Economy and governance in the time of coronavirus

Guest — March 26, 2020

Among Indian states, Kerala has an effective public healthcare system and a more aware public. Hence the response of the government has been faster.

By John Samuel

India is facing an unprecedented health emergency with its 130 crore people joining the global lockdown to counter the new coronavirus outbreak. The pandemic has already infected 4,33,172 people globally and has claimed 19,677 lives so far. India has 606 confirmed cases and 10 deaths as of Wednesday evening. The numbers for India could be misleading as very few tests have been conducted in the country so far. Though the Covid-19 outbreak cannot match the destruction caused by some of the earlier pandemics such as cholera, bubonic plague, smallpox, and influenza in terms of human cost, it is expected to be equally devastating for the global economy.
People become insecure whenever forces beyond their control take charge of their lives and choices. This explains the chaos caused by Covid-19. When faced with situations like this, people tend to trust the state than free market. This is because they believe in the visible hands of the government than the invisible hands of the market. National or international crises such as natural disasters and pandemics expose the limitations of the ideology of free market and the invisible hand of market.
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There has always been a link between epidemics and economy. Most of the epidemics spread across the world through trade and war. It is the globalization of economy and travel that facilitated the fast spread of the new coronavirus. Now, everyone is hoping for a vaccine that will help tackle the pandemic.

Health as a public good

Global pandemics create economic consequence and political response. Most of the epidemics in history were followed by famines that killed more. They led to economic crises, often gave rise to political rebellion and repressive regimes. Epidemics and natural disasters reinforced the roles of the state and governments. Public health emerged as an important public policy objective due to a series of epidemics in the 18th and 19th centuries. People realized the importance of public action to a large extent due to the need to prevent and control diseases. In the context of unprecedented urbanization and spread of epidemics, the movement for hygiene and sanitation made people more aware about public health. Public health is a disaster risk reduction and a good investment for a stable economy and politics.
Due to the economic progress, industrial revolution and technological advances, we feel more secure than ever. But precisely due to all these, an ecological crisis and the consequences of climate change threaten humanity’s very existence. Suddenly we feel increasingly vulnerable about changing patterns of weather and its impact on our way of life. Both climate change and coronavirus make human beings insecure, despite all the progress we have made, because both are forces of nature that keep reminding us about human vulnerability.
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Role of state and market

The invisible hand of market can never function without the visible hands of the state. The market can operate effectively and efficiently only in a secure and stable society. Market operates among people. Hence when people become insecure market too tends to become insecure. When people make their choices out of insecurity, the invisible hand seem to wither away.
It is the people who produce and consume goods and services. While machine and technology facilitate these processes of production and consumption, nothing can be produced or consumed without people. Hence market exists for the people and not the other way around.
The balancing of production and consumption is what enables supply and demand. The supply and demand equilibrium determines pricing and financing. But when human beings feel insecure all of a sudden, the balance that makes the economy work gets disturbed. This is due to two factors. The first one is, whenever people get worried about scarcity, they tend to buy more to feel secure. That is a part of human nature; the survival instinct that perpetually makes us seek more security. When there is a likelihood of the closure of petrol pumps, people tend fill more fuel to feel secure. However, this also means that the petrol pump will empty out fast.
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Why public health and economy are linked

When the market gets disrupted, human behaviour gets disturbed and when human behaviour gets disturbed market gets disrupted. Consequently, people feel all the more insecure. In the panic response to coronavirus, many in the United States, the Mecca of free market, stocked up too much toilet paper and provisions. When there are disruptions, people are all of a sudden worried about securing their lifestyle. Even the potential lack of toilet paper can make people uncomfortable. The use of toilet paper is a market-induced human behaviour.
Whenever there is an acute insecurity, it tends to disrupt the chain of production. When modes of transport and trading routes and ports get disturbed, the supply chain gets affected. When the chain of production, supply, distribution and consumption get disturbed, the invisible hand of market gets disabled.
This is evident in the times of coronavirus. In countries where free market is the reigning deity, there is more panic. For instance, an entire healthcare system based on insurance driven private care simply may not be able to cope up with a global pandemic. Insurance companies and private healthcare companies will not be able to handle a natural disaster or a pandemic as neither can manage a public health crisis. They are designed in the market place and market conditions and may not be able to respond to an unprecedented demand. Insurance and private healthcare are built on market assumptions of demand and supply. When demand far exceeds the supply and people have less capacity to pay, market simply can’t deliver.
One of the reasons for the fast spread of the virus in Europe and America is the relatively weak public healthcare system. In an insurance market induced private healthcare system, there are no systemic state interventions in effective management of public healthcare on a large scale. Hence many of these countries have announced national emergency.
On the contrary, in countries with active public healthcare system, the response has been faster and systemic. Many of the countries with effective public healthcare systems responded faster, controlling the spread. South Korea responded very fast as the disease began to spread in a big way. Taiwan too acted fast. Thailand has an active public healthcare system and responded fast. One of the reasons China too acted fast was the relatively better public healthcare system and swift government intervention.
In India, Kerala has an effective public healthcare system and a more aware public. Hence the response of the government has been faster. There is also more trust in the government system. So, there is still less panic response in the market.
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Public policy and public action

There is no substitute for public policy and public action. And it is often a responsive and responsible government that can only make effective public policy and coordinated public action. Governance involves the interdependence of state, market and civil society. And in an effective governance model, a capable state is a necessary condition for an efficient market and a secure civil society. In times of natural disasters and epidemic, both efficiency of the market and security of the civil society get adversely affected.
It is precisely due to this reason that the state has a big role to play in the face of a global pandemic. All of a sudden, governments are getting more protective, more concerned about taking care of their people. Borders that once facilitated global travel are sealed. All of a sudden there is more worry about outsiders everywhere. Visas are not issued; the state is in control and the market retreats.
It is also a time when people begin seek public health systems. People expect the government to deliver on public health to control and prevent diseases. People pay to governments in the form of indirect and direct taxes. As the invisible hand of market get disabled, state may have to intervene to enable chains of production, supply, distribution and consumption. Otherwise with dwindled taxes, the economic capacity of the state will be affected.
This has once again reinforced the fact there is no substitute to public policy, public health and public action. And the primacy of the state intervention is imperative for people and market to become resilient.

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Love in the time of corona

When there is a global pandemic, it is important to think beyond the narrow nationalist perspective. Viruses don’t know religion, caste or creed; they don’t respect national borders. The new coronavirus, or Covid-19, is a truly global pandemic that requires a global solidarity of humanity. Each of us are not only responsible for our own health, but also for the health of others. Our well-being is inherently linked to the well-being of others; hence our happiness is dependent on the happiness human beings across the world. An epidemic anywhere is a threat to the entire humanity.
What matters during times of crises is a human solidarity across the world. We need to think and act like citizens of planet earth, because we are more interconnected than ever.
The role of governments is to support each other to address the causes and consequence together. A protectionist approach is a short-term knee jerk reaction. It is here that the state, market and the civil society need to work together with a sense of solidarity. We need more love in the times of coronavirus. — love that can help transcend fear. Love provides a healing touch in the face of crises and fear.
(John Samuel is a policy and governance expert, social entrepreneur and development economist)