Crises Only Sometimes Lead to Change. Here’s Why.

The coronavirus pandemic won’t automatically lead to reforms. Great upheavals only bring systemic change when reformers have a plan—and the power to implement it.

By Sheri Berman 

coronavirus-turning-point-crisis-protest-foreign-policy-hp
Illustration by Maxomatic for Foreign Policy



The coronavirus pandemic has upended Western economies, many of which are now facing their gravest crises since the Great Depression. In response, governments are taking unprecedented measures.

In the United States, the crisis has produced an expansion of big government programs unparalleled in peacetime: massive stimulus measures, a historic expansion of unemployment benefits, a temporary basic income for many citizens, billions of dollars in funding for public health measures, low or zero-interest loans to businesses, and more. In addition, the U.S. Federal Reserve is engaged in an experiment with modern monetary theory—previously considered “voodoo economics” by mainstream economists—promising to pump unlimited amounts of money into the economy.

In Europe, governments have implemented even more dramatic measures, as economists such as Martin Sandbu urge them to “throw caution to the wind and spend massively.” Germany has given up its obsession with balanced budgets.

In France, President Emmanuel Macron suspended many taxes, rent, and household bills and promised no company would be allowed to collapse. Scandinavian countries and the United Kingdom have essentially nationalized payrolls, promising to cover the wages of workers who would otherwise be laid off.

The assumption that the crisis and the radical measures undertaken in response to it will shape the world for years to come and forever alter the world order, as Yuval Noah Harari and Henry Kissinger respectively put it, has become commonplace. As the other essays in this issue make clear, many hope—or believe—that the crisis and the responses to it will enable governments to deal with many long-standing problems, from climate change to inequality.

Many progressives in particular seem to believe that the world is at the dawn of a new era, perhaps even more now that protests against racial injustice have been added to the upheaval caused by the pandemic. The “era of small government is over,” declared the New York Times columnist Jamelle Bouie. After the coronavirus, “ambitious progressive ideas that once seemed implausible … start to become more imaginable,” argued his Times colleague Michelle Goldberg.

We must rethink “the basic assumptions underlying the American value system,” asserted former Democratic presidential candidate Bernie Sanders. A belief in the inevitability, or at least necessity, of transformative change has characterized the European left as well. The crisis is neoliberalism’s Götterdämmerung, proclaimed a headline in Germany’s leading left-wing newspaper, referring to the final destruction and subsequent renewal of the world famously portrayed in Richard Wagner’s opera about an apocalyptic battle. But transformation is never preordained.

Will the current crisis and the responses to it fundamentally transform economies, governments, societies, and the relationship among them? Is the world, as many believe or hope, at a turning point in history?

Answering these questions requires distinguishing between crises and transformation. It is easy to assume that crises trigger the collapse of an existing order and its replacement by a new one. But this view is fundamentally flawed, most obviously because it does not fit the historical record. Crises are fairly common; fundamental transformations are rare.

As Leon Trotsky, one of history’s great revolutionaries, wrote in 1932: The “mere existence of privations is not enough to cause an insurrection; if it were, the masses would be always in revolt.” Instead, he argued, “it is necessary that the bankruptcy of the social regime, being conclusively revealed, should make these privations intolerable.” And only at that point, he maintained, could “new conditions and new ideas … open the prospect of a revolutionary way out.”

Crises are fairly common; fundamental transformations are rare.

Trotsky, like all revolutionaries, understood that some crises lead to lasting transformation while others do not. And history provides lessons for those who believe or hope that this crisis will be one of those that does.

The first is that during periods of rapid change and uncertainty it is easier to be directed by events than to direct them—and it is easier to generate discontent against an old order than consensus for a new one. Concretely, this means that the key determinants of whether crises and discontent trigger transformation are political: In particular, planning and power are necessary.

Without agreed-on plans for what sort of new order should replace the old one, opposition movements easily collapse into infighting, and discontent often peters out. And if such plans are not championed by a political force with the power to implement them, good ideas can remain footnotes to history, and the status quo can stumble on.

Take 1848, when uprisings fueled by massive discontent against existing monarchical dictatorships exploded across Europe and other parts of the globe. As the historian Eric Hobsbawm observed, few revolutions in history “spread more rapidly and widely, running like a brushfire across frontiers, countries and even oceans.” Indeed, within months, dictatorships that seemed completely secure crumbled under the onslaught of massive popular mobilizations.

Without agreed-on plans for what sort of new order should replace the old one, opposition movements easily collapse into infighting, and discontent often peters out.

But almost as soon as dictatorships began collapsing, divisions among the discontented came to the fore. Middle-class liberals wanted political and economic liberalization but opposed mass enfranchisement and anything smacking of socialism, while workers and others on the left demanded full democratization and structural economic reforms. Meanwhile, freed from the shackles of dictatorship, various ethnic groups demanded control over their fates and territories but were often unwilling to recognize the rights of other groups to do the same.

