by Evens Salies and Sarah Guillou

After years of
hesitation, the German parliament has just introduced a tax scheme to promote
investment in R&D. The decision precedes the Covid-19 crisis, but it may
well be heaven-sent for German business.

What factors motivated
Germany to take such a decision, four decades after the United States and
France, when it is among the world’s leading investors, in terms of both R&D
and innovation? Is this yet another instrument to boost its competitiveness?
And what will be the repercussions on R&D spending in France?

The German tax
incentive, which came into force in January 2020, offers companies a tax credit
equal to 25% of the declared R&D expenditure. The base is narrower than for
France’s research tax credit (CIR), since in Germany only wages are taken into
account (including employer social security contributions).[1] The 25% rate is, however, close to the French rate
(30%). A company’s eligible expenses are capped at two million euros; and the
tax credit for each firm will be limited to 500,000 euros (subcontracting is
subject to slightly different treatment). When a group has several subsidiaries
benefiting from the system, as part of a joint research programme, the total eligible
expenses are capped at 15 million euros (for a tax credit of 3.75
million).

By way of comparison,
among French companies who carry out R&D, SMEs receive an average of
131,000 euros for the CIR credit, mid-caps [fewer than 5,000 employees] 742,000
euros, and large corporations 5.6 million, according to the MESRI’s
figures. The highest amounts exceed 30 million euros (with few companies in
this category), but do not go much higher, because the CIR rate falls from 30%
to 5% of eligible R&D expenditure beyond the base threshold of 100 million
euros. Estimates of the annual loss in taxation for Germany (before taking into
account the macroeconomic effects) could amount to as much as five billion
euros. This is 80% of the French CIR credit, and on the same level as the
R&D tax incentives in the United Kingdom. Without the cap, the scheme would
cost the German federal government around 9 billion euros.[2]

The characteristics
of the scheme and the high level of German private R&D raise questions
about the Parliament’s real motivations. Indeed, one could wonder why it did
not opt for an “incremental” system, that is, base itself on the increase in
eligible R&D expenditure, as in the United States, or in France until 2003.
Admittedly, an incremental system would not support firms whose R&D is stagnating
or falling (in which case direct aid is more effective), but it avoids the
windfall effects of France’s CIR credit (Salies, 2017).
The cap limits, but does not eliminate, these effects.

The level of private
R&D spending is significantly higher in Germany than in any other EU Member
State (62.2 billion euros, excluding direct grants). France is far behind (27.5
billion euros), followed by Italy and Sweden (respectively 12.8 and 9.6
billion). A comparable ranking is obtained, for Germany, France and Italy, if
we measure the R&D effort (expenditure relative to GDP; Figure 1).
Germany is at almost the same level as Sweden (resp. 1.92 and 2.01 points).
Next come Denmark, Belgium, Austria and Finland. France is in 7th position with
1.44 points and Italy 13th with 0.71 point. Private research in Germany (excluding
subsidies) is only 0.08 GDP points below the 2% threshold set at the Barcelona
European Council in 2002 (the “Lisbon strategy”), which Sweden alone has
achieved. If subsidies are included, the private sector exceeds this threshold.
Since 2017, Germany’s domestic expenditure on R&D (private and public) has
also exceeded the 3% threshold. The argument advanced in 2009 by Spengel and Grittmann from ZEW that a tax incentive would allow German companies
to overcome private underinvestment in R&D is therefore not convincing, at
least from a European perspective.

At the global level,
three countries are of course doing better than Germany: the United States,
China and Japan, where the private sector spends 1.6 euros for every euro spent
by Germany. However, if the motivation of Germany’s Parliament for introducing
a tax incentive was to catch up with these countries, it would not have done so
only 40 years after the United States!

The introduction of a
tax incentive for R&D is less surprising if we consider changes in the
R&D effort. We have calculated the average growth rate of the R&D
effort for the 27 current Member States plus the United Kingdom, Norway and
Iceland over the period 2002-2017 (Figure 2).

The curve through the
cloud (logarithmic adjustment) reveals an almost inverse relationship between
the rate and the effort in 2002, suggesting a convergence of R&D efforts.
Obviously, many countries are in a period of catch-up with respect to investing
in research. Most of them are small, but the whole is significant. For example,
in 2017 countries where the R&D effort grew at a rate at least equal to Germany’s
(1.52%) spent 82.8 billion euros (subsidies included), or 1.2 times Germany’s
expenditure (68.7 billion).[3] The R&D effort of these countries amounted to
0.8 point of GDP in 2017.[4]

Could the German CIR credit
thus be a response to the slowdown in the country’s spending on R&D?
R&D expenditure behaves like other capital expenditure, i.e. it slows as
the level rises. Furthermore, the more countries have a high level of domestic spending
on R&D, the more they invest in R&D abroad. This results from the fact
that R&D expenditure is mainly by large corporations and multinationals; we
could cite, for example, Alphabet, Volkswagen and Sanofi, which in 2019 spent, respectively,
18.3 billion, 13.6 billion and 5.9 billion euros on R&D according to
figures from the EU
Industrial R&D Scoreboard. It is notable that the big multinationals open
R&D centres abroad to get closer to their export markets, as well as for
the bargaining power that these investments provide vis-à-vis local governments
(see the report by UNCTAD WIR, 2005). All the major pharmaceutical firms (Pfizer,
GlaxoSmithKline, AstraZeneca, Sanofi-Aventis, Novartis, Eli Lilly) have
established clinical research laboratories in India. Even France’s power supply
firm EDF has an R&D centre in Beijing, dedicated to networks, renewable
energies and the sustainable city. While this does not necessarily amount to substitution
with domestic R&D, it does indicate that there is a kind of plateau in a
given country for a company’s R&D expenditure. The German measure is
probably motivated by global competition to attract new R&D centres. This
is also the stated objective of France’s CIR credit.

Does the enactment of
a “German CIR” credit in favour of R&D bode well for France’s
competitiveness? Germany has a comparative advantage in the manufacturing
sector, which invests heavily in R&D. The new German tax scheme will
reinforce this advantage, without any risk of European litigation, since
R&D support falls under the exemptions to the European Commission’s control
system on state aid. France’s comparative advantage tends to be situated in
services. France’s R&D effort in services is more intense than in Germany:
0.28% of GDP in Germany and 0.67% in France. However, France stands out for
providing less public support for R&D investment by service companies. In
2015, public funding’s share of private research in services was 4% in France,
compared to 11% in Germany, according to an INSEE study.
The “German CIR” will only increase the relative price of French private
research in services in comparison with German research. However, the R&D content
of services determines the price, since it determines their technological
content. The German tax advantage will therefore accentuate the cost advantage
of the technological services which are themselves incorporated into
manufacturing value added. So this will in turn increase the cost advantage of
German manufacturers.

In addition, the
price of R&D is increasingly determined by personnel costs, whose share in
R&D has tended to rise in Italy and France and slightly too in Germany.
This share was roughly equal in the latter two countries in 2017: 61.8% in
Germany, and 59.7% in France.[5] Relative changes in researchers’ salaries will
have an impact on the difference in the amount of the tax credit between France
and Germany. As noted, the new scheme introduced across the Rhine is based only
on the costs of personnel. It could thus be conceptualized as a credit like
France’s Competitiveness and Employment Tax Credit (CICE) targeted at high-skilled
workers in the research sector (referring to the CICE credit before it transforms
into a reduction in employer social security contributions).

