Post COVID-19: A Changed Business Landscape Requires New Solutions – the G30 Proposal
The COVID-19 pandemic has caused businesses to rethink their model. We now know that once this pandemic is done and vaccines permit a return to normalcy – hopefully by the second part of 2021, we still risk another pandemic in the near future. The Group of Thirty, a.k.a. G30, a major and historic reference for policymakers around the world, has just analyzed the situation and come up with a set of solutions that disappointingly fails to take into account the dramatic changes in the business landscape.
The world of business is not likely to go back to the way it was pre-Covid. Teleworking is “in” like never before and a return to previous methods of work is highly unlikely. According to a recent survey of managers conducted by job recruitment firm Upwork, nearly 42 percent of the U.S. workforce is working from home.
The change is striking: Only 12.3 percent of the US workforce teleworked before the pandemic. And lasting: Roughly 27 percent is still expected to work remotely by December 2021. “Businesses say remote work continues to be going better than anticipated and it’s even improved since the start,” wrote Upwork chief economist Adam Ozimek.
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With thousands of businesses bankrupted and jobs lost – especially among the small businesses dependent on large downtown offices and metroplexes, like bars and restaurants – a new way to create jobs and boost labor is urgently needed. Moving away from fossil fuels, investing in renewable energy, green and sustainable industries, are the obvious areas of growth. And the solution to new job creation.
Are big corporations and the major banks behind this move?
To find out, it helps to turn to what the Group of Thirty (G30), an independent global body composed of senior economic and financial leaders from the public and private sectors and academia is saying.
On 14 December 2020, the G30 released its latest report, Reviving and Restructuring the Corporate Sector Post-Covid: Designing Public Policy Interventions. As Tharman Shanmugaratnam, Chairman of the G30 commented:
“We are past the emergency phase of economic policy response to Covid-19, and policymakers will increasingly have to make hard choices so that we do not hamper industry restructuring, and lay the foundation for job creation suited to new realities. This report led by Mario Draghi [former head of the European Central Bank] and Raghuram Rajan [former head of the Reserve Bank of India] aims to inform such choices, so that we come out of Covid-19 fitter and stronger.”
Before examining their proposal, it helps to know who the G30 is and why we should listen to them.
Who is the Group of Thirty?
The G30 was not born yesterday. A Rockefeller Foundation initiative launched in 1978, the G30 is headquartered in Washington, with the goal of providing a forum where commercial bankers and central bankers can meet behind closed doors. The G30 also organizes invitation-only events, including “occasional lectures” and seminars.
Membership is composed of some 30 members, mostly male (there are only five women, as of now), active or former top managers of large international financial institutions and central banks, with almost a third of them representing U.S. institutions.
You find a broad range of major figures, from economists Paul Krugman, Lawrence Summers, Kenneth Rogoff and Janet Yellen to central bankers who left their mark, like Mike Carney, former Governor of the Bank of England and now UN Special Envoy on Climate Action and Finance or Raghuram G.Rajan, former Governor of the Reserve Bank of India and Professor of Finance, Chicago Booth School of Business.
Central bankers that participate in G30 meetings do not follow the usual transparency and anti-corruption rules that otherwise govern their relationships with commercial bankers. As a result, the Governor of the Federal Reserve Board has never attended because of stringent transparency requirements for its officials – though the President of the Federal Reserve Bank of New York (with similar powers) is usually a member. Indeed, at the present time, John C. Williams, the current President, is a member.
So what is the issue here?
The G30 is anything but transparent. No minutes are taken at its meetings, members do not meet the press to report on what was discussed. Yet, over the past forty years, the G30 has regularly issued reports on banking supervision, central banking, and a range of related subjects. Recommendations have been invariably favorable to the business interests of the large international banks which dominate the G30 and unfailingly called for neo-liberal, “light-touch regulation”.
