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AB 2000 studies

Alain Boublil Blog


A crisis which is not like the other ones

The crisis the world economy is going through is without  precedent. Measures taken to fight against the corona virus outbreak have, as an effect, to stop the economic activity. Household aren’t anymore moving around, which hurts entire sectors: air transport, hotels, airports, restaurants. Shuted up at home, they don’t consume anymore, except to satisfy essential needs and shops, malls and soon markets close. Enterprises have no more clients or spare parts to produce. Home working is only possible for some services activities. To produce, you need to be there. Plants put their workers on unemployment and close. But, and the China example shows it, once the outbreak is controlled, and we have all the reasons to think that the measures to check the virus diffusion will be successful, the economy will rebound. It is what gives to this crisis a special character, especially when we make the comparison to the last one occurred in 2007-2008.

At that time, as some weeks ago, growth had been resilient during a rather long period, especially in Europe, which had been less hurt than the U.S. by the explosion of the Internet bubble. But in the U.S., it was an illusion because if the growth was there, it was not “paid”. It, for a very large share, had been based on loans given to household whose reimbursement capacity was very poor, which justified the “sub-prime” nickname given to these loans. Atop of that, through securitization, the risk had been transferred to the whole financial system. We know what happened after. The States took a lot of time to assess the situation seriousness. Many economists even declared at the beginning of the 2008 year, that the crisis was over and the European Central Bank, in July 2008 even increased its interest rates.

The current crisis includes a pure economic content with the oil price war that, for two weeks, Saudi Arabia and Russia, are indulging in, which generated a deep prices fall and, on financial markets, the drop of the related companies shares. Under normal circumstances, that situation wouldn’t have been considered necessarily as a bad news, at least on short term, and for importing countries. It would have constituted a factor to support growth, as it has been observed each time when barrel prices were falling. Today It is not enough to lessen the violence of the shock which hurts real economy with the stoppage of the activity in many sectors and the consequences it is going to have on the situation and even on the survival of enterprises and on employment, which will affect, a top of that, consumers behavior.

So, public action must carry a quite different nature than during a traditional economic crisis. The good aspect of the current crisis, it is that its origin can quickly disappear. But their bad aspects, it is that the damages it will have provoked can be irreversible. It is why the president of the Republic was right to put no financial limit to the decided measures. The “whatever it costs” was of course a remaining of the words used by Mario Draghi, during 2012 summer, when the issue was to save the euro. Now, the issue is to save the French economy, its enterprises and its jobs. Any other consideration must pass behind.

The first priority is to support the banking system in order to allow it to accompany the enterprises during that short but inescapable period when they will be deprived of revenues. The State must, in the same time, reduce charges weighting on them and postpone their payment until the return to a normal situation. It must at last protect private sectors employees, who are deprived, partly of fully, of their employment, through a compensation of their missing wages by the unemployment benefits system, whatever their status is. This crisis will be also the opportunity to show the limits of the liberalization of the job market and of the flexibility. It works well when everything is all right. But the benefits of that transformation disappear at any alert and the one we are confronted with will leave its marks.

As it is unwise to formulate a forecast of the date of the crisis exit, the scenario is simpler to imagine than with a traditional crisis. Sooner or later, we will see a deceleration of the number of affected persons, then a diminution and, at last, a fall of the daily number of deads. Figures being public, and, in Europe, a least credible, we will see an anticipations turnaround. Companies will start to program the steps of a coming back to a normal situation, confinement measures will progressively be softened, financial markets will rebound and the economy will enter in a new trend. If the protective financial measures have been appropriated and generous enough, the crisis, at the end, will have let, except in minds, less marks than it was initially feared. But it will have generated a full turnaround about State intervention in a developed economy and a different appreciation on globalization.

Only the State could act, and it did it massively to curb the catastrophic effects of the outbreak on household and enterprises. Its sole action, and the president of the Republic recognized it, wouldn’t have been sufficient and it had to get the support of public services, regarding first health but also transportation and more widely on our social protection system. The direct support to enterprises and even through participations in their capital has been considered as possible, if it was necessary. In order to have an efficient and consistent action, the State must become again a Strategist-State. So the first lesson it must be derived from this crisis is the indisputable rehabilitation of the State role, which marks a 180° turnaround from an ideological evolution which had dominated the last 40 years.

The second lesson regards globalization and especially its excesses. It has allowed the development and the coming out from absolute poverty of hundreds of millions of persons, it has plaid a decisive role in the end of inflation in favoring competition and it has widened the choices offered to consumers, along with frequently an improvement of the quality of displayed products. But the research, at any price, of cost reductions has generated massive de-localizations in very remote countries. The crisis has showed the risks that was weighting on supply chains, for components in the car and electronic industries of molecules for pharmaceutical products. It that running, damaging moreover for environment, many French companies have gone much too far. The State will have to make them conscious, with the support of consumers, of that a deep change must occur and that they have to proceed to a strategic reassessment to put an end to these excesses whose danger appeared from the first day of the crisis.

That crisis is a global one. International cooperation, indispensable to lessen its consequences, has been non-existent. Rivalries and the egos of political leaders have even made it worse in starting an oil price war. International institutions have been absent, especially in Europe, and have sometimes aggravated troubles, as for instance with the inappropriate declarations of the European Central Bank. The job of the State, in France, won’t be made easier but, due to that, it will be even more essential.                        



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