This is the reason
why we think that Germany has rather wanted to pursue its policy of lowering
corporate taxes. This was one of the motivations for France’s CIR reform in
2008, which “[can] be viewed as [fiscal] compensation for lower corporate
tax rates in other countries” (Lentile and Mairesse, 2009).
The median tax rate in the OECD applied to large corporations has fallen
continuously since 1995 (13 points over the period 1995-2018), from 35% to 22%.
However, the German rate, which has fluctuated between 29 and 30% since 2008,
is close to the French rate (around 32% in 2020; EC, 2020).
The opposition that could exist in the realm of “tax philosophy”,
between a French system based on a high rate and numerous provisions for
exemptions, and a German system based on a broad base and low rates, is not as strong
now that Germany has set up its own “CIR” credit.

This new incentive is
expected to enhance Germany’s attractiveness for R&D activities, which has
deteriorated somewhat (EY, 2020;
see also CNEPI, 2019).
Since 2011, the top three countries welcoming the most R&D centre projects were
the United Kingdom, followed by Germany and France. Since 2018, France has
hosted more projects than Germany (1197 against 971 in 2019), relegating
Germany to third place (this had already transpired in 2009, during the
financial crisis). The new tax credit should influence the trade-off of foreign
companies that are hesitating between France and Germany about where to set up.
It should also attract French companies to Germany, in the same way that a
significant share of private R&D activities carried out in France come from
foreign companies: 21% in 2015, for the percentage of expenditure as well as
the percentage of employed researchers (see Salies, 2020).
In accordance with European law, French companies established across the Rhine,
and liable for the “Körperschaftsteuer” (German corporate tax),
should be able to benefit from this niche.

Finally, private and
public R&D entities located in France should be able to benefit from the
tax incentive introduced in Germany, via subcontracting. But this will be only of
marginal benefit, for two reasons: the tradition of the German
“Mittelstand” has a culture favouring local networks, and the base
for outsourced activities is capped (as with France’s CIR credit). French
subcontractors will probably be able to benefit from authorizations, in the
same way as France’s research ministry, the MESRI, issues authorizations in Germany. Since 2009, Germany has recovered 6%
of the subcontracting approvals granted by the MESRI, the United Kingdom 4%,
etc. The majority of authorizations are granted to companies located in France
(75%).

Whatever the reasons
that motivated the German Parliament to introduce a tax incentive in favour of
R&D expenditure, it is certain that France has no interest in retiring its
own scheme. This does not mean France shouldn’t reform the CIR credit, as the
leverage effects are not as strong as expected; aid (direct and indirect), in
GDP points, has increased on average by 5.7% per year since 2000, whereas
R&D, also in GDP points, has increased only by 0.73% per year. The weak leverage
effect may have been the factor that for a long time discouraged Germany
from introducing a tax break to boost R&D.

In this period of
searching for ways to support business, it goes without saying that the
research tax credit will remain unchanged in France and could see the base for
the scheme expanded in Germany (in particular to help car manufacturers who
have been refused a plan for direct support).

It is nonetheless
regrettable that one of the reasons for Germany’s new scheme is probably to be
found in the inability of the Member States to advance the European Common
Corporate Consolidated Tax Base (CCCTB) directive, which provides for
harmonized R&D taxation for large firms by deducting R&D expenditure
from the tax base on corporate profits. The German CIR may well be in
competition with the French CIR, leading to transfers of R&D (by multinationals)
from one State to another. The net increase in R&D spending by European
companies remains to be estimated. Unless this spending increases, German
policy could be viewed as yet one more uncooperative tax policy coming at a
time when Europe is looking for common tax revenue.

[1]. The French CIR credit
includes, in addition to personnel costs, costs for the acquisition of patents,
standardization, allocations relating to the depreciation of buildings used for
research, etc.

[2]. Based on a private R&D expenditure of 62
billion euros in 2017 (direct aid excluded), we find 0.25 (the rate of the tax
credit), 0.6 (the share of salaries in R&D), yielding a credit of 9.3
billion euros.

[3]. The Netherlands, the United Kingdom, Slovenia,
Slovakia, Belgium, Latvia, Italy, Romania, Austria, Lithuania, Portugal,
Hungary, Estonia, Cyprus, Greece, Bulgaria, Poland and Malta.

[4]. The GDP of these countries (at market prices in
2017) is 2.5 times that of Germany.

[5] The increase in France and in Italy was +7 and +20
points respectively over the period 2000-2017.

Jérôme Creel, Mario Holzner, Francesco Saraceno, Andrew Watt and Jérôme Wittwer^[1]

The Recovery Fund recently proposed by the EU Commission marks a sea-change in
European integration. Yet it will not
be enough to meet the challenges Europe faces. There has been much
public debate about financing, but little about the sort of concrete projects
that the EU should be putting public money into. We propose in Policy
Brief n°72 a 10-year, €2tn investment programme focusing on public health,
transport infrastructure and energy/decarbonisation.

The investment programme consists of two pillars. In a national
pillar Member States – broadly as in the Commission proposal – would be
allocated €500bn. Resources should be focused on the hardest-hit countries and
front-loaded: we suggest over a three-year horizon.

The bulk of
the money – €1.5tn – would be devoted to finance genuinely European projects, where there is an EU value added. We
describe a series of flagship initiatives that the EU could launch in the
fields of public health, transport infrastructure and energy/decarbonisation.

We call for
a strengthened EU public health agency
that invests in health-staff skills and then facilitates their flexible
deployment in emergencies, and is tasked with ensuring supplies of vital
medicines (Health4EU).

We present
costed proposals for two ambitious transport initiatives: a dedicated European
high-speed rail network, the Ultra-Rapid-Train,
with four-routes cutting travel times between EU capitals and regions, and,
alternatively, an integrated European
Silk Road initiative that combines transport modes on the Chinese model.

In the area
of energy/decarbonisation we seek to “electrify”
the Green Deal. We call for funding to accelerate the realisation of a
smart and integrated electricity grid for 100%-renewable energy transmission (e-highway), support for complementary
battery and green-hydrogen projects, and a programme, modelled on the SURE
initiative, to co-finance member-state decarbonisation and Just Transition
policies.

The crisis
induced by the pandemic, coming as it does on top of the financial and euro
crises, poses a huge challenge. The response needs to take account of the
longer-run structural challenges, and above all that of climate change. The
European Union should rise to these challenges in the reform of an ambitious medium-run recovery programme,
appropriately financed. An outline of such a programme is set out here
by way of illustration, but many permutations and options are available to
policymakers.

[1]              Andrew Watt: Macroeconomic Policy Institute (IMK),
Düsseldorf; email Andrew-watt@boeckler.de.
Jérôme Creel, Francesco Saraceno: OFCE, Paris. Mario Holzner: wiiw Wien. Jérôme
Wittwer: University of Bordeaux.

By Christophe
Blot

In the United States as in France, the
COVID-19 crisis has led to numerous measures restricting economic activities intended
to limit the spread of the virus. The result will be a fall in GDP, which is already
showing up in figures for the first quarter of 2020, and which will be much steeper
in the second quarter. In a country noted for its weak employment protection,
this unprecedented recession is quickly having repercussions on the labour
market, as reflected in the rise in the unemployment rate from a low point of 3.5%
in February to 14.7% in April, a level not seen since 1948. As Bruno
Ducoudré and Pierre Madec have recently demonstrated in the case of France,
the current crisis in the United States should also result in heightened inequalities
and insecurity. And the shock will be all the greater in the US since the
social safety net is less extensive there.

In the United States, the Covid-19 restrictions
were set not at the Federal level but by the various States at differing times.
The vast majority of States did decide however to close schools and
non-essential businesses and to encourage people to stay home. The lockdown was
thus imposed by California on March 19, followed by Illinois on March 21 and
New York State on March 22, but South Carolina didn’t follow until April 6.
North Dakota, South Dakota, Arkansas, Iowa and Nebraska have taken no action,
and three other States – Oklahoma, Utah and Wyoming – applied measures only in certain
counties, and not State-wide. However, by early April a large part of the
country had been locked down, with a varying degree of strictness, affecting between
92% and 97% of the population[1].

