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Thinking Outside the Crisis: A Great Big Bag of Hammers

in Analysis/Beyond COVID/Featured/Longread by

This article is part of the Independent’s ongoing series, Thinking Outside the Crisis. Read Robin Whitaker’s introduction here.


As part of the Independent’s “Thinking Outside the Crisis” series, I want to tie questions from my own research on how crises impact policy change to an explanation of why we may find it difficult to “learn” from what has happened and why we are likely to go on making the same mistakes, post-crisis.

This crisis is a diagnostic event for many real world problems. But it seems that all we have is a bag of hammers to respond to them with.

The Crisis

We are in the midst of a global pandemic that threatens the safety of millions. The economic crisis it has unleashed has caused mass unemployment and a dramatic collapse in demand for almost everything money can buy. Canada’s resource-dependent economy is being devastated—no more so than the case of tar sands producers and the local offshore oil industry. And the province of Newfoundland and Labrador is out of money. Literally. Dependent on resource royalties and export markets for our basic prosperity, Canada is going to be uniquely hard hit by this crisis.

In response, governments around the world—ours included—are dumping public money on almost everything, and central banks are “printing” it like there’s no tomorrow, all to maintain some semblance of normalcy in global financial markets. Public sector debts are exploding, there are bold new experiments in monetary policy underway, and economists are worrying about how “we” are going to pay for this mess.

Advocates of tired policy ideas are everywhere, seizing on this crisis to advance their own agendas. The Covid-19 crisis can be cured by xenophobically cracking down on immigration, or by balanced budgets and austerity (yes—there are already people calling for deep cuts), or, in the grand tradition of Newfoundland and Labrador politics, by some juicy patronage. These are all bad choices. They clearly fly in the face of any objective sense of what this crisis has “shown.”

But in politics it seems, ‘objective sense’ is a luxury we just don’t have.

Crisis and Policy Change

In his work on the cognitive limitations of science, Abraham Maslow once observed that “if the only tool you have is a hammer,” it is tempting “to treat everything as if it were a nail.” Maslow’s “hammer” is crucial to understanding the politics of crises and why certain political and policy responses are likely to prevail, even if they are the wrong tool for the job.

In politics, the interests of powerful policy makers and orthodox policy ideas act as “hammers.” In the case of “crises,” influential policy ideas (circulating long beforehand) tend to shape both how we perceive the problem associated with that crisis, and turn the crisis into an opportunity to advance those ideas as a “solution.” Some objective problems may never be seen as crises at all because of this dynamic: it’s not in the interests of the communities dominating policymaking in any given area to ask certain questions, so real world conditions may never become issues for political debate. Take the continuing humanitarian nightmare unfolding in the Mediterranean as people flee war zones: inhumanity and death is not always a “crisis,” at least not in a political sense.

To illustrate the “politics of crises,” here are two examples:

Nuclear meltdown. In March 1979, the Three Mile Island Nuclear Generating Station in Pennsylvania experienced a partial meltdown and the release of radioactive material. This event triggered mass evacuations and general fear that nuclear power facilities were not as safe as had been claimed. This crisis shaped subsequent nuclear policy in the US and around the world, as nuclear power expansion was substantially curtailed after the accident.

However, as Frank R. Baumgartner and Bryan D. Jones illustrate in their exhaustive research on nuclear power in the United States, what made the crisis consequential was not the meltdown as such, but the role of activists, scientists and scholars, who—prior to the meltdown—had worked tirelessly to influence public attitudes about the dangers of nuclear power. By 1979, the public and policy elites already had become doubtful about the benefits of further expansion and were primed to “see” Three Mile Island as a “crisis” that required major policy changes. This is a classic illustration of how crises create opportunities for policy change—and how the particular changes that win the day are conditioned by pre-existing policy ideas.

Financial meltdown. In 2008, when the global financial system came close to collapsing, governments initially experimented with a variety of mechanisms to keep financial markets open and liquid. But despite a lot of messy thinking about how that crisis changed existing economic orthodoxies, Mark Blythe—a leading expert on global finance—has argued that governments very quickly returned to the same models of public finance that had dominated prior to the crisis. Indeed, the largest policy legacy the 2008 crisis was the decade of public sector austerity and budget cuts it ushered in, particularly in Europe, as governments committed to paying off the costs of the crisis prioritized fighting inflation over providing public services or… a growing economy. Without a clear set of policy-relevant ideas about alternatives to austerity—and this is a big question—governments stuck with the hammer they knew and a lot of people got nailed.

