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COVID-19 lockdown: Coercing the poor, coddling the rich?

21 Apr 2020 at 22:21hrs | Views
From the perspective of reducing the negative public health effects of the coronavirus, national lockdowns will almost certainly - if adhered to - reduce the number of coronavirus transmissions while they are in place. The important question of when, and for how long, to implement them remains a matter of debate. But the main concern with such policies is their negative consequences for economic activity (businesses and workers) and other aspects of people's well-being. While all countries will suffer on these dimensions, less wealthy and more unequal countries will experience greater relative harm and have fewer national resources available to offset this. Every state has to grapple with, and adequately answer, the question as to how they will offset the harms caused by lockdowns. And it is primarily these costs that make the question of viable "exit strategies" almost as pressing, and contested, as how individuals are expected to survive while they are in place.

There is not yet reliable evidence as to whether death rates vary significantly by socioeconomic status in South Africa or elsewhere. Given that the virus causes death among those with underlying health conditions and through respiratory mechanisms, there are very real fears that the proportion of deaths could be worse in a country like South Africa where HIV, tuberculosis and other diseases afflict a significant portion of the population. Yet it is also clear that personal wealth is no guarantee of recovery. So while lockdowns in countries like South Africa are sometimes rationalised as being for the benefit of the poorest and worst off, they arguably benefit the well off at least as much. However, when it comes to the downsides of drastic measures, whatever their direct public health merits, the already-poor and vulnerable are unquestionably the worst affected. Poverty and inequality research abounds in South Africa, so there is no shortage of statistical information and analysis of how stark the already-obvious divides are. A particular concern in the current context is the risk of hunger and starvation.

That means a lockdown without significant compensating social and economic policy measures amounts to an inequitable socialisation of the cost of this public health intervention: the poor suffer relatively more than the rich for the same benefit to society. Besides being profoundly unjust, and exacerbating existing inequalities, this could also ultimately undermine the public health benefits in the longer-run of the pandemic.

A bourgeois logic?

This perspective does not shine a flattering light on the South African government's current approach: whether or not the lockdown was the right decision at the right time, it is a relatively stringent intervention but with compensating measures that so far have been much smaller than in other countries and are inadequate to protect much of the population. Furthermore, these measures focus disproportionately on formal businesses and workers, neglecting casual labor, the informal sector, and the broader population who survive on state grants and the scraps of the formal economy.

It was evident before the lockdown decision was taken that a political climate had been created amongst the chattering classes in which less-drastic measures were associated with bigoted clowns like Donald Trump and Boris Johnson, while more drastic measures were associated with authoritarian countries like China that seemed to be getting their epidemics under control or democratic nations with leaders who deferred to scientific advice. For that reason alone, it seemed likely Ramaphosa would err towards drastic action. But in addition, many of those who most loudly called for, and subsequently, endorsed the lockdown were part of a small elite who are relatively protected from its immediate consequences. Among these are permanently-employed academics, senior civil servants, civil society players receiving donor funds (at an increasingly favorable exchange rate), and journalists who could continue operating as "essential service workers" anyway.

An interesting paradox is that many of those calling for a lockdown did so on the basis that government should defer to "scientific evidence," but had little or no capacity themselves to understand or critically interpret such evidence internationally or for the South African context. But that is something for another time.

A striking failure is the half-hearted effort to raise funds in the face of the state's reluctance to borrow—for reasons discussed below. The power to tax is often argued to be at the core of the modern state, yet while the coercive power of the state, via the police and military especially, is being used (and abused) in South Africa to keep poor people in their homes and away from work, it is not being used to tax the wealthy. (In the early days of the lockdown, the number of deaths from police brutality almost matched the number from the virus—though some have argued that this is just "normal" police brutality under a different guise). One consequence of this approach has been a reliance on the philanthropy of the local super rich, rather than simply taking a portion of their wealth to ensure the survival of the society they have profited from.

That decision is significant in a broader political economy perspective. The Ramaphosa government adopted a policy approach which enabled the local super rich to frame themselves as benevolent philanthropists, personally named and thanked in the president's addresses to the nation (see his "Solidarity Fund"). That has carried over into the press. In truth, every precariously employed person who adhered to the lockdown for a week probably sacrificed more in relative terms than any of these billionaires through their donations.

Meanwhile, a number of commentators in the press—particularly in the business press—have suggested that the crisis presents an opportunity for Ramaphosa to establish sufficient leadership credentials to push through "structural reforms."

