Building a sustainable economy from the ground up

4 Aug 20

CIPFA’s chief economist Jeffrey Matsu argues that the pandemic represents “time for a reboot” in the way we think about development.


UN New York_ shutterstock

The United Nations headquarters in New York

Discussions on sustainability can overwhelm. Taken together, the United Nation’s Sustainable Development Goals form an exciting and ambitious blueprint for the future of the global economy, society and the health of the planet. A total of 244 indicators are embedded across the 17 SDGs and the goals have been officially adopted by 193 countries.

According to the UN, delivery of the SDGs by 2030 will unlock market opportunities worth $12trn and create 380 million new jobs, all the while, ensuring “no one is left behind”. A situation where improvements to the livelihoods of many come not at the expense of others is laudable, but stable and fairer outcomes for everyone will require more robust safety nets to catch those who fall through the cracks.

The current Covid-19 crisis is a once-in-our-lifetime opportunity to reshape how such outcomes are achieved. According to the IMF, governments around the world have provided an exceptional $11trn in fiscal support to address cumulative economic losses, which are expected to exceed $12trn . Across the G7, these budget measures have averaged 8% of GDP compared to 3.2% in 2009. While central banks too have done their part in keeping the liquidity taps open, simply pulling forward future returns to the present may exacerbate existing economic trends. At CIPFA we are clear that fiscal sustainability relies on strong public financial management throughout the economic cycle to reduce total risk.

But a sustainable recovery cannot rely on public spending alone. What is lacking is not so much the resourcing to realise the SDGs – Allianz estimates global private sector financial assets at a staggering $200trn. Rather what is missing is the mechanisms to ensure that funds are channelled appropriately and scaled at pace.

This is where public-private partnerships can help by mobilising lending and the investment of surplus capital in much-needed infrastructure such as schools, hospitals and transport networks. The technical expertise of development finance institutions such as the World Bank’s International Finance Corporation can create markets and opportunities that unlock this private investment through greater risk sharing across the world.

Covid-19 has magnified social and economic disparities and divergences that were long in the making. In the UK, for instance, a decade of austerity cut public services so severely that the landscape has been left deeply scarred. Discretionary spending in areas such as housing, planning and transport, not to mention youth centres, parks and libraries, was hardest hit. Even mandatory services in health, social care, criminal justice and schools experienced reductions in quality and scale that will be difficult to reverse.

Since 2009, cuts in central government funding have led to English local authorities spending 17% less on public services. The distributional consequences have been remarkable with per capita spending reduced by 31% in the most deprived areas compared to 16% in the least deprived, according to data from the Institute for Fiscal Studies (IFS).

Whether in the UK or elsewhere, wider inequalities across generations, gender and race warrant more robust policy frameworks. While young people may be less susceptible to the Covid-19 virus, they have shouldered the weight of job losses and reduced job prospects, not to mention disruptions in their education and the prospect of higher taxes that will endure for years to come.

Women too are more likely to work in sectors such as retail and hospitality that have shut down or are disproportionately represented in lower paid frontline key worker roles. Moreover, recent analysis from the IFS’s Deaton Review evidences how ethnic minorities are now more economically vulnerable due to underlying factors related to age, geography, income and health. Only a third of Bangladeshi, black Caribbean and black African households, for instance, have sufficient savings to cover a month’s income compared to 60% for the rest of the population.

Promoting local ownership and devolved decision making will be paramount if national and international ambitions are to be realised. The SDGs represent an opportunity to restructure economies from the bottom-up using taxation policies to encourage hiring, retraining and capital investments that target innovation, digitisation and green infrastructure.

While more targeted stimulus measures that address the pandemic’s fallout should continue, governments must put in place stronger mechanisms to insure against a range of future temporary and permanent shocks. This includes allowing for obsolete businesses and jobs to be replaced by higher productivity, knowledge-intensive ones.

Abraham Lincoln said: “The best way to predict your future is to create it.” Whether it is navigating innovative pathways to our climate change mitigation commitments or negotiating trade deals in the face of more nationally-focused agendas, the decisions made today will define the resilience of the post-Covid “new normal.”

Governments can seize this moment to restore confidence and trust in the role for public services to improve the lives of those hardest hit. This will require greater compromise and reconciliation.

How public finances are managed matters because it will affect the cost of capital tomorrow and the ability of future generations to repay. A place-based growth strategy can separate the new economy from the old. It should recognise that strong communities are built by addressing long-standing inequalities through a change in social attitudes and norms and the fairer distribution of resources. It is time for a reboot.

  • Jeffrey Matsu

    Jeffrey Matsu is chief economist at CIPFA. With extensive experience in connecting policy with practice through evidence-based research, he works with partner governments, accountancy bodies and the public sector around the world to advance public finance and support better public services.

    Previously, Jeff was responsible for market analysis and thought leadership at the Royal Institution of Chartered Surveyors and co-led the economy theme at the UK Collaborative Centre for Housing Evidence.

    He was also a senior economist at Morgan Stanley and served on the research staff at the Board of Governors of the Federal Reserve System in Washington DC.

    Jeff holds degrees in economics from the University of Washington and Johns Hopkins University.

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