LA TRIBUNE - What could be the consequences of the coronavirus on inequalities?

LUCAS CHANCEL - This crisis can have repercussions on social inequalities in health and on economic inequalities. This type of pandemic affects all social categories. Political representatives were not spared. Boris Johnson was recently admitted to intensive care. However, some categories are more exposed than others. Many workers are forced to go to their place of work. There are obviously all the nursing staff and other very exposed professions which do not have the level of protection of the caregivers. I am thinking of certain professions such as checkout staff, all handling trades, employees in Amazon warehouses. Unions have sounded the alarm, saying that the level of protection needed is not up to scratch. The poorest people are overrepresented in these categories who have to go to work. They have a more chaotic life course, a more fragile immune system because they have been more exposed to situations of stress and hardship at work. Their body is less equipped to deal with these situations. The combination of all these factors produces an accumulation of risks for the poorest. There is therefore an exacerbation of existing social inequalities in health.

In the wake of this pandemic, could inequalities increase?

Following a crisis, it is difficult to know whether economic inequalities will increase. Everything depends on the public policies implemented, the future is in our hands. In the very short term, major stock market shocks destroy the wealth of the wealthiest. But often, very high net worth people see their fortunes rebuild very quickly, sometimes exceeding pre-crisis levels. This is particularly the case for the top 1% in the United States or the top 1% of wealth owners in Europe after the 2007 crisis. After a few years, these categories may exceed their pre-crisis income, while for the most modest, there is no comparable reconstitution of income. In the United States, 50% of the poorest are even poorer today than in 2007, before the subprime bubble burst.

In 1929, there were consequences on the top and bottom of the distribution. Millions of workers lost their jobs, their social and professional networks and found themselves on the streets. But the implementation of the New Deal in the United States will lead to a new organization of the market and new rules between public action and the market more favorable to the working classes. The markets are more supervised and the shock of the Second World War will contribute to a decline in inequalities during a large part of the second half of the 20th century, contrary to what we observe following the 2008 crisis.

In the United States, Donald Trump has further relaxed environmental rules. In Europe, airlines are calling for lower taxes on plane tickets. With this crisis, isn't there a risk of a return to normal?

We must use this window of opportunity opened by this dramatic event to try to transform our relationship with the environment. At the same time, there are real short-term risks. The collapse of the economy could have dramatic human, social and therefore political consequences. The United States does not have a social protection system allowing in the months to come to decide, for example, to let collapse the air sector or the very polluting sectors and to help the collateral victims. I am not talking about the holders of the capital but about the employees. If these companies collapse, are we able to offer a decent standard of living, training allowing them to find a job very quickly? At this stage, this is not the case. Therefore, one must be extremely careful about calls to choose certain sectors over others. As an economist convinced that we must preserve the climate and that climate crises are likely to be more dramatic than the current economic crisis, I can say that we will have to choose. The problem is that today, the social protection system is not able to absorb such decisions.

How to avoid all this social catastrophe?

We will first have to help sectors that would not necessarily have their place in the world after, in the decades to come. It is in a way the price to pay for not having succeeded in developing a social protection system that really protects people. This does not mean that we should leave a blank check to companies that destroy the planet, do not respect environmental or health standards. If the States and the taxpayers help these companies during the crisis, it is necessary to go through partial nationalizations. The public sphere must have a say in the strategic orientations of these companies. This is a solution to reconcile the short and medium term. In the very short term, we must prevent mass unemployment, human, social and political dramas, on the basis of a highly disputed and very fragile social contract.

Lucas Chancel, economist at the Global Inequalities Laboratory. Credits: DR.

Isn't the fall in the price of oil likely to encourage companies to favor investments in fossil fuels again?

Companies are simply not going to invest because they have no more order books. They are not going to start investing massively when the economy is completely sluggish. The price of oil is not the only decision criterion for investors. Note that in this oil crisis, there is a possible annihilation of American production. Shale oil is much more expensive to produce. Small players have taken on a lot of debt to produce this oil. If in the short term, these companies are unable to sell their oil when they are highly indebted, the risk is to witness a collapse of the sector. Given its importance in the United States, the public administration could amplify its support. Regarding the tension between economy and environment, the risk is to return to the failure of Copenhagen in 2009. Part of public opinion and leaders have started to oppose the argument of the cost of the ecological transition in a context of social crisis. The risk is to oppose once again "end of the world and end of the month".

Read also: Oil at 20 dollars: Donald Trump plays mediator... to save the American shale

This pandemic has shown the limits of the management of certain sectors by the markets. What responses do you propose to deal with this crisis?

The market can be helpful in many things and sometimes blind to absolutely essential sectors like public health. The establishment of a competitive international market in sectors such as drugs seems totally out of step. The free market in the real estate sector has created real problems for the middle classes in Europe and the United States. On the environment, the market has created a huge externality with climate change. The markets fail to take into account certain costs. There is economic globalization without political globalization, that is to say without global governance. Consequently, the system is unbalanced: nation-states remain sovereign to close their borders at any time, for example.

