COVID-19 has changed the world in unprecedented ways. It has engendered not just a health crisis but a socio-economic one of monumental proportions. It has shown world leaders and policymakers that the idea of perpetual growth is an idealistic one and building resilience is as important. Some of the contemporary development narratives have been shaken to their foundations and are on the verge of collapse. These could go through radical changes with governments of each country trying to protect their citizens and economies. But, in some areas of developmental governance, COVID-19 has displayed that the divergences and contestations around the world are nothing but ideological tussles which impede on achievement of highest welfare possible. It has shown that there must be a general consensus on certain grand narratives with only variations in the nitty – gritties of implementation to account for national idiosyncrasies. Some of the changes (or continuities) on global perceptions of development that the COVID-19 pandemic has induced are discussed below:
Global Value Chains
The mainstream development narrative puts a lot of emphasis on value chains. It believes that the rural population doesn’t have access to these value chains thus are divested from the opportunity to profit from economic growth. It insists on the expansion of these value chains to include all regions in order to ensure the poor have access to opportunities to lift themselves from poverty. The last thirty years of economic growth and value chain expansion has precipitated economic activity to a global scale. Today, the term globalization is used to characterize the world and with great accuracy. Multinational companies have employed nascent innovative technologies to create a global network for their products whereby a singular product may have a manufacturing base in multiple countries and a market all over the world. This has resulted in a shift of manufacturing from the West to countries with cheap labor in the East. China has emerged as the global manufacturing capital of the world.
Because the large scale manufacturing of products is concentrated in a handful of countries, the Covid-19 pandemic resulted in obvious issues. The virus ruptured the Global Value Chains (GVCs) all over the world with countries enforcing export-bans to prevent the virus from further transmission. Although prudent to reduce inter-country transmission of the virus, this however meant the countries involved in manufacturing weren’t able to export notably pharmaceuticals and personal protective equipments (Baldwin & Evenett, 2020). This caused a medical equipment crisis in many countries with experts and policymakers questioning the merit of globalization and global value chains altogether.
The emotional logic in this situation is to lean towards protectionism and autarky. Populist leaders all over the world will use this narrative to get elected. Trump’s claims of ‘Making America Great Again’ were based on the same promises of bringing manufacturing back to the United States. However, that reasoning doesn’t account for the competition in manufacturing that the Western states are likely to face from countries with cheaper labor and better value chains like South Korea and China. These countries which have prospered from globalization and have been able to lift a majority of their population out of poverty will still continue to use their competitive advantage to thwart any western dreams of large scale manufacturing domination again. The putting the clock back logic in manufacturing isn’t realistic. Developed countries will only be able to retain their domestic markets which aren’t big enough to restore high productivity and would handicap the entire economy from higher costs (Collier, 2018).
Having said this, the pandemic has taught countries to diversify manufacturing in case of any crisis situation. Regional manufacturing and trade may get emphasized in the coming years to ensure the value chain clusters aren’t heavily concentrated in a single geographical location. However, it would be a hyperbole to claim that the pandemic has eliminated global value chains and globalization completely. The mainstream narrative is likely to remain a very prominent source of alleviating poverty levels all over the world.
The age old debate of ruthless competition or considerable state intervention has preoccupied policymaking and development discourse for a century. Although only a few economists would argue for laissez faire, there are plenty of debates on the issue of investment in merit goods by states. Mainstream economists argue that a heavy welfare state isn’t sustainable and will bankrupt the nation. On the other hand, advocates for social democracy insist on the development of education and health as primary means to not only enhance public well-being but accelerate economic growth itself. COVID-19 has helped us choose.
Health and education both have high social returns. The Covid-19 pandemic has pronounced this assertion even more. The countries holding the notion that investment in health and education must wait for sustained growth have been exposed of their short-sightedness. It is not only the available health facilities that contribute in containing the virus but also underlying conditions of public health like sanitation, nutrition and drinking water. Similarly, high public awareness has played a key role in flattening the curve in East Asian countries. Economic growth and expansion of per-capita earning can be important means but neglect of public goods like health and education exposes states during disasters. It is important for countries to understand the value of public goods in promoting well-being and make a radical change in their mindset to set these as ends in themselves and not just means for economic advancement.
