Deaths due to the pandemic will be much higher if ordinary people are not given the resources to be resilient. The optimum way to do so is through a basic income system
India has been given time to prepare, or in the jargon of the moment, to get ahead of the curve before the death toll mounts, and the economic slump heaps further misery on people.
A hundred years ago, the Spanish flu swept the world, killing over 40 million. But, the world economy did not suffer from a depression. Paradoxically, while we hope that the Coronavirus will kill far fewer, the ensuing economic depression will, on current trends, be much worse. If so, there will be many more deaths.
The main reason is that the economic crisis has been waiting for some time to happen. The pandemic is like a trigger. The global economic system has evolved into global rentier capitalism, not anything close to free-market capitalism. With rentier capitalism, more and more of the income and wealth flow to the owners of assets-physical, financial and so-called intellectual property. The share of income going to people who work and labour has been falling across the world.
A new class has emerged, the precariat, consisting of millions who are not in the informal economy as traditionally understood or in what the left likes to call the proletariat, but who are deeply insecure, with low, fluctuating and uncertain incomes. They are living on the edge, mostly with chronic debt. One downturn will tip many into the abyss.
This relates to a key difference between 1920 and 2020. A hundred years ago, the US economy was able to bounce back because the private debt was less than 50% of national income, corporate debt was insignificant, and the size of the financial sector was not large relative to the real economy. Just before the pandemic struck this year, private debt was over 150% of the US national income, and corporate debt was 73% of GDP. In Britain, Japan and many other countries, private and corporate debt were also at record levels.
This means that the major economies entered the pandemic in an extremely fragile state. The negative multiplier effects of a small downturn will be huge, and this is not going to be small. Moreover, the global system is grossly over-financialised, with finance accounting for over 350% of American GDP, and over 300% of Britain’s. Expect the stock market crashes of recent weeks to be a harbinger of worse.
What we are confronting is the biggest global demand shock in history. It requires brave and transformative economic policy. While central banks and the international financial agencies will resort to fancy monetary instruments and will do their utmost to prop up corporations and financial markets, it is what happens to ordinary people that will matter most.
We should presume that the Indian government is not complacent or timid. But, a key principle must be kept in mind. Whatever the delaying effect of lock-downs, deaths due to the pandemic and to the ensuing economic downturn will be much higher if ordinary people are not given the resources to be resilient. Indeed, the slogan should be: Rescue, Resilience, and Revival.
Having worked on it for over 30 years, I am convinced that the optimum way to provide resilience is through a basic income system. We are fortunate in this respect. We piloted that system in villages of Madhya Pradesh and west Delhi, and we know that it works, and is feasible in India. Our pilots showed that even in what might be called ‘normal times’, a community-wide basic income system improves health, nutrition, schooling and production, and induces local multiplier effects of the sort most urgently needed in the crisis. It is not inflationary because the increased local demand induces increased local supply of basic goods and services.
With numerous rural-urban migrants flocking back to their villages, imagine the potential of providing every man and every woman with Rs 500 a month. We know this is not much but is still a little more. As we found, the emancipatory value is greater than the monetary value. Just as they should avoid paternalistic schemes such as universal grain distribution, a recipe for chaos, corruption, waste and inequities, the authorities should avoid targeting or selectivity through means-tests. They fail in the best of times, not reaching those in need. The basic income must be paid to every usual resident in every community across the land. It can be collected back, as a tax, from the rich in due course.
As other economists have argued, a short-term rise in public budget deficits in current conditions is fiscally good. The cost in lives and economic loss of not going in the direction recommended would be many times that cost. But, expenditure switching is also essential, since the existing subsidy state is bloated, chronically inefficient and shockingly inequitable. The government should take advantage of the crisis to combine payment of basic income with fiscal reform that would be much harder in more normal conditions.
Several interesting schemes are trying to mobilise private money as donations to such initiatives as the PMNRF and PM CARES. Those are likely to be politicised, and even if they were genuinely philanthropic, there would be widespread suspicion that they have ulterior motives. Better for the affluent to allocate money to help legitimise a basic income system by making a start in randomly chosen districts, setting an example that the state and central governments could follow with conviction.
Perhaps, what is needed is a variant of the Bombay Plan, in which political leaders and leading industrialists and other affluent persons could come together to institute a policy that could set an example for the whole world. There is the technology to be able to identify everybody and deliver basic incomes (it could even induce much more documentation). Above all, there are potentially millions of lives to be saved.
The author is Professorial Research Associate of SOAS, University of London. VIews are personal