social economy

COVID-19 and the Social Economy – by Tuhin Mukharjee

Economic Impact of COVID-19

COVID-19 has led to a dramatic loss of human life worldwide and presents an unprecedented challenge to public health, food systems and the world of work. It has had a devastating effect on our social economy, public health & monetary system. Millions of people are at risk of falling into extreme poverty, while the number of undernourished people, currently estimated at nearly 690 million, could increase by 132 million or more by the end of the year.

Half of the world’s 3.3 billion global workforce are at risk of losing their livelihoods. Workforce caregivers  facing biggest challenge of survival & informal economy workers are particularly vulnerable because they lack social protection, access to quality health care and have lost access to productive assets. They are lacking proper nutrition, secure jobs & cannot access  health care faculties.

This pandemic has destroyed much of the supply chain and neither producers nor consumers can access the market in a proper way. Finance & money supply has been stopped across the world and everyone is lacking funds to access basic amenities.The pandemic has been affecting the entire food system and has laid bare its fragility. Border closures, trade restrictions and confinement measures have been preventing farmers from accessing markets, including buying inputs and selling their produce.  Agricultural workers are barred from harvesting crops, thus disrupting domestic and international food supply chains and reducing access to healthy, safe and diverse diets. The pandemic has reduced jobs and placed millions of livelihoods at risk.

Not having sufficient social support, many farmers and unorganized workers are spurred to work in unsafe conditions and thus exposing themselves and their families to additional risks. Above all, when the whole world is experiencing income losses, they may resort to negative coping strategies, such as distress sale of assets, predatory loans or child labor. Migrant agricultural workers are particularly vulnerable, because they face risks in their transport, working and living conditions and struggle to access support measures put in place by governments.

How COVID-19 could affect the global economy

1. Direct impact on production.
Chinese production system has already been affected in many parts of the country. Most countries in the world  face similar problems. The  gross domestic production and growth has been very low in this years. A substantial number of jobs have been lost due to this pandemic.

2. Supply chain and market disruption.
Manufacturing organizations who rely on imported intermediate inputs from China and other countries are affected by this pandemic. Many companies also rely on sales in China to meet financial goals. The slowdown in economic activity and transportation restrictions in affected countries will likely have an impact on the production and profitability of global organizations, particularly regarding manufacturing and the raw materials used in manufacturing.

3. Financial impact on firms and financial markets.
Temporary disruptions of inputs and/or production might stress some firms, particularly those with inadequate liquidity. Traders in financial markets may or may not correctly anticipate or understand which firms might be vulnerable. The resulting rise in risk might reveal that one or more key financial market players have taken investment positions that are unprofitable under current conditions.

                                             Scenarios

  1. The worst is not yet over. Transmission in China has slowed already. Although some isolated outbreaks occur somewhere, these do not create a massive spread of the disease. As the global number of cases stabilizes, China’s economy returns to normal, and there is little impact outside of some areas. Although some of the lost production is never replaced. Specific companies outside China experience short-term supply disruptions, but the impact on the global economy is not negligible.
  2. Year of the virus. Although the spread of the disease in China slows, outbreaks occur on a rolling basis around the world. Each outbreak requires slowing production in that area, and in a globalized world, that means rolling disruptions to different regions and industries as outbreaks occur and are controlled. The overall impact is to disrupt economic activity enough to slow global growth substantially. Businesses that are nimble enough to manage switching suppliers and that have enough liquidity to survive periods of low sales and revenue will have a competitive advantage.

Leadership and the Social Economy

Covid 19 has become crisis for all & particularly small & medium industry has been affected by it to a large extinct. The COVID-19 crisis calls for a re-balancing of efficiency and resilience throughout the economy. Traditionally, the purpose of the social economy has been seen to “repair” social problems. However, the social economy can develop a much larger role in the post-COVID phase to inspire transformation to a more inclusive and sustainable economy and society. It’s important that leaders understand the diverse range of impacts the corona virus crisis is having on their employees.

Organizations can help transform society and the economy by:

  1. Exploring alternative business models and inspiring sustainable and inclusive practices:Social economy actors have emerged in sectors where the mainstream economy was traditionally dominant. In Europe, renewable energy community initiatives are playing an important role in the energy transition by fostering renewable energy sources and promoting citizen-based energy systems. Co-operative supermarkets are member-owned food stores where consumers are also owners .

2. Unlocking new sectors:

Demonstrating the sector’s economic potential and helping to structure this sector of activity. Social economy organizations have been pioneers in developing the textile recycling sector since the 1960s, combining the development of the green credentials of this sector by selling the best pieces, and utilizing the worst pieces for other purposes such as insulation, while also running a work integration programme that creates and maintains employment for vulnerable groups.

3. Providing services in remote areas and revitalizing territories:

The values of the social economy actors, such as being locally based and serving their members or the community, make them valuable partners to revitalize territories or develop activities that are less attractive to mainstream economic actors.

 Differentiated impact on organizations
  1. Difficulty accessing particular skill sets.

Many social economy organizations do not require or have not developed the same advanced skill set as similar private sector organizations, such as skills for financial forecasting, internationalization or digital communication.

2. Operating model dependent on volunteers.

Measures taken by many governments due to the COVID-19 crisis often prevented volunteers from continuing their support of social economy organizations. Social economy organizations had to find new ways to source volunteers to ensure their essential operations were maintained during the crisis and beyond.

3. Deferral schemes for taxes, social security contributions and rents for public space.

Schemes which improve the cash flows of social economy organizations have been critical. Many countries allowed organizations to delay local taxes, VAT, income taxes as well as social security contributions, typically for three or six months . Governments have also provided flexibility in relation to deadlines for the submission of administrative documents and allowed deferral of tax declarations, for instance.

Markets and Recovery Mode
  • V-shaped: This scenario describes the “classic” real economy shock, a displacement of output, but growth eventually rebounds. In this scenario, annual growth rates could fully absorb the shock. Though it may seem optimistic amid today’s gloom, we think it is plausible.
  