Which employees have been hit hardest by the crisis?

According to a survey by the US Bureau of Labor Statistics, almost 25%
of employees worked from home in 2017-2018. However, some employees said they
could have stayed at home to work but did not necessarily do so during the
reporting period. With the COVID-19 crisis and the incentives to modify the
organization of work, we can therefore consider that almost 29% of employees
could stay at home during the lockdown [2].
Furthermore, as the survey
carried out for France highlights, the implementation of teleworking is more
widespread among employees in management jobs and commercial or financial
activities. In 2017-2018, 60% of these people could have managed to work from home.
In contrast, fewer than 10% of workers in agriculture, construction, manufacturing
or transport services would have been able to telework during the crisis. Not surprisingly,
the survey also shows that the employees able to telework are also those at the
top of the wage distribution. For the top quartile, 61.5% of employees could
work at home compared with fewer than 10% for employees in the bottom quartile.

Mirroring these
elements, a more recent study analyzed which jobs would be most affected by the
lockdowns and in particular by the closure of non-essential businesses [3]. Six sectors are particularly exposed.
Logically enough, these include bars and restaurants, transport and travel,
entertainment, personal services, the retail trade and some manufacturing
industries. Based on employment data for the year 2019, these sectors represent
20.4% of total employment. With more than 12 million jobs, the bar and
restaurant sector is being hit hardest. This survey also shows that the most
exposed employees generally receive below-average pay. They are particularly
concentrated in the two lowest wage deciles. For example, the wage bill for bar
and restaurant workers represents barely 3% of the total wage bill but more
than 8% of employment. These people usually work in companies with fewer than
10 employees. This dimension is all the greater in the United States since
access to health insurance is often linked to the employer, whose obligations for
insurance provision depend on how many employees they have. Finally, by
crossing the distribution by sector and geography, it appears that Nevada,
Hawaii and to a lesser extent Florida (23.7%) concentrate a larger share of these
sectors, and therefore of the exposed jobs [4]. Conversely, Nebraska, Iowa and Arkansas
are among the States where these sectors account for a smaller share of
employment [5]. These three States have also not adopted lockdown
measures and should therefore be relatively spared from the rise in unemployment.

Unemployment statistics for the months of
March and April
confirm this outlook. In one year, the unemployment rate increased by 4.8
points for those in management jobs or commercial or financial activities,
while, over the same period, the rate rose by 23 points for service jobs and
almost 15 points for employees in production. The geographic disparities are
also significant. In California and Illinois, the first States to implement a
lockdown, the unemployment rate rose 11.3 and 12.2 points, respectively, in one
year. Conversely, the States that have not enacted lockdown measures are among
those where the unemployment rate has risen the least over the year. The
increase reached 5.2 points for Nebraska, 6.7 points for Arkansas and 7.5
points for Iowa, for example.

The structure of employment is, however, a
key factor determining the variation in unemployment. Despite fairly close starting
dates for the lockdowns in Connecticut and Michigan, the unemployment rate rose
only 4.2 points in the former versus over 18 points in industrial Michigan. The
statistics also confirm the exposure to the shock of Nevada and Hawaii, which
recorded the two largest increases: 24.2 and 19.6 points respectively, while
Minnesota, with a very low exposure, saw its unemployment rate rise by only 4.9
points, one of the smallest variations since April 2019. Likewise, the impact
has been relatively softer in the District of Columbia, where the unemployment
rate rose by 5.5 points.

Health under threat?

The deteriorating state of the labour
market will be accompanied by a deterioration in living conditions for millions
of Americans, especially if the end of the lockdowns is not synonymous with a
rapid rebound in activity, as Jerome Powell, Chairman of the Federal Reserve,
now fears. This would result in increased poverty for households that have lost
their jobs. Previous analyses indicate that workers at the bottom of the
distribution will be the most exposed, especially since, despite the measures taken to
extend unemployment insurance, the duration of benefits remains overall
shorter in the United States. To deal with the crisis, the Federal government
has spent USD 268 billion (or 1.3 percentage points of GDP) on unemployment
insurance to extend the duration and amount of compensation. This is in
addition to the tax credit of up to USD 1,200 for households without children [6].
The government has thus chosen to support incomes temporarily, but unlike the
partial unemployment schemes in force in France and in many other European
countries, it has not protected jobs [7].
The flexibility of the US labour market could, however, prove more advantageous
in so far as the recovery is rapid and differs depending on the sector.
Employees actually do not lose much of their skills and can more easily find a
job in another business sector. But a protracted crisis associated with persistently
higher unemployment would greatly increase poverty.

In addition, access to health insurance is
also often linked to employment. Indeed, 66% of insured Americans are covered
by their employer, who is obliged to offer health insurance in companies with
more than 50 employees. The corollary is that many workers risk losing their
health coverage at the same time as their jobs if they cannot pay the portion of
the insurance costs previously borne by their employer. As for employees of
small businesses exposed to the risk of closure and unemployment, it is very
likely that they will no longer have the means to take out a private insurance
policy on their own. Already, in early 2019, just over 9% of the population had
no health coverage. While this rate had dropped sharply since 2010 and the
“Obamacare” reform, the annual report
of the US Census Bureau published in November 2019 estimated that more than 29
million people had no coverage in 2019, a figure that has risen somewhat since
2017. The coverage rates also show strong regional disparities, which is due to
the demographic structure of the States.

Although part of the economic support plan
is devoted to food aid [8]
and some health expenses, the COVID-19 crisis will once again hit the most
vulnerable populations and widen inequalities that are already significant and being
deepened by the recent tax reforms of the Trump administration.

[1]
In terms of GDP, the share of States that have imposed lockdowns is in much the
same proportions.

[2]
Note that this survey does not show a significant difference between men and
women, even if women have a slightly fewer opportunities for teleworking: 28.4%
against 29.2% for men.

[3]
See Matthew Dey and Mark A. Loewenstein, “How
many workers are employed in sectors directly affected by COVID-19 shutdowns,
where do they work, and how much do they earn?”, Monthly Labor Review,
U.S. Bureau of Labor Statistics, April 2020.

[4]
In Nevada, the exposed sectors represent 34.3% of jobs. This figure also
exceeds 30% in Hawaiï and is 23.7 % in Florida.

[5]
This is also the case of the District of Columbia due to the large presence of Federal
employees.

[6]
This amount is granted to households
receiving less than USD 75,000 (150,000 for a couple) per year. USD 500 is
awarded per child. The amount of the tax credit is regressive and falls to zero
for households with an income above USD 99,000.

[7]
See here
for our analysis of European and American strategies to deal with the crisis.

[8]
The plan approved on 18 March (Families
First Coronavirus Response Act) actually provides for over 20 billion
dollars in assistance for poor people.

By Guillaume
Allègre

Between 2017 and 2018, Finland conducted an experiment with universal income that gave rise to significant media coverage. 2,000 unemployed people receiving the basic unemployment benefit (560 euros per month) received the same amount in the form of unconditional income, which could be combined with income from work for the duration of the experiment (2 years, not renewable). On 6 May 2020, the final report evaluating the experiment was published (here is a summary of the results). The evaluators concluded that the experimental universal income had moderate positive effects on employment and positive effects on economic security and mental health. According to the final report, on average individuals in the treatment group worked approximately 6 additional working days (they worked 78 days). They experienced significantly less mental stress, depression and loneliness, and their cognitive functioning was perceived as better. Life satisfaction was also significantly higher. The results of the experiment therefore seem to argue in favour of a universal income. But is it really possible to draw lessons from the experiment with a view to generalizing the system? In 2018, I wrote that experimenting with universal income was “impossible“. Does the Finnish experience contradict this claim? It turns out that it is indeed difficult to draw lessons.

