The post-Covid economic order
It is now clear that the coronavirus pandemic (Covid-19) will not just have huge costs in terms of loss of lives and public health, but lead to enormous economic suffering. The nature of the disease is such that there is an inherent tension between preserving lives — which involves large scale lockdowns, restrictions on travel, and social distancing — and economic activity — which is based on mobility, migration, supply chains, trade, demand, and consumption. Governments across the world have intervened, in varying degrees, to minimise the distress. But what does the crisis, as well as the nature of the response, say about the new global economic paradigm?
The welfare State is back. This is the most significant transformation in decades in global economic policymaking. To be sure, the welfare element of State policy — even in the most developed capitalist democracies — never faded entirely. But the dominant wisdom was that the State should stick to its core function of provision of basic public services and act as a regulator, and leave the rest to the market to determine. But it is clear that governments will now have to intervene in every element of economic life. For the poor, food and cash transfer will become a reality; for citizens across the board, free or subsidised health care will have to be contemplated; for the unemployed, allowances may have to instituted; for business and companies, fiscal support will have to be provided, tax concessions given, and demand created through public interventions; for the working class, public expenditure will have to be ramped up. The irony is that at a time when the world is dominated by Right-wing leaders, the economic argument of the global Left has prevailed.
But this does not mean a return to the old ways of conducting economic transactions, for the other most significant change will be the enhanced role of technology. To be sure, technology advances were driving economic integration in unprecedented ways already. This is what made work-from-home possible. But expect an ever greater reliance now on technology, and a reduction of human interface, in the ways people live their lives, spend their money, work, operate businesses, interact with friends and family, and create communities. All of this accelerates the digital transformation, which, in turn, will be disruptive. Both the government and the private sector will be affected by this. It is this twin process, of welfarism and enhanced State role on one hand and of technological disruption on the other, which will dictate the post-pandemic order.