Within last three months, the COVID-19 has gone global and turned into a ‘pandemic’ affecting around 200 countries. With no vaccine in place the one third of humanity are under lockdown, as it is the only measure of prevention available to the world and is assumed to go for as long as six months in many countries. This might prevent the virus, but it certainly would have a disastrous impact on the global economy.
World economy is facing “severe” economic damage from the corona virus pandemic that could be even more costly than ‘2009 Financial Crisis’. This will require an unprecedented response, IMF chief Kristalina Georgieva said on Monday. Since the world is facing mass lockdowns, Georgieva warned the outlook for global growth in 2020 "is negative -- a recession at least as bad as during the global financial crisis or worse."Georgieva called on G-20 advanced economies to provide more support to low income countries, and the IMF stands "ready to deploy all our trillion lending capacity."
The lockdown has been followed by a huge ‘fall in demand’ in the economy. This means that consumers are not consuming goods in the same capacity even though the products are available in the global economy. This trend is most visible in the travel and tourism industry. The first policies that came into place were that of travel ban. Similar dynamics apply to other industries as well. This is the reason why the economists have been contemplating whether the COVID-19 pandemic could lead to a global recession on the scale of the 2009 Financial Crisis or 1930 Great Depression. In order to explain the gravity of the issue, some key figures related to the speculated global economy are given in Table 1.1.
Webinar on the Covid-19 and Its Impacts on the Global Economy is an attempt to contemplate border impacts on the global economy. In particular, the discourse intends to analyze the major implications of Covid-19 on global economy, short and long-term economic measures and, imperatives of global cooperation and role of international institutions like IMF and WB to limit the economic impacts.
Key Words: COVID-19, travel restriction, industrial production, global supply chain, stock markets, global economic recession, unemployment, oil price, economic measures, international institutions, limited domestic resources, global cooperation.
Table 1.1 Key Figures
Impact on Global Economy
Forecasted Global GDP Due to COVID 19 in 2020 – 2.4%
Monetory GDP Loss in Best Case COVID 19 Scenario – 76.69bn USD
Forecasted GDP Loss in U.S. in a Global Pandemic Scenario – 2.4%
Impact on Trade and Tourism
Projected global tourism revenue in 2020 – 568.58 bn USD
Projected tourism revenue in Asia in 2020 – 164.7m USD
Loss in global business travel revenue due to COVID 19 - -810.7bn USD
Global change in flight frequency as of March 23, 2020 - -23.7%
Impact on Oil
Price per barrel of Brent Crude Oil, as of March 24, 2020 – 27.15 USD
Forecasted demand for oil in Q2 2020 – 101.78 million barrels per day
Projected change in global oil demand in Q2 2020 - -0.4%
Date: April 5, 2020
Time: 09:00 PM
Mr. Shyam: Namaste and Welcome to this Special Web Discussion on COVID19 and Its Impact in Global Economy. The discussion is organized by the Asian Institute of Diplomacy and International Affairs (AIDIA), one of the best foreign policy think tanks in Nepal. The world is facing unprecedented challenges as a result of the Coronavirus pandemic. The latest data depicts that there are more than 1 million cases and 50,000 plus deaths with no available vaccines to cure the virus. The only options available in order to fight the virus is increasing the tests, isolating the patients and nationwide lockdowns. After the Indian government imposed a nationwide lockdown last week in March. One-third of humanity is under the lockdown due to coronavirus. With this global public crisis from the COVID19 outbreak, there will be considerable economic impact all around the world.
According to the International Monetary Fund (IMF) global economic system as a result of coronavirus outbreak will be as severe as the 2008 financial crisis. We are observing a sharp decline in global economic activities, for instance, massive impact on global tourism industry like travel restriction, millions of job losses due to the lockdown, significant disruption on global supply chains with the factory closures and export restrictions, falling oil prices. During the discussion, we will try to contemplate major impacts on the global economy and certain long-term measures that the countries are taking around the world or the ones they need to take in the coming future. Also, the imperatives for global corporations and the role of international institutions like IMF and World Bank to limit the economic impacts. To discuss these important current issues, we have very distinguished guests joining us. Mr. Rameshore Khanal (Former Secretary, Ministry of Finance, Nepal); Rd. Christopher Lingle (International Political Economist, USA) also an advisor to AIDIA; and Amb. Mr. Anil Trigunayat (Distinguished Fellow, Vivekananda International Foundation, India). The discussion is divided into four different parts. First round we will try to analyse the broader impact of the Covid19 on the global economic system. Second round discussed the short term and long term that countries are taking. Next, we will be discussing the significance of global corporations and the role of international Organisations. Lastly, we will try to analyse the likely post-crisis global economic scenario. These four sections we would try to analyse and try to understand what exactly is happening. To begin with, I would like to request each of you to give the initial remarks on the issue and its impact on the global economy.
