Rebuilding economies after the Covid-19 crisis

Managing the public health crisis of the Covid-19 pandemic clearly remains the near-term priority. But looking beyond that horizon, it is already clear to many that navigating the economic fallout of this pandemic will be a far bigger and longer challenge than the public health issues that we are currently grappling with.

Although, it is far from clear what is the extent of economic damage and the shape of recovery trajectories as that greatly depends on how this pandemic’s public health issues play out and how policymakers and the society at large respond to them e.g. the extent of mortality, re-infection rates, and time frames for reduced activity to continue (i.e. whether just a few more weeks or many more months). Yet we need to prepare for a reasonably higher probability of a scenario with a prolonged lag for economic recovery and that too well below the previous trend line. Whereas the odds of a rapid ‘V’ shaped recovery in the real economy (unlike potentially in capital markets), in my opinion, are relatively lower.

This may be unprecedented but we must prepare for more crises to follow:

More importantly, while the sudden and global extent of activity shutdown shock that this pandemic has brought is unprecedented but there are lots of warning signs that it won’t be the last such crisis that we need to prepare for. Future pandemics, climate change-induced mass scale disruptions, cyber warfare, etc., for instance, are plausible future crises looming over the horizon. While these future potential crises may not be as rapid or as widespread as the current pandemic, but the pain will be no less for those who have to deal with it.

So a key theme we need to learn to manage through such shocks is the need to become better prepared and more resilient, in all aspects: physically, mentally, and economically.

Why merely repeating economic solutions after the 2008 global financial crisis will not work this time:

As we start to think about managing the economic impact of this pandemic, the dominant discourse and some early policy actions seem far too driven by the macroeconomic solutions we have seen in the past decade post the 2008 global financial crisis e.g. trying to increase liquidity and reducing interest rates to shore up the capital markets. They may not work in this instance, as the key issue this time around is not a credit supply problem or a financial system credibility shock. The key economic recovery issue post the current pandemic is of re-building real demand sustainably--both economically and environmentally. There is likely to be a significant change and wariness in consumption attitudes at both a consumer and enterprise levels. Re-building and appropriately shaping that confidence and hope to appropriately invest for and believe in a better future will be the key.

Merely printing more money will not help the government, if not channelled properly in the hands of the truly needy consumers or towards creating productive assets. Instead, it could further exacerbate the problems we have seen in the past decade since the global financial crisis e.g. inflated asset markets, higher debt levels, and periods of very high volatility, and round-tripping of excess financial liquidity across global financial markets; not to mention an addiction to very low interest rates. Besides, the interest rates in many parts of the world are already so low that central banks have limited tools available to deal with the economic fallout of this crisis.

To rebuild we should rethink beyond conventional economic dogma:

We should take this opportunity to fundamentally rethink what kind of real economies we wish to rebuild and not be blinkered by what we include versus ignore in conventional gross domestic product (GDP) measures and thinking about economic growth. As sadly concrete urban jungles, with the need for excessive air-conditioning and long urban commutes and the corresponding greater consumption of fossil fuels, unhealthy and stress loaded lifestyles leading to chronic ailments and medical bills, taking loans to deal with all such lifestyle expenditures, etc. all add much more significantly to GDP. Whereas leading a simple Gandhian lifestyle, eating home-grown, organic cooked healthy meals, spending more time at home, walking or bicycling to work, and leading a healthy disease-free life do not!

To build greater economic resilience, we should use this opportunity to question economic policymakers fixation with the conventional GDP and its growth, and instead shift the emphasis to more inclusive aspects of economic well-being e.g. reducing income inequality, providing social safety nets for the below and near poverty line, reducing the risks of social unrest, and bolstering public health, both physical and mental, for a more holistic well-being.  It is high time to more actively take a leaf out of Bhutan’s Gross National Happiness (GNH) thinking and emphasise a better balance between contentment and sustainable consumption and building reserves vs. debt levels.

Some key themes of higher and lower demand can be anticipated/influenced:

Interestingly, it is entirely possible that many consumers will emerge from this pandemic crisis already more inclined to fundamental changes of attitudes and behaviours in their consumption priorities, thus creating interesting opportunities for innovative marketers. For example, many consumers are likely to be more conditioned to spending more time at home, have a greater focus on well-being, hygiene, and security for their family. In other words, it is possible that the significant shifts in the consumer spending basket over this pandemic period from more discretionary goods and services to more fundamental staples can be shaped into being a more sustainable trend, at least for some key psychographic consumer segments. Like-wise the following themes are quite likely to become more sustained trends, beyond the prevailing crisis for many organisations: greater ongoing levels of working remotely i.e. home offices, less travel, etc. We can also expect a greater emphasis on prioritising resilience over efficiency e.g. building some de-coupling and buffers and localisation in previously tightly linked, global supply chains.

How will this happen and who will drive it?

While there is no doubt that governments and public policy needs to play a key role in driving the safety net and setting the guard rails for key priorities for economic revival by pump priming and unleashing animal spirits for directing investments in for example:

-   More affordable and accessible basic public health.

-   Re-invigorating MNREGA-equivalent scheme for providing a Universal Basic Income safety net, but better directed for creating productive assets.

-   Taking the lead in building green (not just urban/physical) infrastructure e.g. water and renewable energy storage. This can be a great opportunity for channelling both local and global savings pools, as investors, both in India and around the world, will be actively looking for sustainable real returns and willing to accept lower yields for safety of their capital. But for this, India must improve drastically on its past track record of honouring contractual commitments for public infrastructure projects.

-   Re-invigorating the telecom sector.

-   Accelerating plans for privatisation of public sector enterprises.

-   Sustainable, non-mega city livelihood creation efforts i.e. move beyond the policies focussed on boosting empty consumerism, massive urbanisation, and the ‘Make in India’-type rhetoric as the organised sector simply cannot create sufficient jobs for the scale of India and other emerging markets demographics.

Other players, too, must play their part. For instance, the private sector must demonstrate longer-term capitalism and the multi-stakeholder perspective to drive the needed innovation and ‘creative destruction’. With their entrepreneurial efforts, this crisis, too, will undoubtedly help us accelerate the commercialisation of important technologies, as indeed other past major crises in human history were followed by great leaps of progress. Greater digitisation and improved technologies for tracking and minimising epidemics are prime examples in this phase. Obviously these efforts will also need to be aided by greater private philanthropy, more effective and efficient local governments, and grassroots communities.

And last but most importantly, each household needs to join in this effort to play their parts, especially the middle and upper classes to help dismantle some of the past two decades build-up of wasteful empty materialistic consumption and focus on living more contented, simpler lives with better savings reserves and lower indebtedness.

Views are personal.

The author is clinical assistant professor of strategy and entrepreneurship at ISB. Views are personal.