What does it really mean to ‘build back better’ after COVID-19? Our experts advocate both pragmatic and aspirational approaches, including international action on sovereign debt, domestic action on universal health coverage and a shift to more sustainable economic models.
The economic governance perspective: three principles for policymakers
It will be some time before we have a full understanding of the extraordinary nature and scale of the global economic shock caused by the COVID-19 pandemic.
Some immediate facts are known. World GDP fell by an unprecedented 3 per cent in 2020, and while it bounced back sharply in 2021 as restrictions on movement and public gatherings were lifted, the pandemic has left a long-term legacy of higher debt across a range of countries. Average gross public debt in advanced countries was up 14 percentage points to 118 per cent of GDP at the end of 2021, while in the developing world there was a sustained rise in the number of countries in, or near, debt distress (60 per cent of low-income countries and 30 per cent of emerging economies by the summer of 2022).
The direct effects of the pandemic may continue for some time. China’s delayed relaxation of its ‘no COVID-19’ policy means that the virus is still a major drag on the world’s second largest economy – with Chinese GDP declining 2.7 per cent in the three months to June 2022 before recovering by 3.9 per cent in the subsequent quarter (and overall growth of just 3.2 per cent projected by the International Monetary Fund for 2022). Moreover, anecdotal evidence and initial empirical studies suggest that, even where the virus has stopped disrupting day-to-day life, the impact on productivity and future public spending from the prolonged interruption in normal schooling over 2020–21 and the effects of ‘long COVID’ may prove a significant drag on growth in some countries for years to come.
This uncertainty makes devising an appropriate plan to rebuild the world economy (or ‘build back better’) in both advanced and developing countries far from straightforward. We have already seen the kind of problems that can arise. With the benefit of hindsight, and in the light of the current inflation surge, it looks like monetary and fiscal policy in the advanced economies was much too loose in the second half of 2021. Correcting this through a sharp rise in US interest rates has been one of the factors leading to the deterioration in the sovereign debt situation of low-income and emerging economies.
Judging the response is also greatly complicated by Russia’s full-scale invasion of Ukraine in early 2022, and by the rapidly crystallizing existential threat from climate change. Russia’s attack on Ukraine and its subsequent retaliation against the EU following G7 sanctions have led to extreme short-term disequilibrium in global energy markets, with natural gas prices in Europe at the end of August exceeding the equivalent of $500 per barrel of crude oil before falling back to approximately $220 currently. Similarly, the unprecedented sanctions taken by the West to weaken Russia’s ability to continue the war are likely to have substantial long-term consequences for the international economic system. Meanwhile, the radical reshaping of global investment required to transform the world economy to ‘net zero’ by 2050 creates a need for strong government interventions which have only just begun to take shape. According to one estimate, total additional investment needs for the world to achieve net zero emissions of greenhouse gases are of the order of $1 trillion to $3.5 trillion per year (between 1 per cent and 3.6 per cent of 2021 GDP). The dilemma for Western governments which must choose between spending in support of Ukraine (ultimately critical for national security) and contributing to global development finance (critical to averting climate disaster) highlights the kinds of complexities policymakers now face.
In these circumstances, three principles should guide the current approach of policymakers to building back better. These principles recognize the urgency of the challenges, but also the limits on institutional capabilities and the constraints imposed by populist politics and geostrategic tensions.
First, as far as possible, policies should be devised to use the implementation tools and institutional mechanisms we already have available, or which can be adapted relatively easily to new purposes. We are in an extraordinary situation, and it is true that a crisis can sometimes open up new opportunities for reform, but this does not change the very limited bandwidth of policymakers, or the fact that building new institutions from scratch takes time and can have unintended consequences.
Two of the clearest priorities for building back better should be the relatively small-scale investment required for pandemic preparedness and response and, on a much larger scale, boosting renewable energy investment as a direct response to the escalation in hydrocarbon energy prices.
Second, policymakers should rigorously prioritize – they should do first the things for which the evidential basis is clearest and which can hit several objectives with one policy. They may also need to split major problems into smaller/incremental steps. Thus, two of the clearest priorities for building back better should be the relatively small-scale investment required for pandemic preparedness and response and, on a much larger scale, boosting renewable energy investment as a direct response to the escalation in hydrocarbon energy prices, particularly for natural gas in Europe.
