The price of the lockdown

Does the lockdown imply different trade-off between health and wealth for the haves and have nots?

The lockdown imposed by the Indian government is set to end May 17. At the same time, there is a chorus in several public fora on a trade-off between public health and economic health. There are accusations that the lockdown disproportionately benefits the rich and the middle class due to the lower disease spread but condemns the poor to a Hobson’s choice of death by starvation versus death by Covid-19. Thus, the lockdown increases wealth inequality between the haves and have nots, in addition to the inherent health inequality of the rich and the poor. If so, we should have complete lifting of the lockdown as quickly as possible to enable the poor to return to their livelihoods.  

A popular view for an early lifting of the lockdown is that it would increase the mortality risk for the entire population — but at least it would allow the poor to earn the living. Per­haps, the poor are willing to take the higher health risk for an economic benefit of one or two months’ of income. While it is not clear that the poor are indeed willing to take this gamble — an additional income of one to two months versus po­tential death — let us assume that this is indeed reflective of the views of the majority of the poor in India.

The key to understanding the flaw in the above argument is that both the health crisis due to Covid-19 and the economic crisis due to the lockdown disproportionately impact the poor. A complete end to the lockdown, if it leads to a large increase in infection rates of Covid-19, are also more likely to impact the poor. There are two pieces of evidence that support this. First, there is a large body of literature that finds that poor countries are more impacted by epidemics relative to rich ones. Second, there is enough evi­dence that poor people are more susceptible to disease — both infectious as well as non-communicable diseases.

In fact, data for Milwaukee in the US suggest that African Americans have disproportionately high infection and mortality rates from the Covid. Given the extremely crowded conditions in the slums in several cities in India, this would suggest that the burden of a potential increase in coronavirus cases in India would be borne disproportionately by the poor as well.

To illustrate the above, consider a situation where the­re is an infection in a slum in Dharavi (Mumbai) versus one in a high-rise in Worli. The chances of secondary infection in Dharavi with an estimated population density of 60,000 persons per square km is going to be several orders of magnitude than that for the high-rise in Worli. Furthermore, the ab­solute number of families and individuals im­pacted in Dha­ravi would be ex­tremely large relative to the apartment nu­mbers. This would be true for the rural poor as well given the smaller size of their houses.

Further, the economic im­pact of an infection among the poor would compound the he­alth im­pact. In fact, given the lack of life and health insurance among the poor, this wou­ld suggest that any sickness or mortality would have a much greater financial and human cost on their families. Thus, the strategy to prevent the spread of the infection is not a trade-off be­tween lower infection in the middle and upper classes at the cost of starvation among the poor. On the contrary, the trade-off between he­alth and wealth is within the poor and within the rich. The spread of infection would hurt the poor more and an extended lockdown would also hurt the poor more. The economic damage can be partially co­m­pensated by policy actions. With the exception of social distancing, there is no current tool to achi­eve the health objective. Thus, the lockdown has a huge negative income impact on the poor while at the same time a huge positive health impact for the same poor people in terms of lower infection rate. The policy focus has been (correctly) to put out the Covid fire first and focus on the economic aspects later. 

Srinivasan is an associate professor of finance, National Uni­versity of Singapore; Javadekar is an assistant professor of finance, Indian School of Business