As part of their efforts to shape goods, services and financial markets that not only achieve shared prosperity, respective of planetary boundaries, the following policies are recommended for countries to start their economic transformations post-pandemic.

Increase incentives to direct financial resources towards long-term investments, strengthen stability and expand inclusion.

While in the near future, the priority for financial markets will still be on contributing to minimize employment loss without excessive weakening of banks, in the longer run the financial sector will need to embark on a deeper restructuring. Banks will have to rebuild capital buffers, thinned during the COVID-19 crisis. In this phase, the regulatory flexibility allowed to give banks margins of manoeuvre will need to be removed and the implementation of the Basel III standards will have to resume, starting in 2023.39

A new regulatory framework will, however, need to encompass both banks and non‑bank financial institutions, including further prudential supervision to contain excessive risk-taking in this segment of the industry and to avoid that a new source of systemic risk is introduced in the financial system. Further, as BigTech firms become new players in financial markets, the regulatory framework will have to include provisions on customers’ data ownership and portability. Regulators will therefore have to balance prudential regulation and competition policy to avoid compliance becoming a barrier to entry for new players without allowing new entrants to be a source of instability.40

Moreover, to steer the financial system to channel funds towards productive, long-run investments, policy-makers should remove incentives that divert funds from these types of investments and instead incentivize financial support to environmental, social, and corporate governance (ESG)-compliant companies. For instance, corporations could be more proactively discouraged to engage in short-term return operations as open-market repurchases, as some countries have done in the short term.41 When it comes to incentives towards investments in ESG, triple accounting and reporting, together with greater demand for green and inclusive investments by a new generation of consumers could lead banks to renew their product offerings. There is already some evidence that wealth managers are moving towards ESG-informed investing and that banks are creating sustainable exchange-traded funds (ETFs) as well as loans dedicated to home energy-efficiency improvement.42 37

Rethink competition and anti-trust frameworks needed in the Fourth Industrial Revolution, ensuring market access, both locally and internationally.

New and pre-COVID-19 competition issues need to be addressed for economies to deliver widespread prosperity in the long run. In terms of long-standing issues, policy-makers must take more action to resolve excessive market power, overall and in specific sectors. This includes reinforcing existing anti-trust authorities and implementing regulation that allows new players to enter the market. It also includes addressing ‘winner-take-all’ dynamics in some specific markets, such as those where digital platforms offer a position of dominance. New policies in this domain could include developing new metrics to: measure the impact of market concentration in the platform economy, move away from monitoring only market price increases to detect market dominance, scrutinize the practice of the acquisition of start-ups before they become serious competitors to incumbent leaders, and use technology to reduce barriers to entry, such as finding smart solutions to assign property rights to data.43

A potential new issue, triggered by the COVID-19 crisis, is the risk, not yet materialized, that stimulus packages—after having been a useful tool to prevent consolidation in the short term—can actually become a tool of market distortion in the long run. If countries convert emergency packages into permanent state aid that promotes ‘national champions’, competition and level playing fields will be compromised.44 Recovery strategies should therefore make sure to increase support to companies gradually as the crisis resolves, possibly re-directing resources towards broader incentives for developing inclusive and green products and services.

Facilitate the creation of "markets of tomorrow", especially in areas that require public-private collaboration.

A new market is created via the interaction of i) norms and standards, ii) technological possibilities, and iii) demand. The World Economic Forum has identified 20 innovative “markets of tomorrow” as new, emergent niches with the potential of transforming economies from the bottom up, by taking advantage of new technologies and new norms to generate economic value while meeting the needs of society and the environment. These markets include, for instance, the market for EdTech and reskilling services, the market for data, and the market for care services.

Six conditions need to be in place for these markets to materialize: invention, production, demand, standards, codification and infrastructure.45 Enabling these conditions can foster the creation of such new markets to meet societal needs in new ways. For instance, safety nets can be thought of as a market of tomorrow, where the need of employees will be to receive insurance in a context where cross-sector and cross-country mobility will be higher and unemployment episodes may be more frequent than today for a significant section of the workforce. New technologies, adequate norms and public-private collaborations can help offer new solutions to these new needs, creating a new market for safety net services.