The writer is an Islamabad-based columnist.
As the sun set on the year 2020, the energies of governments and people around the world remained consumed with coping with the biological and economic challenges thrown up by the Covid-19 pandemic.
The pandemic has turned out to be one of the severest of tests that humankind has been put to over the past one millennium. The world will either find a credible cure for the virus or learn to live with it. In either case, Covid-19 will leave indelible marks on social, economic and political institutions.
The pandemic will end up ushering in complete ascendency of capital over labour. Covid-19 has forced governments to lock down cities or otherwise restrict the movement of the people. Labour-intensive enterprises and industries were doomed to bear the brunt of the infection. They were the first to shut down and will be the last to pull the shutters up.
Production is either capital or labour intensive, depending upon which of the two has a higher share as input to the output. In recent years, technological revolution has caused a massive shift from labour to capital intensive production. Companies, provided they can afford to make initial high investment in fixed assets, such as plants and machinery, have the choice to use either more labour or more capital in production. Covid-19 has decidedly titled this choice in favour of capital-intensive production.
The post-Covid-19 world will witness replacement of labour with capital at a much faster pace. This pandemic may be contained in a few months. However, the fears that another such pandemic may hit the globe will only intensify, forcing businesses that were earlier reluctant to do so because of initial high cost to step up invest in automation and fixed assets to ensure that, even in the face of as ravaging a pandemic as Covid-19, business goes on as usual.
Capital-intensive enterprises will be in a much better position to cope with another pandemic should it visit the world. It is easier for such enterprises to enforce social distancing than those that are labour intensive. If for health and safety reasons workers can’t turn up to the factory or office or can do so only at a higher cost, the enterprise will increasingly rely on capital and technology to produce or supply goods or services. To work from home, which has gained immense currency during the pandemic, high-skilled workers are more qualified than the low skilled. By implication, capital-intensive enterprises are in a better position to practise work-at-home than the labour intensive. A capital-intensive enterprise also need not worry much about worker absenteeism or social security expenditure.
In the market economy, labour is traded like a commodity. Labour demand is derived demand, in that it is contingent upon the demand for goods and services that workers produce. Hence, workers are useful to an enterprise only because they contribute to the production of goods and services that can be sold. In case a worker doesn’t turn up at the workplace or is not needed because production has contracted or come to a halt, they lose their usefulness and are thus either laid off or asked to accept much lower wages.
According to ILO estimates, global labour income declined by 10.7 percent ($3.5 trillion) in the first three quarters of 2020, compared with the same period last year. The biggest drop has come in lower-middle income economies, where the labour income fell 15.1 percent.
As a factor of production, labour has some limitations. Compared with capital, labour is perishable or less mobile. Wage hours lost due to unavailability of work can’t be regained. To top it all, even a most diligent worker can’t work like a machine. They need rest and leisure and want self-respect and a safe workplace. Even in a normal situation, all these features combine to place workers in a weak bargaining position and make them highly vulnerable to demand or supply shocks.
Of the top 10 global brands, nine are in the digital industry, showing the increasing power of digitalization. Prior to the pandemic, big companies, particularly multinational enterprises (MNEs), were increasingly using digital tools for such purposes as communication with customers and suppliers, product promotion and sales. The share of electronic-commerce in total sales was on the increase in both developed and emerging economies.
Covid-19 has made digital interaction the preferred, and in some cases the only, means available to enterprises, especially those engaged in international business, to reach out to their customers, suppliers and consumers. As a growing number of buyers and sellers adjust themselves to online platforms for transactions, once the pandemic is over e-commerce is likely to get greater traction as the preferred mode of doing business.
Digitalization is replete with economic, social and political implications. Whether, on the whole, technology creates or destroys more jobs is open to debate but by all means capital-intensive businesses are better placed to benefit from technological development than those which rely more on the sweat of the labour. Digital technology will preside over power shifts – both domestically and internationally. Setting up a capital intensive and technologically suave business requires substantial initial investment. Since micro, small and medium enterprises can’t afford to make such an investment, they tend to be labour intensive. Hence, not surprisingly, it’s the micro and small enterprises which have borne the brunt of Covid-19 all over the world in the form of closure. For medium-sized enterprises, probably the most ‘profitable’ option is to let themselves be taken over by a bigger business.
Yes, wages will go up but only for high skilled labour. The unskilled or low skilled labour will see their wages nosedive. As a result, domestic income inequalities will widen.
While size has always been a key factor in a market economy, it is size combined with state-of-the-art digital technology that gives a business an overriding advantage in the present-day world. In the US, the power of big-tech enterprises – Google, Facebook and Twitter – is too evident to need elaboration. In the age of information – or disinformation – data has logically become the most powerful weapon in the hands of an enterprise. Whoever has access to more data will call the shots. The digital divide is both domestic and international. With a greater power shift to digitally advanced nations, technology is likely to emerge as the most significant element of national power.
More than in the past, technology, particularly its digital variety, will define inter-state relations. Access to cutting-edge technology has already become the principal irritant in relations between the world’s two largest economies, namely the US and China. In 10 years, China may replace the US as the world’s top economy. However, as long as China doesn’t catch up with the US in the technology race, the latter will retain its superpower status. That is the reason Washington has in recent months moved to block supply of key technology and components to some of China’s leading players, such as information and communication technology giant Huawei, and Semiconductor Manufacturing International Corp (SMIC), the country’s foremost manufacturer of microchips.
The Covid-19 pandemic has underlined the importance of inclusive growth. People with considerable savings are better qualified to cope with job loss or wage cuts. Likewise, in countries with credible social safety nets governments have found it easier to reach out to the people with handouts. But will the pandemic extenuate neoliberal economics and public policy? The answer seems to be in the negative.
The fundamental canon of neoliberalism is complete faith in allocation of resources by the market. The basis of market allocation is price mechanism. The more you pay, the more and better goods or services you get. Mega players – sellers or buyers – are always capable of rigging the market because of their monopolistic position. The primacy of the market is thus a euphemism for that of mega enterprises. By making such enterprises even more powerful, the pandemic will strengthen neoliberalism.
In a word, like most other global crises in the contemporary era – the 1989 break-up of the USSR, the 2008 global recession – Covid-19 will end up cranking up capitalism. Human civilization has probably not developed as foolproof an institution as capitalism.
Email: hussainhzaidi@gmail.com
Twitter: @hussainhzaidi