Mr. Anil: Good evening, Namaste and thank you for including me in this discussion. As we all know that this is a global challenge for which no country in the world was prepared. What we are seeing is spiralling of deaths and infection of coronavirus across the globe. Almost 200 countries have been affected by this and it has wrecked our public health systems. There has been tremendous scare and psychological fears due to which there have been governance issues. Especially for countries like India which host almost 1/6 of the world population, it is ever great a challenge. It has not happened during the whole century. It is a human catastrophe and going to have a disastrous economic impact. Until and unless the world comes together.
Unfortunately, during this time, borders have been closed in order to contain the incoming virus infected people, the airlines, the communication networks, transports, everything else has been stopped. That is why the economies are going through a major crisis. For the last couple of years, the US-China trade war or trade war with other countries under the Trump administration had given enough problems. In fact, the world had not even recovered from the 2008 financial crisis. What we have been facing today is the reality of gigantic proportions. Today factories have been closed, people are unemployed and the synopsis rightly mentioned that the countries have been facing grassroot challenges. In India Prime Minister Narendra Modi took an early lead and therefore the numbers of infections are relatively less. At the same time, India has 1.3 billion people and the community spread could be far more dangerous and could multiply in no time as we have seen in the rest of the world in India. In India, we are also looking at the testing kits not available therefore they are imposing the 21-day lockdown. This lockdown impacted badly on the economy but has also provided the government of India certain lead in order to prepare itself to counter Coronavirus.
Lakhs of bags, units, kits and suits have been prepared and all kinds of possible prevention methods have been put in place. The world is waiting eagerly for the vaccine to come out and today there was good news which came out of China now that they have almost treated it. Of course, conspiracy theories are going around about China's role in this but at the same time, this must be fought globally.
I'm happy that the IMF has said it that today the Managing Director of the IMF has called it “unprecedented”. The IMF has agreed to open their War Chest of One trillion dollars to help the economies; G20 leaders when they met it the virtual summit and decided to inject about five trillion dollars in the different economies. But we must take care of the underdeveloped and not fully prepared countries. This virus especially has mutated almost forty-seven times by now. It is likely to go up to three hundred times and every mutation would have a problem. Therefore, social distancing, keeping people indoors is initially a good method but how far it is going to succeed in containing it is debated.
Mr. Shyam: Can you also try to give us insights into the falling oil price in the Middle East and its impact on the global economy?
Mr. Anil: It has been acknowledged today as the world is officially in recession. The Economic Intelligence Unit report last week said that for India and China and probably Indonesia all other major economies are going to decelerate from -5% to -7%. India is still likely to be the fastest growing economy at 2.1 percent as of last week and China and Indonesia at about 1%. You can imagine from the high growth rates of 6%-7% coming down to 2.1 percent and more. This will not consider the overall impact because they are all still in the dynamic pace as to what extent the industry, the services to be impacted because the world is totally integrated today and anything is happening. There is the interdependence. Even the United States economy today is going to suffer tremendously as they have the highest number of cases.
China is again seeing cases resurging, which are going to be a big problem too. India is still to enter the third phase which is the Community Spread phase. This is going to have disastrous consequences. But globally everybody is trying to do their bit in every country like in India. The Indian government in the first phase has announced 23 billion dollars. Similarly, various states are doing something. We are receiving funds from outside also. The World Bank has given 1 billion dollars to India. We hope it works but these are all going to be temporary measures. We will need to work much more to kick-start the economies as in when things come to that stage. But at this moment the biggest challenge for any government is to contain the spread of the virus and to fight it so that the health of the people can be preserved and they can at least function at the minimum level.
Mr. Shyam: Thank you very much. Now I'd like to request Mr. Khanal regarding a similar question, which is the impact of coronavirus on the global economy.
Mr Khanal: Most of the things are very well covered by Mr. Anil. I would like to supplement what he said before. In the initial stages i.e. the first week of January and February many countries did not realise the seriousness of this disease.
