The world has been in a state of shock since January 2020. Every corner of the globe is struggling to survive the health and economic impacts of the Coronavirus. Ethiopia is already experiencing the brunt of the virus as it reports a fall in economic growth and bankruptcy of several private companies. The most powerful states in the world that were perceived to have economic prowess, developed health system and educated society were apparently not ready for a challenge like the Coronavirus. Supply gaps in essential medical equipment showed their neglect of the most basic products; their health systems were simply overwhelmed by the large amount of cases coming in and their educated population proved to be undisciplined and not so smart after all. They even proved to be self-obsessed during times of trouble and could not help each other out. All these things reflect negatively on the Liberal Capitalist ideology they push down on everyone’s throat. The grave errors in the West’s response to the pandemic and the relatively more effective and efficient response by the East have pushed policymakers to further analyze their position on liberalism. As countries shift their stance, the issue is already becoming a source of debate among Ethiopian scholars and politicians. EBR’s Ashenafi Endale explores.
On May 13, 2020, the World Health Organization Emergency Department declared ‘Coronavirus may never go away’, adding ‘HIV has not gone away but we have come to terms with the virus.’ That day Coronavirus cases reached 4.3 million worldwide with 300,000 deaths. The figures have now more than doubled. The little hope in finding a vaccine placed a tough burden on governments to control the epidemic and bail out economies.
However, barely any government was ready for the doomsday-eske global shock. Despite all types of conspiracies, no country was prepared when COVID-19 appeared under Wuhan’s horizon. However, there are some countries with the system in place to respond quickly to the epidemic more than others. The pre-established procedures such countries have in place to respond to such viral outbreaks have made a huge difference. These countries have better social security, resilient economy and efficient central government with fast maneuvering capacity. Bottom-line, ideologies, governmental model and economic structure have determined the approach each country takes towards controlling the pandemic. This, in turn, resulted in a difference in the level and effectiveness of state responses to the spread. Simply, COVID-19 served as a test of which countries have strong systems and ideology that best serve public interest and the economy.
The USA, a global superpower and icon of neoliberalism, has been unable to tackle the wild spread with a resurgence of new cases taking the total to nearly 3 million out of over 11 million cases worldwide. It also makes up over 125,000 of the 500,000 deaths globally. The powerful Western countries that together hold the beacon of liberal economic and political thought are in the top ten most affected countries by the Corona pandemic. On the other hand, the centrist Scandinavian countries, the Asian tigers and China have performed far better than the ardent liberal Western countries in controlling the spread of the virus. These countries are either social democrats or socialists. The strong and centralized nature of their governments and economic structure seems to have enabled them enforce laws strictly and command the economy for public interest. For instance, the Chinese government immediately placed Wuhan and other major cities under complete lockdown and successfully managed to control the spread in relative ease.
The Republic of Korea is also the best model for other countries battling COVID-19, as noted by the WHO. Korea managed to decrease daily new cases from above 900 in late February to around 100 by mid-March. Korea conducts 18,000 tests a day and it also exports affordable test kits and drive-through testing facilities. In sharp contrast, the governor of New York State had to force private industries to manufacture medical equipment; while President Donald Trump was busy explaining COVID-19 is a Chinese virus. The governor even threatened the industries would, otherwise, be nationalized.
The uncoordinated and ineffective response in major neoliberal economies is not mere inaction but a derivative of the fundamental characteristics of free market economies – weak governments that are at the mercy of the private sector. In fact, the US government later availed two trillion dollars in a bid to bailout the economy that already created over 36 million unemployed people after COVID-19.
The economic damages of COVID-19 are expected to be more severe than the 1930s great depression and the 2008 economic crisis. According to the IMF, the global economy is projected to contract by 3pct in 2020 due to COVID-19, ‘worse than during the 2008/9 financial crisis.’ Almost everywhere, we hear shocking stories about the economy. The COVID-19 pandemic is expected to result in the worst economic recession in the history of capitalism.
