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torek, 30 novembra, 2021

Vaccines and economics

by Keith Miles

The news that the various vaccines appear to be on course for international distribution is a great encouragement for us all. We can now see some light at the end of a dark tunnel. I guess that the majority of people will be happy to have the American/German or the British jab but very cautious about having the China or Russian products. After all the Americans, Germans and British all have excellent records of new drug developments in the pharmaceutical field, As also does Switzerland and France. However Russia or more correctly the Communist USSR had a very dismal record and often copied drugs from the West . Communist China is a newcomer and in view of the worries about how Covid-19 started there is little confidence in Chinese veracity.

One thing is certain and that is things will never go back to exactly the way they were before and the focus will move from the health of people to the health of economies.

Three things will certainly happen.

Firstly many of our habits will be changed such as much more distance working, more online meetings via zoom or teams, and less commuting and travelling. As in any wartime change is accelerated as it has been during this pandemic . Secondly we will be buying more products online on a regular basis. This online shopping development was already happening before the current crisis with such as Amazon and Ebay, and food retailers but it will be a more regular habit involving nearly every product you can imagine. Thirdly so-called globalisation that has been the norm up till now will be less and we will rely more on local sources. All these have consequences for business and employment in particular in shop retailing. Bankruptcies are inevitable and downsizing of many businesses.

Hospitality businesses such as bars and restaurants and hotels will have short and long-term negative effects as people are more cautious of close contacts and they spend less on leisure. The travel business will suffer especially airlines. So that the tourist industry will continue in some sort of recession, and free movement will be restricted by controls at least in the short-term. There may be a few growth areas but these will be few and far between. A big danger is a drop in overall investment so that employment opportunities in new areas will not quickly arise.

In these sort of situations there is also the social and economic impact that people will err towards saving more rather than spending which will inhibit any economic recovery. Also we will see the impact of higher unemployment and government will probably react by increasing spending in a situation where government budgets will already be stretched by social payments, and propping up pension benefits. There will also be a critical examination of the performance and cost of state health systems, and state generosity in subsidies and grants. When the wealth producing sector shrinks the money consuming part of the state will have to adjust. The state cannot just borrow its way out of the problem and leave the debts to future generations. State employment cannot be protected when the rest of the population are suffering from lost jobs and part-time working. The state must not suck in all the money and reduce the availability of funds for investment.

Governments will justify this increased spending by the current low interest rates but in the end there is both a risk and a cost. The risk is that inflation may creep into economies and this will produce a cost of higher interest burdens on national economies. We know how the Greek and Italian economies were shattered by debt problems, and that the GDP per capita for Slovenia from the crash in 2009 took about eight years to recover, and the state banks were a mess. There will also be more tensions in the EU as Brussels seeks to increase its centralising control just when countries need more freedom to work their way out of the economic slump.

But the biggest danger is the growth of state involvement in our lives and we all know from history that this will be negative for individual liberty. It would mean more regulation and less freedom, all of which is a burden on the wealth producing part of the economy. The biggest improvements in our lives have been when the free market operates and bureaucracy is kept at bay, and when hard work and innovation are rewarded. Markets adjust quickest to situations and must be allowed to operate freely so that we recover quicker.

Let us hope that the vaccines liberate us and not the opposite.

Keith Miles is an academic, retired financier and a publicist. He is the honorary president of the Slovenian-British Friendship Association. He holds a Bachelor’s degree in finance and a Master’s degree in philosophy (MA) and worked for over 40 years as a financier and auditor in both the public and private sectors, primarily in the UK.

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