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Britain Will Struggle For Economic Peace After The Covid War | Economic policy




You can add a third date on August 4, 1914 and September 3, 1939, on March 23, 2020, the day the government declared war on Corona 19 and announced a blockade to combat the virus.

The way history repeats itself is weird. The same mix of overconfidence and lack of readiness was evident that marked the beginning of World War I and World War II a year ago. Basic kits were scarce, and national leaders denied the threat.

Recruitment officers were amazed at the physical condition of the men who fought in 1914. The 2020 pandemic likewise put poor and unhealthy people especially at risk. Nevertheless, the message of the summit was that victory was quick.

As in 1914, such views turned out to be wrong. The government’s initial rudeness to the threat posed by Covid-19 turned out to be disastrous. Rather, as in Thomas Hardy’s novel, one mistake followed a tragedy.

The delay in imposing restrictions was brutal when the blockade arrived. The state operated like wartime, using emergency power and halting civil liberties. From the end of March to the end of April 2020, the economy has shrunk by almost a quarter. Events, nightclubs and theaters in some sectors were virtually cryogenically frozen.

After confirming that Britain had the biggest hit on Covid-19 in all developed countries, the government wanted to unlock it as soon as possible and was reluctant to impose restrictions again. So last fall, ministers debated again whether the action required by epidemiologists to prevent a recurrence of the virus was worth the economic cost.

A second four-week blockade in Britain with late fall eased in December, following similar restrictions in other countries in Britain, and the re-imposition of the curb, which became much stronger in January, is now gradually easing. The economy is 10% smaller than at the December 2019 general election.

Although costly, the current shutdown has proven to be less damaging compared to last spring. In April 2020, national production plummeted by almost 19%. It fell below 3% in January of this year. One of the key lessons from last year is that the economy can adapt and adapt quickly. The percentage of online retail sales has doubled over the past 12 months, and telecommuting has become the norm for millions of white-collar workers in the private and public sectors.

This change should not come as a surprise, given that in 1914 and 1939 there was a rapid transition to a wartime economy as production lines were converted from consumer goods to munitions.

Financial legitimacy is now abandoned. The margins, business support, higher welfare costs, and additional funding for the NHS mean the UK is in the process of borrowing from the 350 billion area to balance the books in fiscal 2020-21.

Despite waste and fraud, this was still the right approach. Because the alternatives were business failures and unemployment on a scale not seen before. Indeed, in some cases, for example, sick leave that encouraged infected workers to self-isolate to the government had to be more generous.

Nonetheless, Rishi Sunaks’ decision to extend the dormant period to September, well past the estimated June date for the end of all restrictions, shows that tough spending restraints learned lessons from the announced financial crisis before the economy was strong enough give. cope.

The fight against the virus is not over yet, but some conclusions can be drawn. For one, the power of the state, combined with capitalism’s ability to innovate, brought Britain out of the sort of catastrophic slump expected a year ago. The unemployment rate is likely to peak at around 7%. It’s bad, but it’s not as bad as it was.

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The second is that while 2020 has seen the largest economic contraction in 300 years, the long-term damage will be less severe than from the industrial shakedown in the 1980s or financial collapse in the late 2000s, despite declining production. It was much smaller. Businesses are not a problem because of punitive interest rates or credit crunch. They ran into trouble because the government declared it had to be shut down. There are good reasons to wish most of them survive when the restrictions are lifted.

The third conclusion is that when life returns to normal, many structural economic problems reappear. With the problems facing other major European countries, most of them self-harm, the success of the UK’s vaccination program means that the government’s comparative performance seems less gloomy than it did. But Britain is plagued by a low wage, low investment, low productivity economy, and has not really changed. After winning the war, the challenge is to win the peace.

It is not yet clear when that victory will come. The temptation to see the vaccine as a decisive turning point is the same as the arrival of the Americans on the scene in late 1941, but the struggle never ends and can turn into a guerrilla war, a constant battle against a new variant of the virus.

Another unknown is whether the Conservative government will suffer from serious failures in the decades preceding it, as well as after the start of 2020. In 1945, wartime leader Sir Winston Churchill was kicked out because voters remembered what the 1930s were like and wanted something radically different. Again, history doesn’t always repeat itself.

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