Rural India can’t be dustbin of history. Three farm laws have shown farmers need a New Deal

Yogendra Yadav in The Print

A historic farmers’ movement is a moment to unveil a vision for the future. Not just for farmers or agriculture, but for rural India, and indeed for the future of India.

This movement has already created history. It has firmly brought back the farmers to the national imagination. You can’t pretend they don’t exist. It has put the fear of vote, more effective than the fear of God, in the mind of the political class. You don’t take panga with farmers. It has shut up market fundamentalists who whisper too-clever-by-half agri-reform recipes to the powers that be. No more corporate plugs masquerading as textbook economics pushing for “reform by stealth”. At least for some time. It has succeeded in pushing the envelope to where years of academic and political debates on agriculture could not.

Yet, it will be a pity if that is all this movement achieves in terms of imagination. It will be tragic if the successful halting of the “agri reform” onslaught becomes a pretext to perpetuate status quo. It will be sad if this pushback to corporate agri-business turns into a push for trade unionism of the better-off farmer. The imposition of the Narendra Modi government’s farm laws must serve to draw attention to the multiple crises faced by Indian farmers, farming and agriculture. These laws are not the starting point of the woes of the farmers. Nor is their repeal the panacea that the farmers need. This great movement must take forward the idea of India that places farmers at the heart of our future.

Indian agriculture faces three intertwined crises. While the current focus is, rightly so, on the economic crisis, we cannot afford to forget the ecological crisis that stares us in the face. Both these crises put together produce what the farmers experience as an existential crisis. Indian farmers need nothing short of a New Deal that addresses these three crises simultaneously. Ideas, policies and politics must come together to design this New Deal. 

Three crises of Indian agriculture

The economic crisis is easy to describe. Although nearly half of our working population (58 per cent of rural households) is mainly engaged in agriculture, farming is not economically viable. Landholdings are small: 86 per cent of farmers own less than 2 acres, based on the agriculture census 2015-16. Average yield is low and highly uncertain. Prices are low too and are kept systematically so. According to my calculations, this yields a meagre monthly income of less than Rs 8,000, including all sources of income. The number of agricultural wage labourers has kept swelling, though farm wages have remained stagnant. No wonder, average monthly consumption is higher than income. More than half of farm families are in debt.

Now, the lazy economists’ formula is to say reduce the population dependent on agriculture. Except they forget to mention the continent where this additional population should be transported. Or to specify sectors of our economy waiting to offer millions of additional jobs, notwithstanding the overall state of joblessness. The challenge is to find decent income for hard-working small farmers.

The ecological crisis is less easily noticed and is even more pressing. Green revolution has come to a dead-end. Superstitious belief in the magic of chemical agriculture and overexploitation of water has left us exposed to degradation of soil health and groundwater depletion at a frightening scale. Add to this loss of biodiversity, shrinkage in seed variety, decline in nutria-crops like millets, loss in livestock economy and deforestation, and you begin to see why ecological crisis is not a hobby horse of some fringe environmentalists.

And now think of the looming challenge of climate change. Soaring temperatures and uncertain monsoon is a recipe for disaster for Indian agriculture, especially for farmers dependent on rains. Incomes of these ‘dryland’ farmers are predicted to fall by as much as a quarter due to climate change. Ecologically sustainable agriculture is a material and pressing concern that we should have addressed yesterday.

Finally, there is the existential crisis that the farmers feel and react to. The oft-repeated story of farmer suicides, over 3 lakh in the last two decades. As agriculture shrinks in the national economy, farmers experience a diminution in their status and a loss of dignity. As the self-respecting cultivator, the farmer is forced to become a labourer, and soon, a migrant labourer. Farmers do not want their next generation to take to farming.

A new architecture

The challenge and the opportunity of the farmers’ movement today is not just to ward off the impending threat of the three laws or to secure some enduring economic gains for the farmers, but to come up with a way forward on the economic, ecological and existential crises that Indian agriculture faces.

It requires, above all, an imaginative leap. Indian leaders, policymakers and thinkers must be able to stand up and say: India is not condemned to relive European history. Indian agriculture will follow an Indian path. Indian farmers are not vestiges of the past. They are here to stay. Agriculture can and will provide dignified livelihood to a substantial population, many times more than it does in Europe or North America. Indian farmers are a repository of relevant knowledge and technology. Village India is not a dustbin of history. Rural India is a land of opportunities, and key to our national future.

This resolve, an article of faith if you will, can open the path for new policy architecture. This will have to be led by the government and backed by a substantially bigger budget. Some of this State support must take the form of higher and more efficient subsidies to the farmers, as our net subsidy so far has been low, if not negative. Some of these resources must be spent on a truly universal and comprehensive crop insurance as well as debt relief and reconstruction. But much of State support must go towards building agricultural and rural infrastructure that facilitates private entrepreneurship, agro-processing, farmers’ cooperatives, animal husbandry, forestry, and so on. Flourishing private initiative in agriculture needs more, not less, State support and initiative.

The design of this new architecture will be around a combination of income support with ecologically appropriate agriculture. The current focus of government procurement on wheat and paddy creates perverse incentives for farmers. Instead, farmers need to be offered price support for a wide range of produce on the condition that they adopt the crops that are suitable for local ecological conditions. Crop loan and crop insurance could be added to this mega scheme. A small top-up component of income support for small farmers, women farmers and other vulnerable farmers could be included in this package. And this will have to be linked to a boost for pastoralists, rural industry and handicrafts, etc. The future of agriculture must be integrated with a big push for decentralised reinvigoration of rural economy.

Will this cost a lot of money? Yes, at current price, we should be looking to spend additional Rs 3-4 lakh crore, around 10 per cent of the Union budget, for this New Deal for rural India.

Can the country afford it? Should this be our national focus? Well, that is a question of political will. The real measure of the success of the current farmers’ movement would be the extent to which it succeeds in creating this much-needed political will.

Covid is forcing economists to look at other disciplines for recovery clues

Larry Elliot in The Guardian

Three times a week an update on new Covid-19 cases is published by the economics consultancy Pantheon. Vaccination rates are monitored by the Swiss bank UBS. The scientists advising the government are in regular contact with the Bank of England’s monetary policy committee – the body that sets interest rates.

Richard Nixon may or may not have said “we are all Keynesians now” after the US broke its link with gold in 1971 but one thing is for sure: all economists are epidemiologists now. And there’s a downside and an upside to that.

The downside is that economic forecasting is currently even more of a mug’s game than usual because even the real (as opposed to the amateur) epidemiologists don’t really know what is going to happen next. Are there going to be new mutations of the virus? Assuming there are, will they be less susceptible to vaccines? Will Covid-19 go away in the summer only to return again as the days get shorter, as happened last year? Nobody really knows the answers to those questions.

The upside is that the pandemic has forced economists to look beyond their mechanical models and embrace thinking from other disciplines, of which epidemiology is just one.

For a start, it is hard to estimate how people are going to react to the easing of lockdown restrictions without some help from psychologists. It is possible that there will be an explosion of spending as consumers, in the words of Andrew Bailey, “go for it”, but it is also possible that the second wave of infection will make them a lot more cautious than they were last summer, when there was still hope that Covid-19 was a fleeting phenomenon.

An individual’s behaviour is also not entirely driven by their own economic circumstances. It can be strongly affected by what others are doing. If your peer group decides after having the vaccine that it is safe to go to the pub, that will probably affect your decision about whether to join your mates for a drink, even if you are slightly nervous. Sociology has a part to play in economic forecasting.