People thought that the supplies did not break down and could be restored. China happened to be the major supplier of the primary material, intermediary material and the finished goods to many countries including Nepal. Nepali factories also import intermediary goods, spare parts machinery from China and that was the first thing that the world community felt. The second impact was in the stock market prices. There have been attempts to inject liquidity to keep the stock market from not falling. That was successful sometimes, and unsuccessful the other times then prices decline.
In the last three months, the transport industry throughout the world has totally broken down. The aviation industry, shipping industry, are also broken down. This is because the countries are under lockdown. More than one-third of the total population today is locked down. The consequences are seen in the tourism, labour market in and outside the country. For example, in the Philippines or in other countries where the labour market is not within the country the economies are large hit. For countries which don't have much incidence of coronavirus like Nepal but are rather affected by the transmission.
The global economy would go down drastically. People have already talked about recession. Nepal may not have a negative growth rate this year but they forecast for the next year. It is not that good. Globally many countries will suffer economically in 2020. Economic growth now is not the problem, the problem is now keeping the universe life safer. And second, keeping people's livelihood safer because very poor who are daily wage earners have lost their jobs throughout the world.
Big and small every industry has suffered because towns and villages are closed, economic activities have come to a standstill. This is a severe threat of a lifetime. In my lifetime I have not felt this kind of threat. During the financial crisis, there was the meltdown of the capital market, the crashing of the property market. Those could be revived by 2012. All the countries were doing well in a couple of years. This year the war that we are fighting is with an invisible virus which one does not even know well. How it will be and when will this pandemic be in control. There is no definitive research to conclude when this is going to come to an end.
Global community made lots of mistakes as a result of which I think we are facing this kind of lesson today. WHO delayed in declaring the pandemic? It is possibly also delayed in giving the right information to the whole community around the threat. India and Nepal, which saw no cases in the first two months, only saw a surge in cases during the third month that too from foreign travellers. Had the alert system been prompt, most of the damage to the world economy could have been prevented.
Mr Shyam: Now I would like to request Dr Christopher to put forth his remarks.
Dr Christopher: I will perhaps pick up from the last point on the impact of the coronavirus. It depends on one's interpretation. There are two narratives that are being promoted. One that coronavirus is highly contagious and two that it's very deadly. Both can't be true as there is no evidence. If it's highly contagious then it means many more people have it and are currently confirmed through tests. If that's true then many more of them should be dead. If the second one is true and that's not the case then their numbers are going up in some countries more rapidly than others. States like Saudi Arabia, Nepal and India with a very large population have a very tiny percentage (at least what's reported). So, it turns out that the way that we're approaching this pandemic is a political problem rather than a medical problem.
First, China made big mistakes at the outset in trying to convince people that the virus was not contagious from human to human. This narrative went on from early December until January. WHO did very little to bring clarity to this? Also, WHO was initially supporting China unconditionally. Then comes Chinese New Year and in Chinese New Year much of China's affluent population went to countries around the world, including from Wuhan and Hebei. This problem we face now is a political failure and a problem of interpretation and perspective. If we look at what happened in Italy. The high number of deaths in Italy could in part be explained by the annual flu deaths in Italy being below average. This meant that there was a larger reservoir of potential victims.
If you look at the demographics of this virus, the average age in Italy is very high. Although the cases are confirmed from all the age groups, the deaths are higher in the age groups above 50 and even more in age groups above 80. At the outset of the disease, we should have isolated the elderly. That was easy to do. They could be well informed about this and those that didn't heed the message well you know that's uh that becomes a problem for the community.
The reaction of governments to shut down their economies was a big mistake. Total lockdown would mean you can’t produce ventilators. That's obviously not a good idea. Total shutdown means that you're not going to have distribution facilities, get masks and protective gear to medical workers, the first responders that need to be protected at the outset and so on the people who need or perhaps necessary to bring other medical equipment or perhaps provide hospital facilities.
Hence, I think this is a failure of the political choices as it turns out democracy creates incentives for politicians to do more than they should because they're worried about the political cost. Since they don't really bear the full cost of these mistakes, they're more likely to engage in what I would call “economic overkill”. This has happened in the United States for example 10 million private-sector workers have lost jobs. Now, how many public sector workers do you think of lost jobs? Probably I could count them. There's been no reduction in the public sector but the private sector is blowing the full brunt of these political decisions. There's been no giving up there's only been more demands by the government to have more powers and have more control of resources.