So the question is: how do you put the market back in its place? It is a question of knowing how the States can put better regulations within the companies but also regulations for the respect of the environment. In one month, we have moved to a situation unimaginable for some on the technical or political level with policies of rationing, price fixing, planning of certain essential productions. Yesterday's technical and political arguments are shattered. There is a very strong intervention of the public sphere on the markets. Consequences of this intervention can occur on the markets but let us not forget that these measures are there to prevent a drop in production which would have been even more important if the governments had let it happen. This intervention makes it possible to limit the fall in GDP.

Among the options on the table, States can, for example, control the price of certain sectors deemed essential, such as health, the protection of biodiversity or energy. We can now expand the toolbox of public decision-makers who will have to manage other crises, perhaps even greater than that of the coronavirus. The objective is to make these proposals with great care, transparency and checks and balances.

What role can tax policy play?

One of the main lessons of this crisis is that we must not rely solely on the markets for certain public services such as health, energy, transport and, more broadly, everything that encompasses the public service of the energy transition. We will need more investment from the state. This does not necessarily mean an increase in expenditure. This may require more regulations and interventions. In certain sectors such as the public hospital or education, it will however be necessary to increase expenditure. The feeling among the French of paying too much tax may change in the light of these new data: the coronavirus may arouse the need for stronger state action.

The good news is that there are tax tools such as progressive tax that increase the overall volume of tax while ensuring that a majority does not see its levies increase. It may be interesting to implement it in this context for several reasons. The winners of globalisation, who are often the highest earners, have succeeded over the past twenty years, thanks to tax treaties between States, in circulating their capital while blackmailing relocation. These groups of shareholders and owners of multinational corporations managed to evade taxes in a context of increasing pressure on public services.

At the same time, states have increased tax levels on certain categories and tried to reorganize public services to do more with less, without much success. In this context, European states have managed to become increasingly rich, but this growth has been disproportionately captured by the wealthiest. It's a question of rebalancing. These taxpayers must pay taxes commensurate with their earnings.

How can we encourage popular categories to join when some of them could lose their jobs in the coming months?

If we increase taxes on the working and middle classes, there is a very significant risk of discontent. This crisis affects everyone, but in an unequal way. Everyone has to do their part in the effort. The popular categories are already taking their share, sometimes without protection. It must be shown that the national community as a whole is capable of taking part in the effort.

With a fairly modest tax on assets (between 1% and 3%) for ten years on assets over two million euros, i.e. the top 1% of French people, the State could finance this year a public deficit of around 10%. This would make it possible to finance recovery plans. For the moment, the measures announced are well below the needs. The government initially announced 45 billion euros of measures in total. If we remove the deferral of tax and social charges, there are only 10 billion euros left. The measures are below one point of GDP whereas it would take about 10 points of GDP. With the exceptional tax on heritage that I am describing, this means that 99% of French people would not need to spend a euro in taxes to help the economy.

Read also: Covid-19: the way out of the crisis will not go through "a tax increase", promises Darmanin

Should specific corporate taxation be introduced?

On the business side, we also need a tax on multinationals by increasing the tax on corporate profits. Ultimately, the objective would be to return to a rate in force of 45-50% in European countries during the 1990s. The State can increase corporate tax without fear of relocation by taxing the share of global sales made in France. Global companies want access to French consumers, this is our weapon.

In summary, the tax tool appears essential to the needs of bailing out the economy and investing in essential public sectors. There are tools to weigh the effort on the highest incomes without increasing taxes on the other categories. Contrary to some popular belief, individuals who have had difficulty finishing their month-end pay taxes through various social security contributions or consumption taxes. Also, it is necessary to have a gradual transition to avoid social drama.

How do you view the "green new deal" proposals in the United States and the ambitions displayed by the European Commission in terms of environmental policy?

The green new deal in the United States is going in the right direction. Previous discourses on climate issues were disconnected from industrial strategies, modes of financing and consumer behavior. The green new deal makes it possible to include all these parameters in a package. At this stage, it is still in the state of political discourse. There is a lack of details in the measures announced.

In Europe, the Commission has taken up the themes of the green new deal. As Europe wants to position itself as a central actor on environmental issues, it would have been difficult for it not to do so. However, the European Commission has not displayed the resources to match the challenges. It is still a question of funding. The European budget represents only 1% of GDP. Plans of 100 billion euros are announced but in reality, the sums often already exist. There are not enough investments to transform the European economy into a low-carbon economy.

Read also: The urgency of a "Green New Deal"

Can Modern Monetary Theory (MMT) support this transition?

This theory may be part of the solution. The balance sheet of the European Central Bank has increased from 10% to 40% of European GDP in 10 years. This is the equivalent of monetary creation of 3% of GDP each year. This monetary creation is directed to banking organizations and financial institutions. Small businesses have suffered decades of weak growth in Europe and households have just experienced two major crises in a short time. If the ECB continues to create money, money must be given directly to households. However, not everything can be financed by the ECB. There is a risk of inflation going forward and the Central Bank remains a very technocratic and opaque institution. All of the funding cannot rely on such an institution. States cannot depend on an undemocratic institution to fund public services. This is why we need fair taxes to finance this transition.

Read also: Shield, collective reconstruction, green growth... Christine Lagarde gives her anti-crisis remedies

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