As does history, if only to a limited extent, because there are not a lot of comparable episodes to draw upon. A century has passed since the last truly global pandemic and there is only so much that can be learned from the outbreak of Spanish flu after the first world war. But when Andy Haldane, the chief economist of the Bank of England, says the economy is like a coiled spring waiting to be unleashed, that’s because he thinks there are lessons to be learned from the rapid recovery seen last summer. Back then, the economy followed a near 19% collapse in the second quarter of 2020 with a 16% jump in the third quarter.

Naturally, economics has a part to play in judging what happens next. Millions of people (mostly the better off) have remained in work on full pay for the past year but have struggled to find anything to spend their money on. Millions of others – those furloughed on 80% of their normal wages or self-employed people who have slipped through the Treasury’s safety net – are less well-off than they were a year ago and may fear for their job prospects.

In an ideal world, the better-off would decide that the amount of money saved during lockdown was far in excess of what they needed and would then go on a spending spree: heading out for meals, taking weekend breaks, buying new cars; having their homes re-decorated. That would provide jobs and incomes for those on lower incomes.

But it might not work out like that. If the better-off leave their accumulated savings (or most of them, at least) in the bank, that means higher unemployment for those working in consumer-facing services jobs – such as hotels and restaurants – and an economy with a dose of long Covid.

There are two conclusions to be drawn from all of this. The first is that precise forecasts of what is going to happen to the economy over the next year, or even the next few months, should be treated with caution. Assuming the vaccination programme continues to go well, assuming that there are no further waves of infection, assuming restrictions are lifted steadily from early March onwards, and assuming that people come out of hibernation rapidly and in numbers, then the economy will start to recover in the second quarter. But there are a heck of a lot of assumptions in there: it might take until the third quarter for the bounce back to begin; the recovery might prove weaker or stronger than the consensus currently expects.

The second conclusion is equally obvious. If, as is clearly the case, the existence of so many imponderables makes precision forecasting more difficult than normal, it makes sense for economic policy makers to act with caution. For the Bank of England, that means no dash to embrace negative interest rates, which won’t be necessary if Haldane’s bullishness proves to be justified; and for the Treasury it means extending financial support and ignoring calls for higher taxes, especially those that might lead businesses to collapse or cut back on investment.

It would appear that Rishi Sunak has reached the same conclusion. There has been far less talk from the chancellor recently about the need to reduce the UK’s budget deficit, a process that has now been delayed until the second budget of 2021 in the autumn. By that stage, it might well once again by Sunak rather than the epidemiologists running the economy. Well, perhaps.

The biggest lesson of GameStop

Rana Foroohar in The FT

Much has been written about whether the GameStop trading fiasco is the result of illegal flash mobs or righteous retail investors storming a rigged financial system. Robinhood’s decision to block its retail customers from purchasing the stock while hedge funds continued trading elsewhere has turned the event into a David and Goliath story. 

But that story is predicated on a false idea, which is that markets that have been “democratised” and that people trading on their phones somehow represent a more inclusive capitalism. 

They do not. Markets and democracy are not the same thing, although most politicians — Democrats and Republicans — have acted since the 1980s as if they were. That period was marked by market deregulation, greater central bank intervention to smooth out the business cycle via monetary policy following the end of the Bretton Woods exchange rate system, and the rise of shareholder capitalism. This combined to begin moving the American economy from one in which prosperity was based on secure employment and income growth, to one in which companies and many consumers focused increasingly on ever-rising asset prices as the most important measure of economic health. 

Right now, short-term fiscal stimulus aimed at easing the economic pain from Covid-19 is distorting the picture. But putting that aside, the US economy is at a point where capital gains and distributions from individual retirement accounts make up such a large proportion of personal consumption expenditure that it would be difficult for growth to continue if there were a major correction in asset prices. 

That is one reason why the GameStop story has so unnerved people. It reminds Americans how incredibly dependent we all are on markets that can be very, very volatile. 

The 40-year shift towards what President George W Bush referred to as an “ownership society” came at a time when the nature of the corporation and the compact between business and society was changing, too. The two phenomenon are of course not unrelated. 

The transformation of markets put more short-term pressure on companies, which cut costs by outsourcing, automating, using less union labour and dumping defined benefit pensions for 401k plans, which put responsibility for choosing investments, and the risks of bad outcomes, on individual workers. In 1989, 31 per cent of American families held stock. Today it is nearly half. Now, it seems, we are all day traders. My 14-year-old recently told me I should “buy the dip,” which did nothing to quell my fears that we are in the midst of an epic bubble. 

GameStop is the perfect reflection of all of this. The ultimately unsuccessful effort to squeeze short-sellers by pushing up the share price illustrates the risks of the markets. At the same time, the company itself illustrates how the nature of employment has changed. In a 2015 Brookings paper, University of Michigan sociologist and management professor Jerry Davis tracked the job growth linked to every initial public offering from 2000 to 2014 and found that the single largest creator of organic new employment was, amazingly, GameStop. The then-fast growing retail chain had an army of mostly part-time game enthusiasts who generally made just under $8 an hour. They were “the new face of job creation in America, ” wrote Davis, whose 2009 book Managed by the Markets is a wonderful history of the rise of the “ownership” society. 

I contacted Davis, who is now at Stanford University working on a new book about the changing nature of the corporation, to ask his thoughts about GameStop and the controversy surrounding it. He sums up the big picture about as well as anyone could: “Rescuing an extremely low-wage employer from short-sellers by pumping up its stock is not exactly storming the Bastille.” What’s more, he adds, “Robinhood easing access to stock trading does not democratise the stock market any more than Purdue Pharma democratised opioid addiction. Democracy is about voice, not trading.” 

I hope that politicians and regulators keep this core truth in mind during the coming hearings about GameStop and Robinhood. I fully expect Treasury secretary Janet Yellen will, based on her recent pledge to staff to address long-term inequality. 

While apps and social media have led more people to trade shares, that has not made our system of market-driven capitalism stronger. Our economy is largely based on consumer spending, and that consumption rests on asset price inflation which can now be brewed up by teenagers in their bedrooms. If current employment trends continue, many of the latter will end up working gig economy jobs without a safety net to catch them when their portfolios collapse. 

That is neither sustainable nor supportive of liberal democracy. That is why I applaud Joe Biden’s core economic promise to move the US economy from one that prioritises “wealth” to one that rewards work. 

The details of the GameStop debacle should be parsed and any villains punished. But we must not lose sight of the main lesson: an economy in which individual fortunes are so closely tied to the health of the stock market rather than income growth is fragile. Speculation, no matter how widely shared, isn’t democracy.

Kerala’s next crisis: How to deal with return of lakhs of ‘Gone to Gulf’ people

More than 5 lakh Keralites are expected to return from Gulf & state has to deal with plight of those losing jobs there and erosion of its remittance economy writes BOBBY GHOSH in The Print


   

Gone to Gulf.” That phrase came up a lot in conversations among grown-ups that I overheard as a schoolboy in Kerala during the early 1980s. My father, who managed a lobster-export business in the port of Kochi, was constantly griping about workers who quit on short notice — or none at all — to take up jobs in the Gulf cities of Muscat, Doha or Jeddah.

His friends — executives in rubber or coffee plantations, officials in the state-run shipyard or port authority — had the same problem: a constant exodus of workers, most of them “gone to Gulf.”

