Rahul Gandhi is back. Now with two economists, a migrant aid pack and an ethical hacker

Zainab Sikandar in The Print






It takes a lot to be defeated twice over, ridiculed for years and still care enough to show up for your country, the majority of which has rejected you for a national leadership role. Rahul Gandhi continues to surprise us. He simply won’t give up. He just doesn’t turn cynical and walk away.

He keeps coming back with his empathy as well as his willingness to find viable solutions to pressing issues induced by the pandemic: an economy in doldrums, a huge migrant workers’ problem that’s slowly turned into a humanitarian crisis as well as transparency of the government’s Arogya Setu app being used to map Covid positive patients. Rahul Gandhi’s comeback is all the more conspicuous against the backdrop of Prime Minister Narendra Modi’s unwillingness to have a press conference

Rahul is ready to talk

Rahul Gandhi is the eternal unputdownable comeback kid. He has managed to hold the attention of the media by continuously participating in the process of finding answers to the problems that Covid has thrown at India. He has had two conversations with two economists par excellence, former RBI governor Raghuram Rajan and Nobel laureate Abhijit Banerjee. Add to this, the migrant aid pack that Sonia Gandhi offered, where the Congress party would have paid the train fare for every migrant labourer who wants to go home. This “masterstroke” has made the fiercest of critics of the Congress party applaud the Gandhis. The Gandhis are consciously and conspicuously placing themselves polar opposite to Narendra Modi. Whatever Modi is avoiding, the Gandhis are accepting and dealing squarely.

Right-wing editorials are claiming that Rahul Gandhi is trying to come off as an “intellectual”. This, for a man who till recently they caustically made fun of. But this perception is cracking because for the first time, the entire BJP PR machinery is being used to not make fun of Rahul Gandhi, but to discredit his interactions with the two economists by either calling the interaction a “repackaged Socialist snake oil” or by spinning fake news related to the guests. MoneyControl.com and News18 misquoted Abhijit Bannerjee as criticising UPA’s schemes, which the BJP had embraced. Banerjee had said no such thing.

Ending obsession with Modi

Then there’s Rahul Gandhi’s two press conferences (via Zoom). We got to see a visibly more calmer and zen Rahul Gandhi who is neither shaken nor stirred by the six-year-long vicious slander by the BJP or the media, which has more often than not dealt rather unfairly with him. He has significantly altered his behaviour from the Rahul of yore, who would either attack Modi with his ‘Chowkidar Chor hai’ jibe or give him a hug in Parliament and say that he loves the prime minister.

Rahul’s detachment from Modi is palpable when he urges the government to transfer direct cash to the poor, as envisaged in Congress’s NYAY scheme, by saying “Call it ‘nyay’ (justice) or call it by any other name but do it.”


Rahul, it appears, has specifically distanced himself from acts of political pettiness and his statements reflect a sense of political maturity: “We can defeat the virus if we fight it together, we lose if we fight with each other”. Even though he also unapologetically added that he does not agree with Prime Minister Narendra Modi on most things but wanted to offer “constructive suggestions”.

Gandhi’s well-directed tweets with suggestions to the government are now also being affirmed by experts.

Turning Aarogya to his advantage

While the BJP is in pathological denial of anything substantive that Rahul Gandhi or the two economists had to say, an ethical hacker had the government promptly take notice and admit to its mistake. French hacker Elliot Alderson on Twitter looked into the Aarogya Setu app and confirmed Rahul’s fear that it was nothing more than a “sophisticated surveillance system”. The app’s user agreement states that the data can be used in the future for purposes other than epidemic control if there is a legal requirement. The privacy policy of the app states that the data on the app may be shared with as many agencies as the government sees fit.

Alderson went on to confirm and tweeted to the government that “A security issue has been found in your app. The privacy of 90 million Indians is at stake.” He ended the tweet with a post script that read; “@Rahul Gandhi was right.”

Although the Modi government confirmed that there could be no security breach in the app, they thanked the ethical hacker on engaging with them. Alderson on the other hand has confirmed that some of the issues he reported were fixed in the app and that he did receive calls from the National Informatics Centre (NIC) and the Indian Computer Emergency Response Team (ICERT), both government bodies.