The principle of a universal income, as it
is commonly defined, is to pay a sum of money to all members of a political
community, on an individual basis, without means-testing or any obligation to
work or take a job.

Such experiments generally concern a small
number of people (in Finland, 2,000 individuals): the universal aspect of the
measure is therefore lost, but a measure’s impact can differ depending on
whether it affects everyone or only some of the population. How are the individuals
chosen? Two options are favoured by practitioners: a totally random draw, which
favours the representativeness of the experimental sample, or a saturation site,
which consists of including in the experimental sample an entire community (for
example a single labour market area), which helps to capture externalities and
interactions (“do I stop working more easily when my neighbour stops or
when my spouse receives assistance?”). In Kenya, villages
are used as saturation sites. In the Finnish experiment, 2,000 long-term
unemployed people receiving end-of-entitlement benefits (equivalent in France
to ASS assistance) constituted the experimental group, with the control group
being made up of recipients of end-of-entitlement benefits who had not been randomly
selected. This poses two problems. First, the experimental group is not
representative of the Finnish population. The long-term unemployed make up only
a small part of the population. So we cannot really say how people with jobs would
have reacted (would they have reduced their working hours?). Second,
interaction effects are not taken into account: for example, consider a job taken
up by an unemployed person in the experimental group, who thus increases his or
her labour supply in the context of the experiment – might this job have been taken
up by a member of the control group?

The definition of universal income tells us
nothing about its level or what benefits it replaces. All options are on the
table. Programmes with a more liberal, free-market orientation offer a
relatively low universal income and replace most social benefits and sectoral
subsidies (notably in agriculture) or can even substitute for regulations on
the labour market (the abolition of the minimum wage is envisaged). In a more
social-democratic logic, universal income would replace only the social minimum
(France’s RSA income support benefit) and income support for the in-work poor
(in France, the Prime d’activité). The amount envisaged is often equal
to or slightly higher than the social minimum. Finally, in a degrowth logic, the
universal income could be lifted to at least the poverty line in order to
eradicate statistical poverty. The effects expected from the reform depend
greatly on the amount envisaged and the benefits it replaces. In the framework of
the Finnish experiment, the universal income was 560 euros, the amount of the
basic unemployment benefit received by the members of the experimental group. Simply
replacing this basic allowance meant that at first the income of the unemployed
in the experimental group remained unchanged. But the universal income could at
the same time be cumulated with job income. This means that returning to work could
lead to an additional financial gain of as much as 560 euros.

The experimentation thus increased the
financial gains from a return to work. This is not a result that one usually thinks
of in relation to establishing a universal income. One question often asked is,
“What
happens when you get 1,000 euros a month without working?” It turns
out that, for those on low incomes, the generalized roll-out of a universal
income could have ambiguous effects on the incentive to work: it increases
income without work but it also provides additional income for the working poor.
On the other hand, for those earning the highest incomes, the monetary gain
from increasing their income would be reduced.

The evaluation was complicated by the
introduction of activation measures during the second year of the experiment
(2018). Based on the “activation model” put in place, people on unemployment
benefits had to work a certain number of hours or undergo training, otherwise their
benefit was reduced by 5%. These measures affected the experimental groups
asymmetrically: two-thirds of the control group were affected, compared with only
half of the experimental group (Van
Parijs, 2020). Theoretically, the incentive to return to work was therefore
greater for the control group. Note that activation goes against the principles
of the universality and unconditionality of universal income.

Notwithstanding the activation measure, the
results of the Finnish experiment tell us that the hours worked are higher for
the experimental group than for the control group. The financial incentives to
work would therefore have worked! In fact, the evaluators stress the moderate degree
of the impact on employment. In the interim report, which covered the first
year (2017), the impact was not significant. In 2018, the impact was
significant, since the people in the experimental group worked an average of 78
days, or 6 days (8.3%) more than the control group. The impact is, however, not
very significant: with a 95% confidence interval, it is between 1.09 and 10.96
days (i.e. between 1.5% and 15%). Kari Hämäläinen concludes:
“All in all, the employment effects were small. This indicates that for
some persons who receive unemployment benefits from Kela [Finland’s agency
handling benefits for those at end of entitlement] the problems related to
finding employment are not related to bureaucracy or to financial incentives”.
On the other hand, the experiment tells us nothing about the effects of
possible disincentives for higher earners due to the financing of the measure:
by construction, an experimental universal income is not financed. More
seriously, gender analysis is virtually absent from the final report. All we know
is, from reading a table, that women in the experimental group worked 5.85
additional days compared to 6.19 for men, but there is no discussion of the
issue of gender equality. The issue of how choices are negotiated within a household
is also not posed. The impact on the lone parent group is not significant
“due to its small size”. In an Op-Ed
published by the New York Times, Antti Jauhiainen and Joona-Hermanni
Mäkinen criticize the sample size, which is five times smaller than initially
planned: the small size makes it difficult to draw any conclusions about subgroups.

The final report highlights the beneficial
effects on mental health and economic well-being. The impacts on people’s life satisfaction
and on stress and depression are very significant. However, two comments can be
made. First, we do not know what comes from the higher living standards of the
individuals in the treatment group and what comes from the mechanism of a universal
income (the certainty that people will have an income whatever happens). Given
the way the experimental income was actually designed (it functions like an
employment bonus), one can easily assume that it is the income effect that
takes precedence. Likewise, since the individuals in the experimental group are
in all cases better off financially, it is not surprising that their economic
well-being increases. Second, there may also be a reporting bias due to a Hawthorne Effect:
individuals in the experimental group know that they are part of an experiment
and that they were chosen so that they have an advantage over the control group.
This can lead them to be more optimistic in their statements.

In the end, the Finnish experiment offers
few lessons about the effects of the establishment of a global universal
income, i.e. one for all citizens. Only a small category of the population was
involved, and funding was not tested. Yet funding is half the mechanism;
Finnish trade unions are also opposed to a universal income because they fear
that the necessary tax increases will reduce earnings from working. In
addition, a family and gender approach has been completely ignored, whereas a universal
income has been denounced by feminists as being liable to discourage women from
taking up jobs (likening it to a mother’s wage). As with the RSA income supplement experiment
in France [article in French], the failure of the Finnish experiment is
explained in part by the contradictory objectives of the various scientific and
political actors. The evaluators hoped for a sample of 10,000 people including individuals
with different employment statuses. They were constrained by a combination of time,
money and a ruling political coalition that was no longer enthusiastic about
the idea of ​​testing a universal income (“Why
Basic Income Failed in Finland”). The Prime Minister’s Centre Party
was in fact interested in the question of financial incentives for the
long-term unemployed, which is a long way from the idea of ​​reconsidering the
central role of market labour or being able to say no to low-quality jobs, which
is often associated with universal income. This was certainly a limitation of
these costly experiments: subject to the inevitable supervision of politics,
they risk becoming showcases promoting the agenda of the government in power.

Jérôme Creel, Xavier Ragot, and Francesco Saraceno

The second meeting of
the Eurogroup did the trick. The Ministers of Finance, after having once again laid
out their divisions on the issue of solidarity between euro area Member States on
Tuesday 7 April 2020, reached an agreement two days later on a fiscal support plan
that can be put in place fairly quickly. The health measures taken by the Member
States to limit the spread of the Covid-19 pandemic will enjoy better
short-term financing, which is good news. The additions to Europe’s tools for
dealing with the crisis will be on the order of 500 billion euros – this is
certainly not negligible, and note that this comes on top of the efforts
already put in place by governments – but this corresponds mainly to a new
accumulation of debt by the Member States. The net gain for each of them, as we
shall see, is actually quite marginal.

