- The Covid-19 pandemic was a watershed moment, both in terms of highlighting the failings of prior economic orthodoxy, but also by feeding electorates’ appetite for greater state intervention in the future.
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Many government scorecards have been placing more emphasis upon social and environmental outcomes rather than purely financial goals, and as such the state has been playing a more direct role in many economies.
However, with electorates recently experiencing the effects of higher inflation, certain economies have seen a backlash against what has been perceived as excessive government intervention. In the US, for example, the new administration has promised deregulation, efficiencies, and cuts in budgets. These developments are likely to be watched closely by politicians and voters across the world.
While increased government-directed investment may yield social benefits, it also risks resource misallocation and the crowding out of the private sector. -
Social policy
- Monetary stimulus is likely to be de-emphasised, with fiscal policy being harnessed to a greater degree in order to achieve stronger and more equitably distributed growth. This approach could see increased investment in favoured areas, such as physical and social infrastructure, decarbonisation and defence, while also being used as a tool to facilitate redistribution, for example taxing share buybacks and windfall taxes. Electorates are likely to demand that governments become more proactive on their behalf, with greater intervention in private markets, in pursuit of both financial and social agendas.
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Environmental policy
- Environmental policy is an area of increasing activity for many governments, with greater recognition of the planetary boundaries that are required to sustain life and a prosperous economy. Governments are facing tough trade-offs between environmental resilience, economic growth and social consequences. These trade-offs are shaping government activity in relation to regulatory standards, taxation and subsidies. We expect many governments to push on environmental policy harder than they have done in the past as the consequences of economic growth at any environmental or social cost become too damaging.
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