Thoughtful Government Policies Must Guide the Recovery

Thoughts about technology that is inclusive, trusted, and creates a more sustainable world

These posts represent my personal views on the future of the digital economy powered by the cloud and artificial intelligence. Unless otherwise indicated, they do not represent the official views of Microsoft.

While it is too soon to say that the health emergency is behind us, governments all over the world are of necessity looking to the next stage. As EC President Ursula von der Leyen puts it,

“What started with a virus so small your eyes cannot see it, has become an economic crisis so big that you simply cannot miss it.”

This is why governments cannot wait until the pandemic is past to start devising recovery plans for economies laid low by the virus. Proportions may vary, but the basic ingredients of these plans are the same nearly everywhere:

• First, continue to provide immediate financial relief to those whose ability to earn a living has been disrupted by lockdown orders;
• Next, pump money into companies and public sector institutions (schools, transport, essential services) so that they can restart their activities and begin the climb back to normal output and, everyone hopes, renewed growth;
• Finally, invest for the long term in the physical, social, and digital infrastructures that will provide the foundations for a lasting and fruitful economic recovery.

Regular readers will know that the last item has been a particular focus of this blog. In recent weeks I’ve argued that governments in the US and Europe must close the rural broadband gap, redouble their commitment to deployment of 5G networks, accelerate the digital transformation of their own institutions, and—last but not least—ensure that workers at every stage of their careers can acquire the digital skills they will need in the post-pandemic economy.

The pandemic is forcing governments to change the way they operate as they seek to guide their national economies toward recovery. Perhaps nowhere is the change so striking as in the European Union. As fate would have it, the pandemic arrived just at the moment when EU member states were conducting delicate negotiations over the region’s next seven-year budget set to run from 2021 through 2027. Although the exact amount has not yet been fixed, the new budget is expected to devote around 1.1 trillion euros to seven broad baskets. The contents of these baskets are impossible to summarize here, but they include investments or subsidies for agriculture, transportation, digital networks, space exploration, defense, education, scientific research, and culture, among many other areas.

But that was before the pandemic hit. Now the EU recognizes that more money will be needed to drive the near-term economic recovery. We can get a glimpse of where the EU’s leaders think their main priorities lie from the April 21 joint statement by the European Council and the European Commission:

“The European Union needs a Marshall-Plan type investment effort to fuel the recovery and modernise the economy... This means investing massively in the Green and Digital transitions and the circular economy… The European Green deal will be essential as an inclusive and sustainable growth strategy in this respect. The crisis has also shown the potential of digital for the functioning of our economies. Investing in digital capacities, infrastructure, and technologies will therefore be a key element of the recovery effort.”

I must admit I was not familiar with the expression “circular economy” used in the passage quoted above. But I have discovered it means an economy that minimizes the need for new inputs of resources by wasting as little as possible and recycling as much as possible. That seems like a good idea.

The concept of a new “Marshall Plan” to spur economic recovery and modernization is also powerful and appropriate. The question is how much money will be needed and where will it come from. Last week EC President von der Leyen proposed a €750 billion “EU recovery package” to be financed with bonds floated by the EC itself. Of this total amount, €250 billion is to be distributed as low-interest loans to the governments most in need, and €500 billion as non-reimbursable grants for worthy long-term investment projects by the member states. This is a major departure from previous EU practice, and the plan may well evolve before it is adopted, but this seems to be one of those times when necessity must be the mother of invention.

The lion’s share of this extra recovery money will be devoted to building what the EC calls the “Next Generation EU”: boosting the region’s global competitiveness and transitioning from declining industries to a green and digital economy. In particular, this includes investing in:

• More and better network connectivity, especially 5G networks;
• AI, cybersecurity, supercomputing, and the cloud;
• A data economy that leverages the unique advantages of European industry to drive innovation and job creation;
• Increased cyber resilience for public and private sector institutions.

As in the United States, the pandemic has made European policymakers acutely aware of the region’s supply chain vulnerabilities, especially in the areas of medical products and high tech. Expressing an understandable concern, the European Council and the EC declare in the statement cited above that:

“We must ensure the strategic autonomy of the EU through a dynamic industrial policy, support for SMEs and start-ups, and an effective screening of foreign direct investment. The Covid-19 pandemic has shown the pressing need to produce critical goods in Europe, to invest in strategic value chains, and to reduce over-dependency on third countries in these areas.”

Strategic autonomy need not conflict with continued global exchange and interdependence. Nations and alliances of nations (such as the EU) have every right to exercise control over strategic inputs that are vital to their economic well-being and security. I can’t speak for the tech industry or even for my employer, but I think that US tech firms have every reason to cooperate with European and other governments around the world as they rebuild new and inevitably more digital versions of their economics in the post-pandemic era. As Microsoft CEO Satya Nadella recently put it,

“Neither the public nor the private sector alone can provide the answers. The challenges we face demand an unprecedented alliance between business and government.”