AP

Kevin Lynch

June 6, 2022

To set the context: in March 2020, the potential devastation of a virulent global pandemic became a worldwide reality. Economies shut down, hospitals filled up, societies were frozen in place, uncertainty was the order of the day, and governments reacted.

Why governments acted is pretty clear: to save lives and livelihoods, to prevent economic collapse, and to protect those most at risk. Still, what governments did to achieve these objectives, how they did it, and when they unwound it merit review.

As Winston Churchill once famously quipped: “Never let a good crisis go to waste.” After all that Canadians have been through, it’s good advice. To better prepare for the future, the lessons from the COVID-19 policy responses should be a focus of policy analysts and policy makers in Canada and elsewhere, just as the lessons from the 2008 global financial crisis were.

Policy making under extreme uncertainty is not easy. The pandemic is a perfect example. It highlighted the value of early warning systems, high quality data, and strong analytic capacity to aid decision making. It tested resiliency in our health care system as well as production and delivery systems. Policy actions, particularly when made in a context of uncertainty and urgency, can also have unintended consequences. We should learn from these, to inform future policy thinking. Beyond these risks and how best to deal with them, the execution of policy is itself key, and this can be an overlooked problem.

While history may not repeat itself, as Mark Twain said, it does often rhyme. But unforeseen events will be a part of the future just as they have been in the past. With respect to the pandemic and macro policy, what have we learned, and what will we remember? What follows is a framework to begin answering these timely questions.

First, start with the essentials of crisis management — urgency; program coherence; governance; information; and communications – and how they were handled by the federal and provincial governments during the pandemic.

— The need for speed: but not at the expense of the integrity and coherence of new initiatives. Simplicity in program design, utilization of existing channels of delivery whenever possible, and frugality in the number of initiatives should be core considerations. In fact, there was a torrent of new initiatives, seemingly tied to daily press conferences by the prime minister and, given the speed, would likely have provided little opportunity for detailed analysis of program design and delivery. An overly hurried approach, combined with many new initiatives, increases the risk of unintended consequences in program outcomes and delivery.

— The need for clear accountability: governance matters in crises. What is key is clarity on milestones; clarity on responsibilities; and clarity as to where the buck stops. Too many initiatives, hastily put together, with hyped announcements, will usually pose governance and expectational challenges. Our federal system can amplify these challenges.

— The need for information: in the fog of crisis uncertainty, knowledge is priceless. This means reaching out endlessly beyond government to gather information and avoid the “crisis bubble” trap. It is also as mundane as checking the files for lessons from previous “shocks” with similar characteristics. In this case, there was an excellent report on the lessons from SARS (“Learning from SARS: Renewal of Public Health in Canada”, Oct. 2003), but it appeared to have been left on the shelf.

— The need to communicate, clearly. Frequent and clear communications, with authentic and respected communicators who have credibility on the crisis issue, is key. And, unfortunately these days, dealing with falsehoods and misinformation is part of the task of crisis communications. In the early waves of COVID, some public health officials, including Dr. Bonnie Henry of B.C. and Dr. Robert Strang of Nova Scotia, delivered masterclasses in what to say and how to say it, while others were less effective. It mattered.

So, more than two years on from the start of the pandemic, after enormous volatility, the economic context is indeed changed:

–The macro measures of unemployment and GDP are equal to, or better, than they were pre-pandemic;

–Government debt and private sector debt are massively higher;

–Waves of COVID are continuing but now in a population with high levels of vaccination;

–Inflation and affordability are the number one concerns of Canadians in public opinion polls; and

–Little clarity is evident on when, whether and how workers will return to their office towers.

Canada was very Canadian in tackling the pandemic. Federalism was on full display, with all its strengths and challenges. The federal government played its role as the ultimate shock absorber for the national economy when activity plummeted in 2020, but was slow to unwind this emergency support as the economy came roaring back in 2021. Our public health system certainly creaked under the pandemic weight, and it would have benefitted from the lessons of the SARS crisis. Public belief in the common good achieved far higher vaccination rates and mask wearing than our southern neighbour, but public communications were a mixed bag, with various reversals and contradictions creating public frustration and confusion. And, like all crises, there were unintended consequences of pandemic policy actions as well as legacy issues to deal with.

