01 May 2020
Is the virus a trigger for ‘creative destruction’?
Source: By Vasant G Hegde: Deccan Herald
The disruption and chaos that coronavirus is causing the world over is a once in a lifetime experience for most of us. Over three million people have been infected, and over 219,000 people have died so far. It has not even spared the isolated Yanomami tribe in the Amazon rainforest. Nations have been imposing restrictions on their citizens, prohibiting air, rail and road travel, closing offices, shops and manufacturing units. Those who defy or violate the diktats have been arrested or penalised.
In the midst of all the hysteria that Covid-19 has created, are we seeing a huge change coming in the world order? Is coronavirus playing the catalyst of a new ‘creative destruction’?
The World Wars in the 20th century destroyed old orders and created new ones. They also created new leaders. There was destruction before creation. For us Indians, this notion is not new. We are familiar with the notion of creation and destruction. The Trimurti of Brahma, Vishnu, Shiva create, protect and destroy the universe. This notion is similar to the Western notion of ‘creative destruction’ -- a concept that the Austrian economist Joseph Schumpeter explained in his book ‘Capitalism, Socialism and Democracy’ in 1942.
Inspired by Karl Marx's thoughts, Schumpeter argued that the creative-destructive forces unleashed by capitalism would eventually lead to its death as a system. He argued that creative destruction was “the essential fact about capitalism.” He stated that capitalism keeps creating new products and markets by destroying the old.
This convulsive process is not confined to products only but to institutions and ideas as well. Despite this, the term has gained popularity within mainstream economics as describing events that would cause disruptions and, in the process, create new companies or increase the efficiency of existing companies and benefit thousands of people (read consumers). Netflix is a case in point. After causing disruption in the cable and TV industry, it is changing the way we see movies.
Andrei Bystritsky, Dean at the Higher School of Economics, Moscow, believes that the disruption the pandemic is causing will lead to a new world order. In an article provocatively titled “Coronavirus, instead of war,” for the Kremlin mouthpiece Izvestia, he observes that major wars have often given birth to new world orders: the Thirty Years War led to the Westphalian system, the Napoleonic wars to the Congress of Vienna, and World War II gave us Yalta. “Will [the coronavirus crisis] play the role of creative destruction that is necessary for the emergence of a newly arranged world?” With global cooperation low and European Union coordination weak, he suggests that Covid-19 is exposing the shortcomings of the existing international order. He says that for Russia, the pandemic is an opportunity to play a key role in shaping the new world order.
The lockdown has destroyed jobs and millions of workers are looking to governments and big corporations to save them. It is no different in India. The underprivileged and the daily wage earners are the worst hit. In the wake of the pandemic, Indian Railways has distributed over one million food plates to the underprivileged at railway stations. The Railways has been providing free food to the needy at a time of global crisis; Tata Sons has made a huge contribution towards fighting the Covid-19 disaster by donating Rs 1,500 crore to the PM-Cares fund; the Azim Premji Foundation has committed Rs 1,125 crore toward various healthcare measures.
In this crisis, the government has become the only means of providing financial security, public health and insurer of last resort. Though many countries have announced relief packages, the pandemic has exposed the fault lines of societies. Central banks have been using all the ammunition in their arsenal to inject liquidity in their economies where millions of jobs and livelihoods have been lost and ‘helicopter money’ has become a reality.
Governments can use the pandemic as a tool to push through legislation and take harsh measures without bothering too much about opposition from any group or a party. Leaders at the central, state and local levels are using this as an opportunity to enhance the legitimacy of their governments. The state government in Kerala has set up community kitchens in villages and municipal areas to provide food to all needy people during the lockdown.
Local leaders are falling head over heels in distributing groceries to protect their vote bank. In every crisis, there are challenges and opportunities. There is an opportunity to respond to the crisis. It’s laudable that governments are caring for the underprivileged, but governments can also think of improving the infrastructure, drinking water and better sanitation. For example, here in Bengaluru, with fewer vehicles on roads, the corporation could have filled all the potholes with pothole-filling machines during the lockdown.
With nations banning the movement of people across borders and quarantining themselves, globalisation has hit a pause button. Countries are looking inward and are becoming more self-centered. In India, states are sealing their borders with one another. Within states, movement from one town to another is prohibited. Within cities, neighbourhoods are blocking roads and erecting makeshift barricades everywhere, restricting the movement of people. Surely, there is disruption happening all around. Will it lead to the creation of a new world order? Only time will tell.