The Eurogroup will
propose the creation of a credit line (Pandemic Crisis Support) specifically
dedicated to the management of the Covid-19 crisis within the framework of the
European Stability Mechanism (ESM), without strict conditionality (meaning that
recourse to the credit line will not imply any control on the part of the EMS
over the future management of the Member State’s public finances). The creation
of the credit line was inspired by the proposal by Bénassy-Quéré et al. (2020), the advantages and disadvantages of which we presented to the Eurogroup meeting on
9 April 2020. The amount allocated to this credit line represents around 2% of
the GDP of each euro area Member State, or nearly 240 billion euros (in 2019
GDP).

The lending mechanism
proposed by the European Commission to supplement the partial unemployment
programmes of the Member States – it goes under the name of SURE – will clearly see the light of day and will be
endowed with 100 billion euros. For the record, the three main beneficiaries of
SURE cannot receive a combined total of more than 60 billion euros in loans.

Finally, the European
Investment Bank (EIB) will grant an additional 200 billion euros, mainly to
small and medium-sized enterprises in the EU Member States. In total, the euro area
countries will have 480 billion euros in additional financing capacity.

Table 1 below
presents a breakdown by country of the amounts in play. As part of the 240
billion euros of Pandemic Crisis Support, Germany will be able to benefit from
a borrowing capacity of nearly 70 billion euros, France nearly 50 billion
euros, and Italy and Spain 35 and 25 billion euros respectively. These amounts
correspond to 2% of the 2019 GDP of each country. At this point, there is no
indication of whether the Member States will draw on this capacity. The
advantage in doing so depends crucially on the difference between the interest
rate at which they can finance their health and economic expenses without using
the EMS and the interest rate on loans made by the EMS. The financing cost without
going through the EMS is the interest rate on the country’s public debt. The
cost of financing through Pandemic Crisis Support is the interest rate at which
this credit line is itself financed, that is to say, at the lowest rate on the
market, i.e. the German rate. So it is obvious that Germany has no interest in
using this credit line. Of the 240 billion euros allocated to Pandemic Crisis
Support, the 70 billion euros for Germany is thus useless. For countries other
than Germany, the use of Pandemic Crisis Support depends on the difference between
their interest rate and Germany’s rate, the infamous spread. If the spread is
positive, using the EMS effectively reduces the cost of borrowing. But as shown
in Table 1, the gain enabled by Pandemic Crisis Support is rather low. For
Greece, whose spread vis-à-vis Germany is the highest in the euro zone, the
gain would come to around 0.04% of GDP in 2019, i.e. a 215 basis point spread
multiplied by the amount allocated to Greece for Pandemic Crisis Support (3.8
billion euros, which corresponds to 2% of its GDP of 2019), all relative to its
2019 GDP. For Italy, the gain is on the same order: 0.04% of its GDP. Expressed
in euros, Italy stands to gain 700 million euros. For France, whose spread
vis-à-vis Germany is much lower than that of Italy, the gain could be 200
million euros, or 0.01% of its GDP in 2019.

Assuming that the amounts allocated by the EIB are prorated to the country’s size (measured by its GDP in 2019), and that Spain, Italy and France benefit from 20 billion euros each under SURE, the total interest rate savings would reach, respectively, 680 million, 1.5 billion and 430 million euros (0.05%, 0.08% and 0.02% of GDP). At a time when it seems to be raining billions, these are not big savings. Unless you think of it as a metaphor. Like rain before it falls, the billions of euros are not really euros before they fall.

By Christophe Blot and Paul Hubert

The Covid-19 crisis
will inevitably plunge the global economy into recession in 2020. The first
available indicators – an increase in the unemployment rolls and in partial
unemployment – already reveal an unprecedented collapse
in activity. In France, the OFCE’s assessment
suggests a 32% cut in GDP during the lockdown. This fall is due mainly to stopping
non-essential activities and to lower consumption. The shock could, however, be
amplified by other factors (including rises in some sovereign rates, falling oil
prices, and capital and foreign exchange movements) and in particular by the
financial panic that has spread to the world’s stock exchanges since the end of
February.

Since 24 February
2020, the first precipitous one-day fall, the main stock indexes have begun a
decline that accentuated markedly in the weeks of March 9 and 16, despite
announcements from the Federal Reserve
and then the European Central Bank (Figure 1). As of 25 April, France’s CAC-40 index had
fallen by 28% (with a low of -38% in mid-March), -25% for the German index and nearly
-27% for the European Eurostoxx index. This stock market crash could revive
fears of a new financial crisis, only a few years after the subprime crisis. The
fall in the CAC-40 in the first few weeks was in fact steeper than that
observed in the months following the collapse of Lehman Brothers in September
2008 (Figure 2).

While the short-term impact
of the Covid-19 crisis could prove to be more severe than that of the 2008
financial crisis, the origin of the crisis is very different – hence the need
to reconsider the impact of the stock market panic. In the financial crisis,
the origin was in fact a banking crisis, fuelled by a specific segment of the
US real estate market, the subprime market. This financial crisis then caused a
drop-off in demand and a recession through a variety of channels: higher risk
premiums, credit rationing, financial and real estate wealth effects,
uncertainty, and so on. While some of these elements can be found today, they
are now being interpreted as the consequence of a health crisis. But if there
is no doubt that this is at the outset a health and economic crisis, can it
trigger a stock market crash?

Another way of posing
the question is to ask ourselves whether the current stock market fall is due entirely
to the economic crisis. Share prices are in fact supposed to reflect future changes
in a company’s profits. Therefore, expectations of a recession, as demand –
consumption and investment – and supply are constrained, must result in a reduction
in turnover and future profits, and therefore a fall in share prices.

However, the financial
shock could be magnified if the fall in stock prices is greater than that
caused by the decline in corporate profits. This is a thorny issue, but it is
possible to make an assessment of a possible over-adjustment of the stock
market, and thus of a possible financial amplification of the crisis. The
method we have used is to compare changes in profit expectations (by financial
analysts) since the beginning of the Covid-19 crisis with the fall in equities.
Focusing on CAC-40 companies, profit expectations for next year have been cut in
the last three months by 13.4% [1]. This reduction should therefore be fully
reflected in the change in the index. In fact, the fall there was much larger:
-28%. This would result in an amplification of the financial shock by just
under 15 percentage points.

This over-adjustment by
the stock market can be explained by, among other things, the current
prevailing uncertainty about the way lockdowns around the world will be eased, and
thus about an economic recovery, as well as uncertainty about the oil shock that
is unfolding concomitantly, with determinants that are both economic and
geopolitical. This over-adjustment may therefore not be wholly irrational (with
regard to the supposed efficiency of financial markets), but the fact remains
that it has led to major variations in the financial assets of consumers and
business.

Variations like these
are not neutral for economic growth. On the consumer side, they contribute to
what are called the wealth effects on consumption: additions to a household’s assets
give it a sense of wealth that drives it to increase its consumption [2]. This effect is all the greater in countries where
household assets are in the main financialized. If a large portion of household
wealth is made up of equities, then changes in share prices strongly influence
this wealth effect. The portion of shares (or of investment funds) in financial
assets is quite similar in France and the United States, respectively 27% and
29%. However, these assets account for a much larger share of the disposable
income of American households: 156%, compared to 99.5% in France. As a result,
French households are less exposed to changes in share prices. Empirical studies
generally suggest a greater wealth effect in the United States than in France [3].