In fact the press note of Aarogya Setu thanked Alderson for engaging with them. “We thank the ethical hacker on engaging with us. We encourage any users who identify a vulnerability to inform us immediately.” Anderson, however, maintained that the app should “stop lying, stop denying”.

Rahul’s initial warning, as early as 12 February, foreboding the government of ignoring the contagion almost seems prophetic today. The BJP can go on to dismiss him but it’s getting harder for the party and the government to ignore Rahul in these Covid times.

Change the LBW laws

Ian Chappell in Cricinfo

There will be some noticeable changes to the game when cricket resumes from its Covid-19 hiatus with one of the major differences being the way the ball is polished.

It's critical administrators produce the right response to the health challenges as swing bowling, along with wristspin, is a crucial part of attacking cricket. Both skills place a high priority on wicket-taking and need to be encouraged at every opportunity.

An outswing bowler is seeking the edge to provide a catch behind the wicket. The inswinger is delivered in search of a bowled or an lbw decision. In both cases, the bowler, in seeking the perfect ambush, is also providing the batsman with a driving opportunity as the ball needs to be pitched full to achieve the desired outcome.

Either way two results are in play - a wicket or a boundary - which creates the ideal balance of tension and expectation. Fans crave a genuine contest between bat and ball and that's part of what attracts them to the game in the first place.

With ball-tampering always a hot topic, in the past I've suggested that administrators ask international captains to construct a list (i.e. the use of natural substances) detailing the things bowlers feel will help them to swing the ball. From this list, the administrators should deem one method to be legal with all others being punishable as illegal.

With cricket on hold, this is the ideal time to conduct the exercise. Using saliva and perspiration are now seen as a health hazard, so bowlers require something to replace the traditional methods of shining the ball.

And while they are in a magnanimous mood, the administrators should also make a change to the lbw law that would be welcomed by all bowlers.Changing the lbw law will mean batsmen can't get away with simply padding away balls Mitchell Gunn / © Getty Images

The new lbw law should simply say: "Any delivery that strikes the pad without first hitting the bat and, in the umpire's opinion, would go on to hit the stumps is out regardless of whether or not a shot is attempted."

Forget where the ball pitches and whether it strikes the pad outside the line or not; if it's going to hit the stumps, it's out.

There will be screams of horror - particularly from pampered batsmen - but there are numerous positives this change would bring to the game. Most important is fairness. If a bowler is prepared to attack the stumps regularly, the batsman should only be able to protect his wicket with the bat. The pads are there to save the batsman from injury not dismissal.

---Also read

Abolish the LBW law - it has no place in the modern world

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It would also force batsmen to seek an attacking method to combat a wristspinner pitching in the rough outside the right-hander's leg stump.

Contrast Sachin Tendulkar's aggressive and successful approach to Shane Warne coming round the wicket in Chennai in 1997-98 with a batsman who kicks away deliveries pitching in the rough and turning in toward the stumps. Which would you rather watch?

The current law encourages "pad play" to balls pitching outside leg while this change would force them to use their bat. The change would reward bowlers who attack the stumps and decrease the need for negative wide deliveries to a packed off-side field.

The law, as it pertains to pitching outside leg, was originally introduced to stop negative tactics to slow the scoring. Imagine trying to stifle players like VVS Laxman and Mark Waugh by bowling at their pads. The law should retain the current clause where negative bowling down the leg side is deemed illegal.

This change to the lbw law would also simplify umpiring and result in fewer frivolous DRS challenges. Consequently, it would speed up a game that has slowed drastically in recent times. It would also make four-day Tests an even more viable proposition as mind-numbing huge first-innings totals would be virtually non-existent.

The priority for cricket administrators should be to maintain an even balance between bat and ball. These law changes would help redress any imbalance and make the game, particularly Test cricket, a far more entertaining spectacle.

