Catch-22 with COVID-19: Health or Economy?

Unlike previous crises, such as the Great Depression, which started in 1929, or the World Economic Crisis that began in 2007–08, a unique feature of the current economic crisis is the fact that it began on the supply side with production, both global and local, virtually coming to a grinding halt to contain the spread of the virus.^[1] It is important to analyse both the source of the COVID-19 crisis and its unfolding, since the crafting of the policy response has to take these factors adequately into account. 

So far, most government policy responses the world over have primarily targeted the demand side in the form of fiscal packages or monetary policy easing credit. A problem with relying on such a strategy exclusively is that it may not be able to tackle the COVID-19 crisis in all its complexity. For example, if unemployment benefits were provided to all workers in need, they would be able to tide over the livelihood dimension if the commodities they demand are produced or are available in stock. But the usual maxim that “demand creates its own supply” does not work here, because supply cannot be increased at will during the pandemic. Proximity between workers to increase production may lead to an increase in infections and deaths. Any resolution to this crisis, therefore, requires a two-pronged response that encompasses both demand and supply. 

Focusing on the demand side alone, as is being done today, will merely result in either a severe rationing of goods, or high inflation, or a combination of both. This is further compounded by the fact that international trade has   slowed down drastically, which means a shortage of domestic supply in one country cannot be met by imports. Moreover, even if trade were possible, all nations cannot run a trade deficit at the same time. In countries where poverty is high, and there is unequal access to food, the COVID-19 crisis  could result in a food security crisis for the poor and lead to deaths from starvation. 

The only way such a crisis can be averted is if production can be resumed in the essentials goods sector, without jeopardising the health of the workers employed in these sectors. We propose that this can be done by manufacturing test kits, personal protective equipment (PPE), etc, for all employed workers, as well as all for front-line healthcare workers who are fighting this pandemic, including those providing essential services. This, along with other supporting macroeconomic measures, can provide respite in the medium run till a vaccine, or cure, is publicly available. 

To some extent, this is already happening in India and elsewhere, though in an ad hoc manner. Our attempt here is to provide, instead of these halting and ad-hoc measures, a planned solution to this crisis in the medium run. 

The Health Crisis

COVID- 19 seems to be a highly infectious disease, even though its R0^[2] (the number of people an infected person can pass on the virus to) is currently estimated to be in the range of 2.2–2.7, which means that in the absence of any countervailing measures, one infected person on an average will infect at least two others. But, then, there are other infectious diseases, which have a higher R0, for example, measles, which has an R0 of 12, yet the public health response to the COVID-19 pandemic has involved unprecedented steps, including widespread lockdowns, mass quarantines, etc. Further, unlike many other infections, COVID-19 has a longer incubation period, because of which widespread testing is required to control transmission. However, the inability and unwillingness of many governments to undertake free, mass testing due to their commitment to the neo-liberal project has helped the infection spread further. In addition, the share of asymptomatic cases, from the evidence available so far, seems to be higher than other infectious diseases (He et al 2020). This means that many of the carriers cannot be detected without free and mass testing, and are unknowingly transmitting the virus to other susceptible individuals. That cases double in two to three days (on average) in certain countries seems to go hand in hand with these two facets of the SARS-COV2 virus. As on 6 May 2020, 3.6 million people were infected with a death toll of a little over 2,57,000 across most countries.^[3] 

Ducking the global trend, however, is India, where the numbers of reported cases of infections have been quite low, despite the population size and density.^[4] Given this, how serious is the claim that a health “crisis” awaits India due to the COVID-19 pandemic? There are many reasons to err on the side of caution on this, despite the efforts that have been made to flatten the curve. 

In the absence of a strong public health intervention against the pandemic, as in Vietnam for instance, doubts remain whether India can duck the global trend in the long run (by long run we mean by the time a vaccine has been administered to a large section of the population to break the chain of spread or some cure has been devised). An argument has been advanced that Indians have better immunity to COVID-19 because of other vaccines (like BCG) that Indians are mandated to take because of other tropical diseases.  However, this seems to be  conjecture and remains unproven at present (Curtis 2020). 