There are many other things that could be done and when it comes to this so-called stimulus, the idea of economic stimulus is based upon faulty economic lockers there is a very poor or almost no evidence of the efficacy of the success of the economic stimulus If we look at Japan, the economic stimulus since the bursting of its bubble economy in the late 1980s they have had successive fiscal deficits, they've had been driving down interest rates into the negative territory. Now if economic stimulus worked Japan's economy would be vibrant productivity would have been higher and they wouldn't have had an accumulated debt that they have because the stimulus would have generated enough economic activity to repay the debt or to make the debt unnecessary. But in fact, it's like we've seen in all the Western countries that have followed Japan's lead in that regard driving interest rates down more and more and more, spending large, creating larger and larger fiscal deficits had no positive impact.
China is the same. I mean China despite the heralded success of the China stimulus after 2008 China's economic growth has been declining steadily since then. So, I think we've got a combination of problems. We have conflicting narratives about the nature of this virus and we've got poor political judgement. We've got a bad economic model that politicians are relying on and this is the perfect storm. It's a tragedy, a human tragedy that's being paid by the poor migrant workers in India that have been forced to leave their day jobs, homes where they lived hand-to-mouth. God knows how they're going to be able to survive when they leave their homes because there weren't ample means for them to make livelihood.
Thailand was the first country outside of China to report a case of the coronavirus back in early January and here we are in the early week of April and they've got just over two thousand confirmed cases. Almost a three-month period and I think today roughly twenty deaths. The entire economy is almost shut down. I'm in Phuket. The island is isolated from the world; there's no way in or out by air, sea or land. This is an enormous miscalculation of people that were in a position of power throughout the world engaged in economic overkill and have not made a competent or thoughtful cost-benefit analysis about the cost of these precautions. These bills won't be paid by the politicians. In India, the workers will perhaps literally starve to death. The people in China have been released to go back to work and find that their factories don't have orders.
Mr. Shyam: Okay thank you very much for the elaborative explanations on the issue. Now I request again if you like to add something. Like national economies and what should the respective governments do in the likely future connecting it with the imperative of global corporations for the purpose of mounting the global economic crisis for many countries. Domestic resources are insufficient so adequate interest or support is necessary. How can international organizations like the United Nations, International Monetary Fund and World Bank can play a proactive role in limiting the global economic fallout? Maybe you can give us the kind of sense about the ongoing relief package offered by the respective government as well as the interest international institutions and are they enough or there is a need to do more in order to continue.
Mr. Shyam: Well thank you. Mr Khanal?
Mr. Khanal: In case of Nepal the economic impact has been severe because the tourism industry suffered. The Nepal government had declared VisitNepal2020 with a very ambitious goal of having 2 million tourists, exactly double of what we had in 2019. People had invested lots of money in creating new infrastructures expecting a higher tourist inflow. The investment now is going to be returned and they'll not be able to pay the loan. So, there's a consequence in the banking sector because the banking sector will not be able to collect. So, there's a domino effect of tourism in banking. The manufacturing sector will also be hard hit. Because of the lockdown, the supply of raw materials and intermediate goods from China and other countries (except agricultural goods) has been locked. Major Nepali economy is dominated by subsistence agriculture. Now there is also a threat to rural life as it has been suspected that workers might have brought corona from the gulf countries and may transmit it to other people. SO, they are refraining themselves to go on fields and cultivate their crops, due to which major crops are affected. Some of these cases have also been found in remote districts of Nepal (not connected to Kathmandu directly because of which the threat pervades in the society.
Government of Nepal has made some careful proposals on the economic packages that they are offering. The immediate problem was to cater the daily wage workers who had lost jobs. It was not only private sector workers but also government employees in the construction industry who are mostly on a daily contract basis.
The major priority is given to the landless, and jobless wage workers with an income support scheme for them. It is only to provide the assistance of food in some communities. Another is the monetary policy wherein the central bank has asked all the banks to roll over the debts that are due for some time, in order to repay the interest the principal has been extended, at the same time the government also has extended the date for the payment of taxes. Consequences for the future of the economy is very serious because entire development activities have stopped, tourism has stopped and medium and small-scale enterprises will take time to recover.
Nepal's health system is very weak in South Asia. Asian economies don't rank that high in its health services quality although the primary health in the past used to be very good but this kind of disease does require very good hospitals and good care. The number of ventilators, testing machines, testing kits etc are the requirement for the government in terms of scaling of the health facilities in terms of enabling the medical professionals to provide better care. That is a huge gap which cannot be filled by the Nepal government alone. We need global cooperation. Nepal does not produce any testing equipment nor the testing kits. There's no company in Nepal that manufactures this equipment. All of these get imported from America or other countries.
