Random thoughts on lockdowns and their costs.

I have been thinking about the response to the pandemic and the use of lockdowns.  I have many questions but not much in the way of clear answers, so these comments may be treated as thoughts that may be worth discussing.  

My initial question when Sri Lanka announced the curfew was – ‘what is the end game?’

A curfew is only a short-term measure to slow the spread of the infection, it is not a cure. How long must we endure it and to what end?

Other countries seem to be using lockdowns as a measure to buy time; to increase public health care capacity (procuring emergency hospital space, breathing ventilators, medical protective equipment, and testing kits). I have been assured by friends who have been following this closely that Sri Lanka is implementing a system of tracing, testing and isolating all potential infected persons and that there is reasonable, although not complete success in this.

The larger questions are the social and economic costs of the exercise.

Lockdowns are now widely adopted in various degrees of intensity, in many countries. We know the costs of the lockdown tend to weigh more heavily on the poorer sections of the population - their jobs cannot easily be done from home, therefore they are more likely to lose income. They are also more exposed to infection due to the nature of their jobs.

Is a lockdown therefore something of a luxury? Something the richer sections of society can afford but not the poorer ?

More developed countries have tried to ease some of the economic pain by way of relief - it may not be adequate but it is something. The lockdown, however also imposes costs on other countries through the closure of export markets. How do we evaluate these costs? 

For example, what Sri Lanka faces is a near complete closure - almost like being under economic sanctions. Orders for the garment industry, which is estimated to employ 350,000 people are at zero for the next three months at least. Even goods that were shipped are being returned. 

The industry initially faced supply constraints from January/February when China locked down. Buttons, yarn, accessories and fabric were being sourced from Wuhan so factories faced difficulties in finishing products. Then Europe locked down, leading to contraction in the market. Finally Sri Lanka went into curfew-so 2-3 months of slowing activity ended with a stoppage of local operations. 

Some 30-40% of the garment factories claimed they were unable to pay salaries in April and may be forced to close. A 100,000 jobs are at immediate risk. The bigger ones are holding on, MAS/Brandix have closed their factories for 3 months but are still paying workers (management salaries have been cut) but for how much longer can they hold on? The cash crunch arises because the factories have stocks of raw materials and finished goods which they have paid for but are now unable to sell.

The suppliers to the garment industry, from the large packaging material suppliers to the smaller ones who provide staff meals, cleaning services, transport, security etc face a knock-on shock. 

Similar problems seem prevalent in other manufactured exports – I heard of a solid rubber tyre factory that is running at 5% capacity for example. There is no proper information but things seem pretty bad. Tea seems to be functioning normally, experiencing a (probably temporary) boost in March as overseas markets stockpiled groceries. 

Rubber gloves are booming and some factories are adapting to PPE but how many can switch is the question. Supplies of some raw materials for PPE are not easy to source and it may require some retooling of the factory. Margins may not be great either, but better to have some work than none.

Returning to the problem of costs within a particular country, poorer countries have a greater challenge because a much larger proportion of the population is in informal work. Therefore a far greater part of the population will have to suffer deprivation in a lockdown. The costs of a lockdown are much greater in poorer countries and made worse by much weaker safety nets. In India about 80% of the workforce is in the informal sector in Sri Lanka it is close to two thirds.

Livelihoods of two thirds of the workforce may be lost

Sri Lanka has adopted the most extreme measure a curfew, not a lockdown so almost all economic activity has ceased. Unlike most developed nations, almost two thirds of the workforce is employed in the informal sector; people who earn by the day or the week and who may have little in the way of savings. A curfew will deprive them of their livelihood; without income how do they live?

Even where people have income inaccessibility to cash presents another problem. Many delivery services operate only on cash. With banks only intermittently inaccessible even those with money may be unable to buy goods.

Relief measures may not reach those most in need

Sri Lanka has announced relief through Samurdhi but this programme has been criticized for poor targeting. It is believed to reach only some 55% of its intended beneficiaries and may not cover the working poor – the daily wage earners.

Some debt and tax relief have also been offered to businesses but this may not be adequate and is unlikely to touch the informal sector. It may not even reach most SMEs. The majority of Sri Lanka’s businesses are informal and have little or no connection with the tax net or the formal banking sector. Small businesses find it hard to borrow and micro enterprises may find it impossible. Big businesses can make use of debt relief but for small businesses operating outside the formal system; debt relief has little meaning, as does tax relief.

The poor in Sri Lanka will suffer far more under a curfew than those under lockdown in other countries because of the twin impact; they have their livelihoods disrupted and even the little relief offered does not reach them.

Even within the formal sector, if workers are to be paid, businesses need to find the money to pay them. The relief offered by government will certainly help but it does not cover the entire staff cost, so unless a business is able to operate at some level they will find it difficult to pay staff. Under a curfew most businesses remain closed. In such a situation only larger businesses will have the necessary reserves to be able to pay even a month’s wages.

Therefore a curfew or near total lockdown is something that Sri Lanka cannot afford, except for perhaps a short time. Norman Loayza of the World Bank sums up the dilemma:

“we are facing an acute public health, economic, and humanitarian crisis. What makes managing this health emergency so challenging is that if unattended, it could lead to countless numbers of fatalities—yet if drastic measures to contain the spread of the virus are imposed, it can produce a deep recession with business closures, mass unemployment, and poverty.” 

Loayza’s full post, which neatly sums up some of the social, economic – and political costs is well worth reading.

The broader question is how did we arrive here?

If I am not mistaken the train of events was that China, having concealed the problem at first overreacted and locked down a region. Until the Chinese did it I don’t think any country has ever attempted to quarantine such a large area. Then Italy panicked and copied aspects of it and much of the rest of the world seems to have followed on the basis of China's apparent success.

Question 1- ONE region locking down can do so with limited social and economic costs but if the whole world pretty much closes down I think the damage multiplies exponentially - as most travel and trade stops. Does the cost/benefit of a strategy applied in a limited area change completely if applied widely across many countries? If so how?

Question 2 : China claims the lockdown was a success. They initially concealed information but later became much more open. Are the Chinese claims of success quite reliable? I hope we are not basing on policy on information as reliable as their claims with the success of Vocational Education and Training Centers for the Uighurs.....

More philosophically, wondering how what is, in effect, a system of mass house-arrest in an entire region implemented by an authoritarian regime become accepted policy across much of the rest of the world.

Meanwhile the local media, quite dreadful even normally seem to be following the pandemic like a game of cricket with outbreak-by-outbreak commentaries on infection rates, the death count and the ‘curve’; seemingly to show how we are ‘winning the match’.  People seem similarly obsessed and I can’t really understand why.

There are some risks in life which we can eliminate, others can only be mitigated. Some things are beyond our control, call it fate or nature. We can't really hope to defy death and I try not to worry too much about things I can’t control and get on with life. This recent letter in the Economist struck a chord with me:  

There is a trade off of money versus lives. But what is the point of being alive if you can’t study, spend time with friends, or just enjoy the sound of water sloshing as you swim? Not everything has to go back to normal immediately, but we are all going to die, so the real question is whether we’re going to live?

Tony Bruguier
Milpitas, California