Reviving the Economy, Creating the ‘new Normal'

Jomo Kwame Sundaram, Anis Chowdhury SYDNEY and KUALA LUMPUR, Jun 16 (IPS)  - The Covid-19 pandemic has significantly impacted most economies in the world. Its full impacts will not be felt, let alone measured, until it runs its course. Many countries are still struggling to contain contagion, while the costs on both lives and livelihoods will undoubtedly have long-term repercussions.

Back to the future?

The pandemic has exposed economic vulnerabilities building up for decades, especially since the counter-revolution, against Keynesian and development economics in the 1980s, gathered pace with transnational corporation-led privatization, liberalization and globalization.

As the world become more interdependent via trade, finance and communications, inequality and economic insecurity have waxed and waned unevenly, exacerbated by deregulation, reregulation, financialization and less public social provisioning, undermining public health and social protection.

Policymakers shied away from addressing the fundamental causes of several financial crises from the 1990s (e.g., in Mexico, East Asia and Russia) and during the first decade of this century, e.g., the dotcom, food and global financial crises. Now, once again, all too many are focused on getting back to ‘business as usual'.

What multilateral coordination?

The global economic situation remains unpredictable, with uncertainties about the varied nature of pandemic recessions. Government responses have not only been diverse, but often poorly conceived due to the novel nature of the crisis. Impacts have varied with the contagion and policy responses, unhelped by often confusing, if not misleading metrics.

Such uncertainty is also reflected in the wide-ranging growth forecasts by major international organizations. The International Monetary Fund (IMF) has recognized the ‘Great Lockdown' as due to ‘self-imposed' contractions, leading to the "worst recession since the Great Depression".

The IMF has supported government fiscal and monetary initiatives, declaring that it "stands ready to mobilize its US$1 trillion lending capacity to help its membership". The World Bank has also promised an additional US$14 billion to help governments and businesses address the pandemic.

Plurilateralism also almost irrelevant

A March G-7 countries' joint statement promised "a strongly coordinated international approach", with no specific actions mentioned or forthcoming thereafter. Instead, countries have pursued their own divergent strategies, even banning exports of medical equipment.

Meanwhile, the Trump administration continues to prioritise ‘America First' while undermining most multilateral institutions and even plurilateral arrangements, including those created by the US, such as the G20.

Already, G20 members have been dragged into US-China tensions, as the White House blames China for the pandemic and other American problems. Meanwhile, Saudi Arabia, the G20 chair for 2020, is itself embroiled in its own political and economic quagmire, undermined by falling oil revenues, worsened by its oil price war with Russia.

Poor diagnosis, bad medicine

Economic growth slowdowns, especially in manufacturing, services and trade, started prior to the Covid-19 outbreak. Yet, the pandemic's economic effects were expected to be short-term as factories and offices were closed, and strict ‘stay in shelter' lockdowns were enforced to stop contagion.

The drop in economic output, as the epidemic began and spread to industrial hubs, has had international repercussions with supply chains disrupted.

Such supply disruptions have engendered and interacted with prolonged, wide-ranging demand shocks as Covid-19 crisis-induced policy responses and other uncertainties reduced consumption and investment spending, slowing economic growth and undermining employment.

Almost 2.7 billion workers, around 81% of the world's workforce, work and earn less due to the Covid-19 recession, with those in lower middle-income developing countries losing most. And almost 1.6 billion in the informal economy are in the hardest hit sectors or significantly impacted by lockdown measures.

The longer the lockdowns persist, the greater the economic disruption and adverse impacts as the effects spread via trade and finance linkages to an ever growing number of countries, firms and households.

Governments have adopted various monetary and fiscal measures to try to revive and sustain economic activity. Such measures include cash transfers to households, extending unemployment insurance or social security benefits, temporary deferment of tax payments, and increasing guarantees and loans to businesses.

Early ‘stimulus packages' assumed that the ‘pandemic shock' would be short-lived and easily reversible. They have largely ignored addressing the unsustainability, inequality, instability and other vulnerabilities of their economic, social and ecological systems.

Monetary ruse, liquidity trap

Basel 3 recommended capital conservation and countercyclical capital buffers for all banks. Many central banks have cut interest rates and increased liquidity through a combination of measures, by lowering reserve and Basel 3 requirements, besides easing loan terms for new temporary loan facilities for banks and businesses.

