While this is a signed posting, I do that only to take responsibility for the content, rather than to claim originality. These notes draw on enumerable sources from media, emails, conversations, as well as my personal observations and knowledge drawing on the more mainstream literature. The post is provided as a contribution to public debate, not as any attempt at a definitive statement.
The lack of systematic testing for the Covid-19 virus makes nonsense of the counts of incidence, especially in the developing world. Death counts are probably more reliable, but still flawed. Nonetheless, from what we know so far, the developing world is on roughly the same trajectory as for the developed world, just with a lag. Death rates might be somewhat lower, given younger populations. However, less well-nourished and less healthy young populations could well turn out to be just as vulnerable.
On balance, it is a reasonable expectation that this will be a huge health and economic shock to the developing world, and especially to poor people.
Reliable public data and communication is crucial at this time
Yet in many developing countries, the government is pretending that it is in control, or that the threat is minimal. This delusion does not help. A different approach is needed.
- Each government needs to establish an authoritative independent communication channel on public health during the pandemic. A trusted health authority should be providing public health warnings and protocols on social distancing, hand washing etc.
- On the technology side, internet connectivity is weak in many poor places, though cellphone usage is more widespread. Texting is a promising method, but his can also be a source of miss-information. Text messages from the dedicated health authority must be clearly recognized by all. Also make use of TV, radio and the web. Dedicated local leaders should also be responsible for getting the message out on public health from the central unit.
- A lesson from the literature on famines is the role of democracy in helping to assure credible public information, to help avoid policy mistakes, and help assure a more rapid response. This crisis should not be an excuse for more closed and authoritarian rule.
Sharper trade-offs and harder constraints can emerge in poor places, with bearing on policy responses
Isolation at home slows the spread of the virus, and reduces the strain on health systems. It also comes with a large cost, especially to poor people.
- Public health systems are under strain even in normal times. Regular health shocks will go on. If anything, the case for social distancing and hygiene is even greater in poor countries.
- At the same time, the welfare cost of isolation is also likely to be high. The world’s poor rarely have much in the way of a buffer that they can draw on; they have little savings, low food stocks; a heavy dependence on casual daily labor. The majority cannot work from home.
- Food delivery systems will also come under stress, as is happening in rich countries. Supply chains will be broken.
- So this is not solely a trade-off between economic welfare and health. It is also a trade-off between two aspects of health: illness due to the virus, and hunger and poor nutrition due to isolation and the disruption to markets and institutions, including private social protection.
Is the case for isolation weaker in poor countries? No. But the case for lockdown is weaker. Lockdown can pose new threats in some poor places.
- Globally, poor people often have a crowded home environment. This is not just about crowded urban slums. Yes, overall population density is lower in rural areas, but rural people tend to be crowded into villages, often quite closely in multi-generational and sometimes polygamous families. There are ample opportunities for the virus to spread quickly in poor rural areas.
- Some work environments may well be safer than being in a crowded home (as some observers have pointed out), but the worker already has the home exposure (at least for those who do not sleep at work). So this is not a valid argument against staying home while the virus threatens.
- On balance, the case for isolation at home in this period for controlling the spread of the virus remains strong even in poor places.
- However, we can make a distinction between social isolation practices in response to the virus and a strict lockdown, which could turn the virus response into a famine in some poor places. I do not say this casually; I believe it is a looming threat to be aware of now. The literature on famines has many examples of how the kind of institutional and market breakdown implied by a strict lockdown could cause local famines.
- Lockdown also produces large short-term migration flows, as we have seen in India and Kenya. This threatens to spread the virus even faster, and especially into poor and vulnerable rural populations. We are likely to see outbreaks throughout the rural areas of countries that have imposed strict lockdowns.
- The key reason for caution is that one is also locking down the markets and institutions that help protect poor people in normal times, and avoid poverty traps that may always exist, but are normally shielded from view. The risk is that one plants the seeds of longer term destitution, that may be hard to get out of once the threat of Covid-19 has largely passed.
Administrative and fiscal constraints loom large in poor countries.
- Administrative capabilities and information systems tend to be weaker in poorer places, both poorer countries and poorer regions within countries. Many of the options being used or discussed for rich countries are simply not feasible in poor places. Adaptation to the administrative capabilities of poor places is essential.
