What can we learn from past crises to help us better innovate in the future?

By Chris Allen

Credit: Photo by USGS on Unsplash

I’ve spent most of my life as a policymaker and troubleshooter. I’ve been a local councilor in the East End of London, a university lecturer in the United Kingdom on development macroeconomics and became the first head of forecasting at the European Central Bank. Most recently, I’ve been working in Athens, trying to help Greece stabilize and grow after its prolonged economic crisis.

I believe that it’s important to reflect upon and recognize some of the mechanisms that can often allow crises to be highly productive and innovative. Since this seems a rather paradoxical idea, it is perhaps worthwhile to present a couple of personal experiences as illustrations.

First, let’s go back 30 years ago to a small rundown housing office in the East End of London. I’m a young local councilor chairing a meeting of a diverse group of tenants. Outside, the local youths are gathering. The discussion that is becoming heated is about their rundown housing estate in an area with high unemployment. There is a lot of crime, and vandalism is rife. The tenants are blaming each other — and of course the local council — for allowing things to get out of control.

Suddenly one of the local youths decides to come into the office. I ask him to come to join us and share his views. He says he and his friends are bored: there is nothing to do around. Suddenly everyone turns on him, and a conversation starts about how toughly vandals should be dealt with.

After a few minutes, I get frustrated and say: “Look, is it really fair to blame your kids? What about the other problems around here? Maybe the tenants could work together so that their views can be heard: if they formed a tenant’s association, they could apply for government money to improve the estate. In the end, the argument works, and remarkably a way forward is agreed. Eventually, we managed to find the money for a complete renovation of the estate”. Moreover, the tenants themselves successfully asked for a computer training centre to be added to the project to help them get jobs.

So, let’s turn to Greece in the summer of 2015, after the referendum, the capital controls, and the European Council meeting that secured the position of Greece in the euro zone. There was a sense of shock in the country, a sense that Greece was “at the brink.” But with this feeling also came the opportunity for a more open dialogue, to try to find a new way forward. On one side, people began to understand that prudent fiscal policy was needed, that paying government suppliers on time helped demand, and that privatizations could bring in new investments. On the other side, it was evident that Greece needed a proper social safety net and comprehensive access to medical care, that a fully independent revenue office was needed to build taxpayer confidence, and that effort was needed to professionalize public administration. Slowly, this difficult narrow consensus began the process that has now led to a complete change around Greece’s fortunes, reflected today in the country’s status as a major hub for foreign investments.

My experience shows that policy innovation is both possible and essential in a crisis. In fact, a crisis is often the moment when people are most ready to consider changes and make compromises. Crises can provide a space for a dialogue to help solve underlying socio-economic problems. They may offer a unique opportunity to innovate and find mutually acceptable solutions on some issues that previously seemed the most difficult and apparently insoluble.

It’s important to try to better understand the mechanisms driving possible innovation in crisis situations. A first step is to try to identify a number of characteristic forms:

• Closer Cooperation: crises can encourage conflicting groups towards closer cooperation together, overcoming their rivalry to develop a mutually beneficial solutions. This mechanism seems to operate quite often in crisis situations with different degrees of intensity.

• Collective Learning: crises can allow people to re-evaluate past difficulties to enable them to focus on longer-term sustainability rather than the short-run battle over current resources. Perhaps a classic example is the unexpected reversal of “economic populism” in Brazil through the remarkable Cardoso-Lula policy consensus.

• Social inclusion: crises can sometimes highlight inequalities in society and allow disadvantaged groups a greater stake in a common future. This was a particular focus on the successful EU-led crisis adjustment program in Greece over 2015–18.

• Social identities: resolving crises often involve finding frameworks that can improve the rights, recognition, and reconciliation of different groups’ identities. An interesting successful example is multiculturalism policy in Canada.

In order to be able to further develop these insights, I very much welcome the new research project of the Global Federation of Competitiveness Councils and the Japan Science and Technology Agency called Driving Innovation in Times of Crisis. Living in the age of the poly-crises that have followed the Covid-19 epidemic, it is very important both to analyze crisis risks in specific settings and identify some core drivers of successful innovation strategies from previous crises. This approach will help develop common language, strategies, and innovation skill sets needed to tackle current and future crises.

My research interests are in the role played by the political economy and identity politics aspects of crises. I contributed to the work on the longer-term economics of climate change that allowed the EU to reorient its post-Kyoto climate change strategy in 2005 toward a focus on the developing country participation and technology innovation. I helped develop a strategy to help underpin investment in EU high-tech industries following the 2008 financial crisis. I was involved in the implementation of the EU post-2015 crisis adjustment program for Greece that emphasizes fairness in taxation and social inclusion.

. . .

Chris Allen is a Resident Economic Adviser in Greece for the European Commission (in a personal capacity) and a contributor to the Driving Innovation in Times of Crisis.