The global economy has been locked down due to the Covid-19 pandemic almost for four months. Some countries have formally imposed the lockdown and in some countries, people keep themselves in self-isolation as a precautionary measure as the threat of the virus transmission grows high. Most international flights have been shut down, as have most production and trading businesses. It seems everything is in long rest, the earth is recharging. The human-being came back to its humane character from its robotized behavior.
Till May 4 the death toll reached 248,146 globally significantly in developed countries led by the USA. The amazing fact is that even though it evolved in China, the spread jumped to Europe and America. Even though the virus transmission is worldwide to almost all the countries the severity of its outbreak is relatively high in countries such as Europe and the US, which favor and practice the liberal economy, while comparatively, countries with less liberal (closed) economy such as Cuba, North Korea, some of the Russian countries and South Asian countries are less affected. With this, we are not only facing a global health pandemic but also a global humanitarian catastrophe. Moreover, it has reversed the world economy creating the greatest recession around the globe since the 1930s.
Impact of Pandemic
After a decade of uninterrupted growth, the global economy came to a sudden halt because of the Covid-19 pandemic. Now the question is how deep and how long it will be. Even before the Covid-19 outbreak, most developing countries were already on a shakier economic footing than they were in the run-up to the 2009 global recession. So, the developing countries likely to be hit the hardest tending to have higher concentrations of people in extreme poverty. The Covid-19 pandemic will devastate human lives and livelihoods due to the economic stagnation. The foremost impact is on job loss and disruption in the distribution chain. It has an immediate impact on hunger. Some 821 million people go to bed hungry every night all over the world. The WFP estimates that an additional 130 million people could be pushed to the brink of starvation, making a total of 265 million people- by the end of 2020. The ILO estimated that the global market will lose up to 25 million jobs due to this epidemic. The latest dire assessment reflects the full or partial lockdown measures affecting almost 2.7 billion workers – four in five of the world’s workforce. Losing a job is further losing affordability for the foodstuffs and other daily consumables. Thus, it is tending towards the severe hunger pandemic.
Lockdowns and economic recession are expected to lead to a major loss of income among the working poor. It will have hard-hit even harder to the hardcore poor like daily wage-earners, slum-dwellers, disabled people, elders, refugees, and migrant workers. Massive job loss will also hit the labor-sending countries harder since remittances will fall sharply. Global remittances peaked at $706 billion in 2019, this safety net is now frayed by job losses. Even small changes in remittance policy can have a big effect on financial systems in developing countries over time. Likewise, the loss of tourism receipts and collapsing oil prices in lower-income countries will have an impact significantly.
700 million of the world population continues to live below the extreme poverty line of $1.90 per day. The WB estimates an additional 548 million people be pushed below the poverty line. Between present disruptions and future threats to the food supply chain, the pandemic has generated extreme vulnerability in the agriculture sector. Water insecurity is set to hit the most vulnerable the hardest as 40 percent of the world population lack access to water and sanitation. Still today more than two billion people are living in proximity to conflict and the number of forcibly displaced people worldwide has exceeded 70 million in 2017. There is the risk of emergence of more conflict with the Covid-19 pandemic.
According to the IMF report the world economy grew at 2.9 percent in 2019. Now, however, for the first time since the Great Depression in the 1930s, the world economy is projected to contract sharply by –3 percent in 2020. Growth in the advanced economy groups projected at –6.1 percent and the group of emerging market and developing economies by –1.0 percent in 2020. Moreover, there are some countries suffering from multiple epidemics, i.e. some African countries suffering from the Coronavirus, locust invasion and the protracted conflicts at a time. Governments around the globe are confronted with multiple challenges related to minimizing the devastating health impact and protecting human lives and ensuring sufficient food supplies and the functioning of services to those most in need. The WHO has already announced to take precautionary measures like social distancing until 2022.
Emergence of New Economic Policy
In the course of human civilization, Adam Smith conceptualized the“laissez-faire” economy back in the 18th century that advocates ‘free’ market and anti-regulatory policies, politically termed as capitalism. Even though there was the counter policy of the “planned economy” under the communism-oriented regime the “free market” kept its dominant role globally till the date. With the Great Depression (the 1930s) and, then, World War II (1939 to 1945), it was believed that governments needed to play a role in regulating their economies. Keynesian economics evolved during the great depression which advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. The capitalist crisis with its shrinking profit rates inspired the corporate elite to revive economic liberalism that made it ‘neo’ or new. The then British premier Margaret Thatcher became the pioneer of neoliberalism in the mid-1970s and it was famous by ‘Thatcherism’. The policy has been imposed by powerful financial institutions like the International Monetary Fund, the World Bank and the Inter-American Development Bank. The Marxists disparaged the policy as the capitalists adopted the neoliberal approach because their class power had been diluted and was threatened. During the cold war period (1947-1991), many countries adopted a ‘mixed economy’ to pretend themselves non-aligned to the superpowers. Even though the principle of the mixed economy was to bring the best practices of the two economic models and make the economy prosperous no ‘third-world’ countries, except very few, could do so rather many countries fell into the protracted conflicts. In the name of globalization, the free-market policy became the means of the contemporary form of imperialism through invasion in the national economy, damaging domestic/local systems. So, Marx had predicted that the capitalist economies would have periodic crises and ultimately the system would collapse. In fact, the great depression of 1930 was the result of the free market, the financial crisis of 2008/09 the result of neoliberalism and the recent Covid-19 pandemic, to some extent, the result of globalization.