Soaring government debt is now inevitable. It’s nothing to fear

Thatcher’s simplistic aversion to borrowing still haunts fiscal policy, but interest rates have been falling for many years writes Philip Inman in The Guardian

 

Margaret Thatcher campaigning in the 1979 election. Photograph: Geoff Bruce/Getty Images


It is clear Boris Johnson has favoured his health advisers as he looks to ease the lockdown. Worries about a second coronavirus outbreak have clinched victory over concerns about keeping much of industry and commerce in a state of suspended animation.

After weeks of pleading by the Treasury to get the nation back to work, No 10 has opted to play it safe with people’s health, and particularly older people. And no wonder, after a hapless first few months in which the UK leapt to fourth place in probably the most ignominious league table in modern history – that of Covid-19 deaths per 100,000 population – behind Belgium, Spain and Italy.

---Also read

Can governments afford the debts they are piling up to stabilise economies?

Britain and Covid-19

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There are plenty of Tory MPs who believe there is a bigger threat to health, and possibly their electoral chances, from a damaged economy. They give equal billing to the threat from a flurry of corporate bankruptcies, a steep rise in unemployment and a ballooning debt pile that would dwarf the legacy left by the 2008 banking crash.

And it is this last concern – that of the mortgage to end all mortgages being left on the nation’s balance sheet – to which ministers have turned and begun to debate in the most heated terms. Without a doubt, a fear of debt is the main constraint on funding the current rescue operation and on making a boost to investment once the crisis is over.

If you are a traditional Conservative MP with a picture of Margaret Thatcher on the constituency office wall, you believe debts must be repaid, much like a domestic property mortgage.

This is the household analogy Thatcher used to great effect during her years as prime minister, despite it being economically illiterate, and only ever deployed as a way to keep public spending in check and state power limited.

Now, to tackle the coronavirus outbreak and nurse the economy until a vaccine is mass-produced, there is no choice but to watch the gap between spending and income soar.
The Institute for Fiscal Studies estimates the government will need to borrow an extra £200bn in this financial year alone and is heading for a debt-to-GDP ratio of 95% from the current level of around 83%.

A debt mountain that falls just short of the UK’s £2.2 trillion annual income is a level of borrowing that butts up against a significant psychological barrier – the three-figure debt-to-GDP ratio.

In the mind of a conservative thinker, only countries that are reckless, and possibly morally dubious, have spent so much that their debts exceed 100% of GDP.

In practical terms, a country with high debt levels can become the target of panicky investors, who can orchestrate a strike that means no one lends it money.

A government borrows by issuing bonds with a maturity date, and it needs fresh lenders to step in and buy the debt from existing lenders each time it matures. “Bond vigilantes” make money from orchestrating such bond-buying strikes and are ever watchful for countries that have left themselves vulnerable.  

The euro crisis is still fresh in many people’s minds, when Italy and Greece found themselves bond-market pariahs. Italy’s debts equalled 130% of GDP. Greece found itself with a debt-to-GDP ratio of 180%.

George Osborne’s career as chancellor, and his adherence to a debilitating austerity programme, was built on warnings that Britain could suffer the same fate as Greece and Italy. Like his hero Thatcher, he persuaded an anxious nation that debt was to be feared.

Yet it was never true and is even less true today. Central to this argument is the path of interest rates. For the last 20 years in the UK and Europe, and the last 40 years in the US, interest rates on government debt have tumbled. Even though governments have borrowed more over time, the cost of financing each pound of debt has fallen.

There was always the concern that interest rates could increase at some time, but it was never likely and most economists agree it cannot happen now, at least not for a decade or more. There are too many savings in the world looking for a safe haven for the demand for government bonds ever to fall, especially relative to stock markets or lending to corporations. That means the bond vigilantes have no leverage, except in the developing world. For the richer countries, there is always someone to borrow from.

So, as the US and Japan have learned, it is not the size of your debts but how much they cost to service that matters. No wonder the US government debt-to-GDP ratio is at 110% and rising while Japan is a darling of the bond markets even though its government has a debt-to-GDP ratio above 250%.

Will it be a downsized Dubai that emerges from pandemic?

Simeon Kerr in Dubai and Andrew England in The Financial Times

Dubai’s leaders headed into 2020 brimming with confidence. After four years of tepid growth, that had fuelled questions about the durability of the Gulf trade hub’s business model, the optimism was inspired by the emirate’s hosting of Expo 2020, which was predicted to draw 25m visitors and reassert Dubai’s position on the international stage.  