The jobs there were usually menial, and Dad harrumphed about Keralites giving up a gig at an air-conditioned lobster-processing plant “to get roasted in the desert sun.” He was astonished when his secretary, a university graduate he had marked for a bright future in the company, gave it up for a job pumping gas in Sharjah.

But neither Dad nor his friends could compete with the salaries being offered in the Persian Gulf countries. In their helplessness, they took empty comfort in making dire predictions of the day when Arab employers, having built all the palaces they could want, would finally send the foolish young Keralites back home, to beg for their old jobs.

Instead, years later, my father would join the exodus, agreeing to manage a small shipyard near Dubai, lured by the prospect of a final payday before retirement. He was not amused when I suggested that he had been inspired by that promising young secretary and “gone to Gulf” himself.

Four decades on, the dark auguries of Dad and his friends are coming true for many Keralites in the Gulf: Their Arab employers are laying them off in large numbers. And not just them, or there. The coronavirus pandemic has been devastating for foreign workers everywhere.

The official numbers have yet to be reported, but it’s safe to say that so far thousands have died and millions have lost their jobs. The impact on their families back home has been doubly debilitating: The loss of income from abroad — often from the sole breadwinner in the family — comes at a time of acute local hardship.

For economies that depend on this foreign income, the outlook for 2020 is bleak. The World Bank expects a 20% plunge in remittances to low- and middle-income countries. This plunge would be the steepest in history, far exceeding the 5% dip after the 2009 global financial crisis. The pain will be felt acutely in Kerala, which has an unhealthy addiction to remittances, and has failed to create alternative opportunities for its labour force.



This loss of income is likely just the start of a long cycle of despair. It will be years before countries that employ large numbers of foreign workers fully recover from the economic damage caused by the pandemic. Even when they do, they will have less room for migrants. Fewer Keralites will have the opportunity to join the ranks of the “gone to Gulf,” with profound economic implications for their families and their state.

Gulf’s localisation

In the petrostates of the Arabian Peninsula, the post-pandemic economic downturn will add impetus to long-standing programs designed to replace foreign workers with locals. Authorities in six member-states of the Gulf Cooperation Council (GCC) have for years been pressing employers — using catchphrases like “Saudization” and “Omanization” — to reduce their dependence on foreigners.

These initiatives have tended to wax and wane with the price of oil: When it is high, unemployed citizens can depend on generous government subsidies, allaying concerns about foreigners taking all the jobs. It helps that many of the jobs done by migrants are unattractive, menial and low-paying.

But years of low oil prices combined with the swelling ranks of unemployed locals have forced authorities to take localization programs more seriously. These programs are at the heart of ambitious economic and social reforms being pursued by new, young rulers like Saudi Arabia’s Crown Prince Mohammed bin Salman, Qatar’s Sheikh Tamim bin Hamad Al Thani and Oman’s Sultan Haitham bin Tariq Al Said.

This reformist zeal is bad news for countries at the other end of the migration chain. Since the fall in oil prices in 2014, remittances from the GCC have plateaued. (In the case of Saudi Arabia, they have fallen precipitously.)




This year, judging by the early indicators, they are projected to go off a cliff. Remittances from the United Arab Emirates to India are expected to drop 35% in the second quarter alone. The UAE is the GCC’s largest source of remittances, and India is their top recipient.

Indeed, India should have experienced a slowing of money flows over the past few years. It bucked the trend in large part due to massive flooding in Kerala in 2018 and 2019, which led to spikes in remittances as Keralites in the Gulf sent home larger-than-usual sums to help with relief and reconstruction.

But that streak is about to be snapped. Unlike previous natural disasters, the pandemic is depleting the flow of money from abroad.

Kerala’s Gulf handicap

Kerala, which has ancient ties to the Gulf, will likely feel the pinch more than other Indian states. It receives nearly a fifth of remittances to the country, most of it from the GCC, whose members are home to between 2 million and 2.5 million Keralites. Although the state government doesn’t publish annual remittance figures, they are thought to consistently account for over a third of Kerala’s GDP.

This dependence leaves the government of Chief Minister Pinarayi Vijayan handicapped even as it grapples with the impact of the pandemic. Kerala was the first Indian state to record a case of Covid-19 — a student who had returned from university in Wuhan, the Chinese ground zero of the crisis. Vijayan, a Marxist who had won acclaim for his adroit administration during the floods in the previous two years, moved quickly to flatten the curve.

Now the pandemic is spiking again, in Kerala as well as across India. With a loss of state revenues due to the effects of the lockdown, Vijayan could really use another surge in remittances from the Gulf. But this time, it is the diaspora that is in distress, and he must deal with the plight of Keralites who are losing their livelihoods in the GCC as well as the anxieties of their families at home.

The state expects more than 500,000 Keralites to return, many of them in the special repatriation flights organized by the Indian government. This figure is almost certainly an underestimate. Many others will make the return journey months from now, as companies and governments cut more jobs in the Gulf. “It will be a long time before we know how many Keralites have come home,” says S. Irudaya Rajan, who researches migration and remittance flows at the Center for Development Studies in Thiruvananthapuram, Kerala’s capital.

Speaking to me privately, some Kerala government officials say they are not especially alarmed about the localization efforts of the Gulf states. The demand for Kerala’s best and brightest, they say, will resume after the pandemic. Just because the authorities want jobs to be filled by locals doesn’t mean there are sufficient numbers of locals who can fill them.

But Shashi Tharoor, a member of India’s parliament from the state, allows that business may never return to usual. “It’s not just about Arabs taking jobs, but the jobs themselves disappearing for good,” he says.

Junaid Ahmad, the World Bank’s country director in India, likens Kerala’s challenge to that of post-conflict countries, where governments must reintegrate former fighters into society, by training and providing them with economic opportunities. Vijayan has to do the same for the returning Keralites, Ahmad says, “but instead of working with a peace dividend, he has to do this despite a loss in remittances.”

What’s more, he has to do it under extreme pressure at a politically inopportune moment. Diaspora groups are a powerful lobbying force in the state, and Vijayan faces elections in less than a year.


The remittances trap

The recalibration of Kerala’s remittance-dependent economy will take longer. The migration of Keralites to the Gulf began in the 1970s; it was already a steady stream when I was a schoolboy in Kochi. By the turn of the century, nearly 1.5 million Keralites lived and worked in the GCC.

Kerala was uniquely positioned to cater to the seemingly insatiable demand for foreign workers from the petrostates. A long maritime history had made Keralites culturally prone to seeking their fortune abroad, and a series of business-unfriendly governments, not all of Vijayan’s Marxist stripe, had prevented the development of a robust private sector at home. (The company that employed my father in Kochi had left Kerala before I finished high school.)

Kerala’s proud record for near-total literacy gave its citizens a leg-up over other Indians — not to mention Pakistanis, Bangladeshis and others — seeking jobs in the Gulf. Despite their better education, the overwhelming majority of Keralites did jobs that indeed required being “roasted in the desert sun,” as Dad put it. In the classic migration pattern, young men endured great physical hardship and forewent luxuries to save up, remit money home and bring over friends and relatives. The steady exodus allowed the state government to get away with its poor economic management; jobs in the Gulf made up for unemployment and remittances fueled consumption. The running joke was that Kerala had a “money-order economy.”

But the money coming from the GCC was rarely put to the most efficient use: Much of it went into personal consumption — families bought gold and property, built homes. Bungalows popped up in formerly poor villages throughout the state.