The crucial takeaway from these stories is: whatever we might think any crisis “shows” (lots of people thought the 2008 crisis illustrated core failures in the existing financial system), ultimately what shapes the policy response is the mix of already-existing ideas that people have about a) what is wrong with the world; and b) how to fix it.

What is Ill with the World, and What is the “Cure”?

In the case of the great pandemic of 2020, we do not only lack essential equipment and institutions fit to address the health pandemic. We are also totally unprepared with policy ideas that fit the underlying economic and political problems that this “crisis” exposes in both Canada and Newfoundland and Labrador.

We needed to be talking about these problems, and their solutions, long before now. Having failed to do so, we are left with a bag of hammers.

Inequality:

Analysts as well as activists have been calling for greater efforts by government to deal with inequality for some time. Yet, proposals that would actually do so are rarely taken seriously.

Objectively, the pandemic has done two things. First, it has highlighted that many people in the precarious sectors of the economy—who make very little and lack many of the protections that other people have from the uncertainties of a volatile economy—turn out to be vital (!) to a functioning society. The same Weston family-owned Dominion workers that (ironically) depend on food banks to make ends meet are now being asked to put their families’ health and safety on the line to ensure that the rest of us can get groceries. Daycare workers, who often make minimum wage, have turned out to be crucial to the modern economy (!), and apparently we needed the Canadian Armed Forces to tell us that undervalued health care providers working in the private sector are vital to keeping us alive.

(Of course, we already knew our economic system was becoming increasingly unjust. We just weren’t willing to discuss it seriously because the terms of debate about issues like wages are largely set by business groups that have spent decades convincing the public to believe things that are completely false—like the myth that raising minimum wages will be “bad for the economy” and even for workers on minimum wage. While there are boatloads of research showing that minimum wage increases reduce poverty, inequality, and even suicides without hurting the economy, these aren’t the policy images and priorities that dominate politics.)

Second: the pandemic has highlighted our collective responsibility for each other. Despite Margaret Thatcher’s dictum that there is “no such thing as society,” the collective response to Covid-19 illustrates that most of us actually care a great deal about society. When we recognize that we really are all “in this together,” it becomes hard to understand why we can’t do better by one another even when there isn’t a pandemic.

It is borderline romanticism to expect this crisis to be treated in this way by policy makers. I’d like to be proven wrong, but there are more than enough John Ivisons in this country working hard to blame the 30% of Canadians suddenly out of work that they are responsible for their own unemployment and arguing that people (say, those making minimum wage) need more pressure to go back to work. Don’t stop and think about that argument too long—it doesn’t deserve the attention it has already received. But you see the point here: the hammer we have is the preferred response, even in highly unusual circumstances. Workers need insecurity or “the economy” will be hurt.

It’s not just John Ivison, either. Take the (non) debate over whether corporations that “use/are registered in/abuse” tax havens should be banned from getting Covid-19 bailout money. This might seem an objectively good idea given the challenges of how we are going to pay for all these bailouts in the future. But to illustrate just how bad the current situation is: in the midst of this crisis, the courts have ruled in favor of the Weston family in their tax evasion case. Fresh from fixing the price of bread, it was alleged that they were also making a suspicious amount of money in Barbados given the locations of their actual business operations. This is all business as usual in the corporate tax world, but it may be jarring to some during this crisis.

Workers at Dominion right now, pulling shifts through a pandemic because people need groceries, will pay more for the legacy of this crisis than their billionaire employer. So far, the only things we have learned about the Westons is that they won’t be paying all the Canadian tax they owe, their net wealth has been juiced by state financial infusions to keep stock prices up, and there is nothing the government is seriously considering to address that in the long term.

Non-Renewable Resource Dependency:

One key aspect of this crisis that hits close to home is the collapse in the oil sector. This economic shock—long-predicted by experts, who might have felt like they were screaming at furniture given the lack of institutional response—has shone a light on the basic insanity of doubling down on oil development as the solution to our local economic woes. Doing so was always a bad bet, but we are now wedged between a financially-broken provincial government and a desperate—and politically powerful—oil and gas industry. An industry that was supposed to pave the future with gold just a few short months ago is now demanding a life-or-death bailout.

In the absence of a more serious discussion, fossil fuel bailouts and expanded subsidies are an objectively bad idea. But they are going to be a big part of how we respond to this crisis.