Long supply chains that were previously thought to be the modern way to organise production have been disrupted; borders have been closed; international trade has come to a standstill and international travel has come to a grinding halt. In a matter of days, tens of millions of workers became unemployed and millions of businesses lost their employees, customers, suppliers and credit lines. In the UK, one of the most powerful liberal countries, banks, railways, airliners, airports, the tourism sector, charities, the entertainment sector and universities are on the verge of closure.
Alfredo Saad-Filho, a Marxist economist, noted that the pandemic hit after four decades of neoliberalism had depleted state capacities in the name of the ‘superior efficiency’ of the market, fostered deindustrialisation through the ‘globalisation’ of production, and built fragile financial structures secured only by the state, all in the name of short-term profitability. “The disintegration of the global economy left the most uncompromisingly neoliberal economies, especially the UK and the USA, exposed as being unable to produce enough face masks and personal protective equipment for their health personnel, not to speak of ventilators to keep their hospitalised population alive,” Saad-Filho remarked.
The poor are the most affected segment in any global shocks, including COVID-19. The sharp drops in per capita incomes are also feared to cause political instability in fragile countries. Although the output of developing countries will contract only by one percent, the highest number of people falling into extreme poverty will be in these countries since a large section of their population is close to the international poverty line. Sub-Saharan Africa will be the hardest hit by extreme poverty under COVID-19, according to the World Bank. Of the total 49 million people expected to fall into extreme poverty as a result of the pandemic, 23 million will be in sub-Saharan Africa while 16 million will be in south Asia.
Unless governments lift themselves up to the challenge and control the pandemic, the world will be barely recognizable in the near future. In fact, it is not the first time the world is embarking on uncharted territory.According to Endalkachew Sime, Deputy Commissioner of National Planning and Development Commission of Ethiopia, close to two million self-employed people in Ethiopia will lose their jobs in three months – mainly in the informal sector. He pointed out: “Our GDP growth will decline by 2.8Pct to 3.8Pct. This means we will lose ETB60 billion to ETB70 billion due to COVID-19. As the government is extending loans, mobilizing funds and granting tax breaks and cuts for the private sector to keep its head above water and retain employees, tax revenue is expected to fall for next year.”
As of the end of last month, the government, through the National Bank of Ethiopia injected ETB17 billion to private banks while CBE received a financial package of ETB31 billion.
Ideologies and public interest during shocks
Although the ideological tensions and competitions since WWII have been engulfed by globalization since the 1990s, the actions of states in response to the current global shock is based on their established national ideological patterns.
The measures taken to tackle COVID-19 include providing health equipment, supporting economically impacted segments and enforcing social distancing, which might be against individual rights. Producing equipment, financing and bailing out the private sector, state of emergencies, supporting the poor, the role of governments and many related issues in the fight against COVID-19 are significantly influenced by ideologies.Although all governments have similar duties when it comes to saving lives, some experts argue that the response is drawn out of ideologies when it comes to saving lives and the economy simultaneously.
But for Fikru Woldetinsae, consultant at WB, ideology and economic structures have little impact on the effort to control COVID-19. He stated: “It is more about the level of consciousness in the society, discipline and fluent production methods. In fact, the state cannot enforce COVID-19 measurements, if its power is shrunk. Obviously strong governments are advantageous at this point. Scandinavian countries are better positioned in all aspects. Both the loose governments of the West and draconian authoritarian governments of the East are not recommended.”
He also argued that in the USA, the role of SMEs is higher than big corporate companies in employment. He remarked: “The corporate represents big capital and value. Wal-Mart employs only around 300,000. However, the self-employed cannot afford different health insurance packages. So they need state provisions.”
However, every state has a duty to protect citizens since the public has a social contract with the government and not with big corporations. In socialism, the state ensures public interest is fulfilled. For libertarians, the market does. Yet there are situations that allow government to command the private sector, even under neoliberalism. For instance, during state of emergencies (SoEs), state can order private companies to produce or serve essential items needed for common goals.
Although experts insist that having clear ideological grounds is very important in designing policies and running a stable macro economy, the issue is not given proper attention by the current administration whose officials openly downplayed the importance of adhering to a specific ideology.
