The Politics and Economics of COVID-19 Relief Packages

Across the world, the question of responding to the COVID-19 pandemic has thrown up political, economic and ideological challenges before governments. The pandemic should have made clear the importance of spending on the public sector and improving demand. It has exposed the bankruptcy of austerity policies. In country after country, economic experts, leftist political parties and trade unions have emphasized what should be an obvious fact – governments need to spend more to ensure the survival of the people and restarting of the economy.

However, after decades of neoliberal policies, governments and the political elite across the world may find it hard to learn these lessons. Some countries have of course done better than others. But overall, the relief packages offered by governments are very illustrative of the priorities and politics of the country’s rulers.

The government of India led by the hardcore right-wing and pro-business Bharatiya Janata Party (BJP) announced a much hyped COVID-19-related economic relief package on May 17. The package is worth Indian Rupees 20,97,053 crore (around USD 270 billion or 0.27 trillion). This so-called atamnirbhar Bharat (self-reliance India) package is supposed to amount to more than 10% of the total value of the Indian GDP.

In many ways, the package announced by the government of India is similar to those announced by several other countries such as Japan (more than 20% of the GDP), Germany (10%), US (11%), Brazil (10%), etc.

Most of these packages are being celebrated in the mainstream media as effective means to deal with the massive economic setbacks caused by novel coronavirus-induced lockdowns. As per various calculations and estimates, the world economy may contract by 1 to 3% in 2020 due to the COVID-19 crisis. The net losses are likely to be even higher. According to the Asian Development Bank, the total loss to the global economy would be somewhere between 5.8 to 8.8 trillion dollars, which is more than twice the total GDP of India.

The contraction is almost certain given the net losses in business and work days due to the COVID-19 lockdowns. However, who is affected and by how much is a matter of debate among those who focus on the supply side of economics against those who focus on the demand front. 

It makes sense to think that small and medium size private businesses will not be willing to pay their employees wages due to the sharply reduced economic activity. They, therefore, require short to medium term support to protect their employees. However, can there be real recovery if demand remains low? Reviving production and services depends on demand and economic activity may be resuscitated faster by providing direct relief to the workers who have lost their income – from where demand is generated.

Even more important is to ensure that the relief reaches the working class, particularly the most vulnerable sections working in the informal or unorganized sectors. These workers are the worst-affected as they have totally lost their sources of livelihood and are struggling to survive in the absence of government support.  

Workers are the most affected

According to a study by the International Labour Organization (ILO), more than half of the world’s working population (1.7 billion out of a total of 3.2 billion), that is mostly self-employed or employed in the unorganized sectors, will remain out of work for months due to the COVID-19 pandemic. It is also estimated that a large number will never get their jobs back because of age or gender-related reasons, or both. A vast majority of these workers do not have access to credit or any social security measure worth its name. They also generally lack enough savings and live in rented accommodations. If they do not pay their rents, they will be forced to live on streets and they require government support to survive starvation during the current times. 

Supporting these workers should be a priority for most governments, not just because of humanitarian concerns. It is also a logical economic policy measure. As Surajit Das, assistant professor of economics at New Delhi’s Jawaharlal Nehru University, points out, “In order to boost aggregate demand in the market, the purchasing power of people has to be enhanced.”

Until the demand goes back to the “normal”, there will be no real reason for the producers, small or otherwise, to reopen or keep their workers employed. They will not be able to use the “easy credit” provided by governments in their relief packages. As Das emphasized, “Obviously, under a depression like this, it is unlikely that the actual credit offtake would be equal to the availability of liquidity with the banks and the NBFCs (Non-Banking Financial Companies). If there is no profitability, the investors would not demand for credit without which credit cannot be supplied.”

Governments’ mismatched priorities

According to the Centre for Monitoring the Indian Economy (CMIE), the unemployment rate in India is about 27%. The data for the US shows this to be more than 16%, the highest since the Great Depression years of 1929-33.  