Some have argued that the relatively low level of reported infections is because India initiated a strict nation-wide lockdown way ahead of any of the other countries (at their respective stages of infection), like Italy, Spain and the United States (US). But the time lag between the first case detected (30 January 2020) and the day of the first national lockdown (25 March 2020), does not favour this argument. There are two factors at work here. First, for a long period of time, incoming air passengers, some of whom were the primary source of infections in India were let in without effective screening  and mandatory quarantine and testing was largely absent for a long period of time. Simple temperature checks at airports were largely ineffective in detecting COVID- 19 positive cases. Second, India’s national lockdown is quite unlike other countries, such as China, Vietnam or Cuba, where both testing and the lockdown were strategic and local, instead of national, or even South Korea which conducted exhaustive testing, contact tracing, and strong social distancing, but without an explicit lockdown. In India, the national lockdown has been ill-planned and callous, especially for the poor. No complementary health measures have been put in place to prepare the country for when the lockdown is finally lifted. Extending the lockdown is also not a feasible option, even if it is limited to certain hotspots for a year or so.

If the cases are doubling in about10 to 12 days, it only delays the time by which the number of cases will be comparable to other affected countries. Given its current capacity, it is doubtful whether the public health system in India will be able to cope unless a more effective or strategic lockdown is maintained till a vaccine has been administered to the entire population.  Even by conservative estimates, this will take at least a year from now. A doubling function is after all, an exponential function. So, for example, if the number of reported cases was approximately 23,000, and the number of deaths, approximately 700 on 24 April1, both doubled by 5 May to a little over 46,000 and 1,400 respectively, that is, doubling in 11 days. And this is with the lockdown in place. If, however, this lockdown is lifted, and we expect the current rate of growth of the infection to continue by the end of June itself, the numbers would involve a whopping 14 lakh infections and close to 45,000 deaths. One may object to this simplistic extrapolation, but the data so far seems to be pointing in that direction. To expect the number of cases to grow at the current rate is also a gross underestimation, since lifting the lockdown in India, in the absence of aggressive countervailing public health measures, will surely increase this rate significantly. Even if the actual numbers turn out to be a fifth of this, that would still mean India would have approximately 3 lakh infections and 9,000 deaths. And if this is not controlled, the numbers are likely to go up in the future. 

The current numbers on COVID-19 deaths and infections themselves are open to question. The Indian government’s public health strategy of very low testing is also partly responsible for the low numbers being reported. Apart from this, the possibility of community transmission in India, both because of false negatives in some tests and undetected cases outside the testing sample, especially asymptomatic cases, could contribute to an accelerated spread of cases. Regarding the low reported incidence of COVID-19 in India, Geevan (2020) has remarked that “an approach that is not open to scrutiny will automatically lack credibility. Surely absence of evidence can’t be taken to be evidence of absence.” 

In this section, we have tried to argue  that this is a serious health crisis in the making, and the current numbers cannot be used  to construct a legitimate argument to the contrary.          

The Economic Crisis

The world is in a deep economic crisis with no parallels to draw lessons from. In its recent economic outlook report in April 2020, the International Monetary Fund has argued that the world economy is likely to witness a negative growth rate this year. In terms of regions of the world economy, the only significant exceptions are expected to be some Asian economies, including India and China, with positive rates of growth (see Figure 1). At this point, the projected rate of growth for India seems somewhat off the mark, given the negative impact on the economy of the unplanned lockdown implemented in India. Apart from developing economies, the unemployment rates in the advanced economies are projected to see a sharp rise in 2020 (see Figure 2).

During this pandemic-induced global economic crisis, India, in particular, is confronted by a dilemma. Since there is no concrete information currently available on the extent of community transmission, the country will be staring at a potential health crisis, if the lockdown is withdrawn in an unplanned manner, partial or otherwise. And if the lockdown continues in its current form, then the economic crisis (even in the food sector) is likely to be aggravated in the near future.

A simple way of understanding what the world economy is going through is by looking at this  problem in the following manner. Aggregate potential supply (AS) of goods and services in an economy is currently constrained, either by the amount of production that the health crisis will allow (H), or by the amount of production that the food crisis allows (F). The actual output (gross domestic product [GDP]), in turn, is constrained either by how much aggregate demand (AD) there is or what can be produced (aggregate supply). 

AS = min (F, H)

GDP = min (AS, AD)

Currently, it is the AS that is acting as the primary constraint on the GDP. There is also a feedback loop here because fall in AS means a fall in incomes as well. This affects AD adversely, as is happening the world over by and large. 

A planned strategy would require all the constraints F, H, and AD to be simultaneously relaxed. Any exclusive strategy without a complementary policy to alleviate the other two crises is bound to fail. So, for example, the current unplanned lockdown is focusing on averting the H crisis, but if the F crisis becomes a binding constraint,  and there is a shortfall of essentials, it could lead to serious politico-economic conditions, including food riots. On the other hand, those demanding the lockdown be lifted, assuming the H crisis has been taken care of, run the risk of making H the binding constraint if the infection spreads, and another lockdown, perhaps a stricter one, is necessitated. The third strategy of exclusively depending on injecting demand in the economy will make the aggregate supply of goods a binding constraint, and will only feed into inflation, rationing, and supply bottlenecks, in some sectors at least.

