Social and economic benefit – that would be real reform for our times

Pro-growth strategies will not be enough to deal with the ramifications of COVID-19. It’s time to re-align social and economic incentives: to look beyond binary solutions, make impact count and drive innovation for social progress, writes Rosemary Addis AM.

The ramifications of COVID-19 will reverberate through society and economies for some time. Recent economic and financial updates increasingly give dimension to this.

We will also face the realities of pressing social issues as the full effects of the pandemic on some of the most vulnerable people and communities are understood. 

Thankfully talk of snapping back has been replaced with a more grounded appreciation of the need – and opportunity – for reform. Encouragingly, even conservative commentators have been heralding this moment as the time for not just reform, but reinvention.

The political and policy dialogue has shifted from snapping back to rebuilding: this won’t be a return to some notion of business as usual; new value creation that drives jobs is essential; we have policy tools available, and will need some new ones, to make this happen.

However, a crucial piece is missing. Economic policies fit for the complexity of this current crisis, need to address what economists from Michael Porter to Joseph Stiglitz have identified as the major insight in modern economics – a major misalignment of social, environmental and economic factors. 

The pandemic and its effects on jobs and livelihoods, the bushfires of this past Australian summer and the displacement of millions through war and famine have given this insight a very human face. They have exposed the fragility of our system and the interconnectedness of well being, prosperity and stability. We need more than pro-growth reform.

We have, now, a unique opportunity to think anew about the relationship between our economy and society. Never in our lifetimes have we faced a challenge of the urgency and enormity ahead of us today, nor have we had the conditions laid so bare to choose and shape the future.

We need to make sure this is not a “sliding doors” moment on which we look back and ask “what if?” How can we ensure that this time it will be different?

Going beyond binary solutions 

The way forward is not a contest between public and private, profit driven or social good. No sector holds all the levers for creating public value. 

Over-reliance on neo-classical efficient market theory will not be sufficient. It is time to move past unhelpful and polarising generalisations that only “markets are efficient” and that “governments are inefficient”. Having held senior roles across private, public and community sectors, I can attest that no one has a monopoly on good practice. It is possible to implement policy that goes beyond the zero-sum game of efficiencies, trickle down effects and redistribution. 

Much depends on leadership and relationships between the different sectors. The stakes may never have been higher for us to place business and market actors as key collaborators in delivering and expanding social and economic value. Porter and colleagues said the future of markets depend on it.

Making impact count

New bargains will need to be struck that focus on improving outcomes as well as more economic activity. The goal must be more activity and better outcomes. Governments can set the conditions that signal it is unacceptable to drive financial return at the expense of people and planet. That means increased accountability for everyone involved. 

Other universal asset owners are already seeking new terms. A group led by Japan’s government pension fund said in a public letter in March 2020, “companies that seek to maximise corporate revenue without considering their impacts on other stakeholders… are not attractive investment targets for us”. Taxpayers should demand no less when public money is being committed. 

Putting greater transparency of impact on the agenda is a natural complement aligned with the purpose of crisis response and stimulus funding. The tools exist to build impact management and reporting into accountability. Frameworks to drive transparent disclosure have been developed with multilateral engagement across sectors and can readily be applied in different countries. 

Public funding could be linked to outcomes including quality jobs, as New York Governor Andrew Cuomo has called for, or greater sustainability as France has done. Canada has made annual climate reporting a condition of government crisis funding packages. The European Union was already legislating for greater disclosures as part of sustainable finance pre-pandemic.

Innovation for social progress 

Reforms will need to drive innovation from all sectors. Boundaries that have grown up between economic policy and social policy need to be dismantled. Governments can start with realigning a well-developed toolkit for economic innovation to broader goals. Economic commentators from Bill Janeway to Marianna Mazzucato have focused on the transformative potential when states invest with an ambitious mission-orientation. Using state purchasing power to accelerate development and increase competition in areas such as COVID testing, as proposed by Sir Ronald Cohen, and vaccines as proposed by René Karsenti could see finance and enterprise save lives.

There is experience to draw on that can help us move with the speed and efficacy the times require and the issues deserve. The Global Steering Group and its National Advisory Boards on Impact Investing bring together leaders from across sectors to build the ecosystem for societal and economic value, at scale. This is one of the networks that opens up experience and actionable insight from over 30 countries and a network of leaders from Nobel laureates to grass roots in facing up to the challenges ahead.

Governments can take this a step further with targeted policy action to direct activity and capital to priority areas including quality jobs. We do not need to rely on spill-over effects. We can design for the social and economic objectives. Stellar examples, like Bridges Funds Management in the UK, have a track record targeting aspirational business in the communities where jobs are needed most. Lessons can readily be adapted for other contexts. Indeed, building blocks were laid after the 2008 financial crisis for replicating lessons from Bridges and others to focus on driving jobs through investment in those communities where they are needed most.

To speak of investing more may seem counterintuitive given the current borrowings and significant government deficits. But that is exactly the breath-taking quality of the opportunity. 

A clear vision for the future

The potential lies in a vision for a future that is financially prosperous and in which people have access to clean water and good health and where we conserve and sustain the environment. That’s a vision people can get behind as we work through these uncertain times together.

If not now, then when?