This spending yielded little employment outside the construction sector, and even there much of the work involved back-breaking labour, hardly in keeping with the aspirations of educated Keralites. In an ironic echo of migration patterns in the Gulf, Kerala began to attract low-cost labour from other Indian states. The remittances were never used to build a significant industrial base, or to develop an information-technology sector comparable to its neighbours. In the absence of a sizeable private sector, “there were no other investment possibilities,” says Reuben Abraham, CEO of the IDFC Institute, a public-policy think tank.

Still the remittances kept growing. In time, Keralites began to climb the value chain abroad, from blue- to white-collar jobs, from construction to banking, insurance and other services. This ascent, in addition to the size of the settled diaspora, meant that although other Indian states sent more workers to the Gulf annually, Keralites were able to send more money home.

Now, Keralites risk becoming victims of their own success: It is those white-collar jobs that are most likely to be localised. “Saudis and Emiratis are not going to work on construction sites,” says Rajeev Mangottil of VPS Healthcare, a large Keralite-owned company that runs a chain of hospitals in the GCC. “Foreigners who are working in offices are very vulnerable right now.”

What happens now

Many tens of thousands have already lost jobs to the pandemic’s economic impact, and it may be months before an accurate count is available. Emirates, the Dubai-based airline and one of the UAE’s largest employers, will eventually trim 30,000 from its rolls. (Dubai, it is worth remembering, was already experiencing its fastest pace of job losses in a decade before the pandemic struck.) Unsurprisingly, hundreds of thousands of Indians have registered for special repatriation flights from the UAE.

Among Keralites who have lost white-collar jobs in Dubai, panic has set in. Few have any expectation of finding work back home, much less work that will sustain the lifestyle they enjoyed in the Gulf. “Those who have lost their jobs but have EMIs (equated monthly installments) to pay are stuck,” says Mangottil. “People are applying for jobs that pay half their previous salaries.” When hope is finally extinguished, they will swell the ranks of returnees to Kerala.

What awaits them allows for little optimism. Top state officials, already working flat out to contain the coronavirus spike, have not yet articulated a strategy for dealing with the returning migrants. The government has announced some self-employment schemes, involving small loans and subsidies. But these were conceived before the pandemic, when the returnees numbered in three or four digits, not six.

The glass-half-full view is that the returnees will bring world-class skills and reserves of experience not easily found in Kerala. S.D. Shibulal, co-founder of the tech giant Infosys and one of the state’s more successful entrepreneurs, reckons that a nascent knowledge industry “offers good opportunities for returnees to invest.”

Putting what the World Bank’s Ahmad calls the “skills dividend” to use, however, will be a challenge for a state where socialist policies and powerful unions have created a reputation for hostility toward business. Kerala ranks 21st among 29 states in the Indian government’s ease-of-doing-business rankings.

Changing that perception will require more than efficient management of natural calamities. Competition for investment is fierce among Indian states and will grow fiercer as investments shrink with a slowdown in the global economy. Even if returning Keralites feel inclined to invest in business, there’s no guarantee they will restrict themselves to their home state.

Some officials argue that it would be short-sighted to focus too much on the returnees and lose sight of Kerala’s competitive advantage in the global labour market. Exporting workers is what the state does best. If demand shrinks in the Gulf, it will eventually pop up elsewhere: It’s a matter of pointing the outflow of migrant Keralites in the right direction. Government energies, these officials argue, are better expended on ensuring that the next generation of leavers has the right skills to compete and succeed wherever opportunities arise.

Even before the pandemic, says Tharoor, “Kerala’s big question has always been, How do we get enough people working abroad and sending money home?” That question is now being asked by the governments of dozens of countries that depend on remittances. The past few months have made finding the answer much more urgent.

The everyone economy: how to make capitalism work for all

After four decades of rising inequality, the Covid crisis is a chance to change the rules writes Martin Sandbu in The FT


A few weeks into the lockdown, when UK Covid-19 deaths were hitting a thousand a day, I crossed my London street to check on a neighbour. Around 50, she does not fall into a vulnerable category, but she works at a supermarket checkout and has been more exposed to contagion than most. And we had not seen her for a while, which was unusual. 

As it turned out, our neighbour was fine. With a pavement between us, we chatted about how she was not allowed to wear a face mask and gloves at the till. Then she said: “But I have to go to work, otherwise people won’t be able to buy their food, will they?” It was not a complaint, but an expression of pride in her new-found status of essential worker. 

That pride reflected the public appreciation suddenly afforded a group that had previously been treated with neglect. The pandemic and the lockdown brought home how we literally depend for our lives not just on doctors and nurses but also on the humbler jobs of cleaners and care workers, shelf-stackers and bus drivers, delivery couriers and cashiers. The weekly clap for carers, which in March became a national ritual in many European countries, embodied this new recognition. 

Pondering this fleeting moment of moral reordering, I could not help noticing how starkly it clashed with the underlying economic reality. In many rich countries, decades of economic polarisation have left people like my neighbour not just underpaid, but having to accept short-term contracts, erratic shift patterns and unpredictable earnings. This “precariat” faces debilitating insecurity, which lockdown has made worse. As the gilets jaunes protests in France illustrated, many people see the economy as a system to which they do not belong, rigged to benefit others. 

How did it come to this? How did much of the work we count as essential become ill-rewarded and precarious? And what has economic polarisation done to the way our societies and politics function? These are questions that Covid-19 forces us to confront. 

They were becoming hard to ignore long before this crisis. As an economic commentator for the FT, I have spent years trying to understand the causes of economic polarisation in the western world, its effects and what policies might reverse it. Like many others, I have worried that when our societies divide economically, they also fall apart culturally and politically. 

But the pandemic makes these questions more urgent, and adds a new one: will Covid-19 remake society? Is this tragedy also a once-in-a-lifetime opportunity to rebuild better economies? 

It is tempting to think we could be at a 1945-style moment, a year remembered as ushering in a new era. As Branko Milanovic, the economist known for his work on global inequality, writes, it is “utterly wrong to believe that history does not matter and that the social and political changes wrought by the pandemic can be ignored”. The political forces it has set in motion, he suggests, “will fundamentally affect how economies behave in the future”. 

The pandemic also highlights forces that were already at work. Donald Trump, the architects of Brexit and populist movements across Europe all advanced by appealing to groups that felt forgotten by elites and saw the economic system as rigged against them. They have, in effect, been promising to restore the post-1945 era and bring about the sort of moral reordering we glimpsed in the lockdown. 

There is a “rhetoric of how the golden days were better”, says political scientist Catherine De Vries. It is obvious why such nostalgia resonates. By happy accident as well as by policy design, the postwar industrial economy of the west was particularly well-suited for most people to share in economic growth. The three decades the French call les trente glorieuses produced a remarkable convergence in income and wealth levels between rich and poor, between workers of different educational levels, between countryside and city. 

I have a lot of sympathy with this nostalgia, having grown up in Norway in the 1970s and 1980s — a time and place that arguably came as close as any modern society to the ideal of an economy with a place for everyone. Few have ever had lower economic inequality or a shorter social distance between top and bottom, and managed to combine it with high productivity and strong growth. 

When I was living in New York in the 2000s, one mundane activity struck me as embodying the economic difference between the US and Norway: having your car cleaned. On entering a New York car wash, you would be set upon by a group of workers — often immigrants — who proceeded to clean your car by hand. In my childhood in Norway, your choice was between an automated car wash or doing the job yourself. 

It was the difference between an economic model employing low-productivity, low-wage labour and one where wage equality made it commercially necessary to automate to make labour more productive. It was, too, the difference between the precariat and what I think of as an economy of belonging. 