In short, once the old order began collapsing, the lack of agreed-on plans for what should replace it led revolutionary groups to begin fighting among themselves, enabling supporters of the old order to buy some off and crush the rest. Quickly, dictatorships returned to virtually every place from which they had disappeared. Historians, accordingly, often refer to 1848 as “the turning point at which history failed to turn.”

Between 1918 and 1939, another such pattern unfolded in Europe. However, the expectation that crisis would inevitably bring transformation everywhere was naive—and leftists’ hopes for revolutionary change on their terms were quashed once again. In some countries, interwar crises did not lead history to turn. In others, they did—but in dramatically different directions depending on which politicians and parties had the plans and power to make this happen.

World War I killed millions of people, ended an era of growth and globalization, and brought a flu pandemic, massive unemployment, and hyperinflation in its wake. Before countries could recuperate, the Great Depression hit, causing an explosion of dissatisfaction with capitalism and the status quo more generally.

In most countries, however, the left was unable to unify around a plan in response to the Depression. Communists wanted to use the crisis to bury capitalism and democracy. Traditional socialists, influenced by Marxism, viewed capitalism as impossible to fundamentally reform and so did nothing. Only social democrats believed the crisis provided the perfect opportunity to transform the relationship between governments, economies, and societies.

In France, not only the left but also the right was unable to unite around transformative plans in response to the Great Depression and the more general dissatisfaction pervading French society. The result was continued political drift and polarization and a country left weak and vulnerable to Nazi assault.

In a few places, such as the United States and Sweden, leftist parties did champion a social democratic Depression-fighting strategy, and progressive economic and political transformations occurred. In other countries, the left’s infighting and inaction facilitated the ability of fascists to exploit the Depression, and reactionary economic and political transformations occurred instead.

The clearest and most consequential example of this was Germany. During the Depression, Communists increased their attacks on the Social Democratic Party (SPD), the largest left party and the bulwark of German democracy, and joined with the Nazis in strikes, uprisings, and political maneuvers designed to hasten the Weimar Republic’s demise.

The SPD, meanwhile, despite the clamoring of its supporters and the rest of German society for an activist response to the catastrophe befalling them, remained largely on the sidelines. Its leaders rejected plans put forward by social democratic reformers for a Keynesian-type response to the Depression, which called for government spending and other programs to actively fight the economic downturn in general and unemployment in particular.

Stymied by Marxists, who insisted any reform of capitalism was pointless, the party’s leadership believed, as its main economic theorist Rudolf Hilferding put it, that an “offensive economic policy” would be ineffective because the ultimate arbiter of developments was the “logic of capitalism.” The frustrated union leader Fritz Tarnow summed up the dilemmas of the SPD’s stance in the following manner:

Are we standing at the sickbed of capitalism not only as doctors who want to heal the patient but also as prospective heirs who can’t wait for the end and would gladly help the process along with a little poison? … We are damned, I think, to be doctors who seriously want to cure, and yet we have to maintain the feeling that we are heirs who wish to receive the entire legacy of the capitalist system today rather than tomorrow. This double role, doctor and heir, is a damned difficult task.

Although there are many reasons for fascism’s success in Germany and other parts of Europe, the Nazis’ ability to take advantage of a crisis, and the left’s inability to do so, was critical.

The Nazis, on the other hand, had no time for healing the dying old order. They recognized the opportunity the crisis presented: a chance to inherit power. Adolf Hitler responded vigorously to the Depression, attacking the SPD and advocates of liberal democracy more generally for their passivity and inability to respond to widespread suffering.

In the 1928 elections, before the Depression hit, the National Socialist German Workers’ Party received only 2.6 percent of the vote. Four years later, in the campaign leading up to crucial elections in July 1932, the Nazi Party ran on an economic platform that promised to “solve the problem of unemployment,” conquer the Depression, and restructure the economy to serve “the people.”

The elections made the Nazis the largest party in Germany. Within six months, they were burying the Weimar Republic. Although there are many reasons for fascism’s success in Germany and other parts of Europe, the Nazis’ ability to take advantage of a crisis, and the left’s inability to do so, was critical.

In contrast to 1918, after 1945 a progressive transformation occurred across Western Europe. The tragedy of the interwar years and the Great Depression led to a unified belief on both sides of the Atlantic that a new order capable of ensuring economic prosperity and social stability was necessary for democracy to succeed in Europe. This consensus led to extraordinary efforts to change political and economic dynamics at the international, regional, and domestic levels.

Friedman understood what the left didn’t grasp: Neoliberal ideas were implemented because they became embedded within the economics profession, think tanks, and international organizations.

The United States helped construct new international security and economic orders to promote the peace and prosperity necessary for postwar democratic success. At the regional level, a process of European integration began, spurred by a recognition that democratic success required overcoming challenges too great to be achieved by the uncoordinated efforts of national governments acting alone.

And at the domestic level, European center-left and center-right parties agreed on the need for a new order and social contract between governments and citizens, with the former committed to promoting growth and protecting the latter from capitalism’s downsides. Both the mainstream left and right recognized that such a transformation would be necessary to avoid the economic crises and political extremism that doomed democracy during the interwar period.