On January 29, Sheikh Mohammed bin Rashid al-Maktoum, Dubai’s leader, said the expo would mark the start of a 50-year phase of “achievements” for the United Arab Emirates and “offer new hope for creating a better tomorrow”. But just as he was inaugurating Al-Wasl plaza, at the heart of the expo site, the UAE was making a separate announcement — a portent for the grim reality ahead — the seven-member federation had recorded the Middle East’s first case of Covid-19. 

The economic consequences of the coronavirus pandemic, coupled with the spectacular collapse of crude prices, have wrought havoc across the oil-rich Gulf as lockdowns strangle businesses and finance ministers cut state spending. Few in the region are as exposed to the crisis as Dubai; the strengths that have long made the city stand out — and put the UAE on the map — make it more vulnerable.  

For decades, Dubai’s success has been built on its transformation from pearl-diving backwater into global entrepot with some of the world’s busiest ports and airports, as well as a financial centre that hosts top international banks — the Middle East’s version of Singapore or Hong Kong.  

But today the emirate’s main economic drivers — trade, transportation, tourism, retail and real estate — are slammed shut with the world in lockdown. Dubai has minimal oil resources, and lacks the financial muscle of its wealthier neighbours such as Abu Dhabi and Qatar to cushion the economic impact of Covid-19. Expo 2020, which was scheduled to open in October, has been pushed back 12 months — joining a long list of global events that have fallen victim to the pandemic.  

The global crisis has raised concerns about the emirate’s high debt burden — which the IMF found last year “exceeds 100 per cent of Dubai gross domestic product”, including government-related entities — and revived painful memories. During the 2008-09 crisis, Dubai came to the brink of defaulting and was forced to downsize and restructure distressed state entities.  

It survived, and later thrived, largely thanks to $20bn in bailout loans underpinned by Abu Dhabi, the UAE’s wealthy capital. But that crisis was primarily contained within Dubai’s real estate sector and government-related entities, which had gorged on debt as the city expanded.  

This time the impact is broader and, in a worst-case scenario, could result in a slimmed down version of Dubai Inc.  

“There is no choice but restructurings, downsizing, mergers,” says Karen Young, a resident scholar at the American Enterprise Institute, a think-tank. “Staff numbers from cleaners to interior designers, accountants to general managers, will be affected.” 

Even before the crisis struck, Dubai was in a downturn. Property prices had slumped more than 30 per cent from 2014 highs, and bankers and analysts were speculating whether the “build it and they will come” model had run its course.  

The model is now expected to come under its severest financial pressure yet and force the emirate to re-evaluate how it operates. Government officials accept it will not be “business as usual”. 

“The global economic situation will not return to what it was,” Sami al-Qamzi, director-general of Dubai’s economic department, told local media in April, adding that the emirate could respond quickly to challenges. “The strategy and economic model will be adjusted.”

Minimising the exodus 

Instead of people arriving in vast numbers for Expo 2020, a mass exodus of expatriates — who make up the bulk of Dubai’s 3.3m population — is more likely. 

Foreigners account for 98 per cent of Dubai’s private sector workforce — mainly migrant workers from south Asia — and those without jobs are unlikely to remain for long. To ease the burden, the UAE has extended all residency visas until the end of the year, allowing redundant expatriates to look for work or wait for flights home to restart. 

Diplomats say hundreds of thousands of foreign workers risk losing their jobs across the UAE in the next few months. Around 260,000 Indian and Pakistani workers have already applied for repatriation as employers try to offload staff in sectors ranging from construction to retail and tourism.   

“We’re looking at a minimum population contraction of 10 per cent for the year,” Nasser al-Shaikh, a former head of Dubai’s department of finance, tweeted in April. 

Farhan, who has been driving taxis for eight years, used to send $300 a month to his family in Pakistan. But last month his earnings collapsed to $60. Even with a loan of $110 from his employer, he is borrowing from friends to survive. “Corona has stopped everything,” he says. “So many drivers need to go home.” 