What are these "structural reforms"? Nothing and everything. First, an empty vessel: the South African economy has been performing poorly, it is tautological that it needs structural reform. Second, a Trojan horse: private sector interests are seeking to use pressure on government finances and energy generation capacity to implement a series of quasi-Thatcherite reforms. Privatising state-owned enterprises beyond what their current state requires, weakening unions, introducing private sector competition into sectors like rail transport through misguided economic regulators, and so forth. The intent is encapsulated in a piece by a recent CEO of Business Leadership South Africa which misleadingly weaves together different strands of the country's pre-coronavirus state to conclude that: "Because the government currently has no money, our only salvation is business."

In his most recent speech, these sentiments were echoed by the Finance Minister: "Most importantly, the crisis is an important opportunity for government to implement structural reforms to: restructure the network industries; liberate SMMEs to be the engines of growth and employment; and broad-based measures to lower the cost of doing business."

On the funding side it could be argued that, pragmatically, donations and charity are easier than tax, which would require new or amended legislation to be approved by Parliament. Avoiding that, however, suggests government has little faith in, or wants to avoid the scrutiny of, a pillar of constitutional democracy. In doing so it also evades broader public accountability and scrutiny. And indeed, even existing measures that require legislation are being treated like they will be rubber-stamped, confirming that Parliament's ineffective oversight in normal times continues even during such critical periods.

While legislatures in other countries like Kenya and Canada are putting together serious, well-substantiated policy options, South Africa's highly-paid parliamentarians and parliamentary staff are missing in action. Despite requests from the main opposition party and civil society, senior office-bearers appear to have opted for an extended holiday under the nonsensical excuse that they cannot be seen to be interfering in government decisions during a crisis.

Proposals from civil society

As has often been the case since 1994, it is left to civil society organisations to pressure government for greater accountability and social protection. Even as some, including ANC parliamentarians, have argued that the state should be left to make its own way unhindered, broad coalitions have formed rapidly to ensure accountability and that ordinary South Africans' interests are considered. Unsurprisingly, much of this activism relates to pre-existing concerns that are likely to be amplified by the pandemic and many measures to address it. These include domestic violence, spatial dislocation, hunger and food insecurity, educational inequality, limited access to healthcare including mental health support, and many others.

Unlike in normal economic downturns the initial problem is not that people and businesses do not want to buy and invest but that they are prevented from doing so. As others have noted internationally and in relation to South Africa, framing economic policy responses as "stimulus packages" suggests a misdiagnosis and incorrect prioritisation.

One very specific proposal has been to increase the existing, monthly child support grant. This makes sense because it requires little additional capacity from the state and gets cash into many poor households. Doing so addresses the immediate priority of social protection and has the secondary benefit of providing some stimulus to the parts of the economy still allowed to function.

Another set of 18 broad proposals calls for everything from state-facilitated childcare for essential service workers to a grant of R1,000 (about US$100) per person per month for four months. Many of these seem desirable.

But where should the money come from?

Making proposals on how best to spend money is a worthwhile exercise but arguably not the hardest. There are some major practical difficulties that civil society proposals have demurred on. Public finances were already in a dire state prior to the crisis. The negative impact of the lockdown and global economic downturn on the local economy will reduce tax revenue substantially and worsen measures of public finance stability. Already big tobacco has been arguing that the restriction on cigarette purchases should be lifted because of the millions the government is losing in excise duties. And while the lockdown has ended the country's loadshedding by the national power utility Eskom, it also expected to lose R4 billion in revenue in the first three weeks of the lockdown—compounding a dire financial situation that had already necessitated enormous bailouts from the Treasury.

Another issue is that the state often fails to deliver services in normal times—as civil society organisations often point out. Such basic capacity issues will not change during a crisis. At best, desirable outcomes might be achieved by focusing existing strengths on a small number of priorities. But that necessarily means that a large range of important concerns will be neglected.

Unwillingness to seriously consider costs and trade-offs is not uncommon in civil society. And in the current case is arguably the result of unconditionally enthusiastic support for the lockdown: many are unwilling to consider that saving lives might come with intolerable costs, including to the lives of those it is supposed to protect. This is reflected in the narratives of most opinion pieces which are premised with a statement along the lines of: "We recognise the lockdown was essential and applaud the bold and decisive leadership …"

Taking as given the necessity of a lockdown is an unwise stance that will seem less and less advisable as the current situation persists. Responsible decision-making requires giving some serious thought to the alternative, even if one ultimately decides against it. And here again one wonders how much a certain bourgeois logic is at play, when premature death is so much a normal part of many poor and vulnerable South Africans' lives. The seemingly benevolent argument that "we cannot choose the economy over lives" ignores the historical fact that this is precisely what has been done for centuries in South Africa—including in the post-apartheid period. Curiously, some South African commentators have found it easier to see the problem elsewhere, through Arundhati Roy's poignant piece on Narendra Modi's lockdown in India as an extension of his general brutality.

