Politics and economics of pandemic

Published On: September 22, 2020 10:58 AM NPT By: Anup Raj Dhungana

We have defeated instability, armed conflict and imminent ethnic divisions with grit and perseverance. We can defeat the economic fallout of pandemic too.

Difficult times bring out the best and worst in men and economy. Priorities are reassessed, objectives are redrawn and normal state of affairs is replaced by new normal. Years of hard work put into building and preserving the political and economic system stands on a slippery slope, ready to crumble.

The Covid-19 pandemic has put us up at that slippery slope. We are fighting an invisible enemy of insurmountable strength without a plan. This enemy has already overwhelmed wealthy nations with ample resources at their disposal, while as a nation of limited resources and even limited creativity we are fighting the enemy with nothing more than stones and daggers. When a pandemic of this scale hits a nation that is barely starting to stand on its feet, things often escalate pretty quickly. The dynamics of politics change, and economy is the first victim.

Economics is the science of trade-offs, also known as efficient allocation of scarce resources. Whenever a political decision is made, economy bears the consequences. Political decisions can be corrected but its economic consequences are irreparable. Because it directly affects the individual, however politically uninterested he may be. Economics gives you the liberty of choice, but with the consequences. At some point of time, we are going to have to decide whether to let the virus kill the economy or risk the loss of considerable lives to keep the economy moving. And that point is now. The choices are hard but they are inevitable. The economy is going to fallout and there are going to be disastrous consequences.

The calm before the storm is ominous, but the calm after the storm is depressing. Probably because we often underestimate its extent and aftermath. Unanticipated losses are the hardest to overcome. Once we accept the gravity of this pandemic, and reconcile ourselves to live with it, we will realize we have lost so much. Many precious lives notwithstanding, most of us will have lost our savings, our steady income source, our wealth, and with it our future plans, our objectives, and most important of all, our confidence. Unanticipated losses don’t come alone. They come with disbelief, anger, frustration and temporary loss of a rational thinking. And from this dysphoria of losses will emerge a threat far greater than the virus. The call for a regulated socialist economy.

For past twenty five years, we have enjoyed the privilege of a free society and perks of an open market economy. Take a look around yourselves. Our houses are now bigger, well-lit, well-maintained, attractively painted and decorated, we have more electrical appliances to serve our need, we consume better food, we can afford better amenities, we use world standard toothpaste and toothbrushes, we can afford more clothes, eat out more often, our cinema theatres are better, hourly queues for a ticket to cinema hall is now a forgotten history, we watch latest releases, Hollywood flicks, we travel more, we spend more, we prefer flights because it has got cheaper, we can afford two wheelers and four wheelers that our earlier generation could not dream of, our properties are worth more than ten or twenty years ago, our health services are better, we have less infant mortality and maternal mortality, higher life expectancy, we can afford better education, our children are educated in English, more of us study in foreign universities and colleges without government assistance or scholarships, we seem to have a better life than most of our parents.

What happened in these twenty five years that made it possible for us? There has been no significant expansion of domestic industry or agriculture. Actually, agricultural contribution to GDP has shrunk to 25 percent from 47 percent in last twenty five years. Something else has happened in these twenty five years, some fundamental conditions have prevailed that previously did not exist under socialist regime—free movement of capital, labor, goods and services.

The transformation from scarcity to relative prosperity has been possible because of abolishment of socialistic policies of state controls in manufacturing, trade, service, education, health and almost every aspect of our lives. The abolishment of restrictive practices connected us to the globalized world. Private enterprises proliferated. Imports and exports diversified.

Rewards of profit motivated trade and investment. Geographical and political boundaries are immaterial to a connected world. While it is true that there has been no significant inward movement of capital and labor, there has been an extraordinary movement of labor from this country to the place where such labor is sought after and well rewarded. The return of which eventually came back to us. We owe our prosperity to this outward movement of labor. It is also true that we have paid a very high price for this—vulnerability to accidents, illnesses and untimely deaths, rifts in family, personal and social relations. But then again, quoting Thomas Sowell, there are no solutions, only trade-offs.

If we consider the overthrow of Rana regime and establishment of democracy as a first step of a modern nation, we have already gone through so much of adventures and misadventures. Since then, we have lived through a brief period of democracy, an authoritarian monarchy with a centrally planned economy, trade barriers, quantitative restrictions, state-led manufacturing and distribution, people’s movement and restoration of parliamentary democracy with eventual liberalization of economy, a decade long armed revolt against the state, a shattered economy and mass emigration of workforce, an authoritarian rule again, and a second restoration of parliamentary democracy, a decade of transitional politics, and an imminent threat of division of state along sectarian lines, and finally a new constitution and a stable democratic government. All along those years, except for a brief period, our economy has always been a second priority to the politics.

Even after more than a quarter of century of economic liberalization, we are still crawling with sub-par economic growth. Our op-ed pages, television talk shows, social media influencers, are dominated by individuals calling for more governmental controls, more state interventions, and more socialist policies. The irony is embarrassingly self-evident, where day after day, pages after pages of broadsheets are crammed with governmental inefficiencies, corruption, ineptitude and apathy, and where social media walls are bombarded with frustration, anger and despair of general public over bloated bureaucracy and pernicious politics. If an all-powerful state, with its role of protector and provider, could solve our economic woes, it would have been solved a very long ago. But still we let fallacious reasoning overshadow rationality. No wonder we are a confused nation of where we had been, where we are, and where we want to be.

This pandemic has now put us at odds with the path of open and free society that we have pursued. Very low income households are hit hardest, low-income households are starting to panic, and middle-income households are anxious. News reports are rife with the plight of the poor. Difficult times seem to lie ahead. With the uncertainties looming on the horizon, and sense of imminent loss, panic will lead to fear. Fear will lead to irrational decisions. We can already see mass appeals for state intervention in the names of peasants and workers. There will be calls for trade barriers and self-sufficiency, calls for curbing private enterprises profits and nationalization of private services. Generous state handouts will be valiantly sought after.

Bureaucrats, incentivized by accumulation of power, will devise schemes of subsidies and handouts. And an over-zealous government, incentivized by the prospects of coming election, will gladly comply. Individuals often suffer from mass hysteria during the times of crisis. Rationality is superseded by emotions. But it is precisely during these difficult times we cannot lose the sight of the road ahead. We must hold firm on our commitments to free and open society which has rewarded us. We have defeated instability, armed conflict and imminent ethnic divisions with grit and perseverance, we can defeat this economic fallout too.

Returning to the socialist era of proclaimed self-sufficiency is a return to the era of scarcity. If we go back to that road, sooner or later every one of us will be worse off than we are now. Where they restrict economic freedom, they will eventually restrict political freedom.

(Disclaimer: I am not an economist).


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