Salman Ahmed Shaikh
Corona Virus can transmit from one person to another person. To avoid exponential growth in the spread of Corona Virus cases, social distancing is suggested. Father of Monetarist School of Economics, Milton Friedman said that one thing which a person can always be sure of is that everyone would put his or her self-interest before others.
Apparently, it is realized by governments that this is perhaps not the right thing to expect and put faith in at the moment. Private choices in pursuit of self-interest and invisible hand were deemed to be less reliable in current situation. Lockdown was considered necessary by governments in everyone’s individual and collective interest.
It was decided that everyone cannot be allowed to pursue self-interest and intervention is necessary. After the lockdown, when markets become less active, the subject of mainstream economics faces another tough ground. There are millions of poor people who do not have work. When lockdown happens, a great many people find resource markets stalled where they used to get income. This includes not only the poor people but a lot of other workers including factory workers, transporters, cab drivers, rickshaw drivers, salespersons, porters, loaders, delivery workers, construction workers, retailers, goods suppliers, mechanics and those working on daily wages in bakeries, restaurants, petrol pumps and gas stations, for instance. In normal circumstances, most of these people are non-poor, i.e. earning more than the subsistence level of income. But, because they earn income daily, they are now also vulnerable and at least for the lockdown period, most of them are effectively poor.
If the government or third sector does not intervene, then these people do not have the purchasing power to afford essential purchases. Even if it is disliked or abhorred by free-market enthusiasts, governments are now intervening in price regulation, supply management, subsidies and influencing the previous long term contracts like employment and financing between private agents. All of that is deemed necessary now.
More than ever, such crises necessitate the flow of resources from the haves to the have-nots. But, frozen goods and resource markets cannot help much, especially the poor and vulnerable people. That is where, pro-social behaviour and beyond-market distribution of resources is necessary.
However, mainstream economics treats altruism as ‘impure’. It looks at altruism in the paradigm of pursuing self-interest. Economists like Andreoni reason that altruism can be explained through the ‘warm glow’ effect. People feel good to help others as they gain personal and private comfort. They might be doing it because of social pressure, to gain fame, to improve social image, to exhibit status or to avoid the guilt of saying no to a cause in public. The paradigm of self-interest is neutral between a person’s decision to help others or to not help others. If fear and uncertainty make people more short-sighted, self-centric and engage in hoarding cash, withdrawing from banks, disinvesting their savings in capital markets and buying essential goods in bulk, then there is no drive, urge or impetus that economics can offer to suggest otherwise. It is neutral between these choices and the choice for altruism.
In poor countries like Pakistan, people with surplus resources are engaging in charity, donations, and volunteering. Empirical evidence in Pakistan in multiple research studies has found that faith is the biggest motivation behind charitable donations and it encapsulates and is associated with other humane motives. This trend is also seen in other parts of the world. But, economics is largely silent and irrelevant when it comes to exchange, allocation and distribution of economic resources outside of markets.
Self-centrism creates another problem on the response side. The problem with commercially motivated technological change is that if it does not make good business, the idea does not see its growth. Sanitation and clean water is still a problem in localities where everyone has 4G connection and mobile wallet accounts. Commercially motivated research is more intensely pursued than socially urgent ones. Technological improvements to ease sanitation, bring clean water and achieve recycling are given less attention than telecommunication and digital financial services which are commercially more profitable ventures.
Education geared to industry demands has also got into the trap of producing commercial technologists for corporations. These corporations are not built for social responsibility in free-market capitalism. Milton Friedman said the biggest and only responsibility of a corporation is to increase shareholders’ wealth. If these corporations do research and find a vaccine eventually that costs $1,000, then those who are not able to afford it would be regarded by mainstream economists as having less willingness to pay. For the poor, it is not the choice, but a helpless situation. But, poor having less budget for essential needs is a problem that we do not start our economics textbooks with.
In the earlier era, the subject of economics was geared to human needs. Now, the prime emphasis is on market behaviour and market outcomes based on choices under uncertainty and scarcity. The emphasis on choice behaviour subtly and inadvertently makes economics and most of its contents largely irrelevant for poor people.
In basic microeconomics textbooks, even when welfare gets attention, it is in the domain of efficient outcomes. Redistribution through taxes is first introduced as a big ‘no go’ domain with concepts of deadweight loss.
However, inefficiency out of market behaviour and market outcomes is plainly ignored and overlooked. Approximately, $600 million daily is needed to feed every extremely poor person, yet about $2.75 billion value of food is wasted every day (Source: FAO). Consequently, 10 million people die every year from hunger while one-third of all food is wasted. This gross inefficiency in economic resources is not captured or discussed. Food per capita availability has increased globally since the 1970s. But under capitalism, the market allocates goods including even food to only those who can pay its price. It does not make a difference whether the willingness to pay is less than the price due to ‘preference’ or due to ‘poverty’. Yet, mainstream economics claims consumer sovereignty.
When welfare is discussed in microeconomics textbooks, it is only in the domain of economic exchange in markets. The discussion in such places sets total welfare maximization as the virtuous end or criterion. In first-degree price discrimination adopted by a monopolist, there is no welfare loss. However, there is no consumer surplus either despite having optimal efficiency. Economics is neutral between desirable or undesirable equilibrium from the point of view of equity.
Mankiw’s famous quote was ‘People react to incentives, all else is just explanation’. However, poor people are helpless. They do not have or face a willingness to pay choice in helpless scenarios. A literal application of definition of demand would imply that the poor people do not have demand. Their wants are not backed up by purchasing power. Economics does not differentiate between essential and non-essential wants. If a rich person demands golf course in a locality near a big population of homeless people, then, it will be made first if he can afford it. Are poor willing to give fewer dollar votes by choice to buy the essential needs? Is it their conscious and sovereign decision?
However, we do see people, institutions, and governments trying to help the poor and vulnerable people. However, any policy decision to achieve equity, fairness, social good, and public welfare is largely ‘ad hoc’ and does not emanate from the more emphasized terminologies of Pareto efficiency, consumer sovereignty and invisible hand that we teach at length and treat as sacred virtues in economics textbooks.
The impetus for pro-social behaviour in human beings can be increased if the right values are inculcated and adopted. Concept of the oneness of Creator dismantles any basis of anthropogenic (human-centric) superiority among all creations, whether it is animated living species of animals and humans or the inanimate non-living objects in the environment.
Explaining consciousness and conscience does not come in the domain of science. Like animals, humans also have consciousness, but they also have a conscience which gives them the ability to differentiate right from wrong. But, why we should do right and not wrong actions. Dawkins said that it is necessary for survival. But, Dawkins needs to be asked that haven’t we evolved through mutations in the game of survival of the fittest. Rawls said ignorance of the veil shall be a guide to behave in a way so as not to be on the wrong side of someone’s prior irresponsible or unjust action. But, living in any age, we exist and we do not come back again. In the lottery of who comes first in the world, we have already won and are here. Then, what can motivate preferences to act rightly and avoid wrong actions permanently and as a well-grounded behaviour, norm, and habit? The biggest motivation to act on the call to conscience is when there are deterministic rewards. The concept of deterministic rewards in life hereafter on the criterion of sincerity in virtuous and upright conduct in life by each person according to one’s ability and by each person according to personal circumstances makes every living moment in this life meaningful.