Third, and perhaps most important, policies should recognize, and adapt to, the current very serious political constraints on global cooperation. Global governance is currently under considerable strain, and the seriousness of the challenges humanity faces does not change that. Today’s international community is very different to the one that responded to the global financial crisis more than a decade ago. Trust has eroded, and political and economic philosophies are far more disparate – particularly on issues such as the role of the private sector. The situation is partly a consequence of Russia’s invasion of Ukraine (and the disagreements between the West and leading emerging economies on whether Russia should be suspended from the G20). But it also reflects longer-standing and increasing tensions between the West and China, with the former tending to reassess China as a strategic threat and China perceiving almost any Western proposal as designed to prolong what it sees as the West’s disproportionate influence on the international economic architecture. At the same time, the West is unwilling to carry a disproportionate share of the costs (relative to GDP) of tackling global problems.
In these circumstances the best response is to focus – in the G20 and other global forums – on issues where there is the strongest consensus on the need for international cooperation between the West and emerging economies (particularly China), where the challenge can be framed to a large extent in a technocratic, politically low-profile manner, and where Russia’s natural role is limited. A good current example of this is the response to the escalating sovereign debt crisis in low-income and emerging economies.
While these principles may not lead to highly visionary or inspiring initiatives, they are a realistic response to today’s policy environment. If applied systematically, the results may be faster and more significant than the alternative of a much higher-profile and ultimately unsuccessful strategy, and could provide the building blocks for a comprehensive response to the world’s most pressing problems.
The public health perspective: using ‘build back better’ investments to promote universal health coverage
Recognizing that policies and activities in multiple sectors affect health outcomes, what is the best contribution the health sector can make to ‘building back better’? Since the advent of the Sustainable Development Goals (SDGs) in 2015, there has been a consensus among global health policy experts that attaining universal health coverage (UHC) – SDG target 3.8 – should be a focus of health systems worldwide. Indeed, this was the theme of a special high-level meeting of heads of government before the UN General Assembly in September 2019, which proved to be the eve of the COVID-19 pandemic.
Looking back over the past three years and the failures of national and multilateral health systems to protect the world’s population from a global health shock, it is all too apparent how far the world is from UHC. Even the most sophisticated health systems have exhibited alarming gaps in coverage of key services for their most vulnerable populations. The ongoing inequitable distribution of vaccines and other commodities has demonstrated a lack of solidarity by wealthy nations in ensuring that essential services be allocated globally according to need – one of the key principles of UHC.
These failings have strengthened, rather than undermined, the case for UHC. The externalities associated with infectious diseases have highlighted the need for universal coverage of key services – especially public health services that prevent and control epidemics. The devastating economic impact of the pandemic has also strengthened the economic case for investing in health services: the World Bank, IMF and World Trade Organization (WTO) have joined the World Health Organization (WHO) in calling for investments of billions of dollars – to save trillions of dollars worth of output that would otherwise be lost. Furthermore, the impact of the pandemic has generated political pressure worldwide to strengthen health systems. In 2020 a huge UN survey, involving over 1 million respondents, found that improving access to healthcare was by far the most popular request.
So if the health, economic and political cases for accelerating universal health reforms have never been stronger, how will such reforms be financed? Answering this question also involves acknowledging that only public financing mechanisms can achieve the overall objective of UHC, whereby everyone receives all the health services they need without suffering financial hardship.
Given the record of wealthy nations in underfunding global health financing mechanisms during the pandemic, it is unrealistic and naive to think that their behaviour will change now, and that they will play a significant role in financing universal health reforms in the developing world. Instead, we should be looking for governments to increase their own domestic public spending on health using funds primarily sourced from general taxation. The reforms in IMF accounting rules proposed by Jim O’Neill in this edition would facilitate this process.
The ongoing inequitable distribution of vaccines and other commodities has demonstrated a lack of solidarity by wealthy nations in ensuring that essential services be allocated globally according to need.
But what is the likelihood of this happening in a world grappling with new crises associated with the war in Ukraine, rising energy and food prices, and the ongoing climate crisis? Actually history would suggest that the chances are quite good, given that so many of the world’s most famous universal health systems have emerged out of previous crises. Examples include systems in the UK, France and Japan after the Second World War, in New Zealand after the Great Depression, and in Thailand in 2001 following the Asian financial crisis of 1997–98. There is also the example of China, which trebled its public health spending in the aftermath of the SARS crisis in 2003. Indeed, there are already examples of countries indicating that they will be launching or accelerating major universal health reforms in response to recent crises; these countries include Malaysia, Egypt and South Africa.
So might one of the few silver linings in the crises of the 2020s be that more political leaders implement domestically financed universal health reforms? This would bring immediate health and economic benefits to their countries, and history shows that it could bring them significant political benefits – enabling them to stay in power and implement the other policies required to ‘build back better’ in their own countries.