Second, take stock of the unintended consequences. Despite all the good achieved, moral hazard is always a risk, and the policy response to the pandemic created significant unintended consequences which continue to have negative impacts. These include:

— Over-insurance: by breaking the basic insurance principle of never insuring something for more than 100 percent of its value. Income replacement through government emergency pandemic programs exceeded 150 percent of income lost and, as farmers say, insure a barn for more than its value and you get a lot of barn fires. One consequence was labour force withdrawal due to the generosity of the CERB payments, which continues to bedevil local labour markets.

— Debt addiction: by the private sector and households, who piled on debt, lured by unsustainably low interest rates and pandemic incentives to borrow. And, as interest rates rise, the costs of that addiction mount.

— Debt delusion: by governments, who somehow believed that debt was suddenly free and deficits were somehow costless. We will be tallying up the costs on current and future generations for decades.

— Inflation myopia: by central banks, fiscal authorities and markets, who somehow forgot that too much money (from huge fiscal stimulus and central bank liquidity injections) chasing too few goods (constrained by pandemic shutdowns and global supply chain disruptions) always leads to inflation. We know how that movie has turned out, and it’s not transitory.

–Execution problems: by governments, particularly the federal government, in the face of too many initiatives, too much complexity, too much centralization in the Prime Minister’s Office, and too much red tape and double-checking from compliance systems run amok. Efficient delivery of government initiatives is what the public expects, and never more so than in a crisis, but execution was a problem in the pandemic and continues to this day.

Third, beware of legacy issues. The pandemic, combined with the numerous policy actions undertaken by governments to address it, have created a number of legacy issues that we will have to manage for some time.

–Inflation: transitory no more. Inflation is rising and inflation expectations are becoming embedded in the economy after nearly three decades of stable inflation. The culprits were hiding in plain sight: too stimulative fiscal and monetary policies for too long as the economy roared back, along with supply impediments due to global supply chain bottlenecks, continuing COVID shutdowns particularly in China, and an oil price spike reflecting geopolitics and war.

–The Great Resignation: missing labour. Labour supply disruptions which arose during the pandemic will be challenging to unwind. Pandemic shutdowns, the pivot to working-from-home, CERB and other pandemic supports which created significant disincentives to work, and changing attitudes to the nature and place of work – these all led to the “great resignation” as labour supply declined just as labour demand returned to pre-pandemic levels, reinforcing inflation pressures.

–A depleted macro toolkit. Less monetary and fiscal policy ammunition is available in the event of future shocks. We have more than doubled the stock of federal debt in three years, and rising interest rates will constrain the fiscal framework further. Quantitative easing swelled central bank balance sheets and this government and corporate debt is now being divested. Monetary policy is raising rates to “neutral” levels or beyond after a prolonged period of unsustainably low real interest rates; and,

–A lack of systemic resiliency. Our health care system, government operations systems and supply chain systems all lacked resiliency in the event of “shocks” as the pandemic so clearly demonstrated. We had not invested sufficiently in them pre-pandemic, and are paying the price now. The pandemic, coupled with protectionist American tariffs and geopolitical tensions, has shown the limits of just-in-time global supply chains. The era of global supply chains being massively concentrated in one country, China, is over and the world is moving to geographic diversification as the new model. This deeper resiliency is not free; it will raise costs and prices.

So, to return to the questions posed at the outset, what have we learned and what will we remember? One thing that crises do is highlight the importance of flexible, nimble and effective governments and public services, with built-in resiliency for crises. We have to continually invest in this capacity. Second, strong, sustained economic growth and effective fiscal and inflation anchors are key to rebuilding our macro toolkit. And third, strong institutions are learning organizations: they constantly want to do better and be better—being average is simply not good enough. Canada’s challenge these days, including in our pandemic policy responses, is raising our future sights and upping our game.

Contributing Writer Kevin Lynch is a former Clerk of the Privy Council and former Vice-Chair of BMO.