The hardship extends into the white collar workforce. A fifth of the Indians applying to return home are professionals, the Indian embassy says. “I will give it two months and then take my family home,” says one Indian retail consultant on unpaid leave. 

Hasnain Malik of Tellimer, an emerging markets research company, says Dubai should consider expanding access to long-term residency for expatriates, who currently have limited rights to remain. That could boost longer-term investment in property and businesses, as well as consumer spending. 

“To return to high economic growth in a world where trade, travel and tourism are under threat, new technology is displacing traditional business models, and regional rivals are catching up, Dubai may have to contemplate a much more competitive cost of living and operating,” he says.  

Big Brother Bailout

As in 2008-09, Abu Dhabi is expected to ride to Dubai’s rescue if needed. But bankers believe any support could come with “quid pro quos”, such as asset sales and mergers involving Dubai’s state-affiliated entities.  

The two emirates have long been brotherly competitors, and Abu Dhabi's ambitious diversification agenda has raised the capital's profile over the past 15 years. The 2009 debt crisis, however, played out in the glare of international scrutiny, was a humbling experience for the Dubai brand. 

Both emirates control their own utilities, airlines, ports and stock markets despite being members of a small federation of 9.6m people. “There is likely to be consolidation, it will be forced consolidation, wrapped nicely under the PR strategy of the [UAE], and it's all a matter of time,” says a senior Gulf-based banker.  

Jihad Azour, the IMF’s regional head, notes that many government-related entities have restructured their operations and “deleveraged significantly” in recent years. But he says “some of them still have large levels of liabilities and need to be monitored carefully”.  

Capital Economics says some state-owned enterprises may struggle to service their debts. It estimates that over the next three years they face a total of $21.3bn in repayments — equal to 19.4 per cent of GDP. The consultancy, which predicts a “major crunch point” in 2023 when another $30bn of debt matures, says the scale of the downturn could see strains emerge sooner. 

Much will depend on how long global travel and trade remain frozen. Thaddeus Best, a sovereign risk analyst at Moody’s, says those state-affiliated entities covered by the rating agency have adequate liquidity and moderate leverage, and are expected to continue servicing their debts. Many, he says, should be able to reschedule loans with local banks, if needed, while paying bondholders. 

A large portion of the emirate’s outstanding bonds are held by the Investment Corporation of Dubai, a sovereign fund which owns high-quality assets, such as Emirates airline, and stakes in lender Emirates NBD and developer Emaar. Mr Best says issuers, such as ICD, could tap bond markets later in the year, “when some semblance of normality returns”. 

The government is already in talks with more than 10 lenders for five-year loans of up to Dh2bn ($540m) each and private placement of bonds that avoid the glare of public debt markets. “They see these as bridge financing,” says one person briefed on the scheme, “and then [plan to] issue bonds in due course.” 

 Tough shutdown 

The UAE stopped passenger air traffic — the lifeblood of the economy — in late March. Dubai, a transit point between east and west, is a popular destination for Chinese tourists — the first cases reported in January were family members who had travelled from Wuhan, the epicentre of the outbreak in China.  

More restrictive measures were introduced, with Dubai requiring residents to obtain a police permit before leaving their homes. Covid-19 patients have been treated for free whether or not they hold health insurance. Residents broadly welcomed the decisive measures and the authorities’ zero tolerance approach, including imposing more than 50,000 fines on lockdown violators. 

A nationwide campaign, backed by a coronavirus testing laboratory in Abu Dhabi that has the largest processing capacity outside China, has tested more than one in 10 of the UAE’s population, focusing on low-income areas where migrant workers live in cramped conditions. Carrying out the third highest number of tests per capita in the world, the outbreak has been relatively contained. The UAE has reported more than 17,000 cases and 185 deaths, according to Johns Hopkins University. 

Dubai eased its 24-hour curfew on the eve of Ramadan in the last week of April, allowing residents to visit malls, which are operating at 30 per cent capacity, and to exercise outside.  

But businesses are already reeling from the shutdown and the prognosis for global travel demand. Many companies have cut salaries by up to 75 per cent or placed staff on leave as they seek to preserve cash, while praying for a recovery in autumn. 