Now even the global market is in short supply. Yesterday only, the consignment meant for Germany was transferred to the U.S. In that scenario, there is going to be scarcity even if the government has money. Then comes the question of money, now countries are asking people to return to their home countries if they don't feel that they are treated properly. There are around 5 million Nepali’s outside Nepal working or studying in foreign countries. If these people come back the remittances would fall along with the foreign exchange in Nepali economy. It would fall to a level that we would not be able to import out essentials. At the same time, the job market will be able to absorb who lost their jobs. These are the two main areas where Nepal needs cooperation.
Most of our foreign workers would be losing jobs. Nepal needs cooperation on that front as well. These workers working in Saudi Arabia, UEA, Qatar etc all need government’s support. Nepal alone cannot do it. There must be a global voice. Just like we give national treatment to foreign investments, we need similar treatment for our foreign workers. The third area of cooperation has to do with foreign investments. In the coming years, this might go down and therefore Nepal’s foreign engagement would go down too. That's why Nepal needs support from IMF and WB not in the traditional format it was tied to do some projects or activities. Rather we require budget support or foreign exchange support or in the form of macroeconomic stability. Those instruments need to come from international organizations.
Finally, as I raised the argument in the beginning of the discussion and Dr Chris also supported it. The threat was not reported transparently and fully. And today we know that the threat has got multifield. In terms of information sharing about the spread of the disease is very important for the future of countries like Nepal. These should be available freely and without censorship.
Mr. Shyam: Thank you. My next question is to Mr. Anil. Could you please share the initiatives by the Indian government in order to resolve this pandemic? What is your perspective about international cooperation?
Mr. Anil: In the beginning, I would like to completely endorse what Mr. Khanal had just mentioned before me. He has brought about all the points that are basically related to economy and in the path let us multiply it by many folds and apply that to India. Broadly that is what precisely. I also fully agree with Dr Chris argues on Chinese initial role of suppressing the information about this deadly disease for almost six weeks. Meanwhile hundreds of thousands of Chinese went around all over the world and that's how this got contacted by different parts of the world, especially Europe. The world ‘Colonization by Europe’ or ‘Colonization by China’ is still a conflicting theory which is going on around.
As far as India is concerned, India is one sixth of the world population. Around 1.3 billion people now are the biggest problem. Especially, when India was also not prepared to deal with such a contingency just like the rest of the world.
In January itself India stopped flights from China. As soon as it was noticed changes India evacuated its own people but at the same time, it took maybe a while longer to put a complete lockdown. Adequate time was not given to the migrant labour as we call them from different parts especially in Maharashtra, West Bengal or Delhi for that matter. Although a choice was given to them to stay wherever they were, landlords were asked to waive the rent, Rs 1500 was given to each of them, there was provision for food for them. But you can imagine that this caused a lot of havoc. People started transporting. Maybe this could have been taken in a better way. But then not every policy could be perfect. As an ambassador in different countries when we try to evacuate Indians from those countries, several of them don't want to go there and then things become much worse than they say.
One of the biggest problems that India is going to face would be unemployment. People from the unorganized sector, the people who have left or the marginal farmers are worst hit. So, they need the biggest assistance. We are looking at at least four quarters of depressed economic growth in India before things could get better.
But then one needs to look in a longer-term perspective. The world is largely dependent on China even for its health care which is an extremely essential sector and should be treated like defence of one’s country. The kind of allocations that should be given to the healthcare sector needs attention. What I am worried about is that in India we have already launched many programs and a lot of assistance is being given. It takes time for it to reach out to the right kind of people but fortunately in India because of Aadhar and other linkages a direct government grant can be credited. GoI has announced several measures and more are here to come in the process.
23 billion dollars have been committed by the government for immediate injection. The industry of all segments will not be affected in the same way in India. Tourism, as was mentioned by Mr Khanal, is going to get impacted badly globally everywhere. Several industries like the auto industry, aviation, manufacturing chemicals all of them are going to have a problem. At the same time, some industries are going to perform better. Some of those are pharmaceuticals, food processing industry. I mean those are the ones that will at least in the interim period, by virtue of the immediate requirement of the people will continue to work.