Indeed, as oil prices swooned to less-than-nothing over the last month, construction of the Federal Government’s $15 billion Trans Mountain Pipeline project to export worthless bitumen is not being impacted by Covid-19. (On the contrary, Alberta’s Energy Minister openly mused that the lockdown is an ideal time to go full-steam ahead with pipeline construction because no one can protest.) Until such a time as policymakers come to recognize that the oil and gas industry cannot be a central pillar of our emerging society, these outcomes will continue.

Canadian Federalism:

Seriously. Federalism.

This crisis is telling us a lot about what is wrong with the current form of Canadian federalism. Nurtured for 40 years on the “no such thing as society” mantra that pushes for an ever-smaller federal role in the provision of services to Canadians, we now find that the value of our citizenship varies a great deal depending on where we live.

Federal/provincial fiscal arrangements are byzantine. However, historically those arrangements have evolved, as necessary, to ensure that Canadians all received similar levels of public services. The purpose of federal transfers is to ensure all Canadians receive similar social supports. This pandemic—not only by making it impossible for this province to hide the fact that it is broke and needs a serious bailout from the federal government—has also highlighted that where you live can have a big impact on the quality of public support you get. Since some provinces have more money than others, some have been able to offer rent subsidies and other programs that simply cannot be imagined in Atlantic Canada.

The financial challenges facing provinces, like those of the oil industry, have been long predicted. Provinces have too many spending responsibilities. Confronted with a federal government withdrawing from its role in providing those services, in the absence of windfall resource royalties, something was going to give.

Again: forget the objective sense of that situation. There is a whole industry of policy experts and political commentators dedicated to pretending that the provinces have made this mess themselves and that therefore the only way to respond is to cut spending—spending on exactly the kind of services we so desperately need at the moment.

The Auditor General of Newfoundland and Labrador is a case in point. News stories are filled with AG reports claiming that the province has been “living beyond its means” because we spend more than the average of other provinces on government programs. This is like discovering water is wet. All small provinces spend more than the average. Big provinces have economies of scale and demographics that reduce per-person expenditures on health and social services. Despite clear evidence that we lack the financial resources to deliver services of the same quality as other Canadians receive, the AG has repeatedly assumed that oil revenues meant that we had enough money. (See above for how that has worked out.)

Instead of exploring what we can do about this basic structural problem, we just keep blaming ourselves.

This is not to say the provincial government and influential policy communities haven’t sped us towards this disaster. They have. Many of the same interest groups that encouraged us to build a dam that experts tried to tell us was going to cost too much also tried to tell us that the “largest tax cuts in history” would make us competitive and diversify the economy. They will now tell us that the real problem in Newfoundland and Labrador is that people expect too much: politicians are victims of unreasonable demands—the public is to blame.

The point is that Canada is not a collection of provinces. We have given most of the capacity to finance government services to federal authorities and those authorities need to address the systemic financial problems of the country. It makes no sense for financially-ruined provinces to pursue austerity programs at the same time that the federal government tries to stimulate the economy by giving money to big corporations and industries. If the government thinks oil and gas or the Westons need rescuing, why not address the financial problems of the provinces?

Again: the problem is that fiscal federalism has its own hammers, and Reason is in limited supply. Equalization is not a solution. And the politics of fiscal federalism generated by equalization have conditioned everyone to think about this problem as if nothing can be changed. Despite the pandemic narrative that we are all in this together, it appears we aren’t—at least when it comes to hidden fiscal transfers and the complex alchemy of what makes a province “have” or “have not.” Brace yourselves for accusations that bailing out a province generates unacceptable “moral hazards,” or that it is unfair to those provinces that aren’t broke.

What Will This Crisis Mean Politically?

The events triggered by Covid-19 are diagnostic of fragile social arrangements that we have lacked the ability to discuss for decades. This is a crisis, but how we respond to these problems depends a great deal on our past failure to talk about these issues. Unless we fundamentally rethink some of these core problems, the Covid-19 crisis will “mean” a decades-long process of austerity. It will also mean failing to do anything about the need to transition out of oil dependency, or to address inequality. We are going to be told that we can’t afford to do those things. Austerity and “investments” in natural resource extraction are the only hammers we know.

So entrenched are our established ideas about how the economy works (and should work) that the only concrete alternative offered by much of the global commentariat to this crisis is to just let people die. “The economy” is more important. Nothing can more clearly illustrate the limitations we face in thinking about the future.

Sadly, “crises” tend to only generate serious policy change when new ideas are already well articulated and have broad support. We’re not there. If we want to be, we need to start discussing our problems in new ways.

Over to you.

Photo by Jiří Sedláček.

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