COVID recovery stimulus packages – avoiding rebound effects and unsustainability!

by Adrian Braun

August 2020

The economic lockdown across the globe led to serious implications for enterprises, employees and overall the global economic system! Border closures had turned down international trade and global supply chains to a level that put many firms and organizations into serious situations. The answer of national governments and supranational bodies like the European Union are stimulus packages to compensate businesses for the lockdown damage and on the other hand to encourage individuals to increase consumption again.

Despite the different opinions regarding sums and structure of the stimulus package a major consensus is that the stimulus package is an essential element to bring the European economy back on track and this is of course no different for public sector capital allocations in other parts of the globe outside the EU. However, although one challenge had been mastered, there are still many critical issues ahead. To achieve a stable and persistent recovery, capital has to be distributed wisely and in this framework it is worth to highlight it does not only matter if there is a positive effect on an activity. Even if a positive stimulus effect is evident, it needs to be assessed beforehand, if and how, possible negative rebound effects would occur simultaneously.

The recovery package is in many perspectives connected to EU initiatives like the EU Green Deal and other instruments that focus on sustainable development inside the EU and beyond. Therefore an economic effect, for instance specific support for an industrial sector must not result into negative consequences to the natural ecosystems at the same instance. Recklessly provided capital could quickly lead to positive short-term effects like decrease of unemployment rates in a sector, but a rebound effect could harm the achievements of climate and pollution goals in the long-run that are pivotal for long-term well-being of the global society.

Sustainable development needs to be on the agenda in every crucial decision-making process in the global political economy, although the recovery of the economy alone seems for many the most significant task for the second half of 2020. In fact, economy, society and the natural environment on our planet are so immensely intertwined that neglecting a dimension leads to un-sustainability and negative rebound effects that would in many cases even outweigh the initial positive effect of a stimulus activity. In addition to stimulus packages from the public sector the global investment community under the umbrella of socially and environmentally responsible investments could accelerate the recovery enormously and create more stability in order to avoid the discussed rebound effects.

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