March 15th, 2020
We may feel that ‘the Year of the Rat’ has brought upon us the plague of the decade, and amidst the doom and gloom, we brace ourselves for more bad economic news. We may have to look hard, but the sky is at its darkest before dawn. Here, let us focus on the silver linings of this dark Coronavirus (Covid-19) cloud. Putting a positive spin on things boosts morale and productivity. Below are some points that come to mind:
- Equality-enhancing aspects of the pandemic:
- At personal level, Covid-19 showed us the common denominator for rich and poor. Money can buy you a Gucci bag, but it cannot buy a disinfectant spray if it’s all sold out everywhere. Whether you are a rough sleeper or a celebrity like Tom Hanks, the bottom line is, we humans are equally vulnerable. ‘Being able to afford’ can be influenced by macroeconomic policy through interest rate cuts and/or tax cuts. However, when consumer sentiment is spooked by a pandemic, there is no quick fix.
- At a national level, excluding China and South Korea, the worst affected economies are the rich industrialized countries. The crisis shows us that their supply chains are vulnerable to disruptions. In contrast, some emerging market economies that are relatively self-sufficient such as India and Turkey may be able to recover quicker. Furthermore, they may benefit from the drop in commodity prices in their efforts to control inflation. Most of Africa ‘s poorest countries seem to have been spared the pandemic so far. Thus, the pandemic may have some impact, albeit small, on reducing income inequality across the world.
- The Spanish flu pandemic of 1918 killed 20-50 million people worldwide. The main difference with the Covid 19 is that almost 70% of the Spanish flu victims were below the age of 40. The shock to the aggregate supply was much more serious. The current pandemic’s negative impact on the active work force is more temporary and unlikely to have a permanent impact on the labor supply.
- Slightly higher inflation as a result of the stimulus packages and fiscal measures would be welcomed by the western European countries as the surmounting government debt is eroded by inflation. Furthermore, as in Keynes’s ‘Paradox of Thrift’, thanks to higher inflation, consumers may increase their spending more quickly instead of postponing it. This would clearly help with the speed of the recovery.
- Many governments have realized the importance of investing in their health care systems. The current crisis shows that even a major world power such as the US is not well-equipped in terms of testing kits for the virus etc. The new type of coronavirus should be a wake-up call for politicians. Healthcare spending should not be treated as ‘sunk cost’ because the alternative of not spending enough may, in the longer term, be very expensive both in terms of human life and economic growth. As a small bonus, the worldwide adoption of good hygiene practices could reduce healthcare costs for future generations.
- Corona instead of Greta: This maybe a correction that the environment needed. Malthus in 18th century believed that natural forces would correct the imbalance between food supply and population growth through natural disasters or famines. Although the shortage of food is not a major issue for the western world, environmental issues such as pollution and climate change have become pressing problems that cannot be ignored. The following structural changes may take place:
- Working from home might become the norm. Although much talked about, it was, thus far, not widely implemented outside the tech sector. A significant number of white collar workers are being forced to work from home by the current pandemic. This is a productivity test for the work-force. Time will show if permanent ‘home office’ is a tenable.
- Non-essential business travel, meetings, conferences can be reduced with the help of technology. Video-conferences may replace unnecessary human contact and reduce environmental damage.
- Renewable energy was never seen as a realistic alternative in terms of meeting the global demand for energy. A dramatic drop in energy demand owing to less commuting and travelling could increase the viability of alternative energy sources.
- Digital transformation has been already testing the retail sector for some time. The pandemic is likely to force the transformation from bricks to clicks in a more abrupt way. There is no painless way to remove the plaster for high-street shops. However, this way, they may benefit from the pandemic-related stimulus packages in planning their digital transformation.
- Although the gig economy is growing at a rapid rate, up to now the lack of safety net benefits such as unemployment and health insurance was not a headline theme. The pandemic has exposed contract workers, Uber drivers to the grim reality of uncertainty with respect to claiming benefits. A silver lining to the current crisis is that this issue is now being highlighted. This could lead to policies to put in place a safety net for this significantly growing part of the workforce
- The future will involve less human contact whether we like it or not. From supermarket checkouts to doctor’s appointments, it is likely that technology will reduce the need for human interaction. However, there will be always need for nurses and care workers. The pandemic is a reminder that elderly people are especially vulnerable and the aging demographics of the western world will be increasingly dependent on nurses and care workers. As these are low-paid professions, and often rely on migrant workers, the current pandemic may give the society a chance to reevaluate immigration policies.