To the numbers, then. Proponents of an increase in the child support grant (in an open letter published on The Conversation) estimate it would cost R6.2 billion per month: R74.4 billion if maintained for a year. That would be a 35 percent increase in the current social protection budget, or three times the R23 billion total allocation to HIV/AIDS, but is merely referred to as "certainly not a prohibitive cost." Since the current lockdown could be extended further, or reinstated later, and negative economic effects will linger for some time, it is not realistic to think of interventions as only covering the existing lockdown period.

Similarly, the signatories to the open letter provide no cost estimates for any of their proposals, only one of which (a proposed allocation of R1,000 per person for four months) could cost in the realm of R220 billion: equivalent to 14 percent of proposed non-interest spending for 2020/21, or the entire social protection budget.

It is important not to lose sight of the recent history of South Africa's economy and public finances. The country's efforts to emerge from the aftermath of the global financial crisis have failed. And that has recently been reflected in the downgrade of the country's sovereign debt to sub-investment ("junk"). Contrary to some slightly hysterical claims at the time, the country had arguably been benefitting from a favorable view of Ramaphosa by the last ratings agency, Moody's, that delayed its decision to downgrade the country long after the other two main agencies had done so. In contrast to what some critics claim, the government did not adopt an austerity policy after the crisis: public expenditure continued to grow as planned, so the collapse in economic growth and tax revenue meant a relatively rapid increase in national debt relative to the size of the economy ("debt to GDP ratio"). It would be an exaggeration to call that a stimulus, but the (sensible) intention was to try and use the government's role in the economy to offset the downturn in the private sector and smooth the path to a recovery.

But the recovery did not come—partly for external reasons but increasingly due to internal failures associated with state capture. That led to the adoption of a policy of "fiscal consolidation," which simply meant designing budget proposals to align with a tapering off in increases to the national debt to GDP ratio. As those targets were also missed, the government introduced measures in some expenditure areas that equated to austerity by stealth. Notably, in the healthcare sector, this has involved capping personnel budgets in a manner that would inevitably lead to reductions in personnel, albeit accompanied by rhetoric that "frontline posts should be protected." Such historical policy stances provide an important backdrop to the current crisis in developed countries like the UK (even as the conservative tabloid press try to turn it into a triumph for the culprits) and developing countries like Ecuador.

Beyond the usual limitations, one reason for these rather obvious failures in the current context may be that rich countries have rapidly adopted dramatic increases in government spending, partly facilitated by unconventional measures by central banks.

However, whether unconventional monetary policy measures are as feasible for developing countries was already a matter of debate prior to the current crisis. As things stand, most proposals for measures like "helicopter drops" and implementing massive economic stimulus plans do not seem to reflect much substantive understanding of such concepts or do the hard work of establishing whether international experiences carry-over to developing countries. While they are based on a correct premise—that government is not doing anywhere near enough—the prescriptions seem remarkably irresponsible given how past fiscal crises wrecked, and were used to destroy, many African countries.

At the same time, the senior leadership of the Reserve Bank (South Africa's central bank) largely consists of former Treasury officials from the era of President Thabo Mbeki and his finance minister, Trevor Manuel: the same era when the BIG was swatted away, parliamentary oversight of the budget was entirely neutered and the importance of addressing inequality for sustained economic development was sneered at (until the IMF gave this credence decades later). So the South African Reserve Bank would, like the Treasury, also usually be very poorly placed to consider unusual policies to address the crisis. With the foreign institutions that they too-often look to imitate all adopting relatively radical stances, one might have expected past limitations might fall away much more easily—though there is as yet no sign of that happening at the Treasury.

The more substantive challenge is establishing, under very difficult circumstances and with limited time, what radical policies could work in South Africa. Unlike wealthy Western countries, South Africa has less resources per person, less flexibility in its public finances, and receives less generous treatment in global financial markets. For instance, at the somewhat more trivial level of currency fluctuations, while Cyril Ramaphosa has shown markedly better leadership than Donald Trump and Boris Johnson, investors nevertheless rush to dollar and pound assets and the Rand exchange rate hits dramatic lows against both currencies.

