economic-liberalisation-and-its-faults

Context: The Coronavirus crisis has made us rethink our obsession with the economic efficiency theory. It implores us to put in place an industrial policy to maintain core capacity in health products so that we can face the next crisis more decisively.

Background

  • Development of global supply chains in 1980’s: In the late 1980s, transnational corporations started shifting the production base to smaller companies in developing countries, especially Asia, in search of cheap labour and raw materials. 
    • Developed countries supported the move because shifting the polluting and labour-intensive industries suited them as long as ownership remained with their companies. 
    • The  global supply chains developed in many products starting with garments, wherein huge companies with massive market power dictated the terms to smaller manufacturers down the value chain to produce cheaply.
  • The end of the ‘Licence Raj’ in India: In 1991, the govt. announced the reduction of import duties and paved the way for foreign-manufactured goods to flow into India. 
    • Most of the manufacturing sector was opened up to foreign direct investment. 
    • India’s industrial policy was virtually junked along with the idea of self-reliance.
  • Emergence of China: Though many developing countries participated in the global production/value/supply chains, the substantial value addition in developing countries happened in a few production hubs, of which China emerged to be a major one. 
    • Manufacturing shifted from a decentralised production system spread across different counties to just a few locations. However, countries like China defied the logic of supply/value chains ensuring substantial value addition for themselves
    • They even carried out backward integration and thus emerged as global manufacturing hubs for certain products. 
    • In the case of health products, China became the global supplier of active pharmaceutical ingredients (API), personal protective equipment (PPE), and medical devices diagnostics.

How has economic liberalisation damaged the governments’’ capacity to deal with the crisis?

  • Lack of credible information about the private sector: For instance, as part of the removal of ‘Licence Raj’, the government stopped asking for information from the manufacturer to file the quantity of production of various medicines. 
    • As a result, it has taken weeks now and a series of meetings for the government to gather information about stocks and the production capacity of pharmaceutical companies. 
    • Similarly, there were difficulties in finding out India’s production capacity of PPE, medical devices and diagnostics. 
    • The only government data available in the public domain is with regard to the production of vaccines.
  • Undermining the manufacturing capabilities of health products in India through imports: The short-sighted liberalisation policy measures, with the objective of enhancing profitability of the private sector, allowed the import of raw materials from the cheapest sources and resulted in the debasing of the API industry, especially in essential medicine. 
    • According to a report of the Confederation of Indian Industry (CII), nearly 70% of India’s API import is from China. 
    • The disruption in the supply of API due to the COVID-19 outbreak has impacted the production of not only medicines required for COVID-19 patients, but also of other essential medicines in India. 
  • API (Active Pharmaceutical Ingredient) means the active ingredient which is contained in medicine. 
  • For example, an active ingredient to relieve pain is included in a painkiller. This is called API. A small amount of the active ingredient has an effect, so only a tiny part of the active ingredient is contained in medicine.
  • API Vs. Raw material: Raw material refers to chemical compounds that are used as a base to make an API.
  • Import dependency: Dependence on imports affects the ability of Indian diagnostic companies to provide an affordable test for all those who want to test for COVID-19. Now the country is not able to get required quantities of test kits, PPE and parts of ventilators through importation. 
    • The 100?pendence on Reagents, an important chemical component for testing, is limiting the capacity of the government from expanding testing because the cost of each test is ₹4,500. 
    • There are only a few domestic manufacturers who can produce PPE and medical devices like ventilators. 
  • Loss of jobs and poor working conditions: Through liberalisation developing countries were asked to ease their labour protection laws to facilitate global production and supply chains popularly known as global value chains. 
    • As a result, people were forced to work in precarious working conditions without any social security net. 
    • This created an unorganised army of labourers and is preventing many developing country governments from effectively offering relief.
  • The resultant loss of manufacturing base has affected the ability of many governments, including of developed countries, to put up an effective response to the crisis. 
    • The U.K. Prime Minister asked the country’s manufacturers to produce ventilators in order to provide care for critical COVID-19 patients. 
    • Spain nationalised all its private hospitals. 
    • In an indirect show of power, Chinese billionaire Jack Ma sent a flight containing 5.4 million face masks, kits for 1.08 million detection tests, 40,000 sets of protective clothing and 60,000 protective face shields to the U.S exposing USA's import dependency.

How the private sector has a key role in tackling the COVID-19 crisis?

  • In the Covid-19 response, the private sector in the country — for-profit and not-for-profit segments — has to play an even more important role, as it is the dominant provider of health services. 
  • The National Sample Survey Office’s 71st round data shows that private hospitals, clinics and nursing homes provide over 70% of health care. 
    • Data on the nearly 10 million treatments received under the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY) corroborate this finding.

According to the World Health Organization, a critical lesson from the 2014-16 West African Ebola crisis is that both the public and private sectors need to work in tandem in responding to large-scale epidemics. So, the private sector-led economic growth model deserves a rethinking so that there is better coordination between the government and the private sector to deal with such a crisis.

Image Source: Economic Times