As for business,
these changes in stock market valuations have an effect on investment decisions
through collateral constraints. When a company takes on debt to finance an
investment project, the bank demands assets as collateral. These assets can be
either physical or financial. In the event of an increase in equity markets, a
company’s financial assets increase in value and allow it greater access to credit
[4]. This mechanism is potentially important today. At
a time when companies have very large cash requirements to cope with the brutal
shutdown of the economy, the sharp decline in their financial assets is restricting
their access to lines of credit. While the financial amplification factors are
not reducible to the financial shock, the recent changes in the prices of these
assets are nevertheless giving an initial indication of how the financial
system is responding to the ongoing health and economic crises.

[1] The data comes from Eikon Datastream, which for each
company provides analysts’ consensus on the earnings per share (EPS) for the
coming year and the following year. We then calculated the weighted average using
the weight of each CAC-40 company in the index of the change in these
expectations over the past three months. The fact that a 13.4% decline in
profit expectations for the next year will give rise to a 13.4% decline in the
stock price is made on the assumption that profits beyond the next year are not
taken into account, or, in other words, that their current net value is zero,
which is to say that investors’ preference for the present is very strong
today.

[2] More formally, we can speak of a propensity to
consume that increases as wealth increases. Wealth effects can be
distinguishable according to whether they are purely financial assets or also
include property assets.

[3] See Antonin, Plane and Sampognaro (2017) for a summary of these estimates.

[4] See Ehrmann and Fratzscher (2004) and Chaney, Sraer and Thesmar (2012) for empirical assessments of this transmission channel
via share prices or property prices, respectively.

By Gregory Verdugo

Covid-19 has made it
risky to have a job that cannot be done remotely and requires contact with the
public. Given the danger of infection facing frontline workers, employers confront
the risk of legal consequences in the event of insufficient protection. This
new risk could lead to changes in the characteristics of the workers being hired,
as the threat of lawsuits creates an incentive to discriminate by choosing
workers who are least at risk for these positions. As long as the Covid-19
virus is in circulation, we could therefore witness the rise of a powerful new
source of discrimination in the labour market based on the risk of serious
infection. But according to some epidemiologists, the virus could be circulating
and creating episodic outbreaks for 18 to 24 months [1], with the result that Covid-19 could leave a lasting
imprint on the job market.

Which workers are
least at risk? First, there are those with no apparent co-morbidities, which means
that individuals who are obese may face even more pronounced discrimination on
the labour market [2]. However, the main easily identifiable group at lower
risk are the young, since the under-30s face a very low risk of developing a
serious form of Covid-19 [3]. This situation is unprecedented – for the first
time, we’re experiencing a recession where young people are less affected than
more senior employees!

But while the young are
less at risk, there is one group of individuals for whom the risk could be even
lower. Experience with other viruses suggests that individuals who have
previously contracted Covid-19 gain at least temporary immunity from future
infection [4]. Although such immunity remains uncertain and
controversial [5], some employers may want to test their employees,
especially those in at-risk positions, to rule out the danger of infection
attributable to their professional activity.

Information on the
state of an employee’s immunity could therefore be very valuable for an
employer – so much so, in fact, that it could lead to the development of
low-quality private tests and a risk that false immunity certificates could
proliferate. To avoid these risks, many countries are considering creating
immunity passports certifying that a worker has already contracted Covid-19 and
is, at least in the short term, safe from the risk of infection [6]. Chile has announced that it is implementing such
a policy, and it is under discussion in various European countries.

An immunity passport
is expected to provide high wages in labour markets wracked by Covid-19,
particularly in high-risk jobs, including those requiring close contact with
infected people, such as in hospitals. In turn, in an economy in crisis, an
immunity passport guaranteeing well-paid employment could generate high demand for
voluntary infection among those in direst need.

This
possibility of self-infection when immunity is socially valued or economically
profitable is not merely a theoretical question. In an article published in
2019, historian Kathryn Olivarius of Stanford University showed that there are
numerous historical precedents [7]. Being recognized as having
immunity was in particular an essential condition for economic integration
during the colonization of tropical zones, where infectious diseases were decimating
the colonists. In the early 19th century, immigrants recently arriving in New
Orleans were said to be “non-acclimated”, and sought to quickly suffer and
survive yellow fever, which at that time had an estimated mortality rate of
about 50%, which is well above that of Covid-19, currently estimated at between
0.3% and 1%. To integrate, you had to prove that you survived the infection and
thus became “acclimated”. Only after becoming “acclimated”,
with the risk of early death being ruled out, did it become possible to have access
to the best jobs in the local labor market, to get married and to access credit
from local banks.

If a Covid-19
immunity passport is developed, it will in a similar manner foster a dangerous
temptation to become infected in order to gain access to jobs where the risk of
infection is high but wages are also high. The temptation to self-infect would
be even stronger in the case of Covid-19, the consequences of infection are usually
benign. But voluntary infection could lead to risky behaviour: one can imagine
individuals trying to get infected, and in doing so spreading the disease
around them, especially if they remain asymptomatic.

Alex Tabarok, a professor
of economics at George Mason University, argues that the issue of immunity
passports by the public authorities would also imply the need to regulate the demand
for voluntary infection that this would give rise to. So the public authorities
should offer the possibility of infection in moderate doses, in a medical
setting and by ensuring medical follow-up during a period of quarantine
following voluntary infection.[8]

The supervision of a
voluntary infection motivated by the desire to obtain an immunity passport clearly
poses ethical problems. First, it would be individuals in the most precarious
situations, especially those most affected by the recession, who would volunteer.
Furthermore, it is not certain that medical supervision reduces the risk of
death or serious sequelae. Above all, voluntary infection contradicts the apparent
policy goal today, which is to curb the epidemic as much as possible, as the
possibility of achieving collective immunity seems distant. So such an approach
is for the moment dangerous.

To be consistent with
the goal of suppressing the epidemic, it therefore appears necessary to discard
the policy of immunity passports, which give value to having been infected. As is
set out in the French protocol for lifting the lockdown [9], it is also necessary to ensure that the private
market does not fuel this demand and that companies don’t create their own
immunity passports or try to acquire information about immunity through other
means. While a rule like this might seem paradoxical, the risk of
self-infection can be eliminated only if a non-discrimination rule is imposed that
prohibits employers from using or requesting the results of serological tests
to employ workers in high-risk positions and that also bars employees from
revealing their immunity status.

[1] Moore Kristine, Marc Lipsitch, John M. Barry and Michael
T. Osterholm, 2020, “The Future of the COVID-19 Pandemic: Lessons Learned from
Pandemic Influenza”, COVID-19: The CIDRAP Viewpoint,
April. https://www.cidrap.umn.edu/sites/default/files/public/downloads/cidrap-covid19-viewpoint-part1.pdf

[2] Greve J., 2008, “Obesity and labor market outcomes
in Denmark”, Economics & Human Biology, 6(3), 350-362. https://doi.org/10.1016/j.ehb.2008.09.001

[3] Verity Robert et al., 2020, “Estimates
of the severity of coronavirus disease 2019: a model-based analysis”, The Lancet infectious diseases. https://doi.org/10.1016/S1473-3099(20)30243-7

[4] Altman Daniel M., Daniel C. Douek and Rosemary J.
Boyton, 2020, “What policy makers need to know about COVID-19 protective
immunity”, The Lancet. https://doi.org/10.1016/S0140-6736(20)30985-5

[5] See the opinion of 24 April 2020 by the World
Health Organisation, “Immunity passports in the
context of COVID-19”, https://apps.who.int/iris/bitstream/handle/10665/331866/WHO-2019-nCoV-Sci_Brief-Immunity_passport-2020.1-eng.pdf

[6]  The Guardian, 2020, “‘Immunity
passports’ could speed up return to work after Covid-19”, 30 March. https://www.theguardian.com/world/2020/mar/30/immunity-passports-could-speed-up-return-to-work-after-covid-19

[7] Olivarius K., 2019, “Immunity, Capital, and Power
in Antebellum New Orleans”, The American Historical Review,
124(2), 425-455. https://doi.org/10.1093/ahr/rhz176

[8] Tabarrok A., 2020, “Immunity Passes Must Be Combined With Variolation”, Marginal Revolution, blog post, 5 April, https://marginalrevolution.com/marginalrevolution/2020/04/immunity-certificates-must-be-combined-with-variolation.html

[9]https://travail-emploi.gouv.fr/IMG/pdf/protocole-national-de-deconfinement.pdf

By Éloi Laurent

Is humanity a pest?
For the other beings of Nature who find it increasingly difficult to coexist
with humans on the planet, the answer is unambiguous: without a doubt.