Alemayehu Geda (PhD), Professor of Macroeconomics, argues ideology and state structure have had an impact on controlling COVID-19. “Countries that have strong states and social policies are controlling the pandemic. Nordic countries are even better than China. Democrat countries have weak and slow responses because they have to accommodate many voices and interests. Their central government is not influential.”
Alemayehu stated: “the poor and black people in America are the most affected at times of shocks, making up over 70pct of the COVID-19 cases. The government, which is controlled by a few rich and far right people, does not care about the poor majority. The poor have less access to the expensive health care. Over 70pct of the population affected by COVID-19 is black and poor.”
For Alemayehu, COVID-19 is the biggest global crisis surpassing the 1930s great depression and the 2008 economic crisis; thus, it may lead to a shift in ideology. “When free market started in the USA, the great depression happened. Unemployment skyrocketed and then Keynesian theory was introduced. The government stimulated the private sector up until 1970 but the market was again deregulated in the West. Then the 2008 economic crisis happened. Again the government had to give away USD700 billion to save the private sector. If it is a free market, why does the government have to bail out corporations? Neoliberalism works only when the market is good,” he concluded.
Teshome Tafesse (PhD), state Minister for Public Private Partnership (PPP) at the Ministry of Finance (MoF), agrees with Alemayehu. “Free market and democracy works only at normal times. Government must be involved when the market and the whole system is dysfunctional. Government involvement is crucial where there is a gap. At such times, the nature of states assumes the traditional shape of power that places survival as a priority and democracy as secondary,” he argued.
For Teshome, the private sector is primarily preferred because it navigates through demands and can address huge gaps with wide market coverage in a way that government cannot. He stressed that states lost their sovereignty to globalization following the shift in the international system from bipolar to multi-polar. The rise of terrorism, technology, and ideological tensions also contributed. The increasing neglect of state sovereignty gave the USA a de-facto power to intervene in developing countries like those of Africa.
“Physical borders became very porous under globalization. But now, everybody is tightening their borders, building national self-sufficiency, focusing on national policies, claiming sovereignty, defending nationalism and falling back to the traditional mode of power shape. This will continue even in the post COVID-19 era,” he added.
For Kassahun Berhanu (PhD), Professor of Political Science at the AAU, the difference between neo-liberalism and socialism in protecting public interest is obvious. “China is a unitary state with provinces in it. However, China has more resources and power than countries that claim to be federal states, like Ethiopia. China’s public is highly ‘unionized’ over the last 70 years. Government commitment enabled China to harness economic capability, finance and technique,” Kassahun said.
On the other hand, Kassahun raised, the USA has a weaker and ‘disorganized’ government and leadership. He went on to explain: “in fact, since the 1980s, the USA led neoliberalism has been losing its momentum across the World. Although it enabled the US increase private sector participation and contribution, wealth remained in the hands of few. They criticize socialism as the philosophy of distributing poverty and as a backward mode of production.”
He further noted that China, on the other hand, advocated socialism and later increased the role of the private sector, mixing it with state capitalism under a controlled situation. He stated: “China has become the best example that economic prosperity can be achieved using socialism with all its shortcomings. Although many countries like Somalia abused it, China improved socialism innovatively. ”
Still for Kassahun, however, capitalism has been just as damaging as communism. “Capitalism also brought many damages around the globe but they usually pick only the good examples. Colonialism and world wars are waged in the name of accumulating wealth. For instance, the government is powerless in the West but it is the government that bailed out the private sector during the 2008 global economic crisis. Capitalism needs revisions. This is privatizing profit and socializing loss, which is a political game in the name of ideology,” he said.
This is why Kassahun advises African states to come up with their own ideology. “Developmental state can be a good tool, if utilized properly. Development can be led by the government, with enough room left for the private sector along good governance. However, African governments including that of Ethiopia usually use developmental state model to attack opposition parties. They cling only on to the motto of either capitalism or socialism. The rest is the enemy,” he added. “Labeling must stop. Both communism and capitalism need to be watched from the perspective of public interest. It should also be understood that capitalism always goes for profit; so, it cannot answer public demands.” This is an idea shared by Saad-Filho.
