How the Coronavirus Challenges our Model of Economic Growth
As the coronavirus continues its global rampage, many governments — notably in the European Union and New Zealand — have come out to announce recovery packages for the people and businesses most affected by the situation. Despite heart-wrenching images in the media of people standing together and political calls for solidarity, the pandemic has laid bare the problems with globalisation and challenged our model of economic growth.
The spread of the virus — from China, first to South East Asia, and then to the USA, Italy, Germany, France and other parts of the world — has been facilitated by the free movement of people and goods in the globalized market economy. Many politicians are eager to pin the blame on foreigners to stoke sentiments of protectionism that will be detrimental to our common future. What they are not telling us is that the spread of the virus — and the difficulties we are facing in containing it — have little to do with the free movement of people, and more to do with the way we have globalised. For decades — starting in the 1980s — we have allowed ourselves to engage in a model of social and economic welfare that has put markets first, and regulations and social safety nets last, in the pursuit of a fragile model of prosperity. The prosperity has failed to materialise for most of us. What it has done, instead, is loosened the ability of our society to cope with a crisis situation as we have now. Four important consequences are of note:
- We are under the mercy of underfunded public health care systems: Privatisation throughout the 1980s, which went ahead full swing in the 1990s and beyond, led to prioritization and cost-cutting measures in several if not most health care systems worldwide. These cost-cutting measures deny health care to the most vulnerable segments of society now in many countries. This is the main reason why:
there aren’t enough tests;
health care providers are not well-equipped to tackle our problems and restore confidence;
even those who finally get access to tests have to wait so long to get the results that control is currently ineffective.
The United States is perhaps the most extreme — but effective — example of this in the Western world, where many of the poorest people who have the virus will probably never be tested, or access healthcare in time to effectively control the spread. The same is true of many other countries in the developing world, including India, and many in Latin America. In these countries, the current experience is the opposite of what is ongoing in Italy, Germany or France, where even in the most trying times, free tests, free medications, and healthcare to the affected are not in question. The irony is that the poor people — whom privatization and the market economy have systematically excluded — will now be the weakest link in any global effort to contain the virus.
2. Globalisation’s important promise — the flow of goods — is not a guarantee especially when we need it most: To most of us, globalisation is synonymous with cheaper goods and unlimited supply of products from all over the world. An economic system that focused on the goods that are supplied cheapest, to the markets where their demand is highest, has now shown its own Achilles heel. On the one hand, misinformation on the virus has led to hoarding and mass buyouts by people of masks, gels and other equipment leaving healthcare providers, and entire countries, like Venezuela, unequipped to appropriately respond as required. On the other, many countries such as India, which previously served as the main exporters of medicines globally, have banned their exports to secure domestic supplies, sparking off fears of drug shortages. These bans are not just due to their own internal needs, but maybe better explained by knee-jerk explanations of policymakers in light of uncertainty. That is, pharmaceutical products are manufactured through complex processes, and China supplies most of the active pharmaceutical ingredients that are the building blocks of a wide variety of drugs. The disruption of these supplies, caused by China’s own Corona outbreak, creates wider anxiety for how these drug supplies can be maintained at all. The critical take-home message is that we can now buy for Christmas much more easily, than trust ourselves and our governments to ensure effective healthcare for everyone when the time calls for it.
3. The poor do not have the kind of social safety nets that they need to survive this: The worst affected are the poor and the low-income categories including those who participate in the gig economy or run small businesses that are cash-dependent, although the global economy as a whole is also expected to go into a larger recession given the scale of economic disruption. Larger countries will find ways to support their economies. The German Chancellor, Angela Merkel, has offered a 550 billion Euros package (initially meant to be 617 billion Euros). This is the biggest recovery package in the country’s postwar history. The French President, Emmanuele Macron, has proposed a recovery package of 300 billion euros for businesses most affected by the pandemic. The French concessions also pardon people below a certain threshold of income their rent obligations, and promise a postponement of water, gas and electricity charges in the country for those who can prove their inability to cover it until the economic and other uncertainties related to the virus continue.
Other countries may not be able to mobilise similar amounts of resources and funding. This will become a particular problem in low-income countries where businesses and industries are less resilient to income losses, pushing more people into poverty and misery. Other impacts, especially on personal safety, is also in question. In Africa, for example, the coronavirus and its spread are particularly worrisome given the weak health infrastructure and the high numbers of people suffering from HIV/AIDS, drug-resistant tuberculosis and other such diseases.
4. Global institutions are ill-equipped to deal with the fallout: The World Health Organisation is trying to rally together countries but has complained that countries have not shared enough information, or heeded its advice appropriately. Most recently, Trump’s tweet of the “China Virus” showcases the follies of unilateral thinking in this regard. But on a wider scale, the current situation is a reflection of a global landscape where the market-led economic growth model has not only hollowed out our social protection mechanisms but also weakened global agencies who were created to assist in achieving these very goals over time.
In effect, the virus has dealt a winning hand for itself. It has not just rattled markets, shut down businesses and establishments; it has curtailed personal liberties, laid bare the weaknesses of our model of economic growth, and sowed new doubts in our ability to function as cohesive societies.
We have not been able to respond with one voice. And this is worrying, because this pandemic is not an outlier. It is a sign of things to come. To stand in solidarity and to brave the headwinds of a world where pandemics, system failures and massive shocks (climatic, financial and social) will become the new norm, we need to establish some new rules of the game.
- We need a social revival with a focus on inclusivity. In this case, unless we bring all the people into the folds of the healthcare system, we will not be able to answer simple questions like, Who is affected? How bad is the spread? How can we contain it? Such questions will become more and more important in the future.
- We need a model of economic growth that is built around people. To promote this, globalisation needs to be revived with a focus on equality, democracy, and safety of ALL people.
But for now, in these tough times, we need to be able to dream that this lofty vision will come true.
