Coronavirus: The great leveller

Over the last few days, a lot has been written and said about the urgent need for countries to contain the COVID-19 by taking steps to “flatten the curve” of the virus spread by minimising the growth of infected cases through aggressive testing, social distancing etc. Each affected country has observed a massive disruption in its socio-political and economic landscape. Questions are being raised on the distributive aspects of measures engaged with a crisis response (on questions like who gets what first and what price and cost). U.S. president Donald Trump has already offered large sums for the the country to get first access to the coronavirus vaccine.

A closer look at the economic history of big shocks (like COVID-19) and an assessment of their social, political, and economic effects tells one interesting aspect about the consequential impact of such shocks. They, over a period of time, tend to flatten another (critical) curve, that of high wealth inequality in and across nations combined with radical transformations in the socio-political & economic status-quo.

Walter Scheidel, in his 2018 book: The Great Leveler: Violence and The History of Inequality From The Stone Age To The Twenty-First Century discussed how the episodic rises in wealth/income inequality across societies in the past were often violently brought down by either wars, revolutions or plagues. With empirical evidence, he illustrates how the World Wars of the early 20th century channelised most economic and state resources towards defense and war-time expenditure and flattened the wealth multiplier effect for the richest classes (NHS in the UK was born around this period). Scheidel also talks about how the communist revolutions (in 20th century) violently suppressed the rise of the distributive inequities of wealth; and how epidemics—from pre-modern times in Europe—wiped out a significant proportion of the population, thereby, causing structural, demographic, and political changes in affected societies.

As an excerpt from Scheidel’s text reads:

“There was always one Big Reason behind every known episode of substantial levelling. There was one Big Reason why John D. Rockefeller was an entire order of magnitude richer in real terms than his richest compatriots one and two generations later, why the Britain of Downton Abbey gave way to a society known for universal free healthcare and powerful labor unions, why in industrialised nations around the globe the gap between rich and poor was so much smaller in the third quarter of the twentieth century than it had been at its beginning – and, indeed, why a hundred generations earlier ancient Spartans and Athenians had embraced ideals of equality and sought to put them into practice….. These Big Reasons were not all the same, but they shared one common root: massive and violent disruptions of the established order. Across recorded history, the periodic compressions of inequality brought about by mass mobilisation warfare, transformative revolution, state failure, and pandemics have invariably dwarfed any known instances of equalisation by entirely peaceful means.”

It is true that history doesn’t determine the future or directly repeat itself (at least that’s the one thing we learn from history for sure). Epidemics like the Black Death, the Spanish Flu (1918) had very high mortality rates and happened in a very different period of time with relatively little advances in medicinal treatment and technology in comparison to today’s digitally driven, globalised world. But, as we know from the initial works of Nobel laureate Amartya Sen, the so-called natural disasters like famines (in colonial India) were not caused from actual shortages of food-grains or low agricultural production but largely because of poor-distributional networks in (colonial) state-managed systems and due to systemic inefficiencies. One can similarly argue this for reasons explaining deaths from the Great Famine in the early 1960s China under Mao.

Scenarios emerging from COVID-19 could similarly see better-or-worse/high-or-low affects on societies depending on a nation’s ability to contain the virus spread, the actual number of deaths, while responding to a massive disruption to its economic and socio-political landscape. A shock of this magnitude will not only fundamentally change a given state’s machinery and response system in the medium-to-long term but also change the economic landscape of most affected nation-states. This is likely to be observable from changes in distribution of wealth and income within their populations ex-post the shock’s impact (if one pays close attention to Scheidel’s thesis). In my assessment, at least in case of the United States, the COVID-19 shock and its response thus far will be a litmus test for Trump Presidency (and may very well be responsible for the end of his presidential term).

In trying to analyse the actual impact, a recent study by Warwick McKibbin, professor of economics and Roshen Fernando, PhD Student in Economic Policy, Australian National University (2020) simulate impacts of different scenarios from COVID-19 shock on macroeconomic outcomes in a general equilibrium model. Economists Richard Baldwin and Beatrice Weder di Mauro also attempted to do the same in a more detailed e-book for Vox. However, any diagnostic assessment on the impact of the shock of course remains contingent on a variety of context-relevant factors dependent on how a nation responds, what policies it has in place, etc.

Some countries have had relative success in dealing with the pandemic and its economic fallout, and some haven’t. Questions are (and will be) asked on how most of Europe & the United States’ best medical systems and socio-political (liberal) order failed to prevent the virus spread in initial stages of the outbreak-especially in creating enough public awareness. And, how countries like South-Korea, China (despite less transparent deep-authoritarianism) addressed the crisis through more aggressive means—despite being vulnerable in initial stages of the pandemic outbreak. In either case though, the shock affected each nation’s status-quo.

At the same time, modern welfare states with progressive institutional and policy arrangements in Scandinavian countries like Denmark, better systems and response mechanisms check for systemic inequities in place and even shock-absorb their societies from any serious economic fallout from any major crisis. Denmark was one of the first European member states to institute compensatory measures with a 12 million euros scheme for workers most vulnerable from the shock, with aid in form of wage-subsidies, unemployment insurance(s) and compensation for organisers of events that had to be cancelled due to the outbreak.

Does it mean that a society in peace, remains less capable of addressing structural inequalities (in income/wealth or social stratification)? My (grim) response is more skewed towards a Yes. Modern welfare states (like Canada, Denmark etc.) might do a reasonably good job of compensating for inequality before taxes and transfers through progressive policies and social safety nets. However, for more substantial levelling to occur when inequalities peak, as Scheidel would argue: “the established (privileged) order needs to be shaken up: the greater the shock to the system, the easier it becomes to reduce privilege at the top”.