Continued credit support, through unconventional monetary policies, has not addressed liquidity problems due to truncated business turnover. Increased liquidity provision has instead been captured by better ‘credit risks', even fuelling inflation while doing little for the most vulnerable and needy, deepening pre-Covid-19 inequalities.

Unconventional monetary policies before Covid-19 were already creating stock market bubbles, instead of financing investments in the real economy, thus contributing to growing inequality.

Central banks have not been able to repair their balance sheets or draw back excess liquidity, for fear of financial sector collapse, thus ironically increasing its fragility by pumping in more liquidity, increasing speculation and fuelling inflation.

Fiscal traps unsustainable

Without better planned coordination, initial relief measures for households and businesses were often wrongly portrayed as fiscal stimulus packages while output has remained constrained by lockdown enforcement.

Despite cuts in government expenditure, especially for public health and social protection, there was little political will to increase progressive taxation. Still mounting government debt, already at historically high levels prior to the pandemic, has not helped.

Instead, earlier tax cuts have increased public debt, while the failure to improve fiscal capacities after the 2008 global financial crisis has meant eschewing productivity enhancing public investments, boosting revenue via progressive taxation, and strengthening universal health coverage and social protection.

Designing recovery

The design of measures matters, crucially affecting likely effects. As countries prepare for recovery, they should ask what ‘recovery' can and should mean. To address the many problems we have to contend with, it should not mean a return to ‘business as usual'.

First, as workplaces and social spaces – where people meet, socialize, shop, etc. – have to be redesigned and repurposed to meet precautionary public health requirements, such as physical distancing. Second, the unsustainable, financialized and grossly unequal pre-Covid-19 economy needs to be fundamentally transformed.

Covid-19 policy responses have rarely addressed deeper prior malaises, such as stagnant or falling productivity growth and declining labour remuneration, not to speak of ‘sustainable industrial policy' measures to address global warming, resource exhaustion and other sustainability problems.

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Related Links + Use Stimulus Packages for Longer Term Progress

+ Coronavirus Exposes Global Economic Vulnerability

+ Global Economy Still Slowing, Dangerously Vulnerable

Visit this story at IPS

Unsung Heroines: Who Cares for the Carers?

Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Jun 11 (IPS)  - Even before Covid-19, the world was facing a care crisis. The plight of often neglected, under-appreciated, under-protected and poorly equipped ‘frontline' health personnel working to contain the pandemic has drawn attention to the tip of the care crisis iceberg. Rising care work burden: Ageing populations as well as cuts to public services and social protection were making matters worse, increasing the burden on carers, or care givers/providers, regardless of their employment status. Elderly people need long-term care as they age, while existing social arrangements, including government services, remain inadequate and ill prepared. Such demands on caregivers will continue to increase as populations grow and people live longer. Oxfam's annual early 2020 Davos report, Time to Care, estimates that 2.3 billion people will need care by 2030, 200 million more than in 2015, including 100 million more older people and an additional 100 million children aged 6 to 14 years. Care work, unpaid or underpaid, is generally not visible, greatly undervalued and typically taken for granted. It is often not considered real or proper ‘work', with spending for care work considered a cost, not an investment. The nature of care work and gender discrimination undermines the health and well-being of its mainly female workers. Women and girls, especially the poor and marginalized, do 12.5 billion hours of care work daily for free, and much more for poor wages. The women and girls are left ‘time-poor', often unable to meet their own needs. Consequently, they have less time for education and paid work, let alone fully participate socially and politically.

Unpaid care work: The study argued that unpaid care work is essential for our economies, businesses and societies. However, unpaid care work is often underappreciated when measuring economic progress and social wellbeing, not least because this burden is mainly borne by women and girls, who do more than three-quarters of all unpaid care work. Oxfam estimates that the monetary value of women's unpaid care work globally, for women aged 15 and over, is at least US$10.8 trillion annually. Although high, this figure is still believed to be an underestimate, with the true figure far higher. Women thus often earn less because their unpaid care work limits their time for paid work; in fact, 42 per cent of working age women, compared to six per cent of males, cannot get paid work due to their caregiving responsibilities. Climate change is also increasing the need for unpaid care. In five years, up to 2.4 billion people will be living in areas without enough water, forcing women and girls to carry more water even further. Also, as global warming and other developments adversely affect health and food production, many women and girls will have to work more to cope. Domestic workers:

