How the Covid vaccine success can fuel a sustainable UK economic recovery

Most parents taking their children on a long road trip know this well. The excitement our kids feel about the destination is not necessarily matched by how they behave during the journey. This, along with how we respond, impacts how everyone feels at the destination.

Like all of you, I am delighted about the remarkable progress in Covid-19 vaccine development. The light at the end of the dark tunnel is now shining a lot brighter after too many tragic deaths, crippling hospital admissions and endless disruptions to our normal lives. Yet we are not at our destination. The next few months have a material impact on our longer-term wellbeing.

Most western democracies continue to struggle in striking the balance between public health, normal economic/social interactions, and individual freedoms. The inadvertent result is a serially inconsistent set of policy reactions.

The UK’s initial resistance to lockdowns gave way to widescale restrictions to counter the threat facing the NHS. As infections fell, the policy pendulum swung to encouraging economic interactions, including the “Eat out to help out” scheme. The use of a more refined tier-based system to address the subsequent worsening in public health gave way to lockdown 2.0.

As tempting as it is to point the finger at government mismanagement, a good part of the blame lies with us all. Even with better information about virus transmission, personal behaviours have insufficiently aligned assessments of individual risks with those faced by the community. The longer this mismatch continues, the more disappointed we will be in the destination. The key is to evolve a public/private effort that simultaneously progresses in five areas:

Relief

With Covid being the great unequaliser, the most vulnerable segments of our society are experiencing devastating erosions in health, livelihoods, and future opportunities. Policies need to be refocused to achieve more targeted and better monitored outcomes, accompanied by bolder redistribution efforts.

Companies and households that have benefited need to join by stepping up more to their social responsibility. It’s the right thing to do and in their longer-term interest – not just to pre-empt a difficult future reckoning but also because it’s hard to stay a good house in an increasingly challenged neighbourhood.

Living with Covid

With infections declining, it is time to implement widescale pool testing and better contact tracing. More strategic, frequent and consistent communication needs to replace what too many regard as confusing messaging. Supported by greater individual responsibility, we can and should all take greater ownership for collective health and livelihoods.

The next three areas ensure that what comes after vaccine dissemination is not disappointment. Too many will emerge out of the Covid tunnel with sharply depleted financial and mental resilience, and to an extent that was unthinkable just a year ago. Moreover, the UK’s political union is being tested.

Already, the government is running record levels of debt, deficits and borrowings. The Bank of England’s balance sheet is bloated beyond recognition. Corporate leverage is high. Lower-income households have virtually no cushions. Unless economic activity bounces back quickly, durably and inclusively, the devastating impact of this year’s 10% plus contraction in economic activity will have a long tail, adding financial and political instability to what already is too long a list of woes.

Upgrading human and physical capital

The chancellor’s statement this week is a first step in this direction, including measures to modernise infrastructure and enhance worker retooling and retraining. We also need well-designed public-private partnerships, with big tech companies assuming greater ownership for productively countering the growing sense of marginalisation and alienation that is eating away at the fabric of our society.

Household insecurity

Among those having lost job security, some will find it very hard to recover. Those able to get back on their feet will be inclined to make sure that they and their families never find themselves wondering again how they will afford their next meal. Yet one person’s increased savings is another’s loss of income, undermining the demand engine that the economy needs to propel it forward. Governments and companies have a role to play in better aligning the two.

Sustainability

Coming into Covid, we had paid insufficient attention to the detrimental effects of the climate crisis, worsening inequality, insufficient corporate social responsibility, governance, and artificial financial stability. The post Covid-reset allows us to ensure that everything we do is consistent with fighting these secular menaces, either directly or through timely compensatory requirements.

The promising vaccine news suggests we are closer to winning the war against Covid. By quickly embracing a set of five mutually reinforcing (and feasible) actions, this victory can be a prelude to a durable peace of robust and inclusive growth, true sustainability, genuine financial stability; and social wellbeing.

Mohamed A El-Erian is the president of Queens’ College, Cambridge University.