Emerging Markets   |   Apr 22, 2020

Life vs Livelihood: Hobson’s Choice for Emerging Markets

The entire world is fighting the same invisible COVID-19 virus enemy. However, Developed Markets and Emerging Markets face different sets of challenges, constraints, and social norms. As a result, the policy outcomes and societal reactions will be quite different impacting the near-term economic trajectories in the respective universes. Emerging Asian economies seem wired for a quicker restart.

Anindya Chatterjee
Senior Vice President and Lead Portfolio Manager

Uniform Threat, Different Reactions

The world economy has been brought to standstill by COVID-19. Philosophical debates of human existence on this planet, and our selfish pursuit of growth and profits, and our mindless conquest of space and our grab on nature and the environment over other species have come to the fore – even on the minds of stoic financial investors. As the global death toll keeps rising, nations are speculating on the timeline of the tapering of the infection-curve, and they are already planning on easing of restrictions and lockdowns and on resumptions of economic activities. Inevitably, the moral-philosophical debate on the conflict of “profits over people?” emerges in the developed world – uncomfortable indeed! For emerging markets, the luxury of any such debate is scant: what is there to debate on “life vs livelihood”? We expect faster easing of restrictions on businesses and social life in Asia, albeit in a phased manner. Not just because Asia is mostly ahead of the Western world on the COVID-19 infection curve timeline, but also because of an inevitable policy leaning towards the utilitarian approach driven by dire necessity of sustaining the livelihood of hundreds of
millions of poor people. Additionally, collectivism is culturally ingrained in Asia’s community-centric lifestyle*, unlike the Western individualistic societal value system – Asians are more likely to shake off the virus fear sooner, as we have seen from past experiences of SARS and swine flu incidences. For investors, we believe the bottom line is that Asia will roll back to normalcy sooner, despite the risks of COVID-19 relapses.

China Goes Back to Work … while, the Western World Leans towards the Rawlsian Prescription

China has taken a more Utilitarian approach to balance the “Life vs livelihood” tug of war. The relaxation of lockdowns in China, allowing factories and businesses to go back to work, may seem too early and too risky by “Western standards”. It is no surprise that the Western/developed world is leaning towards the Rawlsian/Libertarian prescription. UK and US may take a longer time to ease restrictions on businesses, and it may take even longer for the consumers to shed fear and participate in normal social/crowd-engaging activities. We can expect animated political partisanship and endless public debates on the appropriate timeline of any such relaxations. Not so in China, or in most of the other emerging Asian countries, in our view. While the debate is on “life over profits” in the developed world, it is more of a Hobson’s choice between life and livelihood in emerging markets – where 1.3 billion people live in ‘multidimensional poverty’, of which 650 million are in Emerging Asia, according to a 2019 survey by the U.N. Development Program. Lockdowns hurt the poor more than the rich. Extended lockdowns are simply not feasible in poorer countries. The International Labor Organization (ILO) predicts more than 195 million job losses globally, due to the pandemic, and the UN predicts that another half a billion people may sink below the poverty line. The situation is dire, and the politicians and the policymakers in Emerging Markets face tough choices on the balancing act of life vs livelihood. Thus, the western prescription of ranking “life over profits” with extended lockdowns, is hard to emulate for Emerging Markets. 

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Disclosures

SOURCES

1. https://www.bloomberg.com/opinion/articles/2020-03-29/coronavirus-pandemic-puts-moral-philosophy-to-the-test?sref=E1tm05eR
2. The Project Gutenberg EBook of Utilitarianism, by John Stuart Mill: http://www.gutenberg.org/files/11224/11224-h/11224-h.htm
3. https://web.stanford.edu/~hazelm/publications/1991%20Markus%20Kitayama%20Culture%20and%20the%20self.pdf
4. Rawls, John (1999). A Theory of Justice. Harvard University Press.
5. http://hdr.undp.org/sites/default/files/mpi_2019_publication.pdf
6. UNITED NATIONS DEVELOPMENT PROGRAMME, Human Development Reports; http://hdr.undp.org/en/2018-MPI
7. https://www.cnbc.com/2020/04/09/coronavirus-could-push-half-a-billion-people-into-poverty-globally.html
8. Bank of America-Merrill Lynch Report: China Reopening – High Frequency Data – Traffic/Industrial Production and Services
9. https://www.businessinsider.com/coronavirus-china-health-software-color-coded-how-it-works-2020-4
10. https://www.bloomberg.com/news/videos/2020-04-02/we-are-morally-unprepared-for-this-crisis-says-harvard-s-sandel-video?sref=E1tm05eR
11. High Contagiousness and Rapid Spread of Severe Acute Respiratory Syndrome Coronavirus 2: Steven Sanche1, Yen Ting Lin1, Chonggang Xu, Ethan RomeroSeverson, Nick Hengartner, and Ruian Ke; https://wwwnc.cdc.gov/eid/article/26/7/20-0282_article

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