This order worked remarkably well until the 1970s, when a combination of rising inflation, increasing unemployment, and slow growth created an opportunity for another transformation. During the proceeding decades, neoliberals in groups like the Mont Pelerin Society and the Chicago and Virginia schools of economics and political economy had been thinking about what they saw as the downsides of the postwar order and what should replace it. When problems and discontent emerged in the 1970s, they were therefore prepared with a narrative of the old order’s failures as well as plans for a new one.

As Milton Friedman, an intellectual godfather of this movement, put it, “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

Friedman understood what the left didn’t grasp: Neoliberal ideas were implemented because they became embedded within the economics profession, think tanks, and international organizations as well as championed by powerful political leaders like Ronald Reagan and Margaret Thatcher.

When the crisis hit in 2008, the left lacked a coherent narrative of the existing order’s problems as well as convincing plans for transforming it.

Interestingly, when this neoliberal order experienced its own crisis in 2008, no significant economic shift occurred, despite an initial widespread assumption, even by conservatives like France’s then-president, Nicolas Sarkozy, that the era of neoliberalism was over.

That problems and discontent did not lead to the end of an old order and the rise of a new one was at least partially a consequence, as the Economist put it, of the left’s inability “to capitalise on an economic crisis tailor-made for critics of the free market.”

A key reason why the left was unable to do this, and therefore play the same transformative role its neoliberal predecessors had played a few decades earlier, was that it was divided and unprepared. During the previous decades, some parts of the left—epitomized by Tony Blair’s British Labour Party, Gerhard Schröder’s SPD, and Bill Clinton’s Democrats—had become content with a technocratic management of capitalism, forgetting that it was constantly evolving and inherently dangerous.

Others on the left stopped focusing on capitalism entirely during the late 20th and early 21st centuries, turning their attention instead to intellectual currents such as postmodernism, multiculturalism, feminism, and postcolonialism, which were cultural rather than economic in nature. Thus, when the crisis hit in 2008, the left lacked a coherent narrative of the existing order’s problems as well as convincing plans for transforming it.

The same problem—an inability to capitalize on a crisis—could arise once again today unless those committed to creating a more just and egalitarian society heed the lessons of the past.

Figuring out whether the United States and wealthy European countries are on the cusp of a fundamental transformation of their economies, governments, societies, and the relationship among them requires looking beyond the severity of the current crisis and the unprecedented measures already taken in response to it. As history makes clear, crises create opportunities for change—but not all opportunities are seized.

Whether today’s left seizes the current opportunity and this period becomes a historical turning point in a progressive direction—rather than another instance of a decaying old order being patched up and hobbling on—will depend on whether those favoring transformation are able to avoid the mistakes made by their predecessors in 1848, the 1930s, and 2008 and are able to unite around convincing critiques of the old order and plans for a new one as well as turn widespread discontent into a powerful coalition in favor of transformative change.

Whether today’s left seizes the current opportunity and this period becomes a historical turning point in a progressive direction will depend on whether those favoring transformation are able to unite around convincing critiques of the old order and plans for a new one.

For progressives, there are potentially positive signs. There are more useful transformative ideas lying around than there were a decade ago. In the realm of economic thinking, for example, scholars like Thomas Piketty, Emmanuel Saez, Gabriel Zucman, Mariana Mazzucato, Adam Tooze, Anne Case, and Angus Deaton have risen to the forefront of debate over the past years, highlighting problems with the existing economic order as well as developing potential responses to them.

At the same time, progressive think tanks like the Roosevelt Institute and the Washington Center for Equitable Growth have been developing and disseminating plans for long-term structural change. Even before the remarkable outpouring of protests spurred by the killing of George Floyd, there had been a surge in mass mobilization over the past decade. As the political scientist Erica Chenoweth and her colleagues have documented, the period from 2010 to 2019 “saw more mass movements demanding radical change around the world” than in any period since World War II.

History teaches us that new ideas and the mobilization of discontent are necessary but not sufficient to trigger transformation. Ideas need to be forged into coherent critiques of the old order as well as attractive, viable plans for a new one. And advocates of change need to unite around such plans to help protect against infighting, the dissipation of discontent, and pushback from defenders of the status quo. Only then can they gain and maintain the power necessary to implement plans for long-term change.

The right has understood this better than the left over the past decades. Neoliberals like Friedman were successful in shifting understandings of the practical relationship between markets, governments, and societies during the late 20th century because they had a clear sense of the new order they wanted to create and were able to get their ideas adopted by scholars, policymakers, and politicians who could implement them.

New ideas and the mobilization of discontent are necessary but not sufficient to trigger transformation.

Even after the financial crisis, which was widely attributed to neoliberalism’s failings, supporters of the status quo were able to thwart fundamental change. In the United States, for example, many of then-President Barack Obama’s key advisors were not interested in transformative change and remained preoccupied with patching up the old order. To return to the German analogy used by the SPD’s Tarnow during the Great Depression, they were primarily interested in being “doctors” rather than “heirs.”