Dubai International, once the world’s busiest international airport by passenger numbers, has reopened for one-way rescue flights to allow unemployed expatriates to return home and to bring those stranded abroad back to the UAE. But regular services, originally planned to restart in early June, have been pushed back — Emirates airline, Dubai’s flagship carrier, has grounded most of its fleet and imposed salary cuts on many of its 105,000 staff. Support for the airline threatens to be expensive given last year's operating costs were $26bn.  

Contractors working for the government and private sector are being urged to find cost cuts for existing projects of up to 30 per cent. Dubai government departments have also frozen hiring and cut administrative and capital spending by up to 50 per cent.  

“Everyone is cutting costs to preserve cash,” says one private equity fund manager. “There is going to be a bloodbath in the SME sector — lots of failures, and most are going to happen as we come out of the lockdown.” 

Survival mode 

The UAE’s financial response to the crisis has been led by the federal government, with the central bank’s $70bn support package for lenders. The measures include extra liquidity to allow banks to extend debt relief.  

But the most vulnerable smaller companies, the bedrock of the economy, making up half of output and providing the same in terms of jobs, say they have yet to see the benefits of the government's rescue package. “This is like giving mascara to the blind,” says one business owner. “Next month I will have no income, and what happens then?” 

Dubai has extended direct support to businesses, including reducing government fees and utility bills. Mall operators and commercial property companies, as well as the city’s financial district, have offered rent relief to tenants. But the UAE’s direct fiscal stimulus equates to 2 per cent of GDP, compared with 5 per cent unveiled by Bahrain and 12 per cent by Singapore, says Mr Malik.  

For businesses it is now a question of survival.  

“Without proper support from the government and banks, it is going to be very difficult,” says Abdul Kader Saadi, whose Glee Hospitality consults on and operates restaurants. He has lost management contracts and closed some operations, while cutting salaries and encouraging staff to return home for three months’ unpaid leave. 

His business thrived during the global financial crisis a decade ago, even as many expatriates left, with images of abandoned cars at the airport a symbol of that period. He says today’s crisis is worse. 

A magnet for millions across the Middle East, Africa and Asia, Dubai has a record of defying its sceptics. But like Mr Saadi’s business, the commercial hub’s ability to bounce back will depend as much on external factors as domestic.  

“In Dubai, the question is which sector is not stressed? It all depends on how long it would take for oil to recover and Covid-19 to go away,” says the Gulf-based banker. “But don't bet against Dubai. Dubai is a survivor.”

Things to do If you get Covid-19

Received via Facebook from Subhasish Chowdhury

If you get Covid-19*

You basically just want to prepare as though you know you’re going to get a nasty respiratory bug, like bronchitis or pneumonia. You just have the foresight to know it might come your way!

*Things you should actually buy ahead of time* (not sure what the obsession with toilet paper is?):

• *Kleenex,*

• *Paracetamol*,

• Whatever your generic, mucus thinning *cough medicine* of choice is (check the label and make sure you're not doubling up on Paracetamol)

• *Honey and lemon* can work just as well!

• *Vicks* vaporub for your chest is also a great suggestion.

• A humidifier* would be a good thing to buy and use in your room when you go to bed overnight. (You can also just turn the shower on hot and sit in the bathroom breathing in the steam).

• *If you have a history of asthma* and you have a prescription inhaler, make sure the one you have isn’t expired and refill it/get a new one if necessary.

• *Meals* This is also a good time to meal prep: make a big batch of your favorite soup to freeze and have on hand.

• *Hydrate (drink!) hydrate, hydrate!* Stock up on whatever your favorite clear fluids are to drink - though tap water is fine you may appreciate some variety!

• *For symptom management* and a fever over 38°c, take Paracetamol rather than Ibuprofen.

• *Rest lots*. You should not be leaving your house! Even if you are feeling better you may will still be infectious for fourteen days and older people and those with existing health conditions should be avoided!

• *Wear gloves and a mask* to avoid contaminating others in your house

• *Isolate* in your bedroom if not living alone, ask friends and family to leave supplies outside to avoid contact.