A detailed look at most of the relief packages announced by governments reveals that a greater share has been allotted for the provision of credit to businesses. The share for workers’ concerns is too trivial or little to be effective.

A general analysis shows that most of the credit guarantees are to the small, medium and big enterprises. More than 70% of the allocations made in India and the US are related to businesses and corporate stimulus. In fact, in the Indian package, the rise in government expenditure, which is the most important way to help jobs survive, is only 1.3% of the GDP. It includes expenditure for rural employment guarantee schemes and direct food and cash aids. This is despite the fact that 93% of Indian workers are employed in the unorganized or informal sector in major cities such as Delhi, Mumbai and others, which have been closed for months now.

The Communist Party of India (Marxists) has called the announcements on the relief package by finance minister Nirmala Sitharaman a “hoax”, where no money has been transferred to the affected population. It also called the package a mere “loan scheme”.  

As per Surajit Das, “the point is that even after a catastrophe of this scale, our government has announced a fiscal stimulus package with merely 1.3% of additional government expenditure if the expenditure of other departments and schemes are not reduced to finance this additional spending.”

He argues that, “fiscal conservatism would prove to be treacherous now under the current situation.”

Meanwhile in the US, the Emergency Coronavirus Aid, Relief and Economic Security (CARES) Act was passed on March 27 after several rounds of bargaining between the Democrats and Republicans. While the Democratic Party has tried to take credit for the components in the act benefiting the working class sections, it is worth noting that more than three quarters of the USD 2 trillion CARES package is about corporates and stimulus for small and medium enterprises.

Just like in the case of India, the US package is also supply side heavy. Of the total CARES act budget of USD 2 trillion along with the USD 1 trillion announced previously, more than USD 2 trillion – around 60% of the total funds – are designated to be disbursed among small, medium and big corporations with very few conditions. Restrictions on pay hikes for executives and other such moves will be difficult to implement given the legal complexities. 

The CARES act however includes some helpful measures such as USD 600 per week in unemployment allowances, in addition to any amount to which a worker is eligible under State law. This is more than the average unemployment benefits (USD 372) but is only prescribed for a period of four months. Given the fact that the effects of the pandemic on the economy will be long term, this period seems inadequate as all jobs are not expected to return soon.

CARES act also excludes workers with no social security numbers. It also mostly excludes workers in the informal sectors and so-called undocumented workers. There are more than eight million such workers in the US. In other words, the most vulnerable have been left completely excluded from any kind of institutional relief during the COVID-19 emergency.

The estimates of job losses in the US vary from 7 to 15 million. Though a large number will be able to go back to work after the initial few months of lifting the lockdown, it should be kept in mind that most of the slightly older workers (above 50 years) and women will be the last to regain employment, if at all. This has been established through research-based evidence from past crises. The CARES fund does not take this issue into consideration as well.   

Logic of neoliberal capitalism

Neoliberal economics is what most institutions assessing the impact of the novel coronavirus pandemic on the global economy adhere to. This logic also prevents them from making a real assessment of the impact of the lockdown on people. Their studies largely highlight the losses incurred by the businesses. The reasons are obvious. The crisis provides opportunity to make profit without investment in production. 

The financial support offered by governments in the form of easy credits or loans, tax benefits, etc., gradually gets converted into the private wealth of executives. The crisis has also provided justification for the reduction of workforce, work-hours and wages by employers, ultimately increasing their margins of profit. Companies have already been looking for ways to get rid of their workforce or reduce wages and salaries and COVID-19 has provided them a perfect opportunity to make long-term cuts.

The policy makers know most of this. However, they still go ahead and announce these relief packages because that is how neoliberalism works. If at all there are support measures for the workers, most of these are temporary in nature despite the fact that the workers are to bear the long-term effects of this crisis. The relief for workers also comes with a price tag which is the suspension of their rights. In several Indian States, Brazil and even in the US, workers’ rights have been compromised in return for the little support provided to them.