Benefitting from Covid-19

1 February 2021
From our ‘Thinking outside the box’ series
We should try to take advantage of the worldwide disruption of the Covid-19 pandemic to establish new paradigms around what we value beyond pure monetary goals, writes Dr Alastair Stone.

Establishing Policy around what we Value

Covid has exposed imprecision in expressing our value systems with the debate of health vs economy the headline example.  A return to all-encompassing political welfare economics could solve the semantic issue but given the many interpretations and adjectives to describe economics and social sciences, better to define more accurately what we value, and build policy around that. In the modern “experts” vs “politicians” debate let us not forget than since the Enlightenment, we have invested significant resources in educating expert groups to advise the community on selection of feasible alternatives.  Are we really going to ditch that in the fog of unsubstantiated alternative “facts”? For example, economics is not business as in “the business case” - it is not even finance. Economics is all about exchange of resources between entities such that they both benefit.

Measuring the resources we value, is a challenge as many values are not easily expressed in monetary terms.  But in our everyday decision making, we combine monetised and non-monetized values to make choices among close alternatives, for example, in choosing bread.  Why not do the same at the scale of products such as transport, all the way to say climate?

Bearing the Costs so let us get the Benefits

It takes large disruptive phenomena like a pandemic (or war, or rebellion) to generate the energy for paradigmatic change.  Physical science shows this in describing phase changes, and today we talk of “tipping points” but rarely do we pay conscious attention in the social sciences to the generation and utilization of the energy associated with such changes, or our ability to direct it to desired futures.

With Covid we are all bearing the costs so why not use the energy for change and identify the ill-conceived paradigms we have grown used to accepting, and receive benefits that flow from corrections when such paradigms match the societal values and associated growth goals the community holds.

Beyond the Pandemic

We all accept the need to deal with the pandemic to where there is established, an acceptable post-covid existence.  History with other pandemics (with smallpox the exception) suggests an acceptable post-Covid existence will be different. We need a narrative for post-Covid to define a decision-making process (DMP) that reflects what we value.  A first step is to measure values relevant to the many scales of communities we belong to.  Post-Covid we will need to go beyond Gross Domestic Product (GDP) and use measures dimensioned to reflect the scale of the product relative to the community controlling the DMP, with causality flowing both ways.  A topical example in Australia has been the use of State and Territory boundaries to measure the incidence of Covid.  Clearly and now gradually being adopted, the Regions would have been more relevant to deciding policy interventions such as “lock-downs”.

Decision Making Processes (DMP)

The DMP leading to exchange between entities towards achieving stated goals, requires: defining units to measure resources; quantification of resources available; information about options available; and ultimately analysis and judgement resulting in choice, by those controlling decisions of the entity, otherwise known as governance. The DMP can be described as the exercise of discretion, to select feasible options until one option is selected as the exchange decision that best reflects the community’s values and goals.

Measuring the Economy

What we now measure and what the community is interested in is mismatched.  Community goals for dealing with a pandemic are similar for example, to the industrial “business” economy needed to win World War II that produced GNP and then GDP.  The measurement of GDP evolved into the individual based (Greed is Good) finance policies that dominate the neo-liberal economic thinking we have had in the last several decades.  Pandemics have a characteristic comparable with a world war in their scale, so GDP thinking is currently somewhat relevant but not so much for post-Covid given that community values have evolved to reflect goals of “wellbeing with resilience and sustainability”.  The lack of goals beyond increasing GDP reflect frustrations that go back for example, to Robert F Kennedy 1968 Vanderbilt speech that stated:

The gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It 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”.

This issue was revived by the French President Sarkozy who sponsored a Report on the Measurement of Economic Performance and Progress in 2009 authored by Stiglitz, Sen and Fitoussi.  The OECD took up the challenge to support the measurement of wellbeing with statistics that go beyond GDP.  OECD support resulted in the appointment of a High-Level Expert Group led by Stiglitz, Fitoussi and Martine Durand, the latter being the Chief Statistician of the OECD.