Since the late 1970s, every western economy, albeit some much more than others, has experienced widening economic fractures that have also polarised societies politically and culturally. We moved from an economy of belonging to an economy divided between the successful and the left behind. (Et in Arcadia Ego: the manual car wash has had a renaissance in Norway too, courtesy of underpaid immigrants.) 

This end of economic belonging coincided with the peak in industrial employment across what used to be known as the industrialised world. It is a widespread misunderstanding that the shift from industrial to knowledge-intensive economy involved manufacturing vanishing, or being whisked off to China and other low-cost countries. In fact, most rich economies produce about as much stuff today as they ever have. 

What changed was that factories no longer absorbed the same workforce. Growing productivity through automation and better know-how meant ever fewer hands were needed on assembly lines. New jobs were created in services but many of these were less productive, less well paid and less secure than the ones they replaced, as well as geographically distant from them. (This also meant growth rates slowed down, since manufacturing made up a shrinking share of employment even as its own productivity kept growing.) 

Job-altering technological transformation did not stop with factory work. Roughnecks and dockhands gave way to automated rigs and container cranes. Computing put an end to many clerical jobs. The internet has upended in-person retail. Too often, those who rely on such jobs have had to accept worsening conditions to remain employed. 

These changes are not, on the whole, the fault of globalisation, that scapegoat of the populist insurgency, but of technology-driven changes combined with policies that have reinforced the underlying forces of divergence. For example, western countries shifted tax burdens away from capital and high-wage incomes even as income and wealth inequality rose. Unions, which played a part in reducing income inequality, have declined almost everywhere. 

All this undermined the promise that the postwar economy had largely delivered on: that everyone could expect a secure place in the national economy. In many countries, median wages fell behind labour productivity after tracking it closely for decades. Income inequality and wealth inequality both started rising from around 1980. New jobs were not all created equal: manual and routine work lost out to knowledge work, as pay and job security increasingly depended on workers’ educational background and on where they lived. 

The last effect — regional inequality — is perhaps the most corrosive for our politics. The economic geographer Andrés Rodríguez-Pose calls the support for anti-system populists in peripheral areas “the revenge of the places that don’t matter”. Highly paid jobs and capital (but also low-paid service jobs to serve high earners) have been concentrating in the big metropolitan areas, capital cities above all, while peripheral regions have been drained of capital investment and good job prospects. 

The blow from the pandemic, in other words, landed on economies already made brittle by deep fractures. And not only that; it is making those fractures worse. 

Lockdown causes more pain for those already suffering from low pay and job insecurity, because it preponderantly affects manual jobs that require physical presence. In the UK, one-third of the lowest-paid quintile have lost work, against 15 per cent of the top quintile, according to the Resolution Foundation. In the US, African-Americans have suffered income losses at higher rates than other groups. 

Covid-19’s most important political legacy could be that these pre-existing fractures can no longer be ignored. The moment of moral clarity triggered by the pandemic opens a political opportunity to “rebuild better” so as to make the economy work for everyone, including my neighbour and others like her. 

Acute crises have helped reorient societies in the past. But David Edgerton, the British historian, cautions that 1945 may be the wrong reference. The postwar consensus on the welfare state was less radical than sometimes believed, he says — it was the continuation of a wartime consensus in which “Labour buys into a conservative agenda”. There is also no equivalent to the postwar confrontation with the Soviet Union today, Trump’s talk of a “Chinese virus” notwithstanding. According to Edgerton, “1933 is a better analogue.” Like then, the question today is: “How do you get economies going again?” 

The Great Depression was indeed an economic disaster so great that returning to the status quo ante was politically impossible. It produced radicalism unlike any seen today (yet): in the US, Franklin Roosevelt’s hyperactive New Deal reforms; in Scandinavia, groundbreaking compromises between capital and labour; and in continental Europe, fascism. Could the economic consequences of Covid-19 spur similarly radical change, and if so, how to turn it into a force for good? 

Even before the pandemic, I frequently argued that a Roosevelt-style “centrist radicalism” was necessary to stave off a much greater — and potentially much nastier — disruption, of which signs could already be seen in the rise of authoritarian populism. What would this look like today? It would not give up on globalisation. Instead, to close the economic fractures we have allowed to open in the past 40 years, I think such a programme would need to achieve five goals. 

First, it would jettison business models based on using low-productivity (and therefore low-paid) labour, and harness automation rather than resisting it. That means allowing low-productivity jobs to be competed out of existence by higher-productivity ones. Scandinavia has long shown how this can be done: high wages at the bottom of the distribution encourage employers to automate and boost productivity, while high skill levels and active labour-market policies help workers change jobs frequently and adapt to technological developments. 

Second, the programme would aim to shift more labour-market risk from employees to employers and the welfare system. That means lower tolerance for erratic earnings that make it harder for people to plan, retrain and seek new and better work. And it means avoiding aggressive means-testing of benefits, which, when combined with tax, leaves many lower-middle earners facing effective marginal income-tax rates of around 80 per cent or more. 

Together, these two principles point in the direction of higher minimum wages, a universal basic income (or its less budget-heavy equivalent, a negative income tax), generous government funding for education and labour-market mobility, and strict enforcement of labour standards. 

Third, we can reform taxes to counteract economic divergence instead of intensifying it. That means lowering taxes that penalise hiring. To pay for this, as well as for a negative income tax and policies supporting a well-working labour market, other taxes have to go up. The best candidates are a net wealth tax — which, unlike other capital taxes, favours those who put their capital to the most productive use — and removing the gaping loopholes in multinational taxation, as well as increasing tax revenue from carbon emissions, in line with the climate challenge. A particularly promising proposal is the “carbon tax and dividend”, where revenue from higher emissions taxes would be paid out as a universal basic income. Calculations show that such a policy can leave poorer households significantly better off, even after fuel-price increases are taken into account. 

Fourth, macroeconomic and financial sector policy can be reformed in favour of the left behind. That means sustaining a “high-pressure economy” to keep job creation high, in the knowledge that those on the margins of the job market are fired first in a recession and hired last in a recovery. Governments and central banks must stimulate demand strongly for a long time after the lockdowns end, with debts restructured so they do not hold back investment. 

Fifth, and most challenging, we can work to reverse the divergence between the centre and the periphery. The previous four elements would help with this. But greater policy efforts are needed to give regions, where possible, a critical mass of knowledge jobs so they can connect with the leading economic activity in national centres. 

These are big changes. But, as Milanovic argues, one consequence of the pandemic we can predict with some confidence is a “tendency toward [a] greater state role in many countries”. Some politicians are embracing this with gusto, at least rhetorically: this week, Boris Johnson and his colleagues cast themselves as latter-day Roosevelts, and explicitly compared their levelling-up agenda to FDR’s New Deal. 

Governments everywhere have already gone to extraordinary lengths both to halt the pandemic and to offset the economic consequences of the lockdown. After this experience, as French president Emmanuel Macron has asked in the context of climate change, will publics accept claims that large-scale policy shifts are too hard to achieve? 

Having become accidental radicals, centrist parties may well be tempted to keep making more ambitious offers to voters. “When people are unhappy they go for more extreme choices,” says De Vries. Behind populists’ success, she adds, was “the story of how mainstream parties had become Tweedledee and Tweedledum”, lacking any ideology. Centrist parties “could reinvent themselves by taking clearer positions”. 