Besides doing care work for free at home, many poor women also provide care for others, especially as domestic workers, among the most poorly treated employees in the world. Hence, they are also more likely to be in undesirable, poorly paid, dirty and precarious jobs. Only about a tenth of domestic workers are covered by labour laws as much as other workers, while only around half have minimum wage protection. For more than half of all domestic workers, national laws do not limit working hours. Meanwhile, 3.4 million domestic workers in forced labour do not get US$8 billion yearly, or about three-fifths of the wages due to them. Forced labour and trafficking cause domestic workers to be "trapped in other people's homes", with "their lives controlled", but also "rendered invisible and unprotected". Two-thirds of the paid ‘care workforce' are women. Jobs -- such as nursery workers, domestic workers, and ‘care assistants' -- are often physically and emotionally draining, besides being poorly paid, with few benefits, despite having to work irregular hours. Redistributing care burden: The Oxfam report notes that governments greatly under-tax the wealthy, and hence do not collect enough revenue to better fund vital public services, including social services and infrastructure. Progressive taxation and spending, including subsidized social services and social protection, would reduce the burden of care work and social inequality. Better investments in electricity, water, sanitation, childcare and healthcare would improve the quality of care workers' lives by easing their care work responsibilities. Such efforts should recognize unpaid and poorly paid care work as providing real value. Better, affordable and equitable access to time-saving care-supporting infrastructure and devices would also reduce the burden of unpaid care tasks. With government and employers reducing the burden of care work, redistributing unpaid care work more fairly within households would become more feasible. Enabling meaningful participation by care givers, paid and unpaid, in policy-making would also help. Oxfam proposals: Oxfam proposed various actions, including national care systems, to help care givers including: improving the lot of both the unpaid and the underpaid; addressing the greater burden on women and girls; improving and protecting care workers' rights, with paid employees entitled to living wages and decent working conditions. Governments were urged to ratify ILO Convention 189, protecting domestic workers and eliminating gender wage gaps. Societies should also challenge the harmful and discriminatory social and cultural norms that care work is the responsibility of women and girls, including by encouraging men and boys to share care work responsibilities. Businesses must also recognize the value of care work for employees' wellbeing and productivity. Employers should provide benefits and services, such as crèches and other childcare entitlements, while ensuring decent working conditions for care providers. ---------------------------------------- Link http://ipsnews.net/2020/06/unsung-heroines-cares-carers

Economic Ghosts Block Post-Lockdown Recovery

Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Jun 09 (IPS)  - As governments the world over struggle to revive their economies after the debilitating lockdowns they imposed following their failure to undertake adequate precautionary containment measures to curb Covid-19 contagion, neoliberal naysayers are already warning against needed deficit financing for relief and recovery. Deficit financing options The range of deficit financing options has changed little since first legitimized by Roosevelt and Keynes in the 1930s and used extensively to finance wartime government spending. First, debt financing has typically involved government borrowing. More recent understandings of sovereign debt stress the implications of the source of borrowing, domestic or external, e.g., Japan's total government debt now greatly exceeds double its annual national income, but this is not considered problematic as most of it is domestically held by Japanese. Second, price controls, general or selective, can cut both ways, and may require subsidies. Price controls on extracted natural resources can also enable governments to capture resource rents to augment revenue. Third, the widespread use of unconventional monetary measures since the 2008 global financial crisis has forced economists to reconsider earlier monetarist articles of faith about deficit financing by ‘taxing' everyone via inflation, also giving an unexpected boost to modern monetary theory. Exchange rate policy Finally, an overvalued exchange rate has been favoured by elites who travel and purchase abroad wanting strong currencies, which they often portray as cause for national pride. After all, governments collect taxes in domestic currency, but pay for international debt and imports with foreign exchange. However, a strong exchange rate only provides a temporary solution, worsening balance of payments' difficulties in the longer term, favouring consumers over producers, and importers over exporters, besides encouraging consumption at the expense of savings. Increasing imports for consumption either deplete foreign exchange reserves or require external borrowing. Overvalued exchange rates' potential for fighting inflation is risky as balance of payments deficits cannot be sustained indefinitely. Exchange rate-based currency board and stabilization arrangements in transition and developing economies are similarly problematic. Economies maintaining overvalued exchange rates have often later experienced severe currency crises. Quasi-nationalist development ideologies and weak elite opposition enabled many East Asian economies to use undervalued exchange rates to discourage imports and promote exports, with effective protection for import-substituting industries conditional on successful exports.

