In the midst of what might possibly be the worst recession since 2008, and staring down the barrel of overwhelming economic, social and human disaster, there is widespread recognition that increased welfare spending is critical not just to contain the fallout from the pandemic, but also to effectively combat it. By ensuring timely delivery of essentials and basic income support, one can minimise the chances of people venturing outside, and hence contain the spread of the COVID-19 virus.
There are valid concerns raised as to whether these measures go far enough in helping workers or whether institutional mechanisms will be able to convert announcements into genuine progress on the ground. This blog post analyses the arguments behind the justification of introducing welfare schemes in today’s times, and the underlying economic logic behind them.
The increase in welfare provision is sorely needed in a catastrophic situation such as the one we face. But while the readiness to deploy instruments to achieve this is unprecedented, the measures themselves are not. Much of the welfare measures rolled out by governments are standard income support and welfare packages, larger in scale but with no fundamental changes in their basic design. Much of these measures, moreover, have been advocated by many to deal with fallouts from economic crises in the past, only to be met with middling levels of success and acceptance by the powers that be. The impact of the coronavirus has shown us how quickly governments can turn over the fundamental principles of austerity if they are pushed to do so.
This post does not simply aim to criticise government policies of the past in light of current actions, but to outline a warning for the future. The problem of economic distress will not go away once the pandemic does, because then we will be dealing with battered economies, high unemployment, and weak to non-existent growth. In such times, when the threat of the virus has ebbed, there will be calls to roll back the welfare measures of the government. These calls will have to be countered stringently, on the grounds that the need to protect welfare and ensure government assistance is not contingent simply on the existence of a virus, but on the inability of the economic machine to provide for welfare.
MONETARY POLICY, CREDIT AND LOAN FORGIVENESS
Nearly all major Central Banks have announced their readiness to offer whatever help is needed to combat the pandemic. These moves were carried out during the Great Recession of 2008 as well, under the strategy of “Quantitative Easing”. At the time, those measures were critiqued for potentially leading to inflation. However, in a situation where the motivation to invest is lacking, there is no fear of inflation spiking. This is as true today as it was in 2008.
There are other policy actions that are, for want of a better word, interesting. The European Central Bank (ECB) has announced that it has removed previously self-imposed limits on the amount of any one country’s debt it would hold, allowing for an increase in the amount of money it can print. This move will face legal challenges, and an accusation by some that it could lead to the ECB directly bankrolling governments. Yet during the Greek crisis, the ECB did extend financial support, purchasing Greek debt in an attempt to drive down interest rates and provide emergency funding, with the condition that austerity was imposed and government spending slashed. The timeline of events and the deep instability and unrest following these measures are well known.
It would be ludicrous if monetary support to tackle the pandemic were to be withheld from an economy if the government did not cut taxes and raise revenue. But if it seems ridiculous to ask for austerity measures today, why was it acceptable to ask for it during the Greek crisis, when the human costs of the crisis were significant? And while the ECB has pulled out the big guns today to combat the crisis, one must be wary of what happens after. It is not inconceivable that the ECB or other creditors would ask for austerity once again to repay public debt accumulated in times of the pandemic. These moves will have to be contested on the grounds that the economic logic calling for relief measures today is the same as in any other economic crisis. When private investment freezes up and mass unemployment occurs, no matter what the cause for the downturn, austerity is self-defeating and destructive.
Other measures resorted to to bring relief to small businesses and consumers have been the announcement of loan moratoriums. The Reserve Bank of India has announced that consumers have recourse to a 3-month moratorium on their EMIs, while the US has announced that those with student loans from federal sources can postpone payments up till September 30th, with a waiver of interest charges. In France, Prime Minister Macron has announced a freeze on rent and utility bills for small businesses.
These moves are unprecedented, for they go against one of the fundamental building blocks of the capitalist economy. The free market logic goes that if a loan has been taken, the efficiency of the system is ensured if the capital advanced is rewarded through periodic repayments. In the absence of such repayments to capital, it is argued, capital would not be forthcoming, and the economy would suffer from a lack of resources for investment, growth and employment. In the wake of a pandemic, however, governments have realised that the health of the economy cannot be separated from the health of its citizens.
These moves are very welcome, no doubt. But these measures do not owe their first articulations to today’s policy-makers. One of the criticisms of the response to the 2008 mortgage crisis was that it was biased towards banks, and did not provide any support to families to help restructure the terms of their loans. The homeowner assistant program announced by the US government was a voluntary program that primarily supplied capital to banks, and did not meaningfully involve homeowners. If loan rescheduling can be seen as a valid response to today’s deep crisis in the economy, why couldn’t it have been done before? It is vital for progressives to establish these moves as valid precedents, and ensure it does not become a one-off move, seen as being applicable only in pandemics.