Unsurprisingly, in 2017, the G30 ran into trouble with the EU Ombudsman because Mario Draghi, then President of the European Central Bank, was a member. This happened even though Draghi by then had made a name for himself as the savior of the Euro, and will probably go down in History for his statement in 2012 that the ECB would do “whatever it takes” to save the Euro:
The investigation of the Ombudswoman, Emily O’Reilly, responded to a complaint lodged by Corporate Europe Observatory (CEO), a lobbying watchdog. The investigation not only concerned Draghi’s membership but also “the involvement of senior ECB people in the work of the G30”.The problem was this: As the G30 issues public reports on ECB-related subjects, the concern was that the wider European public would get the impression that the ECB-President subscribed to the G30 views and recommendations.
By 2018, the scandal had been resolved with the decision that no future ECB President could be part of the G30.
O’Reilly: Interactions with the G30 should be as transparent as possible and not based on membership which undermines the transparency steps @ECB has made in recent years https://t.co/h4FASjNbTp pic.twitter.com/eks42KZDcd
— European Ombudsman (@EUombudsman) January 17, 2018
And indeed, the current ECB President, Christine Lagarde is not a member.
The G30 Proposal
So, according to the G30, what should governments do to recover from the pandemic depression and ensure it never happens again?
In the foreword to the G30 proposal, it is acknowledged that “policymakers around the world acted rapidly and boldly in their initial policy responses to the pandemic”. But “in the face of these structural changes and a growing corporate solvency crisis, governments now need to alter their responses.” The aim of the report is to provide “a guide to policymakers as they consider how best to intervene to support the corporate sector, addressing three pivotal questions: Which companies to assist, and why? Who decides which companies to assist? And how to assist them?”
The report identifies the following problems that make the initial response (focused on providing funds to solve the liquidity crisis) unsustainable:
- Inadequate targeting of support, which fails to sufficiently tailor the policy response to the situations of different firms
- An excessive focus on credit provision, which risks overburdening firms with debt, promoting inefficient use of resources, and engendering future problems
- Excessive direct government decision-making and suboptimal use of private sector expertise that could be used to better direct support
- A level of public spending that would be unsustainable over the potential duration of the ongoing economic crisis.
The solutions have to be long-term. The G30 proposal is meant to “encourage the development of policy actions that support long-term economic resilience and growth, and broad-based improvements in living standards, while minimizing the costs to the public.” And it is acknowledged that “without assistance from advanced economies, and sovereign debt relief, some developing countries would struggle to create the fiscal resource envelope to allow them to respond to the crisis.
Ten core principles shape their recommendations. As you will see, they are a reflection of the G30 neo-liberal worldview and unshakable belief in private sector efficiency, regardless of the costs to the environment or social justice. Here they are:
- Act urgently to tackle the growing corporate solvency crisis: No time should be lost, we are on a “cliff-edge”; one can certainly agree with that;
- Carefully target public support to “optimize the use of resources and help economies emerge fitter and stronger”; again, one can only agree with the proposition that “resources should not be wasted on companies that are ultimately doomed to failure or which do not need public support” nor should firms that are already doing well “receive unjustified windfalls”;
- Adapt to the new business realities, “rather than trying to preserve the status quo”; fine and good and there is even talk of allowing for “creative destruction” as some firms “shrink or close and new ones open, and as some workers need to move between companies and sectors, with appropriate retraining and transitional assistance”;
- Market forces should generally be allowed to operate, but “governments should intervene to address market failures that create substantial social costs”, particularly the “longstanding difficulty in funding SMEs effectively”; this is standard neoliberal fare that allows for government intervention when there is a clear “market failure”;
- Private sector expertise should be tapped to “optimize resource allocation, where possible”; why only the private sector? Because, according to the report, “Governments are usually less able to pick winners and losers”; this overlooks the key role of the public sector in funding research – for example, DARPA Federal funding in the 1950s and 1960s that boosted the development of the American tech industry and Silicon Valley;
- Carefully balance the combination of broader national objectives with business support measures: This means that “strategic changes, such as the greening of the economy or digitalization” should not be done “against the need to avoid imposing excessive constraints on struggling businesses or too narrow an allocation of support into too few business sectors or specific firms” – in short, don’t pursue “greening” or “digitalization” if it’s going to cause “creative destruction”: this is in direct contradiction with principle no. 3 above; and besides, how do you ever find the “right” balance?
