In the Face of COVID-19, Now is the Time to Create a More Resilient Economy: a Five-Part Series

At the 6 month mark of COVID-19, a five-part series on what can be done to create a better economy amongst loss and beyond it.

One of the most striking features of the COVID-19 pandemic is how quickly the U.S.’s economic and health care systems came apart in the face of it. After just two weeks of the crisis, the hospital system in New York City started to run out of basic supplies, and unemployment peaked at a rate that was the highest since the Great Depression. During the months that followed, total economic collapse has only been averted by temporary measures — but these are starting to end. As many as 40 million households may be evicted in the next few months as eviction moratoriums end, one-third of small businesses in major cities may disappear, and the end of expanded unemployment benefits may cause even more misery. The economy that our leaders have boasted was the best in the world has proven to be uniquely brittle. The records our stock markets were hitting these past several years masked an uncomfortable truth: our economy had lost its resiliency.

Resiliency means the ability to adapt to changing circumstances. What this looks like in economic terms is having resources to respond to unexpected situations. If you have a business and demand for a product you sell suddenly dries up, you have a problem — but whether you can solve that problem depends in part on how you’ve structured your business. If you have too much debt, too little operating reserve, too few talented employees, or investors who are too greedy, you’re more likely to go out of business before you can solve your problem; whereas, if you’ve set up your business to be resilient, you’re more likely to weather the storm. What we’re seeing now is what happens when a country with no cushion gets hit with a crisis — its weaknesses are revealed.

This lack of cushion is the result of choices, especially the U.S.’s choice to organize its economy to maximize short and medium-term financial return. In a return-maximizing framework, the cushion that is required for resiliency is indistinguishable from waste. After all, excess capacity, by definition, isn’t being used, so it’s not producing any profit. A financial return-seeking owner can thus make a quick buck by selling off or otherwise liquidating the cushion and pocketing the cash — and that is what has been done across the economy, from governments privatizing key infrastructure to companies replacing permanent workers with contract labor.

The consequences of this choice are particularly clear — and tragic — in the health care system. In April, New York City essentially ran out of hospital and emergency response capacity, to the point that paramedics were forced to leave cardiac arrest patients to die — but over 20 hospitals have closed in New York City since 2010, because they were deemed excess capacity. Many of the hospitals that have survived have done so by pouring all of their investment into complex (and profitable) surgical procedures. But during the worst days of the pandemic in New York, the expensive equipment needed to perform those procedures sat idle while the city had a shortage of comparatively simple equipment like ventilators.

Our sacrifice of resiliency for return has had broader consequences, though. In order to limit the economic damage from the pandemic, policy makers quickly realized that it was necessary to get money into the hands of consumers to replace lost wages. The U.S. government did so by accepting that companies would lay off their workers en masse, and expanding unemployment benefits. This policy prevented a total economic collapse, but had a key flaw: it relied on an unemployment insurance system that in many places had been gutted in the name of reducing taxes. As a result, many unemployed workers have not been able to get benefits, causing tremendous suffering. Furthermore, because the expansion was temporary, it left households in a state of uncertainty, not knowing if they’d be able to keep the lights on and afford food for more than a few months.

Governments in Europe (which, for all their flaws, have valued economic resilience much more than the U.S.), approached relief by asking companies to keep workers on payroll, but having the government pay their salaries. This approach achieved similar economic results to the U.S.’s approach but at a fraction of the cost. It also preserved the relationships between workers and employers, and looks likely to make Europe’s economic recovery smoother.

The striking thing about comparing these two approaches is that it’s almost impossible to imagine U.S. companies participating in the European approach, because under our current system the idea that they would focus on taking care of their workers (even on the government’s dime) rather than exploiting them is inconceivable. In our return-maximizing framework, businesses have abandoned any pretence of treating employees as stakeholders, and so employers cannot be trusted to not simply transfer government bailout funds into owners’ pockets, even when using those funds to pay wages would be the best thing for businesses in the long run.

The burdens imposed by our lack of resiliency have fallen disproportionately on people of color. People of color make up a much larger share of COVID-19 cases than of the U.S. population and are much more likely to be hospitalized for COVID-19 than White people. The economic effects of the crisis have also been much worse for people of color, even as they make up a disproportionate share of the essential workers who Americans have come to depend on. Thus, the pandemic shows that the U.S.’s economic resiliency crisis is part of its racial equity crisis.

The pandemic has shown us that the world can change very quickly. It’s also shown us the consequences of trading all our economic resiliency for financial return. When the crisis is over, our most urgent priority must be to change our economy to create this resilience and adaptability, the lack of which is becoming so painfully evident.

How do we do this? We need two key things. First, we need new ways of thinking about business that shows us how to weigh financial return against other values rather than treating them as the only important thing. Second, we need strategies to democratize business and financial decision-making. We can’t have resiliency if we can only consider financial return, and we can’t target and use that resiliency effectively if decision-making can be dominated by an oligarchy.

The good news is that there are many brilliant, dedicated people working to create the new, resilient economy. In my time as a Social Entrepreneur in Residence (SEIR) at Common Future, I’ve met many of them. Across the country, all types of different communities are experimenting with new, creative models for building, organizing and financing businesses. While these leaders are working on very different projects and have different passions, what they share is a recognition that the system as it exists isn’t working, as well as a commitment to bold, creative thinking and action to build a new economy. If we do treat this crisis as a wake-up call and take bold action to fix our economy, we should view their efforts as models to be expanded everywhere.