The impact of the H crisis, which, currently, is the binding constraint the world over, can be gauged from the number of people filing for unemployment benefits in the US as a result of the lockdown. In India, in the absence of official unemployment figures, one can make a simple guesstimate on the number of people affected by this crisis. About 90% of the Indian workforce is in the informal sector, which means that they are without any meaningful job protection or social security benefits. So, their current incomes have nosedived to near zero, and only 10% of the workforce enjoys an income, which is, by and large, resilient, despite the lockdown. It is obvious that, among those in the unorganised sector, only those who have savings to dig into, for example, relatively well to do self-employed business persons, can survive this crisis. Others in the unorganised sector would require state support to tide over this crisis, and the absence of which might lead to large-scale starvation and consequent deaths apart from their disempowerment.

As far as the F crisis is concerned, economies the world over are staring at a scary possibility of the supply of essentials running out. So far, existing stocks of food and other essentials are being used. But since the production of these essentials too has stopped (or at least stalled), it is only a matter of time before a full-fledged food crisis confronts people (unless the lockdown is lifted or relaxed to allow production). For countries in the global North, food supply chains have already broken, which has led to a deep crisis for the producers (farmers). As an example, a broken pork meat supply chain has forced the producers to destroy a large stock of pigs, and even if these supply chains were to restart, animals in large numbers cannot be raised in the short-run (FSIN 2020). In India, the stock of food grains in March 2020 with the Food Corporation of India was 77.5 million tonnes, which, with the proposed government package of assured ration, will not last more than a few months. It is true that fresh crops are ready to be harvested but with migrant workers leaving the farms en masse, the production is bound to be affected. Moreover, unless the food processing industry, for example, converting wheat into flour is functioning, this harvest cannot reach the households for consumption. One can only imagine what the situation would be for other necessary items, like vegetables and other perishables, for which stock holding cannot be as high as that for foodgrains. The food crisis would result in acute shortages and high inflation that would adversely and disproportionately impact the working poor.

The world economy had been facing a protracted aggregate demand-related crisis even before the COVID-19 crisis emerged. It had not completely recovered from the 2008 crisis (Patnaik 2016). This was true both for the advanced as well as the developing economies because the latter were mostly dependent, with China leading the pack, on the global demand for growth. As far as the Indian economy is concerned, even though export demand was not the key driving force^[5] ), two policy shocks—demonetisation and goods and services tax (GST)—in the previous term of the Bharatiya Janata Party government (2014–2019) had affected the economy adversely and the unorganised sector disproportionately (Azad 2019). Demonetisation negatively impacted the informal sector, which was relatively more dependent on cash (Ghosh et al 2020), while the GST did the same to small and medium enterprises (Patnaik 2017). In fact, COVID-19 is the third such shock that has hit the most vulnerable sections of the Indian economy. As a result of all this, what was being touted as a slowdown (Anand and Azad 2020) may well turn out to be a full-fledged economic recession in India.

Is there a way out which can deal with all the above-mentioned constraints simultaneously to revive the economy with minimal loss of lives and livelihoods? We believe there is a way, but the planning for that has to happen now. This implies a decisive break with the neo-liberal project and in the following, some (but not all) aspects of this process are set out.    

One obvious way out is an early arrival and universal diffusion of vaccines, but that is not a given. Past practice indicates that it takes about 18 months for a vaccine to become publicly available. Even if we consider an optimistic scenario, it is unlikely to emerge before 9 months. If the stock of essentials run out before this time, then food riots, starvation deaths, etc, are not an unlikely scenario. The longer this interregnum between now and the arrival and diffusion of the vaccine, the greater will be the social turmoil. 

One may be tempted to argue that, at least, the production of essentials can be revived even if the lockdown is maintained in other sectors, but that would mean putting these workers in harm’s way. Moreover, this will only aggravate the health crisis as it may result in mass spread of the virus through rapid community transmission. So, this is not a tenable policy response. 

Is there a Way Out?

A policy that simultaneously relaxes all the constraints, requires the production of essentials to be restarted, but without jeopardising the health of the workers and of a significant section of the population through community transmission and that whatever is produced is also demanded at the same time. Otherwise, production will only result in inventory accumulation in these sectors.

