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How COVID-19 changed the world: G-7 evidence on a recalibrated relationship between market, state, and society

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Introduction

The COVID-19 pandemic changed the relationship between the market economy, state, and society in the G-7 countries and beyond. While economies collapsed due to the shutdown of broad swathes of the economy, the state and civil society have gained new significance in protecting people from the pandemic’s effects. This dramatic shift has recalibrated the public’s perception of the role of markets, government, and society in response to the worldwide shock. This is a central finding of this study, which examines the effects of the pandemic in terms of normative foundations for societal well-being.

Katharina Lima de Miranda

Postdoctoral Researcher - Kiel Institute for the World Economy

Research Director, Council for Global Problem Solving - Global Solutions Initiative

The Recoupling Dashboard is an outgrowth of the research initiative on “Recoupling Economic and Social Prosperity.”1 The underlying motivation is simple: In view of the social fragmentation and environmental degradation that has accompanied economic growth over the past decades, it is apparent that economic prosperity (in terms of GDP) can become decoupled from social prosperity (in terms of well-being in thriving societies). Economic prosperity is not an end in itself, but a means to the end of social prosperity. The aim of economic and social policies should be to promote social prosperity and to recouple economic prosperity with it.

The Recoupling Dashboard provides a simple empirical framework to measure economic and social success. The Recoupling Dashboard 2020 provides a new picture of how countries have responded to the COVID-19 pandemic—one that tells quite a different story from the conventional analyses focusing on GDP alone. Social prosperity depends primarily on the functioning of four domains: the economy, the state, civil society and the environment. The pandemic was an attack on the economy, since public health concerns demanded shutting down or reorganizing economic activities requiring close interpersonal physical contact. If societies were to be cushioned from the health crisis and its economic fallout, the cushioning would have to come from the state and civil society. The Recoupling Dashboard 2020 uncovers the divergent experiences of countries in this regard. This paper focuses on the G-7 countries—Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States—as the first step towards a wider appraisal.

The Recoupling Dashboard 2020 provides a new picture of how countries have responded to the COVID-19 pandemic—one that tells quite a different story from the conventional analyses focusing on GDP alone.

Just as the drop in economic response to the pandemic was predictable, so the environmental response was broadly predictable as well, since the environmental consequences largely followed from the economic consequences. (For example, reduced economic activity led to lower CO2 emissions, while increased production and consumption of personal protective equipment—such as face masks, disposable gloves, and clothing—led to greater biomedical waste.) Since the environmental effects of the pandemic have already received detailed attention elsewhere,2 we focus primarily on the social effects with regard to the responses of civil society and the state.

The Recoupling Dashboard is composed of four main indexes: Solidarity (S), Agency (A), GDP (material Gain, G) and Environmental sustainability (E)—SAGE for short.

Solidarity (S) covers the need for social belonging and embeddedness in the society, as such, it deals with solidarity in the civil society and as opposed to institutionalized solidarity such as social security systems or cross-national support. It may be directed “inwardly” to one’s national, religious, ethnic, racial, or class groups, or “outwardly” to groups with regard to which one does not define one’s social identity. Inward Solidarity by itself may promote the well-being of one’s in-group members, but lead to conflict with out-groups (which often detracts from the well-being of both in- and out-group members). Populism, for example, represents a form of Inward Solidarity that often generates hostility to immigrants, from which social conflicts within nations can arise. Under these circumstances, Inward Solidarity generates positive externalities for ingroup members, but negative externalities for out-group members. But Inward Solidarity could also be positively related to Outward Solidarity—as when people with a strong sense of national identity welcome immigrants and benefit from the resulting cultural exchange—thereby generating positive externalities for in- and out-group members alike. The psychological relationship between Inward and Outward Solidarity is complex.3

Economic prosperity is not an end in itself, but a means to the end of social prosperity.

The Agency (A) covers the fundamental human purpose of individual mastery and personal growth. It aims to measure how empowered people in a society are to influence their own fate through their own efforts.

Our measure of material Gain (G) is GDP and that of environmental sustainability is also conventional, covering a broad index (the Environmental Performance Index) and two narrower indexes (CO2 emissions and greenhouse gas emissions).4

These indexes are not inherently substitutable for one another and thus need to be assessed separately. The dashboard suggests that when people have a secure sense of social belonging (S), are empowered to influence their fate through their own efforts (A), are materially well off (G) and live within planetary boundaries (E), then a groundwork for satisfying their fundamental needs and purposes is established.

