caliber is not yet in sight, with a couple of notable candidates in the wings. In the U.S., California Governor Gavin Newsom is poised for such a role. Long before it was widely accepted, he challenged the political odds by making same-sex marriage legal when he was mayor of San Francisco. Long before the coronavirus crisis, which his 83 percent popularity rating suggests he handled well, Newsom was thinking how to “bend toward a better future” through bringing democracy into the digital age and stemming inequality. Now that the first legislative packages to salvage the economy have been passed, the powerful speaker of the U.S. House of Representatives, Nancy Pelosi, is all ears for new ideas that will lead to a fairer future for all instead of back to the mounting inequality of recent decades.

Though not directly related to the reform of capitalism, the president of the European Commission, Ursula von der Leyen, is also demonstrating leadership with foresight. She has boldly proposed a trillion-euro package of grants and loans to close the gap between the financial capacity for post-pandemic recovery of northern and southern Europe, linking it to a Green New Deal going forward.

If the destination is a more fair post-COVID capitalism, the way to get there is to keep walking ahead through the space opened by the pandemic with policy experiments that aim to reach that goal through trial and error. FDR, himself stricken by the polio virus that ravaged his time, understood that only breaking new ground will reveal the path out of an unprecedented crisis.