- Minimize risk and maximize upside potential for taxpayers, while “ensuring stakeholders’ share in losses and do not receive unjustified windfalls”, governments should adopt “staged deployment of funding”, and find a “direct upside, such as through a share of future profits”: This is tantamount to telling politicians to do nothing; no surprise perhaps, as in the neoliberal worldview, governments cannot be allowed any role in setting economic objectives or engaging in any economic planning such as the Green New Deal;
- Be mindful of moral hazard issues without undermining the core objectives – this refers to the “danger of “bailing out” owners and managers who took too much risk, which could also create moral hazard problems, through the expectation of future rescues”; the irony in this advice coming from big bankers whose banks were bailed out in the Great Recession of 2008 – creating in the economy a whole new beast, the Too Big To Fail corporation, is particularly juicy;
- Get the timing right in the staging and longevity of interventions: Since the report acknowledges we are dealing with “unknowns”, policymakers are advised to “move quickly but design their programs to reflect this uncertainty”; good luck with that;
- Anticipate potential spillovers to the financial sector to preserve its strength and “enable it to help drive the recovery” – in other words, don’t forget to support the banks! And to drive the point further home, “policy choices should avoid actions that would significantly weaken the financial sector, such as forcing banks to make bad loans as a way of supporting the economy.” Yes, help the banks but don’t ask them to help the economy.
Even if one can agree with these (very classical) recommendations (and I don’t), most of them are not actionable: How does one get the “timing right” or achieve a “balance”? Overall, the objective appears to be to discourage governments from intervening in the economy.
But the most astonishing part of the report is what is not said in it.
Not a word about sustainability, nothing about environmental and social justice issues – even though this pandemic is hitting the poor and ethnic minorities harder than anyone else. Even though that is precisely what is going to change in our world and if we don’t do something about it, the next pandemic will be even worse.
Actually, the report acknowledges that “policies designed to support broader national objectives such as digitalization, environmental sustainability, or the promotion of new or strategic industries” are outside its scope. “We note” write the report authors, “that some of these measures could be incorporated into the targeting or design of responses to the corporate solvency crisis, but do not discuss these in detail.”
So these policies that will be the very key to a strong COVID-19 recovery, launching us into a new world, better able to withstand the next pandemic are not to be discussed?
One may well ask what is the point of this report.
But what is most worrisome is the stature and reputation of the people who are part of the G30 and stand behind this report. If our policymakers listen to them (and many are likely to), the world will continue, unchanged as before the pandemic, on its path of self-destruction. Perhaps we should ask the UN Secretary-General what Mike Carney, his UN Special Envoy on Climate Action and Finance, is doing in the G30?
Update 23 December 2020: Financial journalists seem to have picked up on one aspect of the G30 proposal: The notion that “zombie” companies cannot expect COVID-19 recovery assistance. Because zombie businesses feed on debt, subsidies, and money at no cost. For example, the Italian newspaper SOLE 24 Ore writes today about it, noting that the G30 conducted a survey in 11 countries, finding that “a stronger presence of “zombie firms” creates excess production capacity and, consequently, produces lower averages of markup, product prices, investments and productivity.”
This is certainly a good point – but not enough. Recovery from COVID-19 requires much more, a longer-term vision that addresses the real challenges arising from the pandemic. Reliance on classic neoliberal solutions that (sort of) worked in the past won’t work for a world battered by COVID-19 and climate change.
Editor’s Note: The opinions expressed here by Impakter.com contributors are their own, not those of Impakter.com. Featured image: G30 members and guests at the 77th Plenary Meeting hosted by the Bank of England, in London. Source: G30 events