"The stagnation of the last decade was due to the failure to reform adequately after the global financial crisis. Covid-19 recessions are undoubtedly different from recent financial crises, and will need bolder monetary, supply-side and industrial policy measures to catalyse and sustain economic relief, recovery and restructuring measures to address previous maladies and the post-lockdown malaise."

Macroeconomic populism? Deficit spending supposedly responded to ‘populist' demands by ‘distributional coalitions' of interest groups demanding higher wages, cheap housing, public healthcare and free schooling. Undoubtedly, their political support was sought by regimes, elected or otherwise, who were typically unwilling or unable to collect enough revenue to sustain such expenditure. In recent decades, macroeconomic populism has become a catch-all explanation for deficit financing, ostensibly to finance redistributive government spending, regardless of actual expenditure patterns. But rather than populist redistribution, deficit spending was often for ‘security' (i.e., the military and police) or physical infrastructure, rather than social expenditure, or corruption. The narrative implies that regimes could not resist demands for redistribution, presumably the price of retaining political authority and influence. Undoubtedly, government capacities to directly tax incomes and assets have been constrained, with the influential generally better able to evade taxes. Sovereign debt and fiscal crises, due to borrowing to spend beyond budgetary means, were rarely due to ‘excessive' populist demands. The actual reasons for budgetary deficits were often multiple as well as historically and politically specific, rather than simply due to regimes succumbing to redistributive claims. US presidential endorsement of Arthur Laffer's ‘supply side' economics' claim of greater growth due to more investments with lower taxes on the rich fuelled the counter-revolution against progressive taxation. Nevertheless, ‘macroeconomic populism' became the default explanation for all manner of deficit financing, including ‘soft budget constraints' in ‘communist' ‘command economies'. Latin American populist fables Although there have been few truly ‘populist' regimes in Latin America, most famously Peronist Argentina, ‘macroeconomic populism' has become a catch-all term, used to explain why governments increase spending and run budgetary deficits. Undoubtedly, many Latin American regimes pursued import-substituting industrialization using high tariffs to protect ‘infant industries' from the 1930s. But high import tariffs augmented, rather than diminished government revenues, in contrast to the tax breaks and subsidies for export growth. Although precipitated by then US Federal Reserve Bank chairman Paul Volcker raising bank interest rates from 1980 to kill inflation, the Latin American debt crises from 1982 were again misleadingly primarily attributed to preceding populist macroeconomic policies. Similarly, the significant improvements in popular wellbeing earlier this century in Brazil under the PT, Uruguay under the Frente Amplio, Ecuador under Correa and Bolivia under Morales primarily involved massive employment generation and secondarily, ‘productive' social protection, rather than the unsustainable transfers depicted by macroeconomic populism. Neoliberal ghosts return

Macroeconomic populism thus became the default formulaic Washington Consensus ‘explanation' for deficit financing from the 1980s to explain away all manner of fiscal deficits, and to justify policies imposed by the Bretton Woods institutions, precipitating the region's ‘lost decade'. The International Monetary Fund required short-term macroeconomic (price) stabilization policies to counter often runaway inflation. The World Bank's typically medium-term ‘neoliberal' structural adjustment policies sought to liberalize not only goods and services markets, but also those for finance, labour and social services, previously provided by governments and state enterprises. Reviving ideological ghosts from the past, neoliberal commentators are once again warning against deficit financing. Instead of recognizing the need for consistently counter-cyclical fiscal policies over the duration of business cycles, they dogmatically insist on minimal annual budget shortfalls in the short-term, and on balancing budgets by next year, regardless of the recession's nature and duration. The stagnation of the last decade was due to the failure to reform adequately after the global financial crisis. Covid-19 recessions are undoubtedly different from recent financial crises, and will need bolder monetary, supply-side and industrial policy measures to catalyse and sustain economic relief, recovery and restructuring measures to address previous maladies and the post-lockdown malaise.

The crisis presents us with an opportunity to do better, to move forward. There is much to learn and do to progress, including abandoning the very modes of thinking which have led to the mess we are in. Exorcising ghosts from the past will be imperative. --------------------------------------- Link: http://ipsnews.net/2020/06/economic-ghosts-block-post-lockdown-recovery