Of course, it is important for states to dovetail economic growth with investment in public goods. A good model is the Social Democratic narrative of development of the Scandinavian countries whereby they have been able to balance equity with efficiency in order to achieve the highest Human Development Index (HDI) in the world. A support-led process propagated by Amartya Sen also shows that even low-income countries can undertake this balancing. Sen argues on the logic of relative costs and asserts that although the low-income countries have fewer resources to invest in health and education because of the service-oriented nature of these goods, the low labor costs in the low-income countries mean the costs of investment is also commensurately lower (Sen, Development as Freedom, 1999). The next decade will see a radical change in the perception of merit goods and their value will be accentuated in national planning and budgeting.
COVID-19 is a serious health crisis but also has significantly impacted the world economy. Countries are spending a lot of money to contain the virus and with domestic and foreign revenues drying up; this is proving to be a herculean task. The world economy is at a halt. This has resulted in lower corporate profits, declining consumption and increase in unemployment which has massively attenuated the domestic resource revenue of governments (OECD, 2020). And, as this crisis has blanketed the entire world, even developed countries are struggling to cope meaning foreign aid for low income countries is likely to decrease. As public debts rise, countries will start looking at other means of generating revenue.
One such stream of revenue could be a progressive tax on capital. As 45.5 million Americans filed for unemployment, United States billionaires saw their wealth increase by 20 percent since the start of the pandemic (McCarthy, 2020). It is important to note that the top 1% earn their wealth through capital and not labor. With private capital to national income ratio sharply on the rise in the last two decades averaging around five times in the developed countries, even a small tax on capital would generate significant revenue for the state to stabilize the economy in this grave situation (Piketty, 2017). Such a radical decision would have been met with fierce opposition in normal times but with the COVID-19 pandemic threatening to overwhelm the economy, politicians would have the justification to levy it.
Another financing implication of the crisis could be a want of low-income countries to grow out of foreign aid. Foreign aid has been crucial for low-income countries to invest in development with particular success achieved through the Millennium Development Goals in sub-Saharan Africa. But the pandemic has displayed that such aid may be cancelled at any given point leaving developing countries astray. Foreign aid comes with large future commitments with most donors requiring the recipient countries to contribute. When aid stops, the projects are halted as well with the recipient country drowning in debt but without completion of the project. This might result in low-income countries either refusing foreign aid or hesitating to invest in the projects. The unreliability of aid could be a deterrent for aid in the coming years.
With development financing shrinking, one guaranteed casualty will be the commitment towards the Sustainable Development Goals for developed and particularly developing countries. When the populace is unemployed and hungry, global issues like climate change tend to be ignored. And the global recession that is likely to ensue will mean the priority of the countries may not shift for a few years. This will obviously negatively impinge on the deadline for the Sustainable Development Goals which is 2030.
The primary lesson for countries from the pandemic is clear: it is important for the market and the state to co-exist. History has displayed that development models, as models often are, are flawed and do not always account for the nitty-gritties of implementation. Rather than confining themselves in an ideological bottleneck, it is important for countries to focus on the context at hand and choose developmental policies that work instead of choosing policies that cater to a particular ideology. Installing pragmatism to developmental decision-making has become of utmost necessity. To conclude, “The challenges shift from the grand debates to the nitty-gritties of ‘Public Sector Reform’ or the struggles for operational and accountable structures of decentralization” (Sharma & al, 2014, p. 18).
Baldwin, R. E., & Evenett, S. J. (2020). COVID-19 and Trade Policy: Why Turning Inward Won’t Work. CEPR Press.
Collier, P. (2018). The Future of Capitalism. London: Penguin Random House.
McCarthy, N. (2020, June 22). U.S Billionaire Wealth Surged During the Pandemic. Retrieved October 10, 2020, from Statista: https://www.statista.com/chart/22068/change-in-wealth-of-billionaires-during-pandemic/
OECD. (2020). The Impact of the Coronavirus (COVID-19) Crisis on Developmemnt Finance. OECD.
Piketty, T. (2017). Capital in the Twenty-First Century. London: The Belknap Press of Harvard University Press.
Sen, A. (1999). Development as Freedom. New York: Alfred Knopf.
Sharma, S. R., & al, e. (2014). Contested Development in Nepal: Experiences and Reflections. In S. R. Sharma, & e. al, Contested Development in Nepal: Experiences and Reflections (p. 18). Kathmandu: School of Arts, Kathmandu Unversity; Nepal Centre for Contemporary Research.