Patriotic economy

As world crosses 4 million and India cautiously recorded just north of 60K COVID-19 cases, uncertainty and worry solidifies around us. There are many questions that each of us is deliberating on hangout, zoom,or another video/audio calling apps from coziest corners of our respective homes with friends or colleagues. Many talk about running out of online material to watch (When is Netflix gonna release the next season of Money Heist ?). Mothers want to know when schools will open. Friends want to hang out for a coffee at a favorite cafe. Yet many understand that we will never be same even if we invent a vaccine or simply find enough courage to go out again. We might fundamentally change the way we transact, hug, talk, converse, travel, shop, or work. People are changing the way they get married and plan events. For all those who want the economy to be normal again, we are in the new normal.

Truth is that economy is partly moronic and largely mystic. The immediate impact of COVID - 19 is uncertain but certainly astronomical. Unemployment is expected to touch 26% during next year with the tourism and hospitality industry alone contributing 3.8 cr unemployed. NBFCs ongoing liquidity crisis, now prolonged by our most envied virus, and growing unemployment has only added fuel to uncertain times. To add to economic pressures salary cuts and furlough announcements are flowing in one after another from myriad companies. More importantly, government revenues are significantly impacted. 70% tax on alcohol and increased excise duty on petrol & diesel are desperate measures in desperate times. Vague explanations and murky regulations have made these uncertain times messier. Around 3 million migrant workers across states were not able to reach home and were stuck for 40 days. The color of the zone is not able to stop people from roaming around or 40 days were required for the fear to subside. Or economy has won the most argued "health vs economy" debate.

While the economy is taking an interim respite, there is both a supply and a demand shock. Both Shopkeepers and shoppers, sellers and buyers, service providers, and customers are cautious of what might happen. Even if these shopkeepers, sellers,or service providers (Supply-side) begin operations there is no guarantee that shoppers, buyers,or customers (Demand side) will resume pre-COVID patterns. The interaction between demand and supply will become unpredictable for a while. These businesses will be required to react more responsibly for the demand side to trust them again. With various e-commerce companies adopting safety measures and using them to generate trust and feeling of safety among consumers.

Trust forms the basis of high money rotation in economy which lends veracity to the phrase -> "money makes money". Lack of trust can have significant impact on economy. Well imagine that I want to buy a packet of lays. I go a shopkeeper, I swiftly hand over money and take my chips packet. In this transaction, there is little thought that each gives regarding any cheating or misbehavior. However, if the transaction amounts 90 L between an owner of a flat and a buyer. Things are easier if both parties are familiar but if not it generates caution or lack of trust. Imagine if this transaction is happening not in India but in Afghanistan. It is evident that one will put laborious hours drafting agreements to safeguard various risks. Highly possible that transaction will be aborted. There are many brands in the business of creating trust similar to what e-commerce wants to achieve with safety guidelines flashed on respective apps these days. Imagine million of such people making transactions daily both simple and complex. Isn't this a very simple definition of economy. An economy built on the foundation of money but bricks of trust.

What will be the impact on an economy if this trust is taken out of the equation. Let me take you to an article in Forbes:

"If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia," ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country's income (2006 figures). If you make $40,000 a year, then $200 is down to hard work and $39,800 is down to trust.

This is more true now than ever for economy as both demand and supply suffer an adverse shock. Low supply as many workers may not want to step outside their homes, while even if supply is re-energized there is no guarantee that aggregate demand will return to earlier levels. We still have to find how social distancing going to change trust among individuals and how businesses evolve to take into account this novel pandemic which may not be last such event. Insurance and e-commerce are having a roller coaster ride while travel, aviation and hospitality are having a mayday. New technologies and new business may emerge out of these times. Imagine an online showing trust scores of everyone. Well as abstract it sounds, it is a concept that is not far from reality. Ted talk by Rachel Botsman in 2012 explaining how individual trust score will become important in future makes me wonder if this new form of social trustworthiness will be effective. Credit ratings for businesses and CIBIL score for individuals can be replaced by trust scores. Both parties in a transaction in future will simply check the trust score and enter into business. While in the absence of such a platform the trust remains enigmatic as contractual breaches and other violations increase. Following excerpt is from KEN:

Day by day, week by week, we are losing trust in things we took for granted. The inviolability of contracts, because everybody is reneging on them citing “Force Majeure”. The safety of debt funds, because Franklin India abruptly shut down six of its funds with nearly $4 billion in assets . The surety of a job, as India stares at 23% unemployment. The sanctity of rules and regulations, as the government keeps moving the goalpost for businesses and employers numerous times. The protocols of commerce, as those businesses hit hardest by the pandemic, like airlines, decline to refund customers

Corona virus has brought worse out in us. It will definitely leave the world more cautious. Panic shopping, force majeure, murky lockdown guidelines, rising prices online, declining refunds by airlines are nothing but survival attempts from businesses or individuals. Social distancing is inversely proportional to trust. Amidst everything governments need to align to a single strategy to address crucial concerns. While some countries cover more ground testing others rely on extended lockdowns and few favor herd immunity. Rare counties treat this as an opportunity to complete the infra related construction within crowded cities. Imagine a nation like India that is likely to end with 26% unemployment, revived NBFC crisis and murky government guidelines. Even monetary and fiscal policies may end up weak attempts to revive economy as government coffers are also dried up in absence of tax collection. People have already shown that they are selfish through panic buying and house arrests and businesses are protective by refusing refunds and furloughs as survival instincts over shadows. Wouldn't it be logical for a nation to save itself. The choice to save domestic economy before allowing import and export to normalize seems like a logical choice. With whatever money that government pumps into market has to be aimed to save domestic players. High levels of unemployment and social unrest should bend political will to strengthen domestic companies before opening nations globally. Even when it is proven that globalization increases welfare across globe, national economies will be more patriotic for a while after COVID.