Life on earth, 3.5
billion years old, can be estimated in different ways. One way is to assess the respective biomass of its components. It can then be seen that the total biomass on
Earth weighs around 550 Gt C (giga tonnes of carbon), of which 450 Gt C (or
80%) are plants, 70 Gt C (or 15%) are bacteria and only 0.3% are animals.
Within this last category, humans represent only 0.06 Gt C. And yet, the 7.6
billion people accounting for only 0.01% of life on the globe are on their own responsible
for the disappearance of more than 80% of all wild mammals and half of all plants.

This colossal crisis
in biodiversity caused by humanity, with premises dating back to the extermination of megafauna in the
prehistoric age
(Pleistocene), started with the entry into the regime of industrial growth in
the 1950s, with the onset of the “great acceleration“.

This is now well
documented: while nearly 2.5 million species (1.9 million animals and 400,000
plants) have been identified and named, convergent studies suggest that their
rate of extinction is currently 100 to 1000 times faster than the rhythms known
on Earth during the last 500 million years. This could mean that, due to human
expansion, biodiversity is on the brink of a sixth mass extinction. Whether we
observe these dynamics in section or longitudinally, at the level of certain key species in certain regions or by turning to more or less convincing
hypotheses on the total
potential biodiversity sheltered by the Biosphere (which could amount to 8 million species), the conclusion
is obvious: while humans are thriving, the other species are withering away,
with the exception of those that are directly useful to people.

But this destruction
of biodiversity is of course also an existential problem for humans themselves.
According to a causal chain formalized two decades ago during an evaluation of ecosystems for the millennium, biodiversity underpins the proper functioning of
ecosystems, which provide humans with “ecosystem services” that support their
well-being (recent literature evokes in a broader and less instrumental way
“the contributions of Nature“). This logic naturally also holds in
reverse: when humans destroy biodiversity, as they are massively doing today
through their agricultural systems,
they degrade ecosystem services and, at the end of the chain, undermine their own
living conditions. The case of mangroves is one of the most telling: these
maritime ecosystems promote animal reproduction, store carbon and constitute
powerful natural barriers against tidal waves. By destroying them, human
communities are becoming poorer and weaker.

The start of the 2020
decade, the first three months of which were marked by huge fires in Australia
and the Covid-19 pandemic, is clearly showing that destroying Nature is beyond
our means. The most intuitive definition of the unsustainability of current
economic systems can therefore be summed up in just a few words: human
well-being destroys human well-being.

How do we get out of
this vicious spiral as quickly as possible? One common sense solution, known
since Malthus and constantly updated since then, is to suppress humanity, in
whole or in part. Some commentators are taking note of how much the Biosphere,
freed from the burden of humans, is doing better since they have been mostly
confined. If we turn off the source of human greenhouse gas emissions, it is of
course likely that they will fall sharply. Likewise, if the sources of local
pollution in urban spaces, for example in Paris, are turned off, the air there will be restored to a remarkable quality. It is also likely that we will see an improvement
in the lot of animal and plant species during this period, much as in areas like
the Chernobyl region that humans were forced to abandon. But what good is clean air when we are deprived
of the right to breathe it for more than a few moments a day?

In reality, even if
confinement has led to a constrained and temporary sobriety, its long-term
impact is working fully against the ecological transition. All the mechanisms
of social cooperation that are essential to transition policies are now at a
standstill, except for market transactions. To take simply the example of
climate policy, the very strategic COP 26 gathering has already been postponed
to 2021, the next IPCC Assessment Report has been slowed down, the full, comprehensive outcome of the efforts of
the Citizen climate convention has been compromised, and so on. And a heat wave under lockdown cannot be excluded!

The point is that it
is not a matter of neutralizing or even freezing social systems to
“save” natural systems, but of working over the long-term on their social-ecological articulation, which is still a blind spot in contemporary
economic analysis.

The fact remains that
the current social emergency is forcing governments around the world to work
here and now to protect their populations, particularly the most vulnerable,
from the colossal shock that is simultaneously hitting economic systems around
the world. The notion of essential well-being can rightly serve as a compass guiding
these efforts, which could focus on sectors vital to the whole population in
the months and years to come, subject to the imperative of not further
accelerating the ecological crisis. Essential well-being and non-harmful
well-being could converge to meet the present urgency and the needs of the
future. How, precisely?

Let us briefly return
to the different dimensions of essential well-being outlined in the first post
in this series. Public health and the care sector are clearly at the centre of
essential well-being, understood as human well-being which works for its
perpetuation rather than for its loss. The medical journal The Lancet
has highlighted in recent years the increasingly tangible links between health and
climate, health and various pollutants, health and biodiversity, and health and
ecosystems. Care for ecosystems and care for humanity are two sides of the same
coin. But the issue of environmental health must be fully integrated, including
here in France, with the new priority on health. Investing in public services
beyond the health system is also a guarantee that essential well-being is shared
most equitably.

This temporal coherence
is complicated by the necessary reinvestment in essential infrastructure. Food
supply systems in France and beyond, from agricultural production to retail
distribution, are today far too polluting and destructive to both human health
and ecosystems. Food systems already engaged in the ecological transition
should be given priority in order to promote their generalization. Likewise,
the energy required for infrastructure, particularly urban infrastructure
(water, electricity, waste, mobility, etc.) is still largely fossil-fuelled,
even though in just five years a global metropolis like Copenhagen has given
itself the means to obtain supplies from 100% renewable energy. We must
therefore accelerate the move for energy and carbon sobriety – we have all the means needed.
Finally, the issue of the growing ecological footprint of digital networks can
no longer be avoided, when essential infrastructures, such as heating networks and
waste collection, work very well in a “low-tech” mode.

The notion of
essential well-being can therefore be useful for the “end of the
crisis”, provided that we remain faithful to the motto of those to whom we
owe so much: first, do no harm.

By Eloi Laurent

How do we know what
we can do without while continuing to live well? To clarify this sensitive
issue, economic analysis offers a central criterion, that of the useful, which
itself refers to two related notions: use and utility.

First of all, and
faithfully to the etymology, what is useful is what actually serves people to
meet their needs. From the human point of view, then, something is useless that
doesn’t serve to meet people’s needs. Amazon announced on March 17 that its warehouses would now store only “essential
goods” until April 5, and defined these as follows in the context of the
Covid-19 crisis: “household staples, medical supplies and other high-demand
products”. The ambiguity of the criterion for the useful is tangible in this
definition, which conflates something of primary necessity and something that
emerges from the interplay of supply and demand. While giving the appearance of
civic behaviour, Amazon is also resolutely in line with a commercial
perspective.

Furthermore, this
first criterion of the useful leads into the oceanic variety of human
preferences that punctuate market movements. As Aristotle recalls in the first
chapter of the Nicomachean ethics,
the founding text of the economics of happiness written almost two and a half
millennia ago, we find among individuals and groups a multiplicity of
conceptions of what constitutes a good life. But contrary to the thoughts of Aristotle,
who erected his own concept of happiness as well-being that is superior to
others, it is not legitimate to prioritize the different conceptions of a happy
life. Rather, a political regime based on liberty is about ensuring the
possibility that the greatest number of “pursuits of happiness” are conceivable
and attainable so long as none of them harms others.