The central motivating force for this work stated by Stiglitz is that “what you measure affects what you do” in formulating policy. The catch cry for the work has been “beyond GDP”. The status of this work in the OECD is summarized overall in two recent books, “Measuring what Counts”, and in a companion volume “For Good Measure”, where each area of research is summarized. A major fundamental outcome is that we need to measure the wealth (capital) of a community as well as its income (jobs).  In other words, we need to account for both the profit and loss (flows) and the balance sheet (stocks) to measure progress in growing our well-being (all valued resources not just money).

An Australian National Development Index was published for several years centred at the University of Melbourne with private funding from various foundations, and the Australian Bureau of Statistics, who publish Measures of Australian Progress until budget cuts in 2014.

New Zealand introduced a “well-being budget” last year (2019), targeting mental health, child welfare, Indigenous reconciliation, the environment, suicide, and homelessness, alongside traditional measures of productivity and investment.  Leaving aside the challenges of formulating appropriate theoretical underpinnings for such measurements, the main challenge to advancing community performance measures in Australia has been the absence since 2014 of participation and political support for such work by Government organisations such as Treasury Departments. Hence major public financial resource allocation decisions appear not to benefit from reference to many values that are important to the community.  And when it comes to the allocation of discretionary (high scale) public investment for achieving long term growth of wellbeing, major allocations for “public infrastructure” dominate - a topic to which we will now turn.

Institutional Economics

It is rare in policy analysis in Australia to find in government, private sector, and academia a willingness to analyse let alone criticize current institutional arrangements for infrastructure provision.  This is partly explained by the dependence that many actors in these sectors have on existing institutions for obtaining the financial resources required to sustain their work.  Further, it is partly explained by the investment these actors have in maintaining the status quo and the worth of their expert knowledge of the current arrangements.  Philosophically, it is attributable to the existing power arrangements that control decision-making or governance structures for infrastructure.  Too often in the current circumstances in democratic representative economies, it is political parties, and lobbyists for large domestic and foreign private and public corporates, and their industry group representatives, that exercise power and control over policy and investment decision making.  Again, the Covid 19 pandemic brings with it the energy and hence power to undertake such rare analysis of all these institutional arrangements.

Targets of Opportunity in Networked Infrastructure Services

The bulk of infrastructure investment are in networked services.  Not just transport (Mobility) services but all networked services including water, communications, energy, health etcetera which, in terms of the DMP for policy, have variables whose economic functional shape are similar.

Then somewhat abstractly, the issues that have great potential to produce post-Covid Benefits from research, can be divided into firstly;  a set of products that constitute the service; and secondly, for each product, a set of functions that are descriptive of the economic characteristics to be used in mapping to  rank alternatives in a multi-dimensional space using complexity theory to decide on an allocation of resources to meet the well-being goals of the community at the subject community scale. 

Less abstractly, all networked infrastructure services are a combination of four products namely an allocation of; long term resources (“commons” of increasing value) such as land for rights-of-way or sites; long term facility resources (of depreciating value) such as a road formations or a pipeline; allocation of medium term resources for variable facilities such as a vehicle; and short term resources such as operating consumables.

For each product, the allocation of resources generally follows a power function as scale increases.  And due to network effects including constraints by prior choice of options (particularly when hierarchical governance structures are used, increasing value of first mover effects are even more pronounced).   The work of Koestler, inter alia, developed theories around these concepts known as Self-organizing Open Hierarchical Order (SOHO) institutional structures to show the desirability, in democratic economies, of bottom up strategies based on subsidiarity, compared to top down authoritarian based philosophies. Many paradigmatic issues remain, such as defining the boundaries of the relevant community, and the time vale of consumption. 

Surely research into these types of issues can have a major influence on our well-being post Covid that are worthy targets to ensure we will be benefiting post-Covid when we are already now bearing the Covid costs?