NOW that the sun has finally set on 2020, the devastation brought about by Covid-19 is coming into stark relief. Here in Pakistan, where Covid-19 was not as intense as elsewhere, more than 10,000 people lost their lives. Covid-19 has also been an unmitigated economic disaster; GDP slid into negative territory for the first time since 1952. Where this pandemic has wreaked havoc on economies and societies everywhere, it has also highlighted ways in which economic and political systems will transform in the post-Covid world.
In terms of economic systems, Covid-19 has created a challenge for capitalism not unlike the Great Depression, when economic activity came to a near halt albeit for different reasons. During the Great Depression, Keynesian ideas that propagated the state’s role in economic management became dominant. Keynesian ideas ran into stiff opposition from the Hayek-Friedman camp, especially after 1990 as neoliberalism gained wide currency and markets were declared to be the only game in town. Before Covid-19, Keynesian ideas had all but become a distant memory.
The economic disruptions in the immediate aftermath of Covid-19, however, spurred countries — and Keynesian thinking — into action everywhere. According to estimates by McKinsey & Co, a total amount of more than $10 trillion was earmarked as economic stimulus by different countries. The United States, long a bastion of free-market thinking, has injected over $3tr into its economy with the federal government sending direct payments into citizens’ accounts. In April last year, even the IMF, one of the gatekeepers of the present economic system, urged governments to use fiscal policy to “…save lives and protect people”.
On a deeper level, Covid-19 is now bringing about a reassessment of the touted role of markets as the only tool for bringing about economic growth. This consensus on the neoliberal approach to organising economies is unraveling, with states taking on a more muscular and a more permanent role, especially in economic policymaking. Surprisingly, Pakistani policymakers have remained somewhat aloof from these important developments. The government has shunned fiscal activism while relying on the State Bank for injecting more liquidity into the economy. The reality remains that direct and widespread state help for common citizens is all the more urgent in Pakistan given the massive increase in poverty due to Covid-19.
Covid-19 is bringing about a reassessment of the role of markets.
In terms of political systems, a robust Chinese response in countering Covid-19 and strong economic recovery clearly points towards the rising influence that Asian countries like China, India, Indonesia and Pakistan are going to wield in geopolitics. The Centre for Business and Economics Research, a UK-based economic consultancy, reported that China will overtake the US to become the biggest economy in the world in 2028, half a decade earlier than expected. In the words of Kishore Mahbubani, a prominent Asian scholar, the time has arrived for an “Asian century” as Asian counties will go on to dominate both geopolitics and economics.
One outcome of these changing geopolitics will pertain to the rising influence of Asians in all important international organisations. The World Bank and the IMF, which have always been headed by an American and a European, respectively, will most likely be headed by an Asian person in the near future. New people will bring new perspectives forcing these increasingly insular institutions to make friendlier policies towards the Global South, including provisions for costless knowledge sharing between rich and poor countries in emergencies — vaccines for pandemics is one example.
The second outcome of a rising Asia is going to be less salubrious. Countries from the Global South will try to emulate the Chinese model of development. There is a catch, however. Where China’s gains against poverty are unprecedented in history, this development has come at a steep price: China is not considered a democratic country. Countries from the Global South will need to walk a fine line between development and authoritarianism, always on guard against sliding towards full-fledged authoritarianism. And, the fact that the state is now becoming more significant everywhere in economic policymaking is going to exacerbate this situation.
A brave new world is emerging out of the ashes of 2020. Global economic and political institutions will show significant recalibration in the future. Policymakers should pay close attention to these changes and not shy away from going down the Keynesian road in order to revive the economy. Finally, China’s progress against poverty is definitely worthy of emulation, but it must not come at the price of more authoritarianism.
The writer completed his doctorate on a Fulbright scholarship. He teaches economics and public policy at Habib University.
Published in Dawn, January 18th, 2021