The economic policy response to the Covid-19 coronavirus pandemic to date has overwhelmingly lacked creativity and imagination, with the emphasis on a “V-shaped” recovery.
Ronak Gopaldas, director at Signal Risk and a fellow at the Centre for African Management and Markets at the Gordon Institute of Business Science (Gibs), said that Covid-19 had provided an opportunity to reimagine existing economic systems that should prioritise sustainability and wellbeing above profits and growth.
The pandemic has “lifted a mirror, exposing our inefficiencies and levels of inequality,” he said.
“When we came into the pandemic we were already in crisis in many parts of the world, suffering from a climate emergency and a racism pandemic. The intersection of all these issues means that we are in uncharted territory – a full political, institutional and economic reset, similar to the one seen in 1989.”
Gopaldas said this “great reset” had to put people first and not merely institute a retrogressive knee-jerk reaction in an attempt to reinstate the previous economic status quo.
“The world has changed. We must look forward, not back.”
Capital market response
“The machine is broken. A return to ‘normal’ can’t be – we can use this moment of crisis to reimagine,” Adrian Saville, chief executive of Cannon Asset Managers and professor of economics, finance and strategy at the Gibs said.
There had been a substantial recovery in capital markets since the March selloff and most asset classes, except the global real estate sector, had seemingly shrugged off the pandemic, Saville said. However, corporate earnings for the period were still to be reported and were anticipated to fall by 70%.
Early indications from capital markets, usually a good predictor, were that the global economic recovery was likely to be “V-shaped”.
“While capital markets are saying that it will be a quick recovery, that is not the information coming out of China, where spending and economic activity is not at previous levels.”
The fiscal and monetary economic stimulus provided by governments was “absolutely monstrous”, at five to 10 times of that following the 2008 financial crisis, he said. However, the possibility of a hangover, with “massive bloated government balance sheets that someone has to pay for” was “very real”.
“Globally, governments are fiercely spending money they don’t have. All of the stimulus is based on borrowed money, which is unsustainable in terms of traditional economic theory. But, much depends on how the money is spent.”
Saville gave, as an example, Roosevelt’s New Deal economic stimulus package in 1930s US, which focused on spending on rural upliftment, infrastructure and public works.
“You can spend the money well and the economy will catch up and forgive that debt,” Saville said.
The response of global leaders to the Covid-19 pandemic had been fragmented and “underwhelming”, Gopaldas said.
“At the time of the financial crisis, global leadership and institutions believed in multilateralism. Now, there is a rejection of the doctrine of global cooperation.”
Those countries that prioritised inclusion and focused on the wellbeing of their citizens had seemingly fared better in their efforts to contain the pandemic.
“The wellbeing of the most vulnerable in society is important because the future of the richest and the poorest are inextricably linked,” Gopaldas said.
Many countries led by women, such as Germany, New Zealand and Iceland, had adopted an inclusive approach, rather than command and control.
“New Zealand is a standout example of a comprehensive, coherent response to the pandemic,” Saville said.
“The nature and depth of our problems is complex and we won’t be able to solve them in silos,” Gopaldas said. “However, in crisis there is opportunity and the collaborative response we have seen from the government and corporates has provided encouraging examples of what can be done when you are forced to innovate,” he said.
The argument that policy had to prioritise either people or the economy was very binary. “A pivot left or right to capitalism or socialism is two dimensional. We don’t have the luxury of being able to pick one or the other; we need to shift from shareholder to stakeholder value for the sake of sustainability. Inclusive growth is the business case; we need to shift to people and profit.”
Gopaldas said that while South Africa’s initial response to the pandemic was quite good, the economic response was “disjointed and full of contradictions”.
“South Africa’s response has been mixed. It started well with decisive leadership and the healthcare response was strong. However, arbitrary regulations have begun to erode public buy-in. The true test of the administration is still coming,” he said.
Gopaldas argued that economic management was needed to restore confidence in the economy. “Confidence is a cheap stimulus and can be achieved by differentiating yourself and by being clear.”
Saville said the country needed urgently to address the “yawning deficit between what had been promised and what was delivered. South Africa has had years of promises. There is a deficit of trust, policy coherence and delivery and no amount of money will solve the country’s problems until those three are fixed.”