Thirdly, India's 65% of the economy depends on its services sector. A large section of it amounts to using a lot of information technology. They would depend on how the markets in the West get affected. Given the kind of diversity of the Indian economy, we are hoping to not see any devastating impact when compared to the global economy. Another thing that is going to help India would be low oil prices. India imports almost 80 percent of our requirements. That has also provided Indian government additional funds that are being channelled through various subsidies.
However, it cannot be denied that the world institutions, be it IMF, WB or governments in respective countries, are going to face a major economic challenge. But the states must not indulge in greater protectionism because today the need of the hour is joint efforts to fight this virus. If you produce anything you would need markets. When people make money they travel, that's how the two prosper. All these are interlinked in an economic domain.
European Union has already decided 300 million dollars for their own people. Earlier the EU had free movement of people, but now it has national borders. I fear that after COVID19 is over many countries that depend usually on tourism may face issues in the new kind of world. US and China might be further accentuated as far as the leadership role is concerned. Today ironically while the US has become more protectionist, China somehow came out in favour of liberalism. We are looking at a very different kind of global order.
Mr Shyam: Now, Dr Chris, would you please share your views on the respective national government initiatives and policy measures to deal with this pandemic and as well as the significance of global cooperation to deal with this very unprecedented time.
Dr Christopher: When you examine what governments are proposing to do, again it's based upon flawed model economics. They're trying to create something out of nothing. By creating new pieces of paper, they call them dollars rupee again whatever or bonds but doing nothing to change the fundamental aspects of the economy. If they wanted to have an impact to stimulate an economy and you stimulate productivity you stimulate investment and you do that by reducing the obstructions. What India did when they abolished the licence Raj this opened opportunities that were not available previously. India would have never enjoyed the growth paths if license raj had not been eliminated. So the rest of the world should take a look at that and think about it and all tariffs and all protectionism and all policies that interfere with the capacity of people to engage in trade with one another to create new businesses to create new jobs and that is the basis of economic growth. Creating new pieces of paper whether they're called through quantitative easing some sort of ridiculous zero interest rate policy. These are all and they're proving to be ineffective if they were affected, they wouldn't have continued for so long in a way it's as though policymakers are in a deep hole and they need to get out. But the only tool they have is a shelf and that's the economic model so they keep digging interest rates go lower nothing happens. They dig some more interest rates and it doesn't work. They tried fiscal deficit doesn't work, they weren’t big enough make them bigger dig deeper so now we're sitting on top of a global debt bubble that was waiting to blow up before the coronavirus sneaked upon us. So, we were in a very weak and vulnerable position because of poor economic policy choices certainly since the early 1990s.
We can go back even to the use of the term economic crisis was almost never used until the 1990s and despite all the best efforts of the International Monetary Fund, despite all of the money that the World Bank is throwing around we've had recurrent crises and people don't seem to be able to see that there should be something could be something wrong with the fundamental model that's motivating these policies. Now the model is what economists call aggregate demand management driven by the work of John Maynard Keynes and that doesn't address the fundamental problem. You must have production before you have consumption. We try to put one before the other. Putting a cart cannot have consumption unless something is literally produced. Pretending that we're going to solve these problems as one of my other colleagues here mentioned that we haven't recovered from 2008 that's exactly right because we follow the wrong model. All the central banks have been doing the same bad thing. All the governments have done the easy thing i.e. spend more money. Why? To gain votes. There's no one out there challenging the status quo.
Now we got this coronavirus. They're trying to use the same failed economic approach without examining the fact that it failed. In the past, if these stimulus policies had worked Japan would have a robust economy. Japan would not have the world's largest debt to GDP ratio if these policies work; The United States would have three or four percent growth for the recent slowdown; India might have had eight or nine percent ten percent more they would have been on a much sturdier track but governments are not giving up anything. Now they're taking what they want more. Control over human lives they want more, control over resources and they're driving us further and further into debt. Now governments could give up tariffs, give up nationalism, give up populism, give up subsidies, give up protectionism. In the United States, we have something called the “Jones Act”. The license raj could learn from the Jones Act. The Jones Act requires all seaborne trade that comes in the United States, must be on US register, ships and with US registered stevedore’s sea men. Now, this supposedly protects a few American. Not that many people that work in the maritime industry but what the maritime industry brings in the United States everyone consumes and everyone pays a higher price for it. Now, this is a government regulation which could be removed by the stroke of a pen.
