NERI Co-directors, Dr Tom McDonnell & Paul Mac Flynn wrote this op ed last week. It is about not going back to business as usual in Ireland after the Covid-19 pandemic ends.
The vaccination campaign will be the decisive factor for economic recovery, albeit a recovery that is going to vary in its strength and timing across sectors and regions. In the first phase of this pandemic, countries that managed to contain and control the virus have reaped the economic rewards, however as we move to this next phase it is quite clear that countries which mount aggressive and efficient vaccination programmes will see the first real glimpses of recovery. Nevertheless, the extent and nature of the recovery will depend on the policies pursued over the next few weeks, months and years.
In the short-term we will need a targeted policy response to ensure the end of lockdown doesn't trigger a crisis moment for business arising from a confluence of debt crystallisation and withdrawn supports. The solvency of the corporate sector risks becoming a significant threat to recovery if not managed carefully.
In the slightly longer-term we will need more general policies for boosting employment and productivity. Despite the significant support provided to the labour market during the crisis, unemployment will not return to pre pandemic levels overnight. We will still need to support the incomes of those whose livelihoods have been uprooted by this crisis. Support for our economy should include a significant programme of public investment in areas like public housing and building retrofits, as well as much greater funding for human capital development. It is also quite clear now that we cannot continue operating the precarious model of healthcare that exists at present in this country. Furthermore, Ireland's relative under-spends on education, on public childcare and on public R&D compared to almost every other high-income European country has long been a significant and obvious failure of Irish policymaking and a failure that constrains our long-run growth and employment potential.
We must avoid the obvious mistakes. Debt sustainability will not be a problem in the short run. Borrowing costs are close to zero, and it's crucial that we don't move too quickly to reduce the deficit as this will hinder any nascent recovery. In any case, the deficit will return to a sustainable path if we can restore employment and incomes. Fiscal and monetary policy will need to remain expansionary for the next few years.
The crisis has shone the spotlight on other areas where reform is needed. The inadequacy of our social insurance system became clear early on and it is time for a root and branch review of the social insurance system and in particular its chronic under-funding relative to European peer countries.
A common misconception is that the economic cycle is like a pendulum of recession and recovery swinging back and forth. This is a mistake. The economy will not miraculously right itself and the recovery will be weaker and slower in the absence of appropriate state intervention.
Of course, the economy of the 2020s will be different from the pre-pandemic economy. Crucially, our focus should not solely be on quick employment 'wins' per se, but on ensuring we are best placed to benefit over the longer-term from the structural shifts ongoing in the economy. We will need significant and ongoing investments in our people if we are to fully benefit from the global shifts towards digitalisation and automation and the transition to a zero-carbon future. We will also need to ensure easily accessible upskilling and reskilling opportunities in order that vulnerable workers and the long-term unemployed are properly able to benefit from these green and digital revolutions.
The last twelve months have seen radical policy interventions. The next twelve months will need more. We cannot go back to business as usual.