With the pandemic causing widespread economic damage to already polarised societies, continued radical policy action cannot be in doubt. What we are going to find out is for what — and for whom — that radicalism will be used.

Making GDP the focus of a post-coronavirus economy would be a mistake

Growth often doesn’t benefit the people who need it – a green economy could create 1 million jobs writes Carys Roberts in The Guardian

 

‘A green recovery does not mean adding on a few green job programmes to a larger, fossil-fuelled stimulus.’ Low Bentham Solar Park, North Yorkshire. Photograph: Peter Byrne/PA


The UK lockdown might be easing, but the path ahead for the economy will be long and difficult. Unemployment this quarter is likely to rise twice as fast as it did following the global financial crisis. Almost half of businesses that have taken up one of the government’s bounce-back loans do not expect to be able to pay it back.

It’s tempting in a crisis to want to do whatever it takes to get economic activity – measured by GDP – back to where it was before. But an overwhelming and singular focus on increasing GDP would be a mistake. GDP figures do not tell us who is benefitting from growth. GDP does not tell us whether environmental resources – and nature – are being dangerously depleted, and does not reflect the value of caring, much of which is performed by women.

Boris Johnson has called for the UK to “build back better”, but to use government resources and capacity most effectively and – more fundamentally – to take the opportunity to build a better kind of economy and society, we need to know what it is we want to rebuild. This is precisely the moment to think beyond a blind pursuit of GDP, about what kind of economic activity to bring back and prioritise, and what we could do without. Any stimulus package must be tailored to create not just any economic activity, but that which will serve society best. As a result, any recovery or spending plan should be scrutinised not just on its size, but what it is spent on.
This must be a green recovery. That does not mean adding on a few green job programmes to a larger, fossil-fuelled stimulus: the whole recovery package must accelerate the UK’s path to net-zero carbon and restore our natural environment, which is in crisis. Anything else risks emerging from one disaster only to accelerate headlong into another. As the government turns on the taps to boost the economy, there is a huge opportunity to fill the £30bn per year funding gap for green investment. 

The recovery must target well-paid, high-quality jobs, spread around the country. These must provide good work for those who have lost it as a result of Covid-19, as well as people previously locked out of the jobs market or at risk of being left behind on the journey to net zero. This is a more profound shift than it appears. Currently, stimulus packages aim to boost GDP, and jobs are a way to get there. But what matters is that ordinary people have access to secure incomes – both for themselves, and because this will ensure spending in the economy (people who need money are more likely to spend it) and a sustainable tax base. An alternative approach, for example, of loosening lending restrictions for mortgages, might boost GDP but would do so by increasing debt and raising house prices, benefitting the already wealthy while hurting people without wealth.

The recovery must involve a reconsideration of what is valuable in society. The pandemic has put into stark relief the extraordinary contribution of health and care workers, many of whom are women and migrants, and the essential support of key workers across the economy. The recovery must recognise that contribution in higher pay and better working conditions. So, too, the pandemic has caused conversations up and down the country about unpaid care work and who performs it. But the easing of lockdown has prioritised marketised activity over human relationships, which don’t require cash. You can visit your parents at home, but only if you want to purchase their house or clean it. The recovery should recognise and reflect what is important to people and valuable – not just economic activity.

Britons want quality of life indicators to take priority over economy

 These goals are not in conflict but instead are inextricably linked. Achieving them requires and provides an opportunity to rethink an economy that doesn’t work for so many across the country or for future generations. We estimate that close to a million good jobs could be created in this new, green economy, with many more if we choose to invest in our social care system.

Talking about and targeting the “economy” as an abstraction masks the underlying shape and nature of the activity taking place underneath. It means we miss people: who loses out, and who benefits from the status quo being restored. Lockdown has found us in a collective moment of reimagining, but this will not last for ever: we should use it to ask what economic activity we want to rebuild, and what we could do without.

Coronavirus is our chance to completely rethink what the economy is for

The pandemic has revealed the danger of prizing ‘efficiency’ above all else. The recent slowdown in our lives points to another way of doing things. Malcolm Bull in The Guardian

 

Illustration: Matt Kenyon/The Guardian


There’s been a lot of argument about how best to handle the coronavirus pandemic, but if there are two things on which most people currently agree, it’s that governments should have been better prepared, and that everyone should get back to work as soon as it is safe to do so. After all, it seems more or less self-evident that you need to be ready for unexpected contingencies – and that it is better for the economy to function at full capacity. More PPE would have saved doctors’ and nurses’ lives; more work means less unemployment and more growth.

But there is a catch to this, and it has been at the heart of political debate since Machiavelli. It is impossible to achieve both goals at once. Contingency planning requires unused capacity, whereas exploiting every opportunity to the full means losing the flexibility needed to respond to sudden changes of fortune.

It wasn’t until the mid-20th century that economists started to realise that it might be better to leave a bit of slack in the economy to help cope with exogenous shocks. In the years after the Great Depression, governments saw the problem as “idle men, idle land, idle machines and idle money”. But there were also economists, such as the Englishman William Hutt, who went against the Keynesian consensus and pointed out that there were some things – fire extinguishers, for example – that were valuable precisely because they were never used. Having large stocks of PPE, underemployed nurses, or a lot of spare capacity in ICUs, falls into the same category. Idle resources are what you need in a crisis, so some degree of inefficiency isn’t necessarily a bad idea. 

Trying to manage a pandemic in a world of just-in-time production lines and precarious labour brings these issues into sharper focus. On the one hand, there weren’t enough idle resources for most countries to cope adequately with the spread of the virus. On the other, the enforced idleness of the lockdown leads to calls to get the economy moving again.

For Donald Trump, the prospect of a prolonged shutdown is particularly alarming because it threatens to undermine the competitiveness of the US economy relative to other nations (notably China) that have dealt with the crisis more efficiently. That’s an argument Machiavelli would have understood very well. One of his constant refrains was that idleness could lead to what he called corruption (the diversion of resources from the public good, which Trump equates with the Dow Jones Industrial Average) – and that corruption leads inevitably to defeat at the hands of your rivals.

For Machiavelli, the contagion of corruption was spread above all by Christianity, a “religion of idleness”. And it is true that the Judeo-Christian tradition, with its sabbaths, jubilees, feast days, and religious specialists devoted to a life of prayer and contemplation rather than martial virtue, built a lot of slack into the system. Machiavelli thought it should be squeezed out through laws that would prevent surplus becoming the pretext for idleness, rather in the way that later economists looked to the pressure mechanism of competition to do the same.

But there’s a contradiction in Machiavelli’s thinking here, because he also acknowledged that one of the things every polity needed was periodic renewal and reform, and that corruption was what preceded it. So you’re in a double bind: either you can squeeze out the slack and never experience renewal, or you can court corruption and create an opportunity to start over and make things better.

With hindsight it looks like that’s one of the problems the religions of idleness tried to address, by incorporating idleness into the calendar. In ancient Hebrew tradition, there were weekly sabbaths, and every seventh year was meant to be a year of release in which the land was left to lie fallow, debts were forgiven and slaves emancipated. The idea was picked up by the Chartist William Benbow, who in 1832 used it as the model for what he called a Grand National Holiday, in effect a month-long general strike that would allow a National Congress to reform society “to obtain for all at the least expense to all, the largest sum of happiness for all”.

Benbow’s plan came to nothing, but it provides an alternative model for how the lockdown might be viewed. The Italian philosopher Giorgio Agamben has complained that the lockdown is a state of exception with an increase in executive powers and a partial abrogation of the rule of law; but the flipside is that it is the closest thing to a Grand National Holiday that most of us have ever experienced. Despite all the suffering the pandemic has caused, for many it has also meant no work, debt relief, empty roads and a rare opportunity to live on free money from the government.

