Can the coronavirus crisis help to make the economy more climate-friendly and sustainable? Economist Christian Busse explains why this requires regulation and what global supply chains could look like in the future.
During the coronavirus crisis, our lifestyle has inevitably become more sustainable: We are travelling less, consuming less, being on the road less. Do you think that some of this will continue after the crisis?
I'm quite optimistic about that. For example, we can see that many people have been able to switch to working from home from one day to the next. It seems possible that long commutes to work will be less frequent in the future and that meetings will be held more often as video conferences. Many people are currently taking a critical look at how much they actually consume. Many will certainly want to catch up after the crisis, but the experience will remain.
Has the current crisis exposed weaknesses in the German economy?
It certainly has. The German economy is particularly networked in global supply chains. We are very dependent on individual suppliers and also on entire countries. For example, we cannot ramp up our own production of respiratory masks or components for ventilators at short notice. Medicines that used to be produced in Germany now come mainly from Asia. And of course, the German economy is very dependent on exports and is primarily based on capital goods, i.e. durable products such as production machinery and equipment. If the crisis really takes hold and there are a lot of insolvencies, then it will be particularly difficult for Germany.
Do you hope that there will also be opportunities?
From my perspective as a sustainability researcher, I certainly see opportunities. It is very impressive how quickly processes can change when everyone realises that they have to, and not just in the economy. Of course, I hope that this will also apply to sustainability in the future.
Many experts are calling for state aid to be linked to sustainability targets, while others are again calling for a scrappage scheme. What do you think is the better approach?
I thought the scrappage scheme was extremely bizarre back in 2009 after the financial crisis. I use it in my lectures as an example of framing, i.e. how you can give an issue a new interpretation. The argument at the time was: We are replacing inefficient vehicles with ones that emit less CO₂, therefore the whole thing is good for the environment. However, there is no getting around the fact that millions of vehicles were taken off the road before their time. Calling the purchase incentives an "environmental bonus" was pure marketing for an economically motivated measure. This should not be repeated.
What measures are necessary at the moment?
We currently have an emergency situation. In the short term, governments must help companies to avoid a lack of liquidity and insolvencies. And this without differentiating whether a company has a sustainable business model. Subsidies for students, for low-income earners and for small and medium-sized enterprises are the right thing to do. In the case of large companies, equity investments will probably also have to be made. This means that the state becomes a shareholder in the company through its investment. As we speak, negotiations are underway with Lufthansa as the first company affected. I am relieved that our politicians seem to attach great importance to the fact that equity is liable - in other words, that a company's assets are used to offset losses. It is rewarded the moment there are profits. It was different in the aftermath of the financial crisis: the banks had made high profits for many decades and distributed them to employees and shareholders. When the losses came, no one could be held liable. The profits were privatised, the losses socialised.
What is the advantage of the state taking a stake in companies?
At some point, we will have to talk about how the rescue measures will be financed. And then it is necessary that the state does not have to completely depreciate the billions paid out as a loss. It is not the role of the state to make entrepreneurial decisions, it must also get out of the companies again in the foreseeable future - when the share price is as high as possible. In this way, it recoups its capital. If a company is then still worth billions on the stock exchange, I am naturally happy as a taxpayer.
What measures are needed in the longer term to overcome the crisis?
In the medium term, we will need economic stimulus programmes in the form of government spending, which is already being discussed. I hope that the state will then endeavour to proactively support the necessary structural changes. I have the feeling that we often only make tiny adjustments in Germany and that many political players don't have the courage to make more significant changes. We tend to preserve structures. However, the upcoming economic stimulus programmes should be future-oriented and focus on aspects such as sustainability, digitalisation, medicine and infrastructure. And the measures should make ecological sense, i.e. achieve a high ecological effect for the money invested.
How can sustainability be ensured?
In my opinion, only through regulation. In the past, it has been shown time and again that voluntary measures do not work. One of the reasons for this is that consumers cannot understand how sustainably a product has been manufactured in the global value chain. And if they did know, most of them would still not voluntarily incur additional costs. I therefore believe that sustainability cannot be created by supply and demand on the market because the market is geared towards economic dimensions. On the other hand, sustainability regulation is difficult - especially in the social dimension. There is a real dilemma here. In any case, now is a bad time for regulation because many companies have enough to do just to survive.
Would it contribute to sustainability if companies returned to local production?
It's not that simple. The initial situation before the crisis was a global economy based on the division of labour with global supply chains in which companies specialised in their core competencies. If large quantities of any given good are produced, the unit costs are much lower, partly due to learning effects. If the same production volume is distributed around the globe, then the individual companies no longer have the most efficient machines, but produce a product with smaller, less efficient systems or perhaps even by hand. De-globalisation would therefore also mean a loss of prosperity.
Does that mean everything stays the same?
Not at all. Supply chain risk management will become much more important at a business level. Companies will develop plans to be able to react quickly to unforeseen events. They will have options ready to ramp up their own production capacities in an emergency or build buffer capacities into their supply chains. It is plausible to assume that procurement will become more diversified and that companies will no longer buy from just one supplier. It is also possible that European companies will buy less in Asia and more locally. We will therefore certainly see greater flexibility and adaptability in value chains.
So globalisation is here to stay?
I think so. But political containment of economic globalisation would be necessary; the global economy would have to be regulated more intelligently. However, I doubt that the coronavirus crisis can be the trigger for a completely new, sustainable economy to emerge. But I personally would like to see it.
Interview with: Ute Kehse (conducted on 4 May 2020)
