The responses to the ongoing economic crisis by major Western governments are a partial realization of the economist James Meade’s vision of liberal socialism. This article was originally published in Pandemic Discourses. 

In his address on March 16 to the French nation, President Emmanuel Macron explicitly stated that a new development model is needed after the COVID-19 pandemic crisis:

My dear compatriots, tomorrow we will have to learn the lessons of the moment we are going through, question the development model in which our world has been engaged for decades and which reveals its flaws in the light of day, question the weaknesses of our democracies. What this pandemic is already revealing is that free health care without conditions of income, career or profession, our welfare state, are not costs or burdens but precious goods, essential assets when fate strikes. What this pandemic reveals is that there are goods and services that must be placed outside the laws of the market. To delegate our food, our protection, our ability to take care of our living environment to others is madness.

(with thanks to Adam Przeworski for the translation)

When interviewed a few days later by the Financial Times on April 16, Macron stressed that now “it is time to think the unthinkable.” It seems what he has in mind as the new development model is no less than the transformation of capitalism itself.

Indeed, the rescue measures initiated by the major Western governments in response to COVID-19 are all quite radical, and unthinkable in normal times. France’s rescue package amounts to €110 billion so far and the planned deficit to gross domestic product (GDP) ratio for 2020 is 9%, far surpassing the European Union budget rule of 3% deficit/GDP ratio. Germany’s rescue package is €356 billion and amounts to 10% of its annual GDP, and some bailout funds can be used to recapitalize the troubled private enterprises, paving the way to partial nationalization.

When the government has revenues from the ownership of public assets, it can afford to levy lower taxes and to issue less public debt. Therefore, public ownership and private entrepreneurship can be mutually reinforcing.

The United Kingdom will pay up to 80% of workers’ wages in all enterprises—a measure that amounts to the nationalization of payrolls, even if it is temporary. The United States is providing $1,200 to everyone earning less than $75,000 a year. Its CARES Act 2020 passed on 27 March is a $2 trillion rescue and investment plan. No wonder, Willem Buiter, the former chief economist of Citigroup, called these radical measures “pandemic socialism.”

“An interesting question is whether pandemic socialism is evanescent or if it is here to stay. Will it become a permanent part of the “new normal” in the aftermath of the COVID-19 crisis?”

Andrew Yang, a former Democratic Party presidential candidate, argues that the Trump Adminstration’s emergency relief of paying everyone $1,200 is only a first step toward “universal basic income.” Yang considers that everyone in the U.S. should receive $1,000 a month unconditionally. But many people challenge him with the question of “how do you avoid the unwillingness of people to work once they get universal basic income?”

A similar debate about whether pandemic socialism should become permanent is taking place over how the government bailout money in the CARES Act should be spent. Robert Hockett, a Professor at Cornell Law School, argues that “the U.S. must take equity stakes in the companies it rescues.” He clearly thinks that this “temporary nationalization” measure should become permanent: “When the immediate crisis is past, the U.S. should develop a freestanding national investment authority, operationally situated between Fed and Treasury, to develop and regularly update a coherent national development strategy, then assist with coordinating and financing its execution by public and private sector agents alike.”

It is interesting to recall that George Soros also supported temporary nationalization as a proper response to the 2008 global financial crisis. When he visited Tsinghua University in Beijing shortly after the 2008 crisis, I asked him why nationalization has to be temporary. His answer was: “What is the point of permanent nationalization?”

My answers to both Soros and the critics of Andrew Yang’s universal basic income proposal are based on the theory of liberal socialism developed by James Meade, the winner of Nobel Prize in Economics in 1977 who also worked closely with John Maynard Keynes in designing the post-1944 Bretton Woods system.

“James Meade’s vision of liberal socialism also includes the provision of “social dividend” (a term known today as universal basic income) to every citizen. He would have answered the critics of Andrew Yang by saying that a social dividend actually encourages people to work more rather than being idle.”

Meade would have answered Soros in this way: we need to think of taxation, public debt, and public assets as three pillars of macro-economic policy. When the government has revenues from the ownership of public assets, it can afford to levy lower taxes and to issue less public debt. Therefore, public ownership and private entrepreneurship can be mutually reinforcing. This is the point of turning temporary nationalization into a permanent one for some, but not all, enterprises.

However, Meade would not want the government to micro-manage the enterprises in which it has equity stakes, since the government officials’ incentives are different from those of private entrepreneurs. He would only want the government to passively benefit from public equity stakes in various enterprises, so that it can rely less on taxes and public debt. Between 2008 and early 2011, 79% of the insurance company AIG was owned by the US government. This can be viewed as an example of “socialism with American characteristics.”

James Meade’s vision of liberal socialism also includes the provision of “social dividend”(a term known today as universal basic income) to every citizen. He would have answered the critics of Andrew Yang by saying that a social dividend actually encourages people to work more rather than being idle: “a recipient of a Social Dividend of 80 supplemented by a Conditional Benefit of 20 will have an incentive to take outside earnings so long as those earnings after deduction of Income Tax are greater than 20; but if he or she had relied for the whole 100 on a Conditional Benefit, there would be no incentive to accept any outside earnings less than 100.” (James Meade, Liberty, Equality, and Efficiency, New York University Press, 1993, p.152)

If the Meade-type answers to George Soros and the critics of Andrew Yang are persuasive in the American context, what about the prospects of liberal socialism in China? The Chinese Communist Party’s “Resolution on Comprehensive Deepening Reform” adopted by the Third Plenary Session of the 18th Party Congress seems to embody some features of Meade’s liberal socialism (I explained this in some detail here). A key phrase from the resolution is “mainly focusing on the management of state capital” (管资本为主). It means that micro-managing a concrete enterprise is no longer the main task. The state will behave more like a portfolio investor, investing public capital in diverse enterprises, not necessarily being the majority shareholder in each of them. Though there is still a long way to go to fully implement the resolution, the direction of the reform is clear.

If both U.S. and China are partly converging on Meade’s vision of liberal socialism, we may indeed expect some features of pandemic socialism to become permanent. What exciting times we are in!

Zhiyuan Cui is a Professor at the School of Public Policy and Management, Tsinghua University. His research mainly focuses on the political economy of reform in China, and political and legal philosophy in general.