The best stimulus? Production of the basic weapons to fight this ‘war’


With politicians in the western world vowing to spend trillions of dollars in outright presents , as well as loans, one of the more holistic economic prescriptions for the age of the coronavirus comes from Raghuram Rajan.

Mr Rajan, formerly governor of the Reserve Bank of India and currently professor of finance at the Chicago Booth School of Business, recently laid out the steps to winning the fight against an invisible enemy that respects no borders.

He suggested the following, especially as we wait and fear the potential effects of the virus on poor countries. Remember, these are the places without the capacity to respond to a massive public health crisis, which means the virus would take hold and nowhere else – the rich world included – would be able to relax ‘social distancing’.

“Since this is necessarily a global war, we need to organise the production of basic weaponry — testing kits, cleansing chemicals, masks, protective clothing, ventilators — across the world,” Professor Rajan said. The private sector would probably be able to create new capacity, he added, if it saw the demand was large (even if temporary) and backed by real money.

“The World Bank and the African Development Bank should swiftly organise a global fund, partly through loans and partly through grants from donors and foundations in rich countries”. In this way, says Professor Rajan, developing countries could float global tenders. Meanwhile, countries across the globe would have to direct manufacturers to shift capacity towards medical goods.

“Many developing countries have far fewer doctors per head than Italy, and few industrial countries will have personnel to spare before the virus is contained at home,” says the Professor. The best way then, is to cooperate across the planet, sharing best practices, and when possible, “the few, spare, experienced medical personnel” by means of communications technology.

“The IMF has reiterated its willingness to put its $1tn lending capacity to work. It should now encourage and respond to requests for its flexible credit line, precautionary liquidity line and rapid credit facility (which is targeted at low-income countries),” says Professor Rajan. This, because emerging markets and developing countries will feel the pressure of capital outflows as the dollar strengthens.

“The restrictions on exports of medical supplies that countries are implementing are understandable politically but counter-productive,” he warns. Germany’s response to Italy’s request for masks etc is the most prominent example of this but the Professor says the trade wars of recent years will be “an impediment to post-virus growth, especially in poor countries”.

Finally, he addresses the most important issue of all. “The fight will be won or lost on the issue of leadership. Hopefully, the urgency of the moment will produce the global resource that is in the shortest supply”.

This last is the point at which Professor Rajan’s programme of action seems to fall apart. It’s true that courageous, honest and inspiring leadership is in short supply in the world today, but we can’t really change our leaders wholesale.

Or even to expect that they will suddenly see the error of their ways and work towards being better men (all the truly appalling leaders of today are men).