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Opinionista

Trying to think through Covid-19 impacts and our economy

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Geoff Schreiner (MA Sociology University of Warwick, UK) worked for 13 years in the labour movement during the anti-apartheid struggle. Recipient of the Martin Luther Peace Prize for socio-economic reconstruction activities during the transition to democracy. Now Products Director of Competitive Capabilities International (CCi) which focuses on global supply chain best practices and a Director of Performance Solutions Africa (PSA) which works in training and coaching school management teams in public schools in South Africa.

We should be wary of the fact that pandemics and major disasters have the effect of pushing governments unduly into the limelight. Governments become the protectors of civilian populations who put up with the overreaching of power in their panic, fear and revulsion. We have already seen elements of this in the way in which elements in the police and army have behaved, egged on by unscrupulous ministers.

Let me declare up front that I am neither a medical specialist nor an economist. I am just an ordinary, ageing Joe with a love for this country and a strong interest in systems of decision-making.

Borrowing a bit from some of the articles I have read, what decision would you have made on a hard lockdown if you were confronted with the choice of somewhere between 87,000 and 350,000 Covid-19 deaths or one million job losses (SARB) plus attendant deaths and a decimated economy?

It would be a hard call of course. But governments have to make these tough decisions and we would like to believe that our government makes the most informed decisions with the best information at hand at the time.

From reports, what we now know is that it is likely that our government did not weigh up the options as carefully as we might have liked. We are starting to learn that the estimated number of deaths might have been based on faulty assumptions and that these are more likely to be between 25,000 and 45,000. This puts them in the same category as annual deaths due to TB (29,513), diabetes (25,255) and cardiovascular-related illnesses (23,515).

We can take this a bit further.

Why are we transfixed on the 20 or so northern hemisphere countries that are battling the virus and have we adequately interrogated why the trends in Africa (and possibly South America), appear to be so different? Africa reportedly has recorded less than 2,000 deaths and South America around 6,000. It certainly could be a case of poor record-keeping, but what if the following are also major contributors; BCG vaccines, the mean average age (20 years in Africa vs 43 in Europe), the fact that so many Africans have already died from a range of serious diseases, and the low number of old age homes (~50% of Covid-19 infections deaths have occurred in care homes in Europe).

At the same time as we might then be questioning the overestimation of the initial Covid-19 figures, we are now also beginning to establish that the initial data of the impact on the economy might have been severely underestimated. The Reserve Bank has now raised its outlook to 1.6 million job losses and a 10+% drop in GDP for 2020. Its initial estimates were -0.2%, then -2% to -4%. Many industry specialists would certainly have these as conservative numbers in their books.

So let’s reframe the question then a little – what decision would you have made on the hard lockdown, if on the one hand, Covid-19 in SA proves to have a case fatality rate closer to 0.1% (instead of the initial estimates of about 3%) and this results closer to 30,000 deaths, or, on the other hand, we suffer over one-and-a-half million job losses with widespread hunger, social unrest and a spike in related health conditions (both physical as well as mental). And add to the latter that between 2008-2019, the number of unemployed South Africans increased by 4.4 million to 10.4 million and that 55% of our population (30.4 million) currently live below the upper band poverty line, according to Stats SA.

So of course, it is easy to be wise in hindsight and it would be miserly to suggest that the government was wrong to act as it did in proclaiming the first lockdown. But there are lockdowns and there are lockdowns. We initially chose one of the most severe lockdowns anywhere in the world. Then with a full three weeks to reflect and prepare, we chose the same formula for another two weeks.

You might want to assume if you go to the top of the scale, that you would have to have sound evidence to support this still being the most appropriate route. But again it would appear that this might not have been the case.

Professor Shabhir Madhi, Professor of Vaccinology at Wits and former head of SA’s National Institute for Communicable Diseases, has called the research that preceded the decision “back of the envelope calculations” with fatally flawed assumptions such as initial contraction rates of 10%-30% of the population when that level hadn’t even been recorded in Wuhan.

Moreover, we learn from Professor Alex van den Heever (yes, just one report, but well researched), that if we continue with our hard lockdown approach, we could need 193 days of lockdown in 2020 in order to keep our bed occupancy to levels which meet current government requirements. The impacts of this on the economy are truly unimaginable. Van den Heever instead makes a compelling case for alternative approaches to lockdown for South Africa which clearly has a very different set of conditions (wealth, infrastructure and health services), to the hard lockdown countries in Western Europe and the US.

And, of course, feeding into all of this is the hype created by social media and the “availability cascade” which as Daniel Kahneman[1] [2] explains is:

“A self-sustaining chain of events which may start from media reports as a relatively minor event and lead up to public panic and large-scale government action … Scientists and others who try to dampen the fear and revulsion attract little attention, most of it hostile … anyone who claims that the danger is overstated is suspected …”.

 

Make no mistake though that getting back to work as fast and sensibly as possible is only a fraction of the challenge which we face. The real deal is returning business confidence which was shattered long before Covid-19 and the last Moody’s downgrade.