- Similarly, for fiscal resources; the constraints are severe. The rich world can help. Granted this is not the best time for that, but the moral and economic case is strong. Inaction by the rich world now could come at a huge cost later.
- Of course, the rich world should not be making matters worse for the poor world, such as by banning the export of essential medical supplies.
A lot of what we routinely recommend for social protection in poor countries may need to be re-thought in this pandemic
Some of the classic policy prescriptions for dealing with other shocks don’t make as much sense during a pandemic, and this is especially so in poor places.
- This is no time to be worrying about “targeting the poor.” Fine targeting in poor places is over-rated in normal times. Now it makes little sense.
- Nor should adverse incentive effects of welfare programs loom large. There have been exaggerated concerns here too in normal times. Do not worry about adverse incentive effects now. However, incentivizing better behavior, also recognizing the externalities involved, is worth thinking about.
- Workfare versus transfers: Workfare is the classic policy response to recessions and famines. But workfare sites in poor places tend to be even more crowded that typical homes, even in poor places. The risk of catching the virus is likely to be greater on workfare sites.
- On the other hand, one of the (often hidden) costs of workfare is the foregone earnings from other sources. These will tend to be lower in the pandemic, as economic activity is curtailed. The net gains to workfare participants may be greater.
- On balance, however, the pandemic context is likely to tilt the balance against workfare in favor of transfers.
- Countries such as India that have large rural workfare programs can use these to target transfers to poor families. All workfare participants in the last year (say) could be given a transfer payment, without (of course) any work requirement. This is starting to happen in India.
- Transfers in cash versus food: Cash transfers are not be of much use if food markets and shops are closed. Direct food distribution may be needed. But food distribution will be a challenge. Some governments are making promises, but can they deliver? Include soap with the food package.
- Conditions on transfers (cash or kind)? The common ones of keeping your kids in school do not apply. But a “stay at home most of the time” condition makes sense if it can be implemented in a reasonable way. Also, direct support to firms could be made conditional on not firing workers.
As in rich countries, a rapid, bold and forward-looking response is needed
A large, albeit time-bound, scaling up is needed of existing programs that are considered to work adequately. Anything less than an immediate fiscal transfer of something like 2% of GDP would probably be judged inadequate.
- A rapid response calls for working with existing institutions and policies, though in a differentiated way, recognizing that some work better, and are more relevant, than others. Don’t wait for confirmed cases, or even symptoms; anticipate ahead, such as by closing schools and banning large events, as has happened already in some developing countries
- Some modifications may be needed (such as removing work requirements, as noted above). But new programs take a long time to put into place. (This also illustrates the often heralded, but too little acted upon, advantages of having a good social protection system in place in normal times.)
- Size of the economic shock? Even aside from the health threat, absent action, a month ago we were seeing estimates of an aggregate economic shock of about 2% of global GDP this year. I expect that would now be considered on the low side.
- Scale of fiscal response? In a normal macroeconomic shock, we would expect sizable short-term multipliers given that so many economic resources are underemployed due to the virus. But those resources can’t be safely re-employed until the virus threat subsides. This is not about Keynesian multipliers.
- At this point, the argument for a fiscal response in poor countries must be largely about current relief and avoiding even worse future outcomes, with the threat of famine coming on top of the virus. This is about getting money and food to poor and vulnerable people. As the virus threat subsides, the high propensities to spend of poor people will help the recovery. But the short term need is for helping to restore the food purchasing power of the world’s poor, without exposing them to greater risk from the virus.
- As a rough rule of thumb—OK, more like a wild guess—I think that a near-term fiscal injection of transfers less than 2% of GDP should be judged as inadequate.
There is an important role for the private sector
The immediate health risk naturally take center stage, but getting people back to work is a high priority, and certainly no less for poor workers.
- Rapid recovery for the private sector should anticipate that the threat from the virus will subside. Keeping now largely unemployed resources, including labor, in an “idling mode” makes a lot of sense. Instead of firing workers, try to keep them, maybe on reduced wages. Think of that as both insurance and investment.
- The financial sector can play a positive role. Financial inclusion programs have helped expand banking coverage for poor people (though still a long way to go). This can facilitate rapid transfers, in partnership with public agencies.
- There may also be some scope for adapting work to a more isolated, home-based, environments. Some encouragement/support from government might help to nudge the private sector.