It is well-known that there already exist many indexes of societal welfare that extend beyond GDP. For example, there are indicators that adjust GDP (such as the Index of Sustainable Economic Welfare, Green GDP, Genuine Savings, Brynjolffson’s GDP-B metric); others measure human capacities (such as the Human Development Index); there are psychological measures of wellbeing (such as the Personal Wellbeing Index and Happy Life Years Index) and sociological measures of wellbeing (such as the Physical Quality of Life Index and the Social Progress Index of the Social Progress Imperative (2020)). Furthermore, there are indexes of happiness (such as Gross National Wellbeing and the World Happiness Report). Finally, there are hybrid indicators (containing objective and subjective measures, such as the OECD Better Life Index (OECD (2019a,b)) and indexes of desirable outcomes (such as Sustainable Development Goals of the 2030 Agenda for Sustainable Development).

The Recoupling Dashboard breaks new ground in being the first measure of social progress resting entirely on a few major ethical foundations. The S is the focus of communitarianism (covering people’s social needs and purposes), A is the central value of classical liberalism (focusing on individual empowerment, civil liberties, and human capabilities), G is central to the utilitarian consequentialism that underlies the discipline of economics, and E covers the domain of environmental ethics (the value and moral status of the environment). This normative basis for measuring wellbeing is significant, for three reasons. First, living in accordance with one’s moral values is a major source of wellbeing. Second, most of our moral values can be understood as potent instruments for inducing social cooperation among people. As such, they can be recognized as a key to assessing the social prosperity that lies beyond economic prosperity. Third, moral values are imbued with normative force, inducing people into action. Thereby our dashboard aims to capture components of wellbeing that people are especially inclined to act on.

The Recoupling Dashboard combines this distinctive feature with the characteristics of brevity, regularity, and breadth. Regarding brevity, the dashboard contains only four indexes, matching the four things that humans can be kept simultaneously in working memory.5 As for regularity, the dashboard is assessed on an annual basis, comparable with annual GDP statistics. Finally, regarding breadth, the dashboard covers a large number of countries (currently over 150), so as to allow country comparisons to be made. For the purposes of this paper, we focus solely on the G-7 countries.

The four indexes of the dashboard are not closely correlated with one another. In particular, movements of GDP do not provide an adequate account of how Solidarity, Agency and Environmental Sustainability evolve. If GDP grows while S, A, and E stagnate or decline, we can say that economic prosperity has become “decoupled” from social and environmental prosperity. Then the aim of policy should be to “recouple” these separate domains, ensuring that all four fundamental needs and purposes are met.

The political and social implications of decoupling are momentous. For example, two years before Donald Trump won the U.S. Presidential election, Agency suffered a steep decline, Inward Solidarity stagnated, while Outward Solidarity fell. (See Figures 1 and 3 below.) In the period 2006-2016, Solidarity (both Inward and Outward) fell by 6 percent and Agency dropped by 12 percent in the U.S. These psycho-social developments were masked by a steady rise in GDP. Had such phenomena received the serious attention that they deserved, we could have gained a deeper understanding of Donald Trump’s electoral appeal and new insights into ways of dealing with the underlying discontent. (“This time, it’s not the economy, stupid.”)

One year before the Brexit referendum, Outward Solidarity in the U.K. plummeted, Inward Solidarity rose, while Agency declined (as shown in Figures 1 and 3 below). Over 2006- 2016, Inward Solidarity in the U.K. fell by 2 percent, Outward Solidarity was stagnant, and agency fell by 5 percent. This, too, provides a very different picture of British well-being than the steady rise of U.K. GDP. Once again, prominent recognition of these developments would have given rise to a different assessment of the social problems leading to Brexit than the ones on which Prime Minister David Cameron was focused. (Again, “It’s not the economy, stupid.”)

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Footnotes

  1. Lima de Miranda and Snower (2020)
  2. The collapse of economic activity has been accompanied by an associated decline in CO2 emissions, but by less than initially anticipated (Liu et al. (2020a). For example, on the positive effects on air pollution and greenhouse gas emissions, see Saadat et al. (2020), Berman and Ebisu (2020) and Evans (2020). Regarding reductions in water pollution, see for example Yunus et al. (2020) and Zambrano-Monserrate et al (2020). Negative environmental effects include increases in biomedical waste generation, municipal solid waste generation and recycling reduction (for example, Zambrano-Monserrate et al (2020), Fadare and Okoffo (2020) and Calma (2020)).
  3. See, for example, Brewer (1999).
  4. Data sources are described in Appendix 2. The indexes for CO2 emissions and greenhouse gas emissions may be understood as indicators of the concern for the environment.
  5. Cowan (2010).
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