What we see here is that governments are not giving up their power even in these hard times. They're not reducing taxes. This is not the way to put money back in the hands of the people. In Nepal, the public sector consumes 30 percent of GDP. Now that's very high when compared to the United States for example or in an advanced economy where it consumes less than 30-20%. This is a high burden on a low productivity economy. So, these are the kind of things that we need to look at and these are fundamental changes. Instead, people are looking at how we expand the state so we won't be temporary. Any contraction of state will always be temporary, any expansion of the state is almost always permanent. We need to be aware of that and we need to be cautious about that.
It turns out that governments don't produce jobs they could create a job they could give someone a job but they create a tax burden that destroys the job in the private sector because it must be supported by taxes. Public sector employees don't contribute to the tax pool they're paid out of the tax pool whatever they earn is coming out of the taxes paid by the private sector. So, we must understand these things as a fundamental problem. If we continue to try to solve these economic conditions that were faced by expanding the public sector where we're setting ourselves off into the path of Japan where we'll have perpetually low economic growth Japan since 1990 has had a no growth and low growth recession despite massive continuous expanding perpetual fiscal deficits. Nothing's happened driving interest rates lower and lower and lower. Still the same, they didn't stop, they kept digging the hole deeper and deeper. And all the countries are doing the same.
As far as the IMF and WB are concerned they're part of the problem they're not the solution. The World Bank's so-called one trillion dollars claim came out of selling taxpayers in some other country which means that that's one trillion dollars it was not available for the private sector to create jobs might have kept. They could have remained in place and would have been able to resettle in the urban area by having a better job rather than a day-to-day job. The World Bank much of his lending has been wasteful I remember years ago. Joe Stiglitz when he was at the World Bank said that “roughly thirty percent of the loans made by the World Bank according to the World Bank's assessment were basically wasted, they weren't repaid they were non-performing, these loans did not do what they were meant to do so that's an enormous amount of money that's just gone down the drain
Looking to those organizations for guidance is not going to be helpful because they have not been net contributors especially in the sense that we see crisis after crisis after crisis. These crises get created after these government international agencies get involved. They have not solved the problem. The problem will only be resolved if we restore the capacity of the private economy to create new jobs to create rising productivity and to expand outdoors so that people have decent living wages.
Mr. Shyam: Thank you Chris for critically analysing the role of the government. You tried to reflect on the insufficiency of these institutions to manage this pandemic. I would also like to ask you to give us the kind of sense about how you want to analyse how you view the post-pandemic economic global order.
Dr Christopher: Well it can go either way. Now I'm quite pessimistic. As I said the expansion of state power whenever they occur, they tend to be permanent. When Franklin Roosevelt declared states of emergency in the beginning of the Great Depression it created an enormous expansion in the role of state in the US economy that has continued since then. Nothing was removed. There was very little cutback in the role of the state so we may be facing the same thing and I think this is an insufficient amount of caution on behalf of citizens in demanding that the government provide security at the cost of their future. Liberty, i.e. the freedom of choice to live their lives.
People have praised China's use of big data to be able to deal with the disastrous decisions that the Chinese regime made. Big data is only a big problem when it's in the hands of a big government. Bill Gates cannot do anything for me, Bill Gates cannot make me go to jail; Bill Gates cannot make me consume or buy Microsoft; but Jeff Bezos can't do anything. But Donald Trump can send me to court using Big Data. We need to be aware of citizens of this long-term threat of encouraging the state to take on more powers to control more resources. It's something that's being lost now it's not part of the debate. Unfortunately, I don't normally watch TV but because of this lockdown, I'm having to watch TV. I see the BBC I see Al Jazeera which to me is probably the most reliable source of wrong news, various other news organizations and there's no one questioning you know what's going to happen.
What you're asking now is what the post pandemic world order is going to look like. Many people who are opposed to private sector activities in the economy whether they be socialist progressives or whatever you want to call them, they see this is a great opportunity they see a silver lining in the cloud. They're a certain way thrilled at the fact that there's so much human suffering because they believe that it will fulfil their ideological agenda. An agenda by the way that's never delivered almost promises whether you talk about Venezuela, Cuba, Soviet Union or China under Mao where all these shared sacrifices were supposed to bring a glorious end. When we see rising prosperity, we only see it where there has been an increase in the role of the private sector in the economy where there's been more economic freedom. India is a prime example of that. With the demise of the license raj and the reforms under Narasimha Rao. And they would have never experienced where they are today. They would still be struggling under those conditions that they inherited from Nehruvian socialism.
