The unprecedented support that governments around the world are providing to business in light of the COVID-19 emergency means the introduction of a social contract between governments and the private sector must now be given serious consideration. Philosopher Emma Borg argues that society needs a mechanism via which it can assess and, if necessary, redress, moves by firms which have taken state aid.
It is impossible to calculate the human costs of the current pandemic and all our efforts must be focused on bringing the virus under control and, if we can, eradicating it. But we do know that the pandemic will come to an end and how should we plan now for the world then? How can we improve the outcomes for everyone in our post-pandemic world?
The damage to the global economy has been deep and precipitous. It took, for instance, just 15 days for the US stock market to fall into ‘bear territory’, when stocks fall by at least 20% from their high, while the UK is forecast to see a 35% drop in GDP in the second quarter of 2020 (though experts suggest this drop may be shortlived). Final figures across the globe are likely to dwarf those seen in the financial crash of 2008 and even the Great Depression of the 1930s, and the damage in previous crises occurred over a timescale of years not weeks.
Governments across the world have had to massively increase their borrowing to try to mitigate this unprecedented financial shock, hoping to prop up viable but illiquid firms for the duration of the lockdown and to see a swift re-starting of private sector activity once restrictions are lifted. As Nouriel Roubini noted in The Guardian (25 March): “Only central governments have balance sheets large and strong enough to prevent the private sector’s collapse.”
Despite the current record low costs of government borrowing, however, these moves will place a heavy burden on future generations. We must act now to reshape the relationship between the state and the private sector in order to reduce this burden as much as possible.
I’ve argued elsewhere that private sector firms must have a ‘social purpose’ which operates alongside the financial drive to make a profit. Private sector firms, I suggested, have tacitly signed up to what the philosopher John Rawls called a ‘social contract’: the state agrees to provide certain things that private sector firms need (transport links, well-educated workers, legal protection, limited liability, etc.), but the cost to business of enjoying these benefits is that firms must agree to contribute to the social good. The social contract for business makes it legitimate for a society to require that private sector firms both articulate and abide by the demands of their social purpose. And I argued that the government should insist that this happens – instigating a social licence framework which sets out the conditions firms must agree to meet.
The unprecedented reshaping of the relationship between the private sector and the state that is currently taking place, with governments stepping in as buyer and lender of last resort, means the introduction of a social licence framework must now be given serious consideration. Society needs a mechanism via which it can assess and, if necessary, redress, moves by firms which have taken state aid. For instance, should Tesco be allowed to pay out £900 million in dividends to its investors while simultaneously accepting a £585 million pay out from the government in terms of COVID-19 related tax relief? Should ITV be able to utilise state-backed furlough schemes for staff while at the same time awarding highly lucrative long-term incentive plans to directors (worth, in one instance, £3.2 million to a single individual)?
To answer questions like these some governments have resorted to regulation (for instance, a ruling by the Austrian Ministry of Finance, on 8 April, prohibits firms which have taken state aid from paying dividends). Others (such as the UK and France) have sought to appeal to an organisation’s sense of civic duty. What is needed instead, I suggest, is a middle-ground response: a social licence framework would allow case-by-case decisions, rather than a blanket ban on certain activities, but would provide a clear recourse for the state where actions are deemed to run counter to a firm’s social purpose.
The firms that survive this crisis will need to articulate quickly and clearly how they intend to contribute to the future flourishing of society, how they will repay all those individuals whose tax payments are being used to save the private sector. This will involve recognising that the economic damage caused by the outbreak will not be felt equally: the people who earn the least are both the least likely to be able to work from home and the least likely to have savings sufficient to wait out the lockdown. They are being forced out to work where they still can and into unsustainable debt where they can’t. On a global level, the impact on developing economies has been much more severe than on developed markets, with, for instance, investors already removing $83 billion from emerging markets, the largest capital outflow ever recorded.
Private sector firms need to quickly rediscover the Enlightenment thesis of ‘doux commerce’ – the idea that trade can and must contribute to the good of all. And they demonstrate how they will act, not just to return to profitability and revenue for shareholders, but to repay the trust placed in them by the populace. Recognising that we are all in this together means recognising that it can’t just be business as usual once we are out of lockdown.
Professor Emma Borg is Director of the Centre for Cognition Research at the University of Reading, She has published widely on philosophy of language, philosophy of mind, and business ethics (asking what private sector organisations owe to society). View her 2019 public lecture on Doing Business Better: Should Reading Firms Have a Social Purpose?