Generally speaking, exogenous threats like wars or natural disasters act as pressure mechanisms forcing us to redouble our efforts to combat them together. The benefit of contagion is that the only way to combat it is to do less rather than more. That has some demonstrable advantages. There has been a dramatic global fall in carbon emissions. The only comparable reduction in greenhouse gases during the past 30 years came as the result of the decline of industrial production in eastern Europe after the fall of communism. That was managed exceptionally badly because neoliberal economists thought that what post-communist states needed was the pressure of free market competition. Shock therapy would galvanise the economy.

The pandemic has been a shock alright, but its effect has been the opposite of galvanising. People everywhere had to stop whatever they were doing or planning to do in the future. That provides an altogether different model of political change. The philosopher Walter Benjamin once noted that while Karl Marx claimed that revolutions were the locomotives of world history, things might actually turn out to be rather different: “Perhaps revolutions are the human race … travelling in this train, reaching for the emergency brake.”

Everyone keeps saying that we are living through strange times, but what is strange about it is that because everything has come to a stop, it is as though we are living out of time. The emergency brake has been pulled and time is standing still. It feels uncanny, and there’s more slack in the world economy than there ever has been before. And that means, as both Benjamin and Machiavelli would have recognised, that there is also a once-in-a-lifetime opportunity for change and renewal.

For some, this might mean a shorter working week, or less air travel. For others, it might suggest the opportunity for a more fundamental remaking of our political system. A space of possibility has unexpectedly opened up, so although the lockdown may be coming to an end, perhaps the standstill should continue.

The 3 big unknowns that have forced Nirmala Sitharaman to be prudent with economic package

The future of Covid-19 in India and its impact on the economy and govt revenues is unknown, so it’s better not to exhaust all options by May writes Ila Patnaik in The Print

Finance Minister Nirmala Sitharaman has indicated that she cannot use up all her options in the first two months of the fiscal year, as there are many unknowns. Her strategy may be unpopular, but it is prudent.

There are three big unknowns — the spread of Covid-19 after the lockdown is lifted, the impact of its spread on the economy, and the impact of the slowdown in the economy on government revenues.

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The spread of Covid-19 was contained during the lockdown, but the crisis is not over. A cure has not been found. A vaccine, despite all best efforts, will take a while to be developed and become accessible to all. Until then, as the country is opened up, strategies for containing the virus are still being put in place.


So far, even though the number of cases and deaths have risen, they are not as high as predicted without the lockdown. Now that offices, shops, buses and flights will resume, the virus will spread again. Testing of all employees in high-risk professions, isolation of citizens above 55-60 and those with co-morbidities, and social distancing norms are critical to how we contain the number of cases and deaths. The sooner these are enforced, the better we may do.

Impact on economy

The impact on the economy is difficult to quantify. This is the first time such a global lockdown has occurred since economists have been making models to forecast growth. Most models are built utilising past behaviour of the economy, but the present situation is completely unprecedented. Many economists who were forecasting a positive rate of growth when the lockdown was first announced are now forecasting a contraction. Forecasts are still being revised downwards.

There will be a loss in GDP simply due to not producing in the nearly two months. For a back-of-the-envelope calculation, look at the IIP: Industrial production contracted by 16 per cent in March this year.

The lockdown was announced on 24 March, which suggests that factories were shut for 20 per cent of the days in that month. The whole of April saw almost a complete lockdown. We expect to see a serious contraction — maybe 70 to 80 per cent, if the March figures are anything to go by. Similarly, in the month of May, production was shut for most of the month.

Seven worries for production

In addition, there are seven reasons why production will take time to bounce back fully.

First, supply chains have been broken. Even if one part is not available, has not been produced or imported, it may delay the resumption of full operations in manufacturing. As densely populated urban areas have been in red zones, they have been shut at least the third phase of the lockdown. This has disrupted many supply chains.

Second, all labourers may not come back to work. Even for the spaces where there were no restrictions, there are many anecdotes of people not coming to work after the second phase of the lockdown got over. This was partly due to fear and partly due to difficulties of travel, domestic responsibilities, or old parents at home. About 30 per cent households in India live with elders, or where at least one member of the family is above 65. These people have repeatedly been warned to keep their elders isolated. In small homes, this is difficult.

In addition there is the migrant crisis. After being unable to be with their families, many workers are heading home. It may be some time before they come back, and even then, all of them may not come back.

Third, credit will be a constraint. The government has eased liquidity and banks can give credit to their customers. However, there is an entire ecosystem of small firms who depend, not on the banking system, but on informal sources of credit. These are sometimes their suppliers or their buyers who give them working capital for purchase of raw materials or payment of wages. There are an estimated 64 million small firms in India.

The MSME package announced by FM Sitharaman is expected to give relief to 4.5 million of these. For the nearly 60 million others, adequate credit may not be available to restart production.

Fourth, travel could remain restricted, could become more expensive, and until the fear of Covid-19 remains, the impact on many sectors — like aviation, hospitality, tourism etc. — may last for a few quarters.

Fifth, consumption will take time to pick up. Incomes have been disrupted. There is uncertainty about future incomes. Until now, people were not able to step out to buy, and so, sales were stalled. But now expenditure may get postponed even after people are able to step out to buy.

Sixth, exports contracted by 60.3 per cent in April. Orders will be down until the rest of the world economy picks up. Exports depend on global demand and world trade. This is expected to be severely hit this year.

Seventh, investment was already in trouble before the Covid-19 crisis. It was going to be an uphill task to revive it. The increase in uncertainty and the difficulties of credit, labour and restrictions are going to make the investment climate worse. This could also pull down growth.

Impact on government revenue

Finally, the third big unknown is the impact the economic slowdown will have on government revenue. As I have argued before, tax revenue will decline and that leaves the government with limited fiscal space.

So far, in the economic package, the government has permitted people to delay tax payments. If the economy does not pick up, the government may need to cut tax rates, including GST, to put money in people’s hands. This may impact tax revenues further.

With the large number of unknowns, the Finance Minister’s economic package tries to push liquidity, encourage reforms and increase agricultural incomes. No doubt, more can always be done, but it is prudent not to use up all her ammunition in the first two months of such an uncertain year.

Britain and Covid-19

by Giffenman

This is an unusual time for the whole world as it deals with the Corona pandemic. In my opinion when the crisis ends our world will be an entirely different place from what it was in early 2020. Every one’s consciousness would have been affected by coping with the disease and I hope it will result in a different and more egalitarian politics.

The Corona pandemic has laid bare the unpreparedness of the UK government to the crisis. Its much touted public health system, the NHS, has been found short of equipment, manpower and ideas to cope with the disease. The NHS had warned the government in 2016 about its inability to cope in the case of such a breakout but the report was suppressed. This is not surprising since governments since the 1980s have been privatising the NHS by stealth.

Boris Johnson, the British Prime Minister, did not want the UK to respond like China, Korea or Germany did to Covid-19. He wanted to use Darwinian principles of ‘survival of the fittest’ and get Britons to develop herd immunity. It could be that he was aware that the NHS was in no position to cope with the pandemic and did not want the facts exposed. His ultimate ignominy was that he was afflicted by Corona and has spent the last few nights in a NHS hospital.