To avoid the H crisis from spreading, first and foremost, the workforce involved in the health sector needs to be protected through adequate provisioning of personal protective equipment (PPE), a policy measure that has been discussed extensively. What has not been discussed is that this may relax the H constraint, but it does not change the F constraint. For that to be relaxed, the workers in the essentials sector, who need to work in close proximity with each other, also have to be provided with similar but not necessarily identical protective gear along with other facilities, such as accommodation at work sites, to avoid the virus spreading.^[6] A point can be raised about the impracticality of using PPE by farmers (or others working outdoors) in the scorching summer heat. What we mean by protective gear is any form of safety equipment, including face masks, gloves, sanitisers, etc, which protects the workers (and, by extension, their family members and other acquaintances) from the virus. Additionally, India could experiment with producing environment-friendly protective gear, instead of the current ones, which are heavily dependent on plastic and other polluting materials. Not only does the production and use of protective gear keep the health crisis from spiralling out of proportion, but it also kick-starts the essentials sectors. This production of protective gear at a mass scale is the novel idea we are proposing. This also solves the AD constraint partially since the state expenditure, whether on production, directly by the public sector units, or through subsidising the private sector for this purpose, also increases demand. So, a state-financed mass-scale production of protective gear that is supplied to both the health and essential goods sectors can relax all the constraints in one go.

It is possible that state expenditure in this form may not be enough to revive the economy fully or create jobs on a scale that can employ all the displaced workers at once. A complementary part of such a policy should be to provide meaningful unemployment benefits to those who have lost their livelihood in the lockdown, and who are not going to be employed in either of these sectors. Some have recommended that it is time to combine transfer in kind, as well as cash, for the next few months to tide over the current crisis (Ghosh et al 2020; Sinha et al 2020). Home delivery of basic rations to all and of essentials plus cash to the tune of ₹7,500 per month per household has been recommended for this purpose (Sinha et al 2020). Such a step also generates demand for goods produced by the essential sector.

A mass-scale production of test kits, PPEs, masks, etc, will have two effects, apart from containing the health crisis, on the economy. One, this increases direct employment in the PPE production industry, even as it facilitates the creation of employment in the essential goods sector. And two, this mitigation strategy has a strong basis because the agricultural sector, which a large share of the Indian workforce depends on, is a part of the essential sector by and large.

One may, however, object to this mass-scale production of PPEs as a possible waste of resources in the long term. But that is not necessarily the case. First, since this equipment constitutes consumables, they will not leave a trace of excess stocks in the long run; and second, this does not require capital to be “locked in” in the long run, which means the readjustment after the crisis will be relatively smooth, since retrofitting capital equipment is possible. In fact, as the workers have themselves proposed in the US, this could be done even by the automobile sector with its existing machinery (Pezenik 2020).

A valid question can be raised: If essentials can be revived, why not revive the entire economy in this manner? There are two arguments that may be advanced against this. First, in the short run, greater investment in the non-essential sector may require a lower investment in either the essential sector or the health materials production sector or both, which are not desirable. And second, apart from the twin dimensions of the COVID-19 crisis involving health and the economy, there is another crisis looming large in the background—the climate crisis. The capitalist system characterised by commodity fetishism and the resulting unsustainable ecological framework has ended up in growing carbon emissions in the world. And, since carbon has a long life (100,000 years), these emissions build up as stocks in the atmosphere, which have been gradually warming up the planet. These emissions themselves are quite skewed with the rich (individuals as well as countries) emitting far more carbon than the poor, but the latter face the brunt of its devastating impact on their health and living conditions (Magdoff and Foster 2011). Monbiot (2007) puts it succinctly: “The effort to tackle climate change suffers from the problem of split incentives: those who are least responsible for it are the most likely to suffer its effects.” 

As a result of the sudden halt in economic activity, a large part of which caters to the rich, emissions have declined. Many of these activities are not central to the working people of the world in terms of consumption, though some workers do obtain employment. In such a crisis, a meaningful policy objective would involve protecting the workers in these industries and not necessarily the profits that accrue to the capitalists in these industries. Workers in these industries could be protected through an unemployment allowance. In fact, an economy functioning in a way, as proposed herein in the medium run, may allow for a process of reflection on critical issues of climate change and how to confront them through political mobilisation. What is proposed here is reminiscent of a planned economy (especially in times of war). If a mobilisation of resources could be done for war, then something along the lines can be done this time around when the future of the working people of the world is at stake.