British economy 'needs bold government' as businesses are faced with new normal

Economist Paul Ormerod says UK government must step in and be prepared to spend for growth as virus may permanently change spending habits

Prime Minister Boris Johnson said he was changing the rules so that people will be asked to follow recommendations rather than be required to obey laws governing social contact. AFP Photo / 10 DowningShow more

For the author of the best-selling economics guide Why Most Things Fail, the easing of the pandemic-triggered lockdowns is not the beginning of the end but the chance for a new beginning.

Paul Ormerod worries that too few governments grasp how fundamentally the months-long hiatus has disrupted the basic structures of the economy.

In particular Mr Ormerod, who is based in London, sees permanent changes in how citizens engage with the private sector economy and a corresponding need for states to take on a different role to return to growth.

In an interview with The National as British Prime Minister Boris Johnson became the latest world leader to ease coronavirus restrictions on Tuesday, Mr Ormerod said the next phase of the crisis would see a return to growth only if governments were bold in offsetting the disruption that many businesses would face.

Markets had responded well to a sharp increase in government spending to make up for the enforced downturn in business for producers and service providers. Many people would not go back to habits such as frequent international air travel and those who did would face much greater inconvenience.

"The major support packages showed there is a much different attitude in the markets about public debt," Mr Ormerod said. "It gives more scope for the governments and they should be willing to take risks. They even have to be prepared to waste money because they won't know what is going to work."

The title Why Most Things Fail could certainly be recycled for an instant history of the global economy: Mr Ormerod's work looks at how to harness structural changes in the economy to renew growth. Another work by the visiting professor at University College London, Positive Linking, could be embraced as an view for the future. It argues that while governments have embraced 'nudge strategies' to change behaviour, the state can intervene to create new linkages to build a new economy.

On Tuesday Mr Johnson announced that people would be able to return to a wide range of social activities in the weeks ahead.

Speaking in Parliament, the UK prime minister also announced a halving of the minimum “social distance” between people to one metre, provided they also take mitigating actions like wearing a face mask. That said, he advised people to minimise time spent with other households.

“We can now go further and safely ease the lockdown in England,” Mr Johnson said. “Caution will be our watchword."

Making a comparison with winter shutdown by bears and other creatures as the frosts bite, Mr Johnson acknowledged the hardships of recent weeks.

"Today we can say that our long national hibernation is beginning to come to an end and life is returning to our shops, streets and homes and a new, but cautious, optimism is palpable.

"But it would be all too easy for that frost to return and that is why we will continue to trust in the common sense and the community spirit of the British people to follow this guidance, to carry us through and see us to victory over this virus."

Mr Ormerod has difficulty with the epidemiological models that set out a heavy loss of life in a first wave of infections by Covid-19 followed by later peaks that also showed substantial increases in deaths after ending lockdowns.

The economist argues that people's behaviour will be altered as long as the threat remains. Many people have been persuaded to wear masks. The lack of planning for a wholesale return to the workplace means there will be diminished activities in big cities. Patterns in previous epidemics have justified thinking that while there would be localised outbreaks this would not necessarily mean death rates would again soar.

"I have a problem with the epidemiological models when there are no more restrictions in that they just don't take account of how people change their behaviour. The Black Death killed 50 per cent of people in some parts of Europe but some nobles spent their time moving around Europe to avoid it.

'When there are no more restrictions people aren't going back to behaviours they had before the crisis."

The shadow of rising infections fell over Mr Johnson's changes to the rules. British people were asked to follow recommendations rather than be required to follow laws on social contact. From July 4, two households will be able to meet indoors or outside and will be advised to follow the new social distancing rules.

Some scientists and medics expressed concerns that the government is reopening the economy too fast and that a track-and-trace system meant to quickly stamp out any outbreaks is not fully functional.

The number of daily deaths and new infections in the country has fallen significantly from its April peak, but the country is still confirming 1,000 or more new Covid-19 cases per day.

“This is far too premature,” said David King, a former chief scientific adviser to the government.

Britain has Europe's highest death toll from the virus, with about 42,700 confirmed dead. That is also the third-highest death toll in the world after the United States and Brazil, which both have much larger populations.

Figures released on Tuesday by the Office for National Statistics show both the scale of the outbreak in Britain and its retreat. The office said there were 1,114 deaths involving the coronavirus in England and Wales in the week to June 12, the lowest number for nine weeks. The total number of weekly deaths from all causes also fell but remains 5.9 per cent higher than the five-year average.

Total excess deaths in the UK since the outbreak began stand at more than 65,000.

Mr Johnson has repeatedly refused to offer full-throated encouragement to Britons to resume life as it was at the start of March. The reality of the coronavirus was that it sought to replicate and thus remained a threat and he said the legacy of the pandemic would be felt for some time to come.

"The number of new infections is now declining by between two and four per cent every day," he said. "This pandemic has inflicted permanent scars and we mourn everyone we have lost."
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