Patel’s red pen will help to write an economic horror story
Ebrahim Patel’s comment to MPs on Friday that economists “are sucking their thumbs” to make projections about the economic damage of the lockdown was jarring given the abundance of technical work that has been commissioned by the Treasury and the financial sector, which he must surely have endeavoured to read.
Even more concerning was what he said next, according to the report of the trade, industry and competition portfolio meeting carried in the Sunday Times.
His department was looking at three scenarios for the economy under Covid-19, he said.
The first is the L-shaped recovery, in which there’s a sharp downturn and then a prolonged flat period.
The second is U-shaped, in which the economy remains flat for a short period and then recovers. “And finally economists globally, and our own people, have talked about a V-shaped recovery where [there] is a sharp drop but a sharp upturn also.
“Obviously, we would be hoping for a V recovery and there are some factors in our control which we can use to try to do so.”
The R500bn package announced by President Cyril Ramaphosa was the first step in creating the conditions for the V recovery, he said.
But economists the world over have long abandoned the notion that the economic recovery will be a V shape.
Most agree that, support packages or not, the recovery is going to be difficult and slow.
Patel’s optimism — or denialism — of what Covid-19 means for the economy may explain why he has thought it a good idea to continue to ban economic activities that are clearly not harmful to health and safety.
The most irrational one is the continued ban on most ecommerce. In the regulations, this is because of “the need to limit the extent of movement on the road, contact between people, law-enforcement challenges and the impact on other businesses”.
It seems to be “the impact on other businesses ”— a reference to the elusive idea of economic fairness — that is the deciding factor here.
It is the same idea that has led the government to stop grocery stores from selling their full range of products and placed limits on products such as kettles and kitchen pots.
Lists and lists of economic activities have been traversed with Patel’s red pen, allowing some and not others.
So while the movement of cargo for both export and import is understood to have a limited health risk attached, only “essential goods” can be moved in either direction.
Manufacturing that is not listed as essential can operate under level 4 with 30% capacity. This is regardless of the health risk that may or may not exist, or the matter of whether the business can produce anything with 30% capacity or not.
It is all far too arbitrary, and the health criteria on which the decisions are ostensibly based are not clear. The economic fallout of the shuttering of various sectors, on the other hand, has been quite thoroughly examined.
In a paper commissioned by the Treasury, a group of economists applied a multiplier analysis to 62 sectors of the economy. It is a detailed piece of work and the one on which the Treasury has based its projections.
A short lockdown (which is what we have had so far) could result in -5.6% growth for 2020, a slow one -12% and a long one -16%.
The associated losses to employment under these scenarios are between 3-million and 7-million. After the publication of the draft regulations, the Treasury made submissions calling for a balance of the health risks and the economic damage.
It suggested an opposite approach: rather than list the activities that are allowed, the government should list those that are not allowed.
Businesses that are not prohibited should be allowed to open, based on their health and safety plan, and be shut down if they fail to work safely.
Whistle-blowing on employers should be facilitated and encouraged.
Among other things, the Treasury also recommended the sale of alcohol for collection or delivery, because apart from the losses to the fiscus, the ban on sales affects the entire supply chain, such as the glass and agricultural sectors.
Meanwhile, the really big risks to the spread of the pandemic have not been curbed. Funerals of more than 50 people are still allowed, despite clear evidence of the dangers.
The transport of bodies from the Western Cape to the Eastern Cape is tracking the virus into the most remote of rural areas. Public transport, especially taxis, is a major risk and is not being made sufficiently safe nor monitored properly.
While President Cyril Ramaphosa has been quick to point out that all decisions of government — including the ban on cigarette sales — are collective, they do not have the right to be arbitrary.
Lockdown level 4 regulations make little sense and are punitive on people. And, as always, the poorest suffer most.