Covid-19 and the response to it is one of the most significant events of the past decades. As posited in a recent Sakeliga Webinar, there is considerable pressure on policymakers to act. However, it is not always clear what the right course of action is. Different countries are following different approaches, and outcomes differ noticeably.
The outbreak of Covid-19 and the impact of restrictions on production and operations is enormous. Regardless of the course of the pandemic, decisions made now will levy massive costs on the economies of the world, as well as locally. After the medical crisis has passed, a long road to economic recovery lies ahead. Conditions in South Africa before the Covid-19 outbreak were already unfavourable. Some analysts believe that local recovery will be even harder.
Lockdowns
Many people, not only in South Africa, are now bound by official states of quarantine (or ‘lockdowns’) and other stringent regulatory restrictions. Government’s actions have now put a stop to many operations and production.
Policymakers believe that stipulations may close some businesses while other essential services and products continue, with limited impact on “essential” businesses.
This type of thinking attests to confidence in central planning and a belief that policymakers can simply determine what is important in the economy and what is not. This, we believe, is an economic miscalculation that will quickly come to light, although we will only fully witness the consequences later.
The problem is, of course, one of multiplication, as problem compounds problem. In principle, we can already expect that shortages and even problems with the delivery of essentials will increase.
In this time, it is crucial not to be fooled by economic aggregates. A long queue in front of a shop, as has been the case in some places, reflects shortages. Shortages are, of course, something that individuals experience. It is especially important to keep in mind problems of coordination.
Furthermore, it will soon come to light that the ‘essential’ structure of production fits together in a very complex way. Consider a few examples. This is not to say the current examples are final; they are only to illustrate the principle that the economy is an intricate latticework.
Butterfly effects in complex systems
What if a pipe at a hospital bursts – are plumbing services essential then? Plumbers, however, need items like rubber seals, tools, solder and pipes (and other things that I can’t even think of!).
In the short term, of course, existing stocks can be used up, and plans can even be made. But sooner or later, new inputs that are necessary, but may not be appointed or included now, need to be created somewhere.
Suppose a busy doctor with bad eyesight’s glasses break. Ophthalmologists may be deemed essential, but is every conceivable thing they need to order lenses and for lenses to be manufactured available?
Consider also the following examples and remember it is merely what a dumfounded analyst could think of quickly. Can we truly believe that such cases or similar could not possibly create significant problems in the complex chain of supply:
- What if pharmacies or hospitals run out of printer paper or labels? What about the glue on the back of the labels in local production? And are labels still being imported?
- What if an emergency doctor’s pen runs dry and others are not available?
- What if the third tier supplier’s web server’s wall socket breaks?
- What if a glass partition somewhere breaks? Is glass essential? How fast can it be repaired?
- Are batteries for electronic thermometers essential or not?
- What if a light bulb somewhere in an essential machine burns out at a critical moment?
It is not far-fetched to think that someone somewhere who needs to be making or importing something that will be required later is not busy doing it. We will know then, but it is reminiscent of the old piece of wisdom that says
For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.
Policymakers are clearly trying to think of and include as many possible examples, but will they truly be able to think of all the critical ‘horseshoe nails’? Or are there informational challenges? How fast can the proverbial ‘horseshoe nails’ be added to the list?
By necessity, we believe, the list of essential businesses, services and staff will have to be expanded throughout the lockdown. But this will happen bureaucratically. Later on, shortages of ‘horseshoe nails’ would easily hamper even essential sectors and cause consumers great distress.