• *Sanitize* your bed linen and clothes frequently by washing and clean your bathroom with recommended sanitizers.

You DO NOT NEED TO GO TO THE HOSPITAL unless* you are having trouble breathing or your fever is very high (over 39°C) and unmanaged with meds. 90% of healthy adult cases thus far have been managed at home with basic rest/hydration/over-the-counter meds.

*If you are worried or in distress or feel your symptoms are getting worse*

*Preexisting risks* If you have a pre-existing lung condition (COPD, emphysema, lung cancer) or are on immunosuppressants, now is a great time to talk to your Doctor or specialist about what they would like you to do if you get sick.

*Children-* One major relief to you parents is that kids do VERY well with coronavirus— they usually bounce back in a few days (but they will still be infectious), Just use pediatric dosing .

How do you know you have coronavirus?

1. *Itching in the throat,*

2. *Dry throat,*

3. *Dry cough.*

4. High temperature

5. Shortness of breath

So where you notice these things quickly take warm water with lemon and drink.

Free markets must be protected through the pandemic

The Financial Times Editorial Board 

Short of a communist revolution, it is hard to imagine how governments could have intervened in private markets — for labour, for credit, for the exchange of goods and services — as quickly and deeply as in the past two months of lockdowns. Overnight, millions of private sector employees have been getting their pay cheques from public budgets and central banks have flooded financial markets with electronic money. 

One may be forgiven for worrying that the pandemic has brought socialism on its coat-tails. Yet the paradox is that today’s emergency measures are necessary to protect the long-term health of free markets and a capitalist economy. Those who, like this news organisation, value those institutions must welcome this unprecedented intervention. 

Liberal democratic capitalism, with free and open markets and secure private property rights, remains the best institutional framework to meet the aspiration of freedom and prosperity for all. But liberal democratic capitalism is not self-sufficient, and needs to be protected and maintained to be resilient. 

Catastrophic emergencies — wars, pandemics and natural disasters — bring risks that only governments can protect against. A purist libertarianism that denies people this protection cannot survive its first crisis.  

Capitalism can also undermine itself over time, if it is not tended by smart regulatory frameworks. The global financial crisis — caused in part by opacity, self-dealing and perverse incentives — showed that markets need good rules of the road to remain free, open and efficient. The accelerating disruptions from climate change prove a similar point. 

Like all social systems, free markets depend on political legitimacy. One of the greatest long-term threats to capitalism functioning well is the perception, let alone the reality, that markets which are supposed to be free are actually rigged in favour of the powerful.  

A creeping suspicion this might be the case had started to erode its popular support, especially after the financial crisis. The rising wave of young self-confessed socialists in the US and UK, homelands of economic liberalism, was clear proof of that. Mismanaged economies that leave many people behind give fuel to left-wing populists, who see state intervention as a replacement for capitalism, not just a corrective. But they also empower right-wing populists, who offer business a Faustian bargain of collaboration. 

Today’s situation resembles that of the 1930s. Back then, centrist liberals from US president Franklin Delano Roosevelt to British economist John Maynard Keynes saw that liberal democratic capitalism, in order to survive, had to be shown to work for everyone. The victory of their ideas set the stage for the success of western capitalism in the decades after the second world war. 

Now, like then, capitalism does not need replacement even if it may need repair. Free markets work best when all have access to them, which requires the state to provide smart, transparent and proportionate ground rules and offer social insurance in the last resort. The latter is exactly what governments have done in the necessary battle against Covid-19. Their many support measures, costly as they are, constitute an investment into a safe return of freer markets and a self-sustaining capitalism when the crisis abates.  

The task for friends of liberal capitalism is to determine how free-market values can be buttressed in the future. That is a task made easier, not harder, if the state does its job well today.

Why The Lives of the Poor are not worth saving!

