Democracy and Markets Are Under the Pandemic
By: Sakshi Kharbanda
Tags: Pandemic, Politics, News, Market, Economics

Democracy is expected to clear the constraints and equalize people’s ability to participate economically, politically, and socially in an unequally arranged setup in terms of power, allocation of resources, gender equality, education, and occupation. In Raghuram Rajan’s words, “Democracies are necessarily softhearted, whereas markets and nature are not; government action has/must* inevitably expand to fill that gap”. It captures the current emotions running across the “COVID affected world. Free markets democratize the economy as they bring along economic freedoms, and widen the horizon of democracy by translating them into the stronger political voice of millions.

*(has) has been changed to (must) in the quote, for the action hasn’t expanded yet. However, it must soon.

The pandemic is drifting us away from democracy. Growing Public distrust in governments as well as in enterprises is visible. The crisis has added additional uncertainty to the already uncertain times. People are becoming increasingly intolerant to change in these changing times.

While we can’t have a system leaning only towards a few, it’s also equally valid that enterprises cannot work efficiently, even purely profit-oriented ones, if democracy instead of being supportive, rather puts pressure on them. We need innovators more than ever before who can devise ways to disperse the risk involved in bringing the economy back on track. But on the contrary, what we are witnessing during this crisis is diametrically opposite of that.

The private sector is, like in all crises before this one, getting the biggest lash.

Of course, I am not saying governments shall let them loose and allow them to over exceed their liberties, take excessive risk, and ruin customers’ and government’s sensibilities. I am only saying that the hostility towards economics and market principles is not justified, and it cant be rejected entirely. Also, the private sector has to be cautiously incentivized and disincentivized to avoid unwanted consequences. The excess needs to be controlled — of markets as well as political pressure. Politics must use enterprises to help states come out of the current crisis.

Forethought and prudence are required when doing the above, as objectives of the private sector are not similar to those of governments, and that may reflect the gap between intention and outcomes. There need to be more long term, less ideological, braver, and painful choices that are to be made, if we are to avoid that.

For regular times what we need is,

Moderately Free Markets + Free Flowing Finance + Suitable Political Structure

Pandemic crisis offers a story slightly different from other financial crises as financial disruption is just consequential and arising from a more significant health crisis. Nonetheless, it shares many broad similarities with the 2007 economic bust, and things are going wrong as they do in every financial crisis.

For pandemics, we need:

Moderately Free Markets + Free Flowing Fiscal Stimulus + Finance + Suitable Political structure + Public Policies Backed by Science and Facts.

Who are the other easy scapegoats of a crisis? Foreign Immigrants and illegal migrants. There are more chances of this happening when people don’t have an escape, as governments are also not responding to their issues, and they see a dull future for themselves lying ahead. They see them as threats. Since immigrants don’t/can’t vote, cannot voice their opinion, and can’t defend themselves, they become easy prey. But they are essential for the economy and thus can’t be easily dispensed away for the reasons below :

a. Immigrants: They offer their services for the kind of work, which citizens of any developed country shy away from doing.

b. Foreign Workers: They have “skills and expertise”, which any particular geography in point (most developed countries) on its own is unable to furnish.

We have to find better and real solutions to the given crisis, better than finding scapegoats.

“The search for a scapegoat is the easiest of all hunting expeditions” Dwight D. Eisenhower.

The crisis indeed is systemic, but it’s also arising out of specific personalities and institutions, domestic and foreign, and from citizens like you and me. We cannot absolve ourselves for being disconnected “still social on social media” selfish individuals.

Although many stressors add burden on the economy, like, trade imbalances, health infrastructure deficit and financial exuberance, this time it’s the interdependency amongst the economies which caused the havoc. We can overcome some of these through a combination of fiscal stimulus, capital injections, and bailouts. But in the longer run, we have to address issues permanently to avoid facing a similar or an even bigger crisis. We have to have more transparent financial systems, more data privacy, and unhindered basic incomes, especially during health crises of this sort.