A systemic socio-ecological recovery from Covid-19

In 2019, the New Approaches to Economic Challenges (NAEC) Initiative at the Organisation for Economic Co-operation and Development (OECD), established to distil the lessons from the Global Financial Crisis, suggested “a new crisis could emerge suddenly, from many different sources, and with potentially harmful effects”. It was at a Conference called Averting Systemic Collapse. In 2020, the collapse came, albeit only partially.

The COVID pandemic has revealed deep fissures in the socio-economic system, which have been developing for a long time. The scale and scope of the existential problems we are facing are now evident. On current trends, global food production will have to double over the next 30 years, but more than 75% of the Earth’s land is substantially degraded. Ocean acidification and warming is driving rapid and dramatic changes in marine ecosystems, the number of fish in major fisheries is declining, while some studies estimate that by 2050 there will be more plastic than fish in the sea by weight (MacArthur Foundation, 2016). Extinction rates have increased to between 100 and 1000 times the ‘background rate’ and we are now facing a sixth mass extinction (Ceballos et al., 2015).

Our economic systems are also exacerbating social challenges, along pre-existing fault lines. The OECD has produced some stark figures on the trends underlying the feelings of resentment, pessimism, and distrust. The average disposable income of the richest 10% of the population is now around ten times that of the poorest 10% across the OECD, up from seven times 25 years ago. Wealth inequality is even more pronounced, with the top 10% holding half of total wealth, while the bottom 40% holds only 3%. A 25-year-old university-educated man can expect to live almost 8 years longer than his lower-educated peer on average across OECD countries (OECD, 2017). Inequalities are fracturing societies, hurting economies, and undermining democracies. They also undermine growth. Addressing these issues requires bold policy action. It also requires a new way of thinking.

After the last crisis, analytical frameworks were broadened to better assess the nexus between economic growth and inequality on the one hand (inclusive growth), and between environment and growth on the other (green growth). Less progress has been made on the social-ecology nexus (OECD, 2017). Further work is ongoing to better examine the distributional, employment and skills implications of the transition to environmentally sustainable growth. However, this approach of managing trade-offs between competing objectives is still based on the linear reasoning of the pre-crisis economic model. Several commentators argue we need an approach to policy, which goes further, faster. Such a new approach encompasses a new set of goals and measures of economic and social progress (emphasising well-being, social cohesion, environmental boundaries); new frameworks of economic analysis (acknowledging the historical, cultural, political and environmental dimensions of economic behaviour); and new kinds of policies (from correcting market failures and managing trade-offs to structural transformation) (OECD, 2020). This approach can tackle inter-related goals such as achieving environmental sustainability, reducing inequalities, raising well-being and ensuring the socio-ecological system is resilient to future shocks.

The traditional school of economic thought essentially sees the economy as a totally understandable machine, almost always operating at optimal speed, churning out outputs in a predictable linear way, guided by policy levers. Occasionally, the machine is knocked off balance, or out of equilibrium, and needs some resetting. But the economy is not a self-stabilising machine. It is a complex, adaptive system, with massive interdependencies among its parts and the potential for highly non-linear outcomes. Analysing economies in this way requires inspiration, concepts and models from a range of disciplines, including engineering, physics, and biology and a range of social sciences and humanities.

There is an urgent need to understand and respond to the interconnections between financial, economic, environmental and societal systems. While policymakers generally focus on how to harden components of these systems using risk management techniques or building buffers or stockpiles to manage threats that are specific in nature, such approaches do not often address cascading failures. For instance, the Covid-19 outbreak has led to a crisis with considerable cascading losses for health but also for much of the global economy, with concordant high social costs (Hynes et al., 2020).

Systemic failures are difficult to model and analyse with traditional tools of economic analysis. Policymakers normally consider short-term efficiency in the design, management and operation of human-made systems but also need to include consideration of long-run resilience. There is no trade-off because a system cannot be efficient if it is ultimately subject to system degradation or collapse (Trump et al., 2020).

A systems approach is fundamental to prepare the global interconnected socio-economic systems to reduce the impact of future shocks. It promotes cross-sectoral and multidisciplinary collaboration between different specialisations and scientific and institutional “silos.” Systems thinking allows us to identify the key drivers, interactions, and dynamics of the economic, social, and environmental nexus that policy seeks to shape and to select points of intervention in a selective, adaptive way. This emphasises the importance of system resilience to a variety of shocks and stresses, allowing systems to recover from lost functionality and adapt to new realities regarding international economics, societal needs, and human behaviour, as well as the risks of a more unpredictable climate.

To promote social and economic change, a range of policies have to be integrated, including educational, demographic, employment, well-being, and technology and innovation policies. Systems thinking and acting provides a methodology to achieve a better understanding of the behaviour of complex systems and to improve the assessment of the consequences of policy interventions (Hynes et al., 2020). This includes thinking through the tipping points, positive feedbacks and cascading failures.

The focus on economic recovery from the effects of Covid-19 should not blind us to the opportunity to do much more – repairing the damage to the natural environment and the climate system; weaving a new social fabric to replace the fraying one which we have allowed to develop and which has destabilised the socio-political system. Finally, once this health and mental-health emergency is under control, we need to build a more resilient system to protect ourselves from such events in the future.

The design, operation and management of the economic system play a primordial role in dealing with these issues. This means going beyond the strategy put in place in response to the last crisis, based on bolting on additional issues of concern to our pre-crisis model, managing resulting policy trade-offs and promoting structural reforms in the hope that this will enable markets to self-organise in a way which increases growth and helps attain inclusiveness, sustainability and so on. Given the scale and urgency involved in addressing socio-ecological challenges, it is not sufficient to fix up the economy and get back on the road to disaster. A systems-based approach is essential to ensuring a systemic recovery.