The Economics, the economic consequences due to the Covid-19 pandemic, has further widened the inequality gap and unemployment shock pushing many middle-class people into poverty. The OXFAM report (2017) shows the richest one percent of the world population is worth more than the other 99 percent based on the false assumptions of neoliberalism. OXFAM calls it ‘Crony capitalism’. So, poor are not poor themselves rather they have been made poor through the systemic structural barriers created previously with feudalism and latter perpetuated with neo-liberalism. Under this economic policy, ‘winner-takes-all’ markets are structural and it simply ignored the social problems produced by deregulated markets, which created serious threats to social cohesion. Abhijit Banerjee and Esther Duflo, the Nobel Prize winners for 2019, describe that the universal traps of ignorance, ideology, and inertia often stymie policies and institutions. Since these barriers have been crafted skillfully over the centuries to benefit a handful of people it is hard to bring emancipatory shift without having substantial policy intervention.
In conclusion, capitalism has generated massive wealth for some, but it has devastated the planet and has failed to improve human well-being for the great many. Corporate capitalism is committed to the relentless pursuit of growth, even if it ravages the planet and threatens human health. So, we need to build a new system that will balance economic mobility and human flourishing. I suggest a combination of "Protective Liberalism" for a socio-economic policy with "Liberal Socialism" for political phenomena.
How Protective Liberalism/Liberal Socialism reshapes Coronomics
Due to the downfall of neoliberalism, there has been already some structural modification on the policy with protectionism after the financial crisis. A welfare state needs a strong system of solidarity and protection to its weaker section of the beneficiaries such as the vulnerable, the disadvantaged and the left-outs. The policy of equitable economic mobility and social entrepreneurship through protective liberalism would support and promote not only achieving the goal of liberal socialism but restore the egalitarian society in a sustainable manner. It seems the free market is the ideal force of stimulus at which there is no or less state for market mechanism whereas protective liberalism is the practical solution within the frame of a more responsible ‘welfare state’ under the political thought of liberal socialism. Anthony Giddens blended two opposing ideologies rationally and brought 'the Third Way' which suggests that it is possible to combine social solidarity with a dynamic economy. China raised with State capitalism where the state dominates the market’s activities for a political purpose. Adolf Wagner (1837-1917) regarded state capitalism as a solution of compromise between competitive capitalism and socialism. However, it has several limitations, i.e., the state-owned companies are less efficient, use cheap capital, throw aside the private entrepreneurs, comparatively have fewer safety-nets and benefit for political favoritism.
The Covid-19 pandemic has strongly justified the nation-state to be an even a better welfare state. It should be restructured in an innovative way. Social innovation frequently occurs at the local level, communities as a part of larger civil society have their indigenous skill, knowledge and practices that can be base to dig in for innovation. Social welfare is the result of a change in economic and non-economic variables and a function of the utility (satisfaction) level of all individuals constituting the society. But any changes may benefit one section of society and harm the other. For that, Kaldor-Hicks-Scitovsky developed the compensation principle. However, when the harms go for centuries to some caste, class, or race of people then the state should satisfy them with reparation policy for their lost opportunities and dignity. Such groups of people have accumulated dissatisfaction remained latent for a long time even intergenerational. So, the sustained protective interventions in the market mechanism not only compensate for the loss or harm but also redistribute the income in an equitable manner. It would bring the emancipatory shift to that marginalized section of the people.
Therefore, while making a welfare policy, the state or the authority needs to analyze its losers and simultaneously establish compensation policy as the protective measure. The process of making a social choice or judging social welfare would be through inclusionary representation policy as characterized by transformative democracy, the pillar of liberal socialism. The collective ownership or social entitlement through the stake-holding and compensatory provisions within progressive taxation are other measures to redistribute income to make it more equitable. Building inclusive governance from the bottom is the hardcore strategy of liberal socialism. It assures both redistribution of income and increased social solidarity. It involves a balance between regulation and deregulation at national and sub-national levels; and a balance between the economic and the non-economic variables in the life of the society. In fact, it is beyond private or corporate capitalism and state capitalism at which the society or even a community will have command over the means of production ultimately for the social wellbeing. So, it can also be termed as the ‘Social Capitalism’ which can reshape the economy in a human manner.
(Dr. Bk is a former Fulbright scholar and the author of the book 'Eradicating Hunger: Rebuilding Food Regime')