While South Africa's sophisticated financial sector is an advantage in facilitating inflows of foreign capital, it also means that rapid capital outflows are also possible. And in a debatable, and unfortunately-timed move, the government recently announced a relaxation of restrictions on capital outflows—when some experts argue the opposite is required to deal with the current crisis. If anything, there was a case to be made for a tax on speculative and other capital flows, but even serious consideration of such measures would require an independent intellectual capacity that is sorely lacking.

The way forward

While uncosted proposals are being made for new initiatives, there are resources available from initiatives defunct under the lockdown like the national school nutritional scheme which should be redirected. If the state lacks the capacity to quickly repurpose such schemes, as appears to be the case, the money should certainly be transferred directly to households through grants. Furthermore, the state should immediately initiate a process to significantly increase taxes on individuals in permanent employment receiving stable monthly salaries— most of whom work for large corporations or the public sector—especially in the top tax brackets. And further tax measures will need to be considered after the crisis is over. The bottom line being: those most privileged in the current crisis must contribute substantially, not merely be given an option to donate.

The recent announcement by the President that Cabinet members will take a 33 percent salary cut for a period of three months sets a good, symbolic precedent within the state and has been followed by some other public and private sector officials. But it is less than 10 percent of their annual remuneration and, given their large initial salaries, that still leaves them better off than more than 99 percent of the population. Taxation is ultimately the best instrument for society at large.

Using the existing grants system for such redistribution is a good start, but it is not enough. Had the government, especially the Treasury, and many economists been less hostile to historic proposals for a Basic Income Grant it would be possible to reach almost all those in need. The Treasury's hostility was, characteristically, merely an imitation of attitudes elsewhere that undermined the construction and maintenance of broad social safety nets. In contrast, the Treasury strongly advocated an employment tax incentive, despite good reasons to believe it would merely be a subsidy to businesses. And subsequently extended it, despite a lack of supportive evidence. In a grim irony, the employment tax incentive system is now being used to subsidise businesses even as those outside the narrow social safety net receive almost nothing.

In the absence of an existing comprehensive social security system, new ways must be found to rapidly transfer support to the neediest. A significant number of them fall outside the current safety net, which is implicitly premised on the notion that the able-bodied of working age who are not in employment or education do not deserve social support. Given the limited capacity of the state, this is a severe challenge.

In terms of funding such initiatives there is some scope for monetary policy to play a role, both at the macroeconomic level and in facilitating state spending. The Reserve Bank's lowering of interest rates and buying of government bonds, including from the Unemployment Insurance Fund, are sensible measures that contribute to government's ability to finance current measures. (Though bureaucratic obstacles are already hindering the efficacy of the UIF measures). The appropriateness, feasibility and even definitions of more unconventional measures like quantitative easing remain debated, but have long-term risks that must also be considered. The Reserve Bank also has an important role to play in encouraging and enabling the financial sector to allow individuals and businesses to delay the costs of servicing debt.

But the stark reality is that developing countries, whether in Africa, Asia or Latin America are unlikely to be able to fund measures to offset the consequences of their own chosen interventions, and the international economic crisis, without corresponding international support. It would be unjust if such support were to be anything other than unconditional, but it remains to be seen whether wealthy countries and multilateral institutions like the International Monetary Fund, World Bank, National Development Bank and others have the will and enlightened self-interest when most nations are busy scrambling to save themselves. There are some interesting proposals on how such support could be structured to avoid some forms of exploitation, but these fail to address the history of neoliberalism and structural adjustment that still casts a shadow over funding from the likes of the IMF.

Meanwhile, such legitimate concerns are also apparently being used by the state capture faction in the ANC to advance an entirely different political agenda and the opposition Democratic Alliance's enthusiasm for indebtedness to international financial institutions appears deeply suspicious. Yet Mboweni's recent assertion that IMF structural adjustment will be avoided rings hollow, since it is a certain kind of structural adjustment-type logic that underlies his and the Treasury's ongoing obsession with deeply flawed conceptualisations of structural reforms. The tragic irony being that South Africa could simultaneously shun international assistance that would be used to assist the poor, yet impose quasi-structural adjustment measures anyway.

Internationally, there are encouraging noises from various quarters about possible multilateral action to assist poorer countries, but time is short. It remains to be seen if anything substantive will come of the initiative by the African Union, currently chaired by Ramaphosa, to raise funds for Africa countries to bolster their fight against the pandemic. And if compensating measures cannot be funded, then lockdowns could have to be lifted for the simple and fundamental reason that they might harm more than they prevent. What is shameful is that almost three weeks into the lockdown and with at least two further weeks in store, the state has yet to announce a package to protect those suffering the most and there currently seems to be little commitment to doing so.

This article was first published on Africa is a Country


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