And any potentially progressive aspects of the administration’s crisis package were limited in scope and duration by conservatives, who disseminated a narrative that transformed Obama’s rescue of the economy into a tale of government waste and elite bailouts. Meanwhile, the Tea Party movement further transformed the Republican Party into a unified force devoted to fighting progressive change and convincing citizens that the government was the enemy.

Despite the extraordinary nature of the current crisis and the widespread initial acceptance of extraordinary policies in response to it, a similar pushback by supporters of the status quo has already begun. In the United States, Republicans are falling back on their old talking points—voicing concern about the dangers of budget deficits, federal bailouts of state and local governments, and the so-called moral hazard associated with unconditional government handouts that might incentivize people to stay home rather than go to work.

Grassroots activists, meanwhile, in many cases supported by the same donors and groups that helped get the Tea Party off the ground, have begun protesting against lockdowns, denouncing “big government” and “threats” to individual freedom—and they have been encouraged by Trump and other Republican leaders.

As Jenny Beth Martin, the co-founder of the Tea Party Patriots, put it, she and her colleagues are ready to mobilize to ensure that when the pandemic is over, the United States remains a “capitalist country,” as opposed to a socialist one.

To counter this, progressives must remember that the crisis and the extraordinary measures already taken in response to it are not enough to guarantee transformative change. Whether this will be an “FDR moment”—as Massachusetts Sen. Edward Markey, a co-author of the Green New Deal, and other progressives believe—depends on ensuring that the right political conditions are in place: It was Franklin D. Roosevelt’s ability to rally voters and his party behind plans to dramatically reshape the relationship between the economy, government, and citizens as much as the widespread suffering and discontent with capitalism generated by the Great Depression that made the New Deal possible.

Democrats would need to mount a successful assault on the anti-government philosophy long championed by Republicans.

Translated to today, that means Democrats would need to mount a successful assault on the anti-government philosophy long championed by Republicans and temporarily called into question by the crisis, unify behind plans for transformative change, and convince citizens that these plans offer a better vision for the future than a patched-up version of the status quo. Demands for major structural reforms to combat racial injustice in the United States and elsewhere are subject to a similar dynamic.

Institutionalizing major structural reforms in this area, like any other, requires winning elections and holding on to political power. Anything that enables opponents of change to shift attention away from problems that need addressing, erodes the broad but fragile support for reform that currently exists, or divides the Democratic coalition must be avoided.

Joe Biden, perhaps surprisingly, has pivoted significantly in this regard, from a message of continuity and competent management to one that champions deep structural reform in health care, the environment, infrastructure, education, racial justice-related issues, and more. Of course, in order to enact such changes, the presumptive Democratic nominee has to win the election in November and probably with coattails long enough to bring the House and Senate with him.

To do this, in turn, he must have more than a negative message that focuses on the mistakes, corruption, and ineptitude of the current administration. Biden will have to convince the electorate that transformative change is feasible and desirable. And in power he and the Democrats have to remember that long-term change requires political shifts.

During the late 20th century, Republicans put together a coalition of the wealthy, business leaders, religious conservatives, and discontented low-education whites united—although for different reasons—around a promise to shrink the role of government.

This coalition enabled Republicans to enact significant changes at the local, state, and national levels. Democrats will have to pull off a similar feat, uniting their own disparate coalition around a message of dramatic change, downplaying the areas where their constituencies’ interests diverge rather than converge.

As the Great Depression and the events of the early 1930s in Germany make clear, suffering and discontent can bolster the standing of nationalists, racists, and reactionaries as easily as they can propel progressives.

If Democrats and progressives elsewhere cannot do this, history may still turn but in a different direction. As the Great Depression and the events of the early 1930s in Germany make clear, suffering and discontent can bolster the standing of nationalists, racists, and reactionaries as easily as they can propel progressives.

FDR understood this—and the New Deal was designed as much to undercut the appeal of democracy’s enemies as it was to reform capitalism. After all, during the 1930s, a surprising number of U.S. citizens and politicians, including Henry Ford, Charles Lindbergh, and the Rev. Charles Coughlin, openly praised Hitler and expressed admiration for the dictatorships arising in many European countries.

Populists and right-wing extremists are already peddling a narrative that blames the crisis on foreigners—particularly China and immigrants—and are offering a vision of a post-pandemic world where globalization, multilateralism, free trade, and immigration are limited; borders are hardened; governments are empowered to protect the people from danger; and social justice and inequality are once again pushed to the back burner.

In the past, historical turning points have not been the result of crises alone but rather of revolutionaries taking advantage of them. And taking advantage of a crisis requires knowing what you want to achieve and how to do it.


Sheri Berman is a professor of political science at Barnard College, Columbia University, the author of Democracy and Dictatorship in Europe: From the Ancién Regime to the Present Day, and a columnist at Foreign Policy.