“Neoliberalism was quickly shown to have hollowed out, fragmented and part-privatised health systems in several countries. It also created a precarious and impoverished working class that is highly vulnerable both to disruptions in their earning capacity, and to health scares because of their lack of savings, poor housing, inadequate nutrition, and work patterns incompatible with healthy lives,” Saad-Filho argued.
In fact, the feat of neoliberalism has widened inequality at such an unprecedented pace that Oxfam’s 2018 report indicates the world’s 26 wealthiest people own as much wealth as half the entire world population. It has given the chance for the largest transnational corporations in the world to emerge as the most influential actors in the international system, taking over the roles of states. Of the world’s hundred largest economies, 69 of them are multi-national corporations (MNCs).
Ethiopia- a right-camp candidate?
Ethiopia has just launched its ten years economic roadmap that set out to “bring equality based economic growth,” according to Prime Minister Abiy Ahmed (PhD). One of the goals of the plan is to boost production and competitiveness while building a green and climate-resilient economy as well as bringing about institutional transformation. The country is also expected to witness an economic growth of 10.2Pct yearly during the course of the plan. Replacing the current five-year growth and transformation plan or GTP, the home grown economic policy is expected to be “women and youth” centered and guarantee private sector-led growth. It seems like the ‘new homegrown’ economic roadmap intends to create a fundamental shift of the economy towards market forces from the immense state grip of the developmental state model of the last two decades.
Under the new approach, giant state enterprises like ethio telecom, power generation and utility, sugar factories and even Ethiopian Airlines are slated for privatization. Under the previous ruling group of revolutionary democrats, Ethiopia targeted building state capitalism, improving the lives of the poor and joining middle income countries by 2025. Now, under the Prosperity Party, the state has adopted ‘medemer’ (Summation) as its guiding principle in place of a well-established ideology recognized globally.
“Under normal circumstances, the government must focus on ensuring stability, regulating markets and maximizing productivity of the private sector. At times of shock, the government, the private sector and the public must do their parts in coordination. The state must be strong and every business must benefit the public and the country,” said Haile Gebreseliassie, the world renowned athlete who has become a business magnate paying six million Birr salary per month. He has successful investments in the hotel industry, car assembly and coffee plantation. He stated: “Currently I have 3,000 employees. I cannot let them lose their jobs and die of hunger. The government must ensure stability; financial institutions must inject finance. The public benefits through the private sector.”
For Alemayehu, however, the private sector has no responsibility to the public except moral appeal or through governmental push. One can threaten not to buy from a company; they can also be denied of their jobs by a private company. He noted: “PM Abiy must be cautious in the ongoing privatization; he must stop assuming that private sector involvement would serve the interest of the public. Ethiopia has been rushing towards privatization over the last two years. The government is obviously misled by Western consultants. It is only the inertia of established state structure that is holding them back from privatizing faster.”
Alemayehu believes contemporary Ethiopia is in a similar situation as Korea 50 years ago. “Just 50 years ago, Samsung was a noodles seller but then it became a giant corporation in a few decades. Ethiopia should do what was done by Korea, which created a national company out of small enterprises,” he added. “The West usually serves corporate interest. That is easy to understand from their advice that involves liberalizing the forex market and privatizing key assets.”
Kassahun also stressed that corporate interest does not represent public interest and the government cannot utilize corporate assets for public purpose. “Currently, Ethiopia is privatizing big public asset enterprises. This needs critical caution. So far, Ethiopia’s market has been immensely impacted by contraband; now it will be under private corporate companies. Increasing the role of the private sector is essential but it should not done in a way that does not affect public interest.”
Haile, for his part, recommends working on strengthening nationalism and citizenship for years ahead of embarking on democracy or development. “If you ask Koreans how they developed and democratized, they tell you that they worked hard on Korean citizenship, children and young minds in schools after the war in the 1950s. They agreed on nationalism and everybody started working for his country,” he remarked.EBR
9th Year • July 1 – July 15 2020 • No. 88