Covid Disruptions
Covid 19 Pandemic is a rupture. In history such ruptures on a global scale are rare. It is a rupture of the social dynamics, politics and economy of the kind we are all used to.. The exact impact in terms of its political economy will be understood only after few years.
What is clear is 2020 will be a marker of 21 century. Many of us indicated about the impending financial crisis and saturation of the kind of globalization that was unleashed in the early 1990s, after the fall of Berlin Wall.
However, none imagined a little virus could spread so fast that it affected the social psychology of people in every corner of the world.
It is indeed a new learning opportunity to understand how fear plays an important role in all human choices and behavior. Fear of the virus seems to impact economy, society and politics . Human beings seem to be driven by Fear and an urge for Freedom from Fear.
The pandemic once again reminded us about four Freedoms. Freedom from fear. Freedom from want. Freedom of belief /worship and Freedom of Expression. Covid 19 is a rupture of all the four freedoms in an unprecedented way.
It is often human beings through war and authoritarian rule that killed or restricted these freedom. However, in 2020., it a micro organism, spread on the wings of unprecedented globalization, upset the very apple-cart of global economy and politics.
Economic consequence
What is increasingly clear is the adverse economic impact that will persist for the next three years. And whenever there is a big rupture in economy, there could be a political consequence.
Economy and politics are the axis that influence how power gets operationalised in a society. Dominant modes of economy and dominant modes of politics tend to influence the application of power that affects human behavior and choices.
As per the estimates of IMF, global economic growth is likely to fall - 3%. In fact, the fall could be more than that. IMF projects (because it is very difficult to estimate) a loss of $ 9 Trillion. The world trade organization projects, a decline of trade by 1/3. The fact of the matter is that at this point they are all guesses and projection, rather than biased on clear data analysis.
The rupture of economy affected all sections of the economy and society. The lockdown resulted in the loss of employment in an unprecedented way.
It pushed a significant section of vulnerable poor in to poverty and hunger. While many counties like India made provisions for rations, many of the poor lost livelihood. Migrant workers got stuck without adequate means of livelihood. While many wrote about how poor people got affected, there has not been adequate attention of vulnerable middle class .
In South Asia and South East Asis, a vast percentage of people belong to vulnerable middle class. These are people who survived poverty and acquired skills to get employment to live a decent life. Many of them may have a house, household facilities, and even one or two vehicles. But many of them survive on a regular salary and significant amount of salary goes to repayment of housing or vehicle loans. These section of people suffer a lot when there is a rupture of income due to sickness or loss of job.
For instance, in Kerala many people may look well off from outside appearance. They may have house with all household amenities and even a motorbike or car. Many of them depend on the money send from gulf by their sons or husband. They also have significant home loan. Without the regular monthly income, they will not have any savings to buy food or medicine. Many of them also will be reluctant to seek help. In the past month, many people who secretly asked for help belong to vulnerable middle class.
And lack of income are pushing many to death due to cardiac arrest and many may even resort to suicide. The issue of vulnerable middle class is serious than it appears. Even from Thailand two of my friends who used to run restaurants asked me for some help.
In india alone, there are 6.3 million micro, small and medium business enterprises. These include small business which provides self employment as well as wage employment to few to those enterprise that provide employment to ten to hundreds of people. This sector has mostly vulnerable middle class people where most earn between 12000 Rs a month to 50000.a month. It is estimated around 120 million people get employment due to these micro, small and medium business enterprise. If we calculate an average of 4.5 people per households, the livelihood of around 540 million (54 crore ). affected. This is serious blow not only the survival of of people but also economy.
It is only those employed by government and professionals in corporate with good salary and savings may be able to survive this economic recession to some extent. However even here the situation is not as rosy as it appears now. Because if the lockdown persists for a month more, many corporate will be forced to reconfigure their business models, resulting in many people losing jobs.
The spread of fear will also affect the confidence of many investors.This will have implications for national and international economy.
Public Finance
All these together will have an impact on public finance, fiscal and monitory policies. Budgets will have to be reconfigured in 2020. The huge budget deficit management will be crucial. Though to certain extent, budget deficits can be monetized, by printing, more notes, this will have to be done with extreme caution. Because printing of more notes can lead to inflation. Inflation along with negative economic growth can lead to a debilitating stagflation.
In the first phase of Covid Response, most of the counties seem to have become more nationalistically territorial in term public policy. This leads to a situation of reactive approach to globalization wherein many countries apparently moved back to old protective approach. In many countries, competitive sub-nationalist approach too emerged due to the territorial /localized approach to lockdown.
The nationalistic protective approach is more symptomatic of an assertive state, with hardly any significant role for civil society and market. This state -centric approach in many countries led to a top down command and control government approach.
Political shifts
The pervading sense of social psychology of fear and insecurity created a pandemic emergency where people look up to government and state for security. This in many countries, led to valorization of the government and deification of leaders.
Though it is a public health emergency, the government and state often use war metaphor to ' fight the virus '. This war metaphor also seems to have created a new masculinity in the approach of government where police and army are in control. What is interesting is when it comes to security and freedom, a large section of society choose security. Hence, freedoms are suspended in many counties as a trade off to ' security '
All these economic turmoil and political response also not only create budget deficit but also democratic deficit.
Given the unprecedented situation, those in the government may adopt a knee -jerk reactive approach, based on protective policy paradigm. This will lead to increasing tax and imposing more surcharge. However, this will further stifle further economic growth and resulted in capital flight to countries more favorable to investment. Hence any economic policy response needs to be carefully calibrated to see the implications in the short, medium and long term.
Globalization
Though may think the process of globalization will be reversed. However in a world more globalized than ever, two months of lockdown can't reverse the trend.
Because the countries in the world are more interdependent than ever in terms of technology, globalization of labour, and entrenched trade and finance links. Almost all successful corporate are multinational in the approach.
Though in the immediate aftermath of lockdown world may look more national than international, eventually the international and global approach can't be reversed.
Unsettling consequences
Though in the short run government and leaders are in commanding heights, the impending economic crisis and loss of jobs will unsettle many of the deified leaders.
The economic consequence may eclipse the fear of consequence. Because for ordinary people life and livelihood are deeply connected.When millions may lose livelihood, they may react more sharply.
Hence, politics too may be affected.
This is a unprecedented disruption of economy, society and politics. Hence in many countries all these will get transformed in a an unprecedented ways in the next three to four years.
It is the irony of human existence that a micro organism could disrupt the mighty nations and macro economy. Decades of war preparation and huge army proved to be futile in front of Covid 19
Changes come in many ways and new changes are on their way.
JS Adoor
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