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COVID-19: Is capitalist economy on retreat?

In the wake of the rampaging COVID-19 pandemic, the world as we know it has been in a state of topsy turvy. A lot seems not to be adding up any more; age long principles are being upturned and dismantled while some long held myths are being called to question.

One of such age long held beliefs is the dichotomy between the state and free market enterprise driven by the private sector. The theory amongst capitalist economists has been that the two are like parallel lines. Their argument has been that in terms of efficiently managing an economy, the private sector is shoulder above the state. This is anchored on the premise that the market is efficiently more primed to allocate resources better than the state and therefore should always be at the forefront in managing an economy.

The above argument appears persuasive when one juxtaposes the performance of market led economies over the years with those of the state run ones. With the exception of China and far distant Russia, socialist/command economies over the years have had to contend with a lot of dysfunctionality to the extent that many have abandoned that path or have had the system tinkered with profoundly by way of reforms. This is not to assume, however, that capitalist economies have had it smooth sailing all the while. Which ideology is superior should be a topic for another day.

If anything, the advent of COVID-19 in Nigeria has brought once more to the fore the notion of whether the private sector and the state are indeed two parallel lines that can never meet. COVID-19 pandemic as it is better known has actually pandemiced the world. Aside the health hazards it has wrought on the world resulting in many deaths; jobs have been lost, many companies have closed down or just tottering while hunger, especially in many developing economies have assumed embarrassing heights.

In the midst of the foregoing, many governments all over have had to step in to bring succour to many companies, establishments and individuals.

In many advanced economies where established safety nets are already in place, doling out palliatives isn’t much of a problem; well laid out platforms are already in place. For many a developing economy, administering the palliatives has come with a lot of challenges. Though in some cases, the private sector has lent some support in terms of providing resources and cash, the actual administering (and the bulk of the resources and cash) has been carried out by governments using their agencies and platforms. If this is so, where then is the much vaunted argument of the private sector being a better allocation of resources?

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In terms of efforts at flattening the pandemic curve, again, governments all over are leading in the crusade. Most of the testing and treatments of the COVID-19 patients are being conducted in government facilities, with private facilities in the minority and often under government authorisation. Data collection and dissemination regarding the pandemic are in firm grip of governments.

Where the pre-eminent position of the private sector vis-à-vis the state has glaringly been called to question is in the bailouts being currently implemented by many governments. Ironically, the private sector has been calling on governments to intervene in order for them to stay afloat.

Today, all over the world, the call has been very strident, especially from operators in aviation, tourism and hospitality sectors for massive bailouts and many governments have responded in good measure. Micro, Small and Medium Enterprises (MSMEs) are not left out.

What of the call on governments to pay salaries and wages of some furloughed staff as currently being championed by some companies in U.K? They have posited that that is the only way some of them can bounce back to economic life. This is not adding the scaling down or in some cases the waiving of corporate taxes and levies that these companies ordinarily would be paying. That some governments have so far spent about one-tenth of their GDP (according to the IMF) in support of some businesses and providing palliatives says it all.

A priori, it seems that to all intents and purposes, the capitalist economy is not the putative behemoth that it has been portrayed to be. But has it ever thrived devoid of government support? Evidence on the ground seems to be in the negative. Even in many developed economies where capitalism holds sway, governments there have been known to support companies through erection of tariffs to protect companies from imports abroad, lowering of taxes and providing tax holidays to infant companies from time to time and outright subsidies in some cases (like the relationship between the U.S government and its farmers). To many developing economies tilting towards capitalism, the cliché is that the government has no business being in business: it should restrict itself only in the area of providing enabling environment. But the majority of the businesses there still depend on governments for direction. In the case of Nigeria, for example, many businesses hardly plan for any given year without waiting for the government’s budget for that year.

Contrary, therefore, to the notion that the private sector and the state are like two parallel lines that don’t meet, they are in fact Siamese twins. No superiority should be assigned to any. If the question posed as to the status of the capitalist economy in the world today is resolved in the affirmative, it follows that all along it has been so.

Dr. Okolo is a chartered stockbroker and management consultant based in Lagos

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