So now the other thing. The optimist in me says that the markets always prevail. If you look at the deepest darkest days of the Soviet Union. I went to Soviet Union or what's now more prosaically called Russia during the 1980s and they were black markets everywhere people will find a way to get around government regulations that interfere with them.
I have high hopes that people understand the provision of face masks which are now becoming increasingly in demand or even required. They're going to be fulfilled by private sector action the prices will plummet even if they are temporarily high because of shortages the private sector will come to solve that problem. New companies are now producing ventilators by the thousands that were not produced to them previously. The main obstacle to states for the testing has been the Food and Drug Administration not being willing to give up its power and its control over the medical industry. The same with pharmaceuticals access to pharmaceuticals whether it's for coronavirus or for one of my friends died of what we call in US Lou Gehrig's disease. There were drugs around the world that were being tested but they wouldn't allow someone who would die and the only thing that could do is kill them but they're going to die from this disease this is a sort of bureaucratic mentality that I hope could be broken by this rather than strengthened. But we'll see. So, we have two possibilities here. I would like to be optimistic and see that we have people around us. But the problem is the Trump administration bought the support of the American people by offering them ,200 now that for a hundred and sixty million people that comes out to about 240 billion dollars. Now how much money was allocated in order to get that 240 billion dollars into the hands of those Americans 2.2 trillion dollars which is ten times. Now that's crazy. So, in other words ten cents for every dollar that was supposed to help Americans not to their hands. The governments are very expensive. Government employees have nice pensions; they have better pensions in the United States than private sector workers; they have federal government workers make roughly 40% more than the average taxpayer. The average taxpayer now doesn't have a job, the average federal government employee is still working, still receiving wages, will still receive those nice comforts. There's no shared sacrifice. Here all the costs are being borne by the private sector not all but virtually all. This was something I would like to see change. That ,200 none of it should go to pride to public sector employees because they are not losing anything their jobs are not threatened this is unfair.
That's not what politics is about. Promoting the re-election possibilities of in this case the Trump administration or the Modi administration or wherever it may be this is one of the great problems if we face. Politicians don't necessarily make the best choices for the people they make the best choices to promote their re-election possibility.
Mr. Shyam: I would like for some comments from Mr Khanal on the post pandemic global order.
Mr. Khanal: Yes, the role of state would increase particularly in the case of health service provision. The private sector health providers have not been effective anywhere in the world whether we're talking about Nepal India or the United States. Every citizen should deserve better care. Many people may not have access to very expensive private sector health care. So globally there might be a trend of state provision of the health services that's one.
Secondly countries will be more protectionist. We have seen with experience that having all the factories located in China. A country would have to think about protecting your strategic industry. Markets always concentrate resources production in one single place if there is profit. So, in this point I disagree with Chris, that if you allow the market to operate freely then things would change. In this scenario as well, the resources would get concentrated in China because they have better logistics in place, more efficient and larger populations. Global community would think of protectionist policies.
Mr. Shyam: Finally, Anil Sir, I would like you to respond to the question of the post-pandemic global order. How do you think the world would transform into?
Mr. Anil: What is likely to happen more is frankly, being evident in the past 3-4 years. We have seen greater protectionism in the world trade order. We have seen the decimation of international organizations; we have also witnessed decimation of international tariff wars with various countries. That is very likely. Coronavirus has created the group with the bigger boundary walls. I believe that that is unfortunate, and the world needs to world together. It is because coronavirus is not the only problem the world is going to face. We are facing problem of terrorism, cyber security, we must enter an artificial intelligence driven world, we must move effectively into Industrial Revolution 4.0 globally and their chances for other countries like ours the developing countries are there to catch up. If there would be greater protectionism it is going to be highly ineffective and will dent the progress of various countries like ours. Therefore, it is extremely important that the international organizations are strengthened and that there is a free movement of persons goods and services across the borders. But I have my doubts that it will happen or some of the leading countries would allow it to happen. Of course, in the nearest future one would be witnessing a bigger China bashing and China bashing the rest.
China has discredited itself unfortunately in this whole thing. Unfortunately, China is the factory of the world. So, everybody depends on it. But we will see that gradually there could be the same old self-reliance model kind of things. Manufacturing and service industries could perhaps become more prominent.
Mr. Shyam: As the pandemic is ongoing it is hard to analyse the entire situation in one discussion. But at least we tried to identify and contemplate the overall impacts that going to create by this. I'd like to thank you all of you so you like time. Be safe everyone.