With the coronavirus pandemic spreading across the globe, the Indian economy faces a challenge as big as any it has faced in several decades. It is a humbling time, as all human beings stand together to confront a common threat. How this threat will pan out no one knows but what we do know is that the intensity of the challenge and its impact on our well-being will depend greatly on how we reach out to ordinary people, and the policies we implement. There is a lot of evidence that has already emerged which can help us do this right, and it is good to see India taking steps to be ahead of the curve.
Let me begin with some historical perspective. Compared to the fatality numbers of some earlier pandemics, such as the Asian flu, 1957-58 (1.1 million dead) and Hong Kong Flu, 1968 (2 million dead), the fatality numbers of the current coronavirus pandemic are, as yet, nowhere near. One of the most comprehensive studies on the pandemic, by the Imperial College of London, shows that the “case fatality rate”, or fatality among those who get coronavirus is 0.9 per cent — this means a 99.1 per cent survival rate among the people who get it.
What makes this pandemic special is that it is happening in the age of digital connectivity and greater scientific knowledge than we have ever had. We can inform people quickly and take big steps to contain it. But this also has a danger we have never faced. Policy actions can have a mega backlash on the economy. We are in uncharted territory — never before have we taken the kind of collective action against a pandemic as we are doing now.
But there is some evidence from history, and from the country that has been the most successful in dealing with this pandemic —South Korea. The country’s success has saved lives, protected the economy from undue damage, boosted the popularity of the Korean President Moon Jae-In across political divides and raised the global standing of South Korea. France’s President Emmanuel Macron and Sweden’s Prime Minister Stefan Lofven have consulted Moon Jae-In for advice.
We have some evidence and estimates about the kind of damage this pandemic can do. China’s industrial production in January-February 2020 declined by 13.5 per cent compared to a year ago. Goldman Sachs has estimated that the US’s GDP growth could decline 24 per cent for the second quarter this year. Data are coming in on recent US unemployment claims climbing by 30 per cent.
This is clearly time to put political differences aside, and collectively confront our common humanitarian challenge.
In designing policy, it is important to realise that all interventions to contain the pandemic have economic implications. Some people react to this by saying that our first priority is to save lives, not the economy. This is a mistake. The two are not separate matters. A poorly-executed policy can damage the economy and this can end up taking more lives than the original problem. We have examples of the damage policies can do from history. In 1958, Mao Zedong initiated the Great Leap Forward to boost China’s production. The Communist government tried to replace the private incentives of ordinary farmers with top-down state directives to large artificially-created collective farms. This unleashed the biggest famine in modern times, which resulted in 20 to 40 million deaths.
The Bengal Famine of 1943 occurred with no decline in food production but there were disruptions in supply chains from the farms to those who needed food. The death toll was two to three million. Such evidence from the past warns us that policies not designed well can cause more deaths than the pandemic itself.
More evidence is still to come, but we already have three lessons from Korea, which are being widely discussed in newspapers and the media around the world. First, you need strong leadership. Second, it is critically important to have trust between society and government. There is only that much you can do if people do not cooperate. Third, the need is for nuanced policies, with the government having the courage to make course correction as it goes along.
India has many of these qualities and the first moves have been right, but much will depend on the follow-up. First, trust can be a casualty with the lockdown. There are reports of the police wielding the baton too quickly on ordinary vendors, small grocers and sellers. A part of this is because there is a lot of genuine misunderstanding, even among the police, let alone ordinary citizens, about what is allowed and what is not. We have to clarify these and impress upon our police that they have to be both the enforcer of the law and helping-hand for distressed people. They need to explain to people so that they begin to actually cooperate, instead of complying only when under observation. That is the key difference between a trusting society and a trustless one.
When it comes to nuanced policies, we have to be aware that an economy-wide lockdown can disrupt supply chains and cause prices to rise and food supplies to vanish, with devastating effects. South Korea enforced regional lockdowns. Daegu was under lockdown but with other parts of the economy functioning, at least partially, food and medical supplies were ensured to the locked-down region. The same was true of Hubei in China. India should begin to give directives soon to move to a targeted and nuanced lockdown.
To believe that small traders and private firms can be substituted by the government is the mistake Communist China made in the 1960s and 1970s, before the arrival of Deng Xiaoping. The idea must be to carefully ease up business and trade, especially the informal sector, with clear rules of behaviour in place. An example of the importance of specialised knowledge — this applies to the US as well — pertains to the role of cash grants to the poor. Such grants work well in normal times but may need to be supplemented with the direct support of food and medical services.
We know this from the experience of the Bengal Famine. Sometime before the famine broke, the British instituted the practice of buying up most of the farm products from farmers and paying in cash, in contrast to the earlier practice of leaving some of the food with the farmers. This is normally innocuous but when the supply bottlenecks tightened, prices started to rise. The rich were ready to pay for whatever necessities they needed and even stock up on supplies, leaving farmers with cash that was inadequate for them to buy necessities, and there was widespread starvation. It was a combination of insensitivity on the part of Winston Churchill’s government towards a subject people and genuine mistakes. These are the kinds of finer planning that we need to do. The Indian bureaucracy, which is talented and known for its ability to rise to challenges, can manage this well, once the best ideas and expertise are brought to the table.
Some say that the Korea analogy is of no use to us because it is a relatively small country. It is true that everything will not apply here. But on the other hand, Korea and Hubei province of China are very comparable. Korea’s population is 52 million, Hubei’s is 58 million. The number of people who died of the virus in Korea is 126. The figure for Hubei is 3,160. Korea, of course, had the follower’s advantage since the virus struck there later. But we too have that advantage.
This article first appeared in the print edition on March 27, 2020 under the title ‘Let’s use follower’s advantage’. The writer is C Marks Professor at Cornell University and former Chief Economist and Senior Vice President, World Bank.
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