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Wednesday, May 27, 2020

War against Covid-19: When every decision seems to be a violent and gut-wrenching trade-off

Indian economy will truly recover only if the stimulus from the government is matched by a willingness across the length and breadth of the private sector to put the interest of the ‘system’ above their own narrower and shorter-term self-interests

Written by Sarjan Shah | Updated: May 12, 2020 11:03:32 pm
War against Covid-19: When every decision seems to be a violent and gut-wrenching trade-off The Prime Minister’s announcement today of a stimulus package worth 10 per cent of Indian GDP is exactly the kind of decisive stimulus needed.

After the flood, what? It seems difficult, if not impossible, to imagine what the post-pandemic world looks like. After all, while the daily numbers in India continue to rise and the cacophony of disparate voices and opinions starts to grate, it all seems like doom and gloom. However, the truth is that we have to realise that this war consists of more than one battle, with some battles having to be fought simultaneously, while others are by definition to be fought in sequence. If we can properly categorise this ‘war’ against the virus into simultaneous and sequential battles, identify which troops will fight which ones (based on their specialisations and expertise) and then ensure that instead of vague, confusing and all-encompassing opinions flying around, we have only a highly organised and systematic implementation of our battle plans, then I believe that India will come out of this experience stronger than before.

First, what is the definition of the totality of this war we now suddenly find ourselves fighting? It is not merely the public health response to contain the virus itself, it is also the political process to find the will, consensus and energy to ensure that the public health warriors have all that they need. It is not only the law and order maintenance during lockdown, but also the necessary balance to allow movement of particularly vulnerable populations (e.g. migrant workers). It is partly a scientific war, partly a medical one, partly a political endeavour and partly a narrative one. If there are urgent priorities for the here and now, there are equally urgent economic and political threats looming just past the horizon. This kind of situation can be very difficult to deal with for even the most veteran policy-makers and bureaucrats. Every decision seems to be a violent and gut-wrenching trade-off, trading-off people’s livelihoods next month for their lives today, trading-off India’s economic potential for India’s citizenry, trading-off future growth, development and wealth in order to protect as many lives today as possible. These seem impossible choices, but in actuality they are not.

The first thing to do is to ensure that the various sub-parts of the war are correctly sequenced in order of time-based prioritisation. For example, it must be absolutely clear to all administrators, business-people and the general citizenry, that the first and most important battle that we cannot afford to lose at any cost is the one to contain the virus itself. For if this battle isn’t won comprehensively, the risks to Indian societal stability are catastrophic. An overburdened public health system with limited capacity becoming inundated with victims of the virus, while doctors and nurses continue to suffer attrition from exhaustion, trauma and infection itself is a situation that must be avoided even if it means theoretically ‘cratering the economy’. An additional reason why I believe there needs to be absolute clarity on this point is the fact that I believe in practice, there will be no crater in the economy, but more on that later.

Once this priority is well-established, we have to consider which battles need to be fought (with lower priority albeit) simultaneously while containing the virus. The first one is a narrative effort – the battle to keep the nation united, inspired, motivated and hopeful – whether through the use of mass media, digital technology, powerful stories and emblems or other means – it is crucial that the entire populace is laced with a feeling of ‘oneness’ as absent such a spirit of cooperative re-building, the battles to be fought post-containment cannot be won. Another current battle is the one to ensure that no specific group, population, sector or part of society are utterly devastated during the lockdown: be it small and medium enterprises, low-wage workers or others that we can identify as being particularly vulnerable. The reason this must be handled simultaneously is that it is important that all parts of the economy and society are still alive and kicking when the re-building phase starts post-containment.

As such, let us now get onto the next, sequential battle that can and should only take place once the first phase of war, i.e. containing the virus, has been comprehensively won. This next battle can be best understood through a historical analogy: western Europe after World War II. While India will not have to contend with a bombed-out landscape or millions of casualties, India will need to have the same spirit of cooperation (as opposed to competition) and community (as opposed to individualism) as the Europeans needed in order to rebuild their societies post-war. While this sounds like an empty plea, I actually mean some very concrete things when I talk about a ‘spirit of cooperation’. Recent work in anthropological science using extensive data and regression analysis has led to one powerful possibility: societies that do not develop a strong cultural trait of ‘within group cooperation’ are very susceptible to societal collapse and disintegration when significant external pressures emerge (war, calamity, pandemics etc.).

So, what I mean from the perspective of the economy is rather simple – the ‘state’ as representative of us as a collective people, must take full advantage of the levers of ‘Modern Monetary Theory’ in order to finance rupee-denominated fiscal expansion to the extent of the ‘slack’ that is available in the economy due to the twin demand- and supply-side shocks of the virus and the lockdown.

The Prime Minister’s announcement today of a stimulus package worth 10 per cent of Indian GDP is exactly the kind of decisive stimulus needed. The stimulus, while necessary, is by no means sufficient. For the Indian economy to truly recover as soon as possible and return to pre-pandemic levels of productivity will only be possible if the stimulus from the government is matched by a willingness across the length and breadth of the private sector for companies and individuals to put the interest of the ‘system’ above their own narrower and shorter-term self-interests.

What this means in practice, to use the example of a chain of financial obligations owed, is the moving in lockstep of all obligations based on only two considerations: as accurate as possible an estimate of the impact of the virus and lockdown on a particular individual, entity or sector, and the different capacities to absorb losses and costs that individuals, entities or sectors possess. So, first we would conduct estimate-based studies on the gross loss to a particular value chain, and distribute the theoretical losses equitably across the chain. Second, we estimate the immediate difference in shock-absorbing capacity of the different parts of that value chain, and amend the distribution of losses / costs accordingly.

Ultimately, whenever normalcy returns, millions of individual Indians will face daily choices for the next many months. Those choices will often resolve themselves into whether or not to pursue some narrower definition of ‘rationality’ or ‘self-interest’, as opposed to thinking about two larger-scale forms of rationality — a communal rationale, and a longer-term rationale. And, depending on the choices that everyone from CEOs of banks and corporates to individual consumers make during this second phase of the battle, India will either be able to minimise the aftereffects of the virus both in terms of money and time, or will suffer a series of consequential and cascading effects on the rule of law, trust between parties, and the frictional costs of thousands of bankruptcies, litigation and bitterness. India, like any other society, can ill-afford that kind of own-goal after such a shock. The ‘cratered economy’ is not a necessary outcome of the lockdown as such, but it can become a self-fulfilling prophecy if private individuals forget the public ethic once the virus is behind us. Let’s just hope that our captains of industry re-read Marx instead of Ayn Rand during lockdown.

Shah is an alumnus of London School of Economics, Cambridge and Harvard, and lives and works in Mumbai

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