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COVID and the Comeback State

If the pandemic turns out to be only a temporary disruption, it will be remembered as little more than another tragedy – memorable, but essentially a discrete event. If, however, the disruption of 2020 spurs deeper reflection on the relationship between government and the governed, then this horrible year will come to be viewed as a focal point, rather than a data point.

MADRID – Some years are barely mentioned in history books; others get their own chapters. The last year certainly feels like the latter, and there is no doubt the COVID-19 pandemic, like the Spanish flu pandemic of 1918-20, will be long remembered. But what makes a year truly remarkable is not how it unfolds, but rather how it changes the world. An anomalous year, after which the world returns to business as usual, means far less, historically, than an inflection-point year that brings about a great transformation and marks the start of a new human epoch. Which will 2020 be?

There is good reason to think the world has been irrevocably changed in 2020. In particular, the events of the last 12 months may well have triggered a fundamental reshaping and rebalancing of the relationship between state and society, particularly in Western liberal democracies.

Since the Cold War ended, Western democracies’ social and economic models have become increasingly imbalanced. Free markets, once viewed as a powerful means of strengthening liberal democracy (by creating a rights-demanding middle class), are now an end in themselves – an ideal to uphold, no matter the cost.

And the costs have been high. As free-market orthodoxy demanded, globalization brought looser capital controls, more open borders, large-scale privatization, and deregulation. Governance evolved into a more limited, technical endeavor, and increasingly influential private actors stepped into public roles.  

Corporations thus became some of the most powerful global players, and governments have increasingly struggled to tax and regulate them. In some vital areas – from the spread of misinformation on social media to environmental sustainability – corporations have essentially been left to self-regulate.

There has been an impulse to claw back oversight; yet it comes not from the state but from other actors. The push for “environmental, social, governance” corporate accounting and reporting is one example. Public pressure and increasing investor interest have made companies eager to tout their ESG credentials. At the same time, serious transparency and accuracy issues with ESG standards remain. The state’s absence is palpable through all of this.

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From the perspective of many ordinary citizens, government has behaved ever more like a private service provider in recent decades, even as inequality has soared. The aftermath of the 2008 global financial crisis – when governments pursued largely half-measures to shore up financial systems and prevent another meltdown – shattered the idea that liberal democracy is an automatic guarantor of stability and prosperity. Meanwhile, China pushed its own competing model with a strong central state intertwined with the market, setting the stage for today’s global battle of ideas.

From the financial-crisis earthquake rose a wave of populism and nativism – one that engulfed much of the West. With inequality continuing to rise and little effort having been made to mend the relationship between citizen and state, faith in institutions dwindled, and demands for radical change – often reactionary, state-eroding change – gained resonance.

During the COVID-19 pandemic, however, the state has been mounting a comeback. When economies grounded to a halt, governments channeled huge volumes of public money toward propping up private industry and limiting layoffs. In Europe, country-level interventions were buttressed by the unprecedented €750 billion ($918 billion) pandemic-recovery fund, Next Generation EU.

Moreover, supply-chain disruptions have raised the expectation that states should do more to ensure strategic essential commodities. As such, calls to re-shore production have not only grown louder; they now carry the implication of a reassertion of sovereign control over strategic goods.

Similarly, for the first time in a generation, governments revived their regulatory impulse, especially with regard to the increasingly distortionary Big Tech giants. The European Commission recently unveiled landmark regulations – the Digital Services Act and the Digital Markets Act – to curtail these firms’ power, and it has announced plans for further competition-based actions. And in the United States, the Federal Trade Commission and state governments have filed antitrust lawsuits against Alphabet (Google’s parent company) and Facebook for using their market power to fend off rivals. Calls to break up these mega-firms are growing louder.

The pandemic has shown that the market’s “invisible hand” cannot be counted on to deliver public goods, let alone defend the public interest. The visible hand of the state should contribute, through functioning effective institutions and good governance.

More fundamentally, health and safety measures are a constant physical reminder of the state’s presence, which has been so absent in recent years. Some have embraced this invasiveness, recognizing a common responsibility, while others have bristled; but all are aware of the government’s role. Sensibilities are changing, and this could be a foundation for broader shifts in the liberal-democratic model.

Of course, 2020 may turn out to be a temporary disruption. Widespread vaccination could end the pandemic, and people, corporations, and governments may return to the pre-pandemic status quo. Resentments will continue to fester and governments will keep muddling through.

In that case, the pandemic will be remembered as another tragedy – memorable, terrible, but essentially a discrete event. If, however, the disruption of 2020 spurs deeper reflection on the relationship between government and the governed, and brings about a genuine strengthening of liberal-democratic institutions, then this horrible year will come to be viewed as a focal point, rather than a data point.