 

And so we must ask: Are we now better prepared than we were before the lockdown and its extension? Surely, in that testing has increased and some Covid-19 facilities have been set up. But perhaps the more difficult question is – did we need the hard lockdown to achieve this or would we have fared any worse if the lockdown had been of a shorter duration or very different in form? Even Professor Salim Abdool Karim seemingly questions the merits of the extension.

The reality is that the SA public health service has been decimated by many years of mismanagement and corruption. This does not diminish in any way the very fine work that is done by so many of SA’s health workers or the fact that we have islands of real excellence. However, the reality for most health workers is that Covid-19 will simply be added to the long list of death-related illnesses which they are already trying to deal with in a broken system that requires many years (not weeks) of ICU.

That said, we should give credit to the fact that the government is listening to experts and not seeking solutions in injected sanitisers or potato concoctions. Whether its experts are fully following protocols, whether the expert network is broad enough and whether there is the capability to carefully weigh the opinions of these experts, time will tell more fully.

On the testing front, we are seemingly being advised that the South Korean model is the way to go. Apparently, this is an affordable model even for our scenario. But what about the post-testing practicalities – the tracing, follow-up isolation and the policing thereof? How effective is this going to be where the vast majority of our population is forced to reside in tiny homes, in close proximity, with shared toilets and water taps?

Let’s acknowledge that 60% of people will ultimately get the Covid-19 virus – on this, there seems to be quite wide consensus. And so too, we should agree that for now the slowing down of the spread of the virus is a good idea and should be supported – international border restrictions do make sense, as does physical distancing, clear work standards, mask-wearing in confined spaces, prohibitions on gatherings and more testing despite its limitations.

Had this type of approach been adopted rather than the hard lockdown extension, the impacts on our economy may well have been significantly mitigated.

The supply-side measures to offset the hardship experienced by the poor are of course necessary – how much we borrow and what falls by the wayside to make these measures possible, must be carefully considered and whatever we borrow must be sustainable for our future taxpayers. The acid test will be loans from the International Monetary Fund and World Bank – realities which we will probably not be able to avoid – so swallowing the pill while at the same time trying to minimise the impact on the less privileged will be a far more noteworthy achievement than ideological conformity to a distant party dream.

Surely also, this is not the time to be considering a range of new distribution mechanisms given our checkered history of implementation even where time was of less consequence. A rational approach where time is of the essence, is surely to use the systems that already work (e.g. old age and child grants), as the principal methods of distribution, recognising that even these (e.g. the UIF), will present our limited state capacity with major challenges.

So how are we going to get back to work in a sensible way? 

The government’s approach is based on Levels of Risks to be driven by various Ministers of Health, Governance, Trade, Industry and Competition. The assumptions are that they will make the best decisions for us all and their detailed risk analysis will be their guide. Permits to operate will be issued to those who qualify – the level of discretion allowed here, however, lends itself to all the pitfalls that enabled the state capture project and so we must ask if the newfound faith in government efficiency is really justified?

Do we really need the state in this “nanny role”, or would we all be much better served if our government were rather to play a facilitatory role and instead set the standards and seek to support all businesses and other actors to get to those standards as quickly as possible? Businesses are far smarter than the government when it comes to figuring out plans for their survival where parameters are clear.

We should be wary of the fact that pandemics and major disasters have the effect of pushing governments unduly into the limelight. Governments become the protectors of civilian populations who put up with the overreaching of power in their panic, fear and revulsion. We have already seen elements of this in the way in which elements in the police and army have behaved, egged on by unscrupulous ministers.

Many observers will be hoping that our Covid-19 disaster strengthens the hand of the president in government and their continued presence will indeed be a welcome relief from the brazen kleptocracy and criminality of previous years. However, the biggest risk to the president’s team is that they will be characterised as having pandered to middle-class Covid-19 concerns at the expense of the impoverished in our country who will bear the brunt of the crisis that faces us ahead.

If there is one enduring message that comes through the Covid-19 experience, it is the massive divide between rich and poor and this will continue to haunt us in SA until we can get our economy growing again.

Hopefully, the president’s faction emboldened with the support that it has garnered through the crisis, will not take out of all of this that it has a mandate to be that nanny state in the road ahead. Statist models have failed universally, and South Africa’s hope now rests not in any state-driven set of solutions, but in a partnership between government and the private, and social enterprise sectors.

Make no mistake though that getting back to work as fast and sensibly as possible is only a fraction of the challenge which we face. The real deal is returning business confidence which was shattered long before Covid-19 and the last Moody’s downgrade. This confidence will come when there is policy certainty on issues like nationalisation, where there is good governance and the necessary capability restored to SOEs, where prosecutions are undertaken at the highest levels, where there are meaningful private sector incentives in critical sectors and where real public-private partnerships in construction and other infrastructure projects become the order of the day.

And as the reality of what we have unleashed on ourselves slowly starts to hit home, let’s avoid the availability cascade, let’s try to be driven by sound data and balanced decision making, and let’s now work together to do all we can to protect the livelihoods of those who are going to suffer immeasurably just because we thought we were doing something good – we owe this to our future generations. DM/MC

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