INCOME AND CONSUMPTION SUPPORT
India is increasing the allocation of food to be distributed through the Public Distribution System, and Hong Kong is providing HK $10000 to each resident to combat the outbreak. In the US, unemployed workers would get an additional $600 per week over and above the benefits from their states, with an additional month of benefits. This did give rise to some pushback from certain Republican senators, who claimed that the increase in benefits would incentivise workers to quit their jobs.
This is a familiar argument, enshrined in textbooks and mainstream discourse alike, frequently marshalled to argue why unemployment benefits should not be increased. Though there have been several arguments against this line of thought. For one, if workers are quitting jobs to avail of unemployment benefits, perhaps one must question why wages are so low, instead of attacking benefits for being so high. Nonetheless, it is remarkable that, apart from a few Republicans, the mainstream has not reacted negatively to these measures. The fact that the magnitude – actual and potential – of the unemployment crisis facing us today is vastly different from all other crises we have faced should not stop us from stressing the universal applicability of these measures in times of all economic crises.
In India, relief comes in the form of increased food support, with ration card holders eligible to an extra 5kg of rice and wheat free over and above their existing entitlements, with an extra 1 kg of pulses for three months, along with a host of other measures. The extra rations of cereals that are to be drawn from the buffer stocks of the Food Corporation of India (FCI), with additional procurement in the case of pulses.
There are several problems in the current scheme that have to be addressed. For instance, will migrant workers be able to access this scheme if they are not in their place of origin? Will coverage be held up for the vulnerable due to misplaced concerns about “efficiency” and problems with authentication technologies? Regardless of these vital concerns, it is no doubt a positive move for the government to ensure the problem of hunger is mitigated in these difficult times. But the problem of hunger is not unique to a pandemic. Buffer stocks in the FCI have always been present, and could have been used at any time to alleviate hunger. We must ensure that it continues to be used in this manner post the pandemic, when depressed economic activity would imply rising levels of food insecurity for the poor.
POLICY IN A POST-COVID WORLD
None of the above is meant to minimise the severity of the current situation or to critique the essential logic of the welfare measures introduced. This post simply makes the argument that while the pandemic is a threat the world has never faced before, the essential economic aspects – that of huge costs to human welfare due to rising unemployment, falling investment, and debt traps – of the current crisis is similar to crises we have faced before. Governments’ willingness to extend help to those affected that is on display today should ideally have been there every time the economy faced a crisis.
Moreover, this post is also a call to arms for progressive sections, to ensure the logic of welfare as enshrined in these policies today is institutionalised in the economy going forward, and the response to the pandemic is not seen as a response to a one-off, unique event. Whenever economic crises lead to a rise in economic insecurities, it must be combated with the same alacrity as seen today. It may be impossible for the quantum of support that is seen today to be forthcoming at all points in the future, but we must push to ensure that the willingness to intervene becomes an institutionalised feature of the State.
Some writers believe that the pandemic marks a turning point in which policy will move definitively leftward. Some believe that the world might just retreat behind barriers of populism and nationalism. It is, of course, nearly impossible to formulate a vision of the future in the midst of an uncertain present. But if we do wish for a more humane society to emerge on the other side of these trying times, it is essential that the world is made to realise that it should not take an existential threat to humanity for policy to put citizens first.
Rahul Menon is Assistant Professor in Economics at the Tata Institute of Social Sciences, Hyderabad, India.
Photo: No To Austerity: Anti-Austerity Protest In Dublin (Ireland) – 24 November 2012. By William Murphy.
3 thoughts on “Pandemics and the State of Welfare”
Could the extensive welfare support which was absent in previous economic crises be a consequence of the fact that almost the entire population is ordered to stay at home and hence unable to work or earn? The current crisis differs from earlier ones on this crucial aspect.
Hi. You are right that there is a significant difference between this crisis and others, in that people are ordered to refrain from taking part in market-based activities. In an economic crisis, the factors causing people to lose their jobs are different. But regardless of what causes market activity to cease, the effects are the same: people are unemployed, they cannot afford necessities, and rent and mortgages exert a powerful negative effect on welfare. If state support is extended in this case, there is nothing to say that it cannot – or should not – be extended in other situations of crisis when people’s basic welfare is so severely affected.
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