The worst of times? Global economy under pandemic
By Amlan Das Gupta.
“It was the worst of times, it was the age of foolishness, and it was the winter of despair”. If Charles Dickens was writing the ‘Tale of Two Cities’ today, he would probably have modified his opening lines to something like that. The Corona pandemic has left us a gloomy bunch, and if we look at our economic system and dwell upon its future, it is plain depressing. The Managing Director of the IMF summed it up perfectly when she said “We anticipate the worst economic fallout since the Great Depression”[i]. However, let us step back for a moment and think about something to look forward to. Let us imagine how this worst of times can also become the best of times.
I am not going to delude you by promising “Achhe Din” beyond this darkness. No, all the information we have suggests that the world economy is going to slow down. But is that really a bad thing? If we continued in our merry way, we would have faced a cataclysmic situation in about 50 years due to climate change. Slowing down our economy and reducing consumption is exactly what we need.[ii] People living in big cities during the lockdown will readily vouch for the environmental benefits of this.
But what about the costs? The costs will be in terms of real consumption and will have to be borne. The challenge will be to make sure that the hit is taken by people who have the capacity to take it. While the world purchasing power parity GDP per capita today is about 18 thousand dollars, about a quarter of the world lives on less than a thousand per year.[iii] Both international and intra-national income inequality is an acute feature of the world today. So, there is an opportunity to help people through this transition to a smaller economic pie, by transferring wealth from the rich to the poor. Perhaps this is just wishful thinking for the world, but self-realisation through trauma is not unheard of. It is perhaps time for the world to come together for a global universal basic income[iv]. While this has been discussed at a national level in many countries, it is important to take this discussion to an international platform. After all, between-country income inequality is much more acute than within-country inequality.
As we are talking about inequality, it is a good time to recognise that the pandemic has resulted in the evaporation of vast amounts of wealth; disproportionally so from the rich.[v] Now this is something that would excite a lot of economists. Whatever happens to the size of the economy, there is some value to a more equitable income distribution. In his famous book “Capital”, Thomas Piketty points to a persistent negative relationship between income inequality and economic growth. It is true that reducing income inequality can have far reaching effects. In general it spoils the equations of bargaining power in the economy and disturbs the status quo in favour of the less privileged. Besides, pandemics have a history of disturbing the economic apple cart, often with favourable results. An example may be drawn from the book “Why Nations Fail” by economist Daron Acemoglu and co-authors. The terrible tragedy known as the Black Death wiped out so much of England’s population in the fourteenth century that landlords had to literally start competing for workers. So the bargaining power of workers vis a vis land got enhanced. The result was an increase in the economic as well as political power of the masses.
So this disaster, as in most cases, may also be viewed as an opportunity. Whether the world steps up to the challenge or not is something that remains to be seen. We should hope that a decade from now we can talk about this time as a tough time that taught us to come together and make the changes that we need.
[i] “International Monetary Fund Head Predicts Coronavirus Will Trigger 'Worst Economic Fallout Since the Great Depression”, Time Magazine, April, 2020, <https://time.com/5818819/imf-coronavirus-economic-collapse/> [ii] “How can city dwellers help with climate change? Buy less stuff”, Alejandra Borunda, National Geographic, 2019, <https://www.nationalgeographic.com/environment/2019/06/cities-climate-impact-consume-less/> [iii] World Bank Data, <https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD> [iv] “Universal basic income is an income support mechanism typically intended to reach all (or a very large portion of the population) with no (or minimal) conditions.”; “What is universal basic income?”, IMF, Finance& Development, December 2018, Vol 55, No. 4, <https://www.imf.org/external/pubs/ft/fandd/2018/12/what-is-universal-basic-income-basics.htm> [v] “World's Richest 500 Lost $331 Billion In A Day In Record Market Dive”, NDTV Profit, March 2020, <https://www.ndtv.com/business/worlds-richest-500-lost-331-billion-in-a-day-in-record-market-dive-2194151?pfrom=home-topstories&fbclid=IwAR0nbWO0HEJ1geoMLC1KXzrB994IGMSGu-N4uYf6sVVWKrHtKTch6DRK8kg>