A STUDY has been doing the rounds since early April which argues that in poor countries the price of a lockdown is larger than the benefits to be gained from it. The lead author of the paper is an economist of Bangladeshi extraction at Yale, who has plenty of experience working in developing countries and is no stranger to the lay of the land here. Khurram Husain in The Dawn

I first came across the study when it was being circulated in mid-April by people from industry, particularly those who were busy lobbying the government for easing the lockdown restrictions. It was subsequently cited in a few opinion pieces published in newspapers, and most recently was invoked by Planning Minister Asad Umar in his televised talk with the press in which he presented a bevy of arguments in support of easing the lockdown.

It is useful to examine this study carefully, because doing so gives us an idea of how (some) economists approach questions of pressing and urgent public importance, and the limitations of the tools that they use.

The study in question is called The Benefits and Costs of Social Distancing in Rich and Poor Countries, and it is authored by Zachary Barnett-Howell and Ahmed Mushfiq Mobarak, both highly credentialled and published economists at Yale. It begins by asking whether “shuttering the economy for weeks or months and mass unemployment are reasonable costs to pay?” in return for “flattening the curve” of Covid-19 cases. In order to answer their own question, the authors have to first render both the costs and benefits of a lockdown into a comparable unit. The economic costs are measured in dollars, whereas the health benefits of a lockdown are measured in lives saved. So the question arises: how to compare these two quantities — lives and money — with each other?

To do so, the authors deploy a widely used model in the economics literature called the Value of Statistical Life model. What VSL does, quite literally, is tell us the dollar value of human life in different contexts. It was used originally in more limited contexts to help policymakers with complex judgements in cases where a particular policy imposed an economic cost in return for a vague health benefit. One example might be setting air quality standards.

But with the passage of time, the VSL model began to be used in contexts far more complicated and more pressing than any in the past. One example is climate change, where a number of economists from prestigious universities have used the model to argue that the benefits from the mitigation efforts to curb carbon emissions that scientists are calling for are not worth the economic costs that they will impose. Simply put, they argued that the likelihood of climate change turning out to be a catastrophic event was small, and making massive investments in foregone output today to avert an event that was probabilistically miniscule was not worth the cost.

The VSL at stake did not justify the massive investments required to curb greenhouse gas emissions to a two per cent increase by century end. This debate was sparked in 2006 when the Stern Review, put out by the eminent UK economist and public servant Nicholas Stern, argued that such an investment was now a matter of existential importance for mankind to make. Those who opposed him either took issue with his projections of the economic losses that climate change would impose, or invoked the VSL model to argue that the foregone economic output was larger than what was purportedly being saved.

It took 16-year-old Greta Thunberg to cut through the Gordian technicalities into which the ensuing conversation fell. “People are suffering, people are dying, entire ecosystems are collapsing,” she exclaimed in her famous address to the UN in September 2019. “We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”

Today, the economists are back, armed with their VSL model, telling us that the dollar value of the lives saved as a result of the lockdown are worth less than the foregone output in developing countries, and they specifically mention Pakistan as one example.

For the US, for example, they say 1.76 million lives will be saved through aggressive interventions, and put the total value of these lives at $7.9 trillion. This easily justifies a $2tr stimulus along with whatever economic losses result from a closure of the economy.

It is worth asking, they argue, “whether similar mitigation and suppression strategies are equally valuable in low- and middle-income countries”. When they compute the VSL for countries like Pakistan and Nigeria, they find that the amount is so low that it makes little difference to have a suppression strategy. “In comparison to US losses, the dollar costs of uncontrolled Covid-19 in large countries such as Pakistan or Nigeria look miniscule.”

So they’re basically telling us that we are investing precious foregone economic output to save lives that are not worth saving. Among the reasons why the Covid-19 loss is lower for a country like Pakistan is the “higher base VSL” in the US.
They don’t give the dollar figure, but in a graphic they show that the “total VSL lost” for the US ranges from $25tr to just under $1tr depending on the severity of the suppression measures. For Pakistan, Bangladesh and Nigeria, their model shows the total VSL lost to be near zero across the range.

Economists have a hard time speaking plain English, especially when they are attaching dollar values to human lives. It is worth asking this pair to explain in plain English how the base VSL is higher in the US. And the irony is that this argument is being used to justify an easing of the lockdown in the name of the daily wagers themselves, the very people whose lives are found to be not worth saving!