But the Aristotelian
conception of happiness, which emphasizes study and the culture of books, is no
less worthy than any other. Are bookstores, as professionals in the sector
argued at the start of the lockdown in France, essential businesses just like earthly
food businesses? For some, yes. Can they be considered useless at a time when
human existence is forced to retreat to its vital functions? Obviously not.

Hence the importance
of the second criterion, that of utility, which not only measures the use of
different goods and services but the satisfaction that individuals derive from
them. But this criterion turns out to be even more problematic than that of use
from the point of view of public policy.

Classical analysis,
as founded for example by John Stuart Mill following on from Jeremy Bentham,
supposes a social welfare function, aggregating all individual utilities, which
it is up to the public authorities to maximize in the name of collective
efficiency, understood here as the optimization of the sum of all utilities. Being
socially useful means maximizing the common well-being thus defined. But, as we
know, from the beginning of the 20th century, neoclassical analysis called into
question the validity of comparisons of interpersonal utility, favouring the
ordinal over the cardinal and rendering the measure of collective utility
largely ineffective, since, in the words of Lionel Robbins (1938), “every
spirit is impenetrable for every other, and no common denominator of feelings
is possible”.

This difficulty with
comparison, which necessitates the recourse to ethical judgment criteria to
aggregate preferences, in particular greatly weakens the use of the statistical
value of a human life (“value of statistical life”, or VSL) in efforts to base
collective choices on a cost-benefit monetary analysis, for example in the area
of environmental policy. Do we imagine that we could decently assess the “human
cost” of the Covid-19 crisis for the different countries affected by crossing the VSL values calculated, for example by the OECD,
with the mortality data compiled by John Hopkins University? The economic analysis of environmental issues
cannot in reality be limited to the criterion of efficiency, which is itself
based on that of utility, and must be able to be informed by considerations of justice.

Another substantial
problem with the utilitarian approach is its treatment of natural resources,
reources that have never been as greatly consumed by economic systems as they are today – far from the promise of the
dematerialization of the digital transition underway for at least the last
three decades.

The economic analysis
of natural resources provides of course various criteria that allow us to
understand the plurality of values ​​of natural resources. But when it comes to
decision-making, it is the instrumental value ​​of these resources that prevails, because these are
both more immediate in terms of human satisfaction and easier to calculate.
This myopia leads to monumental errors in economic choices.

This is particularly
the case for the trade in live animals in China, which was at the root of the
Covid-19 health crisis. The economic utility of the bat or the pangolin can
certainly be assessed through the prism of food consumption alone. But it turns
out both that bats serve as storehouses of coronavirus and that pangolins can
act as intermediary hosts between bats and humans. So the disutility of the
consumption of these animals (measured by the economic consequences of global
or regional pandemics caused by coronaviruses) is infinitely greater than the
utility provided by their ingestion. It is ironic that the bat is precisely the
animal chosen by Thomas Nagel in a classic article from 1974 aimed at tracing the human-animal border, which
wondered what the effect was, from the point of view of the bat, of being a
bat.

Finally, there
appears, halfway between the useless and the harmful, a criterion other than
the useful: that of “artificial” human needs, recently highlighted by
the sociologist Razmig Keucheyan.
Artificial is understood here in the dual sense that these needs are created
from scratch (especially by the digital industry) rather than spontaneously,
and that they lead to the destruction of the natural world. They contrast with collectively
defined “authentic” needs, with a concern for preserving the human
habitat.

At the end of this
brief exploration, while it may seem rather difficult to determine the question
of useful (and useless) well-being, it nevertheless seems… essential to
better understand the issue of harmful well-being. This will be the subject of
the last post in this series.

Éloi Laurent

The Covid-19 crisis
is still in its infancy, but it seems difficult to imagine that it will lead to
a “return to normal” economically. In fact, confinement-fuelled reflections
are already multiplying about the new world that could emerge from the
unprecedented conjunction of a global pandemic, the freezing of half of
humanity, and the brutal drying up of global flows and the economic activity.
Among these reflections, many of which were initiated well before this crisis,
the need to define what is really essential to human well-being stands out:
what do we really need? What can we actually do without?

Let us first reason
by the absurd, as Saint-Simon invited us to do back in 1819. “Suppose that
France suddenly loses … the essential French producers, those who are
responsible for the most important products, those who direct the works most useful
to the nation and who render the sciences, the fine arts and the crafts
fruitful, they are really the flower of French society, they are of all the
French the most useful to their country, those who procure the most glory, who add
most to its civilization and its prosperity: the nation would become a lifeless
corpse as it lost them… It would require at least a generation for France to
repair this misfortune…”. It is in the mode of the parable that Saint-Simon
thus tried to explain the hierarchical reversal that the new world of the
industrial revolution implied for the country’s prosperity, which could
henceforth do without the monarchical classes, in his view, whereas
“Science and the arts and crafts” had become essential.

Adapting Saint-Simon’s
parable to the current situation amounts to recognizing that we cannot do
without those who provide the care, guarantee the food supply, maintain the
rule of law and the supply of public services in times of crisis, and operate
the infrastructure (water, electricity, digital networks). This implies that in
normal times all these professions must be valued in line with their vital
importance. The resulting definition of human well-being resembles the
dashboard formed by putting together the different boxes in the pandemic travel certificates that every French person must fill out in order to
be able to move out of their confinement.

But it is possible to
flesh out this basic reflection by using the numerous studies carried out over
the decades on the measurement of human well-being, work which has greatly accelerated in the last
ten years in the wake of the “great recession”. We can start by
considering what is essential in the eyes of those questioned about the sources
of their well-being. Two priorities have emerged: health and social connections. In this respect, the current situation offers a
striking “well-being paradox”: drastic measures of confinement are sometimes
being taken to preserve health, but they in turn lead to the deterioration of
social connections due to the imposed isolation.

But how better to
begin to positively identify the different factors in “essential
well-being” that should now be the focus of public policy? Measuring
poverty can help here in measuring wealth. The pioneering empirical work of
Amartya Sen and Mahbub ul Haq in the late 1980s resulted in a definition of
human development that the Human Development Indicator, first published by the United Nations in 1990, reflects only in part: “Human development is a
process of enlarging people’s choices. The most critical of these wide-ranging
choices are to live a long and healthy life, to be educated and to have access
to resources needed for a decent standard of living. Additional choices include
political freedom, guaranteed human rights and personal self-respect.”
More specifically, in the French case, the work undertaken in 2015 by the
National Observatory of Poverty and Social Exclusion (Onpes) on reference budgets, and extended in
particular by INSEE with its “indicator of
poverty in living conditions“, has led to defining the essential
components of an “acceptable” life (we could also speak of “decency”).

But let’s suppose
that these measurement instruments contribute, upon recovery from the crisis,
to defining an essential well-being (which key workers would maintain in the crisis
situations that are sure to be repeated under the impact of ecological shocks);
expertise alone would not be enough to trace its contours. A citizens’
convention needs to take up the matter.

This is all the more
so as the definition of essential well-being naturally evokes two other
categories that are even more difficult to define, to which this blog will
return in the coming days: useless (or artificial) well-being, that which can
be dispensed with harmlessly; and harmful well-being, which we must do without
in the future because in addition to being ancillary it harms essential well-being,
in particular because it undermines the foundations for well-being by leading
to the worsening of ecosystems (this is the debate taking place in Europe on whether
it is necessary to save the airlines). The debate over essential well-being has
just begun…