The biggest surprise in this period has been the behaviour of the chancellor Rishi Sunak. He has, in the past few days, made unlimited funds available for the nation to cope with the health and economic impact of the pandemic. This is in sharp contrast to the austerity agenda in vogue since 2010. Sunak’s popularity has shot up among the public and he is being touted as a replacement for the currently invalid Prime Minister.

Even more surprising is the behaviour of the czars of the independent Bank of England (BOE). In synchronised operations with Rishi Sunak they slashed interest rates to 0.1% and agreed to borrow large amounts to kick-start the economy. Then a couple of days ago, they even abandoned their orthodox ideology on borrowings via gilts and decided to create money out of thin air to help the government deal with the crisis. The BOE even surprised itself when it stopped commercial banks from paying dividends to their shareholders.

If the financial and economic arm of the government is taking such unorthodox and knee-jerk measures in a concerted manner one does not need much imagination to imagine what might be their prognoses for the UK economy in the immediate future.

150 years of data proves it: Strongmen are bad for the economy

By Annalisa Merelli in QZ.com

As governments around the world gravitate toward rightwing populist and authoritarian leaders, many have pointed to the 2008 global recession and the economic hardship that followed as the reason.

Take America, for instance: According to many analysts, the rise of US president Donald Trump has to be seen in relation to the great recession, and was aided by a frustrated working and middle class that saw in his election the promise of new economic wellbeing.

This repeats a historical pattern: When facing dire straits, populations tend to delegate responsibility and look for a leader who can (or at least promise to) get them back to better times.

It’s a bad idea, however, and not just for democracy: It’s terrible for the economy, too.

A study by researchers of the Royal Melbourne Institute of Technology and Victoria University in Melbourne published in Leadership Quarterly looked at economic data in relation to the performances of authoritarian leaders versus democratic governments.

The authors analyzed the governments of 133 countries between 1858 to 2010, and found that autocrats were either damaging or inconsequential for the economy of their countries. Besides showing the poor economic outcomes of oppressive regimes, the study calls into question the idea of “benevolent dictators”—for instance Singapore’s Lee Kuan Yew or Rwanda’s Paul Kagame—who are commonly believed to be good for the economy.

“Autocrats with positive effects are found at best as frequently as predicted by chance, while autocrats with negative effects are found in abundance,” wrote Stephanie Rizio and Ahmed Skali, the authors of the paper. Strongmen mostly leave a county’s economy worse than they found it, or simply “ride the wave” of an economic growth that would have happened regardless of their rule.

The researchers used data from the Archigos dataset of leaders, which lists both the leaders of countries and the person with the most power in a country at any given time. The official head of state might sometimes be no more than a figurehead, while someone else holds the actual power. For instance, the paper notes that Septimus Rameau was the de-facto ruler of Haiti between 1874 and 1876, while his uncle Michel Domingue was the official leader; or Ziaur Rahman, who was actually in charge of Bangladesh between 1975 and 1977, while Abu Sadat Mohammad Sayem was the country’s official leader.

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The data was then cross-referenced with the Polity IV dataset, which establishes the kind of political government in place for 185 countries every year, defining whether the country is a democracy or an autocracy. For each year, countries are scored from 1 to 10. Scores below 6 indicate an autocratic regime, while democracies stand above six.

To analyze the economic outcome of a strongman’s rule, the researches looked at per capita GDP. The researchers then compared economic growth in countries with autocratic regimes to economic growth in democracies, looking at whether the impact of the autocrats (and the democratic leaders) was relevant—or if the results were ascribable simply to chance.

In the large majority of cases, countries led by autocrats—whether benevolent or otherwise—were found to have worse economic outcomes in terms of growth than democracies. And not just in the short term: The researchers also looked at delayed growth, testing the hypothesis that reforms put in place by a dictator might take time to bear fruit. They found no demonstrable growth to connect with autocratic rule.

Growth isn’t the only economic metric on which autocrats failed to deliver. They also fell short on employment, health and education spending, and government debt.

But—in what is possibly good news for Trump, who is facing the threat of another recession—while it seems people are inclined to vote a strongman into power to fix their economic woes, they aren’t as quick to get rid of him if the economy doesn’t improve. The paper found that while authoritarians do pay for their bad economic performances, it takes much longer for them to lose popular support and be deposed from power than they do in a democracy under comparable economic circumstances.

Skali told Quartz the research didn’t look into the relation between economic hardship and the rise of autocracies, and why distressed populations gravitate towards strongmen. But he did share a speculation: In times of hardship, primates tend to accept, and follow, the authority of an alpha male.

Afghanistan may hold the key to Kashmir

By Girish Menon

When Pakistan annexed regions like Gilgit-Baltistan, hitherto part of Raja Hari Singh’s kingdom, there wasn’t the kind of shrill shouting in India as witnessed now in Pakistan after India abrogated the temporary Art 370 from its constitution yesterday. What does this act mean for some of the constituents involved in the dispute?

The UN resolution which Pakistan quotes as the basis of dispute resolution states that Pakistan should pull back its troops to the position prior to its invasion of Raja Hari Singh’s territory and then India would conduct a plebiscite in the whole of Jammu and Kashmir. Pakistan never adhered to the first part of the UN resolution and therefore the plebiscite part of the resolution never came into question despite Pakistan continuously harping on it.

For the Modi government the timing of this move appears helpful because it distracts the public from raising serious questions about the poorly performing economy. The narrative (fickle at most times) had begun to portray the Modi government as socialist, a label which the corporate/electoral bond funded party wishes to avoid by a mile.

For the military regime in Pakistan this Indian action poses a dilemma and an opportunity. The military has been shouting from rooftops that it has shut down the funding of its jihadi outfits in Kashmir. It was this statement that enabled Pakistan to receive the IMF bailout. Will the military now once again release the Hafiz Saeeds to act with impunity while risking a stoppage of the IMF bailout? 

The Pakistan military has promised Donald Trump an ‘honourable’ exit from Afghanistan well before the US presidential elections. The military would facilitate a peace agreement with the Taliban which will enable Trump to deliver on his manifesto promise. In return for this the Pakistan military will receive US funding equivalent to its current spending levels in Afghanistan. This will enable the Pakistan military to avoid the conditionalities of the IMF deal and start funding the jihadi outfits in Kashmir. The risk is the failure of the Pakistan military to deliver an exit strategy congenial to Trump.

So it is up to all those countries opposed to Trump (not the USA) to ensure that the regressive Taliban militants do not come to power in Kabul and enable the Americans to run away just like they did from Vietnam. India may have to take a lead in this matter with Iran, if it does not want hostilities to rise in Kashmir.

In the short term, India may have to deploy more security forces in Kashmir. This will mean larger unplanned expenditure. This will be a big injection of government money into the demand deprived Indian economy and could give a fillip to growth. While the lot of the Indian consumer may not change radically, at least the government can claim that the economy is on the path to reaching the $5 trillion mark.

As for the people of Kashmir they may have to face some more difficult times unless they join the Pandits in an exodus from the valley. The Indian government can ensure that the property rights of all displaced personnel is respected when such people decide to return back to the valley. The government could also open safe havens to these new refugees.

Of course, most conflicts develop a life of their own and these new refugees may find themselves in government camps for a much longer time.

In the rest of India, there is no mood for any settlement with a military dispensation in Pakistan. Moreover, the BJP agenda is to recover the Gilgit-Baltistan regions which was illegally grabbed by the Pakistan militia. 

Currently, a war-like situation suits the rulers in both countries. What the people of Kashmir want is not on the agenda.