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March 21, 2020

Covid-19 and economic policy

Opinion

March 21, 2020

Covid-19 has made human suffering the predominant preoccupation for policymakers across the world. Out of the darkness of death and disease is emerging the light of a new understanding of the relationship between the state and the economy, between the individual and the community and between consumption and welfare. In this article, we will discuss how the global pandemic has set the stage for a new policy paradigm.

Caring for human beings instead of the logic of the market has become the central concern of governments for the first time in the history of capitalism. Suddenly, the ideological beliefs of economic orthodoxy appear arcane: that free markets deliver efficient outcomes; financial ‘stabilization’ should be the main economic policy objective of government and hence high ‘market-based’ interest rates and budget deficit reduction, a measure of responsible governance. On the contrary, in the face of the pandemic, every major capitalist country has chosen wide-ranging state intervention in the economic, social and institutional spheres to address the crisis.

As Rishi Sunak, the UK chancellor of the exchequer, setting an example of the new economic sense, declared in a speech on March 17, 2020, that he will do “all it takes” to support the economy for minimizing distress. “Ideology and orthodoxy” he said, must be set aside as should worries about the budget deficit, to focus on addressing the human crisis. He then announced that he was making available an initial BPS330 billion package, about 15 percent of the UK GDP, for “people and businesses” affected by the pandemic.

The rapidity of the spread of Covid-19 across international borders as much as the worldwide economic recession that followed in its wake are phenomena peculiar to globalization. Yet, globalization became irrelevant in addressing this dual crisis of health and economy: the social and institutional measures to address the health crisis were specific for each country as were the policies to manage its economic consequences.

As Covid-19 gripped Europe and then the US, Western countries instituted a ban on the entry of foreign travelers from places where the disease was rampant. At the same time, unprecedented restrictions such as quarantine at home were initiated in Italy and Spain, while in many other countries schools and universities were closed down. Citizens were even constrained from using public places such as restaurants, bars, parks and cinemas.

The aggregate consequence of these restrictions on social mobility was disruption in supply chains as well as the globalized interwoven fabric of demand. Consequently, expectations of the future which are a key factor in present investment were adversely affected, leading to short-term stock market crashes and long-term reduction of investment in productive capacity. Thus, the third global economic recession in a century is now underway.

Let us now discuss the Covid-19 implications for Pakistan and the shift in its economic policy paradigm that is now on historical agenda. This has four defining features:

(i) The economy should work for the people. The economy as I have argued in my earlier publications, should work for the people rather than serving exclusively the interests of the elite. A ‘stabilization’ that results in high rates of inflation, constriction of the disposable income of the lower income groups through indirect taxation and high rates of unemployment is not tenable. This is all the more so in the face of the Covid-19 pandemic which is likely to bring further unemployment, shortages of articles of daily use and widespread disease and death. Pakistan’s public policy must now address the suffering of the people in the immediate future and initiate institutional and structural changes for unleashing overtime the creative potential of the people that can become the basis of sustained and equitable improvement in their lives.

Initiate broad-based planning to bring to bear national, financial and organizational resources to give succor to a people in distress. The rapidly rising curve of disease and death must be delayed and flattened to prevent overload of the health system to a point of collapse. In this regard, five policy actions should be put into place without delay. One, acquire adequate testing kits to conduct a regionally stratified representative sample test of the population to ascertain the number of infected people and their geographic distribution. The purpose is to use big-data based modeling to predict where the disease will spread and to deploy medical infrastructure and personnel accordingly. This is why the director general of the WHO has urged governments to do large-scale testing (you cannot handle the pandemic “blind folded” as he said). Determining the number of people who have been infected and are asymptomatic is necessary for early isolation and slowing down the spread of the disease.

Second, rapidly enlarging intensive care unit (ICU) capacity in the main growth nodes of the disease as per the forecasting models. Third, emergency ordering of critically needed medical equipment such as ventilators, oxygen cylinders, protective suits for medical staff and masks and gloves for those vulnerable to the virus. Fourth, the strategic use of information and communication technologies (ICTs) as well as the mass media to create public awareness of what the individual citizen can do for preventive healthcare and slowing down community transmission of the disease. Fifth, mobilizing from home and abroad the financial and human resources required to manage the health crisis.

Prevent disruption in the production and ensure smooth supply of food, medicine and key items of daily use to all citizens. This involves establishing an integrated production and distribution chain. For these cash-flow problems of production units in private as well as public sectors should be identified and resolved. Those who are unable to afford basic necessities should either be given these goods and services directly through ration cards or indirectly through cash grants. Distribution outlets in every locality must be carefully managed to prevent hoarding and adulteration of food and medicines.

Restructure allocation of both financial and human resources in the private and public sectors. The aim is to rapidly increase investment and quality production of priority items and also increase foreign exchange earnings through accelerated exports of goods and services in which Pakistan can quickly acquire a competitive edge.

The formulation and implementation of a strategy of reducing suffering and building a human economy will require a new policy paradigm. Such a policy framework focuses on people rather than markets and compassion rather than the single-minded pursuit of wealth. These vital principles must form the basis of a new relationship between the state and society as well as the relationship between individuals in communities.

The writer is a dean at theInformation TechnologyUniversity Lahore.

Email: [email protected] edu.pk