The everyone economy: how to make capitalism work for all

After four decades of rising inequality, the Covid crisis is a chance to change the rules

Martin Sandbu


© Illustration by Graham Tuckwell


A few weeks into the lockdown, when UK Covid-19 deaths were hitting a thousand a day, I crossed my London street to check on a neighbour. Around 50, she does not fall into a vulnerable category, but she works at a supermarket checkout and has been more exposed to contagion than most. And we had not seen her for a while, which was unusual.

As it turned out, our neighbour was fine. With a pavement between us, we chatted about how she was not allowed to wear a face mask and gloves at the till. Then she said: “But I have to go to work, otherwise people won’t be able to buy their food, will they?” It was not a complaint, but an expression of pride in her new-found status of essential worker.

That pride reflected the public appreciation suddenly afforded a group that had previously been treated with neglect. The pandemic and the lockdown brought home how we literally depend for our lives not just on doctors and nurses but also on the humbler jobs of cleaners and care workers, shelf-stackers and bus drivers, delivery couriers and cashiers. The weekly clap for carers, which in March became a national ritual in many European countries, embodied this new recognition.

Pondering this fleeting moment of moral reordering, I could not help noticing how starkly it clashed with the underlying economic reality. In many rich countries, decades of economic polarisation have left people like my neighbour not just underpaid, but having to accept short-term contracts, erratic shift patterns and unpredictable earnings. This “precariat” faces debilitating insecurity, which lockdown has made worse. As the gilets jaunes protests in France illustrated, many people see the economy as a system to which they do not belong, rigged to benefit others.


Cars queue outside a food bank in Orlando in May © Zuma Press / eyevine


How did it come to this? How did much of the work we count as essential become ill-rewarded and precarious? And what has economic polarisation done to the way our societies and politics function? These are questions that Covid-19 forces us to confront.

They were becoming hard to ignore long before this crisis. As an economic commentator for the FT, I have spent years trying to understand the causes of economic polarisation in the western world, its effects and what policies might reverse it. Like many others, I have worried that when our societies divide economically, they also fall apart culturally and politically.

But the pandemic makes these questions more urgent, and adds a new one: will Covid-19 remake society? Is this tragedy also a once-in-a-lifetime opportunity to rebuild better economies?

It is tempting to think we could be at a 1945-style moment, a year remembered as ushering in a new era. As Branko Milanovic, the economist known for his work on global inequality, writes, it is “utterly wrong to believe that history does not matter and that the social and political changes wrought by the pandemic can be ignored”. The political forces it has set in motion, he suggests, “will fundamentally affect how economies behave in the future”.

The pandemic also highlights forces that were already at work. Donald Trump, the architects of Brexit and populist movements across Europe all advanced by appealing to groups that felt forgotten by elites and saw the economic system as rigged against them. They have, in effect, been promising to restore the post-1945 era and bring about the sort of moral reordering we glimpsed in the lockdown.



Two workers stand next to giant pipe sections used to divert the Missouri River during construction of the Fort Peck Dam in Montana, 1936 ... © The LIFE Picture Collection via


... and Civil Works Administration workers in California as part of the New Deal in 1934 © Getty Images


There is a “rhetoric of how the golden days were better”, says political scientist Catherine De Vries. It is obvious why such nostalgia resonates. By happy accident as well as by policy design, the postwar industrial economy of the west was particularly well-suited for most people to share in economic growth. The three decades the French call les trente glorieuses produced a remarkable convergence in income and wealth levels between rich and poor, between workers of different educational levels, between countryside and city.

I have a lot of sympathy with this nostalgia, having grown up in Norway in the 1970s and 1980s — a time and place that arguably came as close as any modern society to the ideal of an economy with a place for everyone. Few have ever had lower economic inequality or a shorter social distance between top and bottom, and managed to combine it with high productivity and strong growth.

When I was living in New York in the 2000s, one mundane activity struck me as embodying the economic difference between the US and Norway: having your car cleaned. On entering a New York car wash, you would be set upon by a group of workers — often immigrants — who proceeded to clean your car by hand. In my childhood in Norway, your choice was between an automated car wash or doing the job yourself.

It was the difference between an economic model employing low-productivity, low-wage labour and one where wage equality made it commercially necessary to automate to make labour more productive. It was, too, the difference between the precariat and what I think of as an economy of belonging.

Since the late 1970s, every western economy, albeit some much more than others, has experienced widening economic fractures that have also polarised societies politically and culturally. We moved from an economy of belonging to an economy divided between the successful and the left behind. (Et in Arcadia Ego: the manual car wash has had a renaissance in Norway too, courtesy of underpaid immigrants.)

This end of economic belonging coincided with the peak in industrial employment across what used to be known as the industrialised world. It is a widespread misunderstanding that the shift from industrial to knowledge-intensive economy involved manufacturing vanishing, or being whisked off to China and other low-cost countries. In fact, most rich economies produce about as much stuff today as they ever have.

Chart showing factory jobs have disappeared but industrial production has kept growing


What changed was that factories no longer absorbed the same workforce. Growing productivity through automation and better know-how meant ever fewer hands were needed on assembly lines. New jobs were created in services but many of these were less productive, less well paid and less secure than the ones they replaced, as well as geographically distant from them. (This also meant growth rates slowed down, since manufacturing made up a shrinking share of employment even as its own productivity kept growing.)

Job-altering technological transformation did not stop with factory work. Roughnecks and dockhands gave way to automated rigs and container cranes. Computing put an end to many clerical jobs. The internet has upended in-person retail. Too often, those who rely on such jobs have had to accept worsening conditions to remain employed.

Chart showing the increase in trade with poorer countries came too late to have caused the post-1980 polarisation in the rich world

These changes are not, on the whole, the fault of globalisation, that scapegoat of the populist insurgency, but of technology-driven changes combined with policies that have reinforced the underlying forces of divergence. For example, western countries shifted tax burdens away from capital and high-wage incomes even as income and wealth inequality rose. Unions, which played a part in reducing income inequality, have declined almost everywhere.

All this undermined the promise that the postwar economy had largely delivered on: that everyone could expect a secure place in the national economy. In many countries, median wages fell behind labour productivity after tracking it closely for decades. Income inequality and wealth inequality both started rising from around 1980. New jobs were not all created equal: manual and routine work lost out to knowledge work, as pay and job security increasingly depended on workers’ educational background and on where they lived.

The last effect — regional inequality — is perhaps the most corrosive for our politics. The economic geographer Andrés Rodríguez-Pose calls the support for anti-system populists in peripheral areas “the revenge of the places that don’t matter”.

Highly paid jobs and capital (but also low-paid service jobs to serve high earners) have been concentrating in the big metropolitan areas, capital cities above all, while peripheral regions have been drained of capital investment and good job prospects.

The blow from the pandemic, in other words, landed on economies already made brittle by deep fractures. And not only that; it is making those fractures worse.

Chart showing despite rising inequality, taxes on capital and high earners have kept falling

Lockdown causes more pain for those already suffering from low pay and job insecurity, because it preponderantly affects manual jobs that require physical presence. In the UK, one-third of the lowest-paid quintile have lost work, against 15 per cent of the top quintile, according to the Resolution Foundation. In the US, African-Americans have suffered income losses at higher rates than other groups.

Covid-19’s most important political legacy could be that these pre-existing fractures can no longer be ignored. The moment of moral clarity triggered by the pandemic opens a political opportunity to “rebuild better” so as to make the economy work for everyone, including my neighbour and others like her.

Acute crises have helped reorient societies in the past. But David Edgerton, the British historian, cautions that 1945 may be the wrong reference. The postwar consensus on the welfare state was less radical than sometimes believed, he says — it was the continuation of a wartime consensus in which “Labour buys into a conservative agenda”. There is also no equivalent to the postwar confrontation with the Soviet Union today, Trump’s talk of a “Chinese virus” notwithstanding. According to Edgerton, “1933 is a better analogue.” Like then, the question today is: “How do you get economies going again?”

The Great Depression was indeed an economic disaster so great that returning to the status quo ante was politically impossible. It produced radicalism unlike any seen today (yet): in the US, Franklin Roosevelt’s hyperactive New Deal reforms; in Scandinavia, groundbreaking compromises between capital and labour; and in continental Europe, fascism. Could the economic consequences of Covid-19 spur similarly radical change, and if so, how to turn it into a force for good?



Volunteers at a church in Minneapolis take donations in the wake of protests following the killing of George Floyd by a police officer in late May © Redux / eyevine


Even before the pandemic, I frequently argued that a Roosevelt-style “centrist radicalism” was necessary to stave off a much greater — and potentially much nastier — disruption, of which signs could already be seen in the rise of authoritarian populism. What would this look like today? It would not give up on globalisation. Instead, to close the economic fractures we have allowed to open in the past 40 years, I think such a programme would need to achieve five goals.

First, it would jettison business models based on using low-productivity (and therefore low-paid) labour, and harness automation rather than resisting it. That means allowing low-productivity jobs to be competed out of existence by higher-productivity ones. Scandinavia has long shown how this can be done: high wages at the bottom of the distribution encourage employers to automate and boost productivity, while high skill levels and active labour-market policies help workers change jobs frequently and adapt to technological developments.

Second, the programme would aim to shift more labour-market risk from employees to employers and the welfare system. That means lower tolerance for erratic earnings that make it harder for people to plan, retrain and seek new and better work. And it means avoiding aggressive means-testing of benefits, which, when combined with tax, leaves many lower-middle earners facing effective marginal income-tax rates of around 80 per cent or more.

Together, these two principles point in the direction of higher minimum wages, a universal basic income (or its less budget-heavy equivalent, a negative income tax), generous government funding for education and labour-market mobility, and strict enforcement of labour standards.

Third, we can reform taxes to counteract economic divergence instead of intensifying it. That means lowering taxes that penalise hiring. To pay for this, as well as for a negative income tax and policies supporting a well-working labour market, other taxes have to go up. The best candidates are a net wealth tax — which, unlike other capital taxes, favours those who put their capital to the most productive use — and removing the gaping loopholes in multinational taxation, as well as increasing tax revenue from carbon emissions, in line with the climate challenge. A particularly promising proposal is the “carbon tax and dividend”, where revenue from higher emissions taxes would be paid out as a universal basic income. Calculations show that such a policy can leave poorer households significantly better off, even after fuel-price increases are taken into account.

Chart showing a ‘carbon tax and dividend’ can make the poorest better off


Fourth, macroeconomic and financial sector policy can be reformed in favour of the left behind. That means sustaining a “high-pressure economy” to keep job creation high, in the knowledge that those on the margins of the job market are fired first in a recession and hired last in a recovery. Governments and central banks must stimulate demand strongly for a long time after the lockdowns end, with debts restructured so they do not hold back investment.

Fifth, and most challenging, we can work to reverse the divergence between the centre and the periphery. The previous four elements would help with this. But greater policy efforts are needed to give regions, where possible, a critical mass of knowledge jobs so they can connect with the leading economic activity in national centres.

These are big changes. But, as Milanovic argues, one consequence of the pandemic we can predict with some confidence is a “tendency toward [a] greater state role in many countries”. Some politicians are embracing this with gusto, at least rhetorically: this week, Boris Johnson and his colleagues cast themselves as latter-day Roosevelts, and explicitly compared their levelling-up agenda to FDR’s New Deal.

Governments everywhere have already gone to extraordinary lengths both to halt the pandemic and to offset the economic consequences of the lockdown. After this experience, as French president Emmanuel Macron has asked in the context of climate change, will publics accept claims that large-scale policy shifts are too hard to achieve?

Having become accidental radicals, centrist parties may well be tempted to keep making more ambitious offers to voters. “When people are unhappy they go for more extreme choices,” says De Vries. Behind populists’ success, she adds, was “the story of how mainstream parties had become Tweedledee and Tweedledum”, lacking any ideology. Centrist parties “could reinvent themselves by taking clearer positions”.

With the pandemic causing widespread economic damage to already polarised societies, continued radical policy action cannot be in doubt. What we are going to find out is for what — and for whom — that radicalism will be used.


Martin Sandbu is an FT economics commentator. His new book ‘The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All’ is published by Princeton

Warren Buffett Makes $10 Billion Natural Gas Purchase

By Ben Walsh


Warren Buffett speaks onstage during Fortune's Most Powerful Women Summit—Day 2 at the Mandarin Oriental Hotel on October 13, 2015 in Washington, DC. Photo by Paul Morigi/Getty Images for Fortune/Time Inc
 


Warren Buffett’s Berkshire Hathaway is buying Dominion Energy’s natural gas storage and transmission assets in a deal worth a total of $9.7 billion, the company said in a release Sunday.

Once the deal closes in the fourth quarter of 2020, Berkshire Hathaway’s (ticker: BRK.A) energy subsidiary will gain ownership of 7,700 miles of natural gas pipelines, vast storage facilities, and a 25% stake in a liquefied natural gas export, import, and storage site in Maryland.

“We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” Berkshire chairman Buffett said in a statement. “This premier natural gas transmission and storage business has been operated and managed in a best-in-class manner,” Berkshire Hathaway Energy’s president and CEO Bill Fehman said.

Buffett is usually a bargain hunter during significant market downturns, placing big bets on Goldman Sachs (GS) and General Electric (GE) during the financial crisis when both firms welcomed an injection of cash and a mark of confidence during a time when both were scarce. But until this purchase, Buffett hasn’t made similarly large acquisitions during the coronavirus pandemic.

In part, that is because the U.S. Federal Reserve and Congress have acted relatively swiftly and on a grand scale to provide monetary and fiscal support to American businesses, cutting down on the number of distressed companies that need Buffett’s capital and are willing to do so on his sometimes steep terms.

Berkshire has sold off some assets in the downturn, most notably its entire stake in airline stocks, including American Airlines (AAL), Delta (DAL), Southwest (LUV), and United (UAL). Berkshire posted a net loss of nearly $50 million in the first three months of 2020.

Berkshire class A stock is down 21.2% year-to-date, Dominion (D) stock is down 0.2%, while the S&P is now off by just 3.1% and the Dow is still 24% below where it started the year.

Is Economic Inequality Really a Problem?

Yes, but the answer is less obvious than you might think.

By Samuel Scheffler


Credit...Illustration by Janet Hansen; Photographs by Getty Images



It is impossible to ignore the stark disparities of income and wealth that prevail in this country, and a great many of us are troubled by this state of affairs.

But is economic inequality really what bothers us? An influential essay published in 1987 by the philosopher Harry Frankfurt suggests that we have misidentified the problem. Professor Frankfurt argued that it does not matter whether some people have less than others. What matters is that some people do not have enough.

They lack adequate income, have little or no wealth and do not enjoy decent housing, health care or education. If even the worst-off people had enough resources to lead good and fulfilling lives, then the fact that others had still greater resources would not be troubling.

When some people don’t have enough and others have vastly more than they need, it is easy to conclude that the problem is one of inequality. But this, according to Professor Frankfurt, is a mistake. The problem isn’t inequality as such. It’s the poverty and deprivation suffered by those who have least.

Professor Frankfurt’s essay didn’t persuade all his fellow philosophers, many of whom remained egalitarians. But his challenge continued to resonate and, in 2015, even as concerns about economic inequality were growing in many corners of society, he published a short book in which he reaffirmed his position.

And Professor Frankfurt, it seems, has a point. Those in the top 10 percent of America’s economic distribution are in a very comfortable position. Those in the top 1 percent are in an even more comfortable position than those in the other 9 percent. But few people find this kind of inequality troubling. Inequality bothers us most, it seems, only when some are very rich and others are very poor.

Even when the worst-off people are very poor, moreover, it wouldn’t be an improvement to reduce everyone else to their level. Equality would then prevail, but equal misery is hardly an ideal worth striving for.

So perhaps we shouldn’t object to economic inequality as such. Instead, we should just try to improve the position of those who have least. We should work to eliminate poverty, hunger, bad schools, substandard housing and inadequate medical care. But we shouldn’t make the elimination of inequality our aim.

Is this the correct conclusion? I think not. Economic inequality matters a great deal whether or not it matters “as such.”

Start by considering two points that Professor Frankfurt himself would accept. First, to succeed in eliminating poverty and securing decent conditions of life for all Americans would require raising taxes on the rich significantly. Although the ultimate purpose would not be to reduce inequality, the indirect effect would be to do just that. So even if inequality as such is not the problem, reducing inequality is almost certainly part of the solution.

Second, even if economic inequality is not a problem in and of itself, it can still have bad effects. Great disparities of income and wealth, of the kind we see in the United States today, can have damaging effects even when nobody is badly off in absolute terms.

For example, the wealthiest may be able to exert a disproportionate share of political influence and to shape society in conformity with their interests. They may be able to make the law work for them rather than for everyone, and so undermine the rule of law. Enough economic inequality can transform a democracy into a plutocracy, a society ruled by the rich.

Large inequalities of inherited wealth can be particularly damaging, creating, in effect, an economic caste system that inhibits social mobility and undercuts equality of opportunity.

Extreme inequality can also have subtler and more insidious effects, which are especially pronounced when those who have the least are also poor and lack adequate resources, but which may persist even if everyone has enough.

The rich may persuade themselves that they fully deserve their enormous wealth and develop attitudes of entitlement and privilege. Those who have less may develop feelings of inferiority and deference, on the one hand, and hostility and resentment on the other. In this way, extreme inequality can distort people’s view of themselves and compromise their relations with one another.

This brings us to a more fundamental point. The great political philosopher John Rawls thought that a liberal society should conceive of itself as a fair system of cooperation among free and equal people.

Often, it seems, we do like to think of ourselves that way. We know that our society has always been blighted by grave injustices, beginning with the great moral catastrophe of slavery, but we aspire to create a society of equals, and we are proud of the steps we have taken toward that ideal.

But extreme inequality makes a mockery of our aspiration. In a society marked by the spectacular inequalities of income and wealth that have emerged in the United States in the past few decades, there is no meaningful sense in which all citizens, rich and poor alike, can nevertheless relate to one another on an equal footing.

Even if poverty were eliminated and everyone had enough resources to lead a decent life, that would not by itself transform American citizenship into a relationship among equals. There is a limit to the degree of economic inequality that is compatible with the ideal of a society of equals and, although there is room for disagreement about where exactly the limit lies, it is clear that we have long since exceeded it.

If extreme economic inequality undermines the ideal of a society of equals, then is that merely one of its bad effects, like its corrupting influence on the political process? Or, instead, is that simply what it is for economic inequality to matter as such?

For practical purposes, it doesn’t make much difference which answer we give. In either case, the imperative that Professor Frankfurt identified — the imperative to ensure that all citizens have enough resources to lead decent lives — is of the utmost importance. It is appalling that so many people in a society as wealthy as ours continue to lack adequate housing, nutrition, medical care and education, and do not enjoy the full benefits of the rule of law.

But addressing Professor Frankfurt’s imperative is not enough. Extreme economic inequality, whether it matters as such or “merely” for its effects, is pernicious. It threatens to transform us from a democracy into a plutocracy, and it makes a mockery of the ideal of equal citizenship.

If, as they say, every crisis is an opportunity, then America today is truly the land of opportunity. Of the many opportunities with which our current crises have presented us, one of the most basic is the opportunity to rethink our conception of ourselves as a society.

Going forward, we must decide whether we wish to constitute ourselves as a genuine society of equals or, alternatively, whether we are content to have our relations with one another structured by an increasingly stark and unforgiving economic and social hierarchy.


Samuel Scheffler is a professor of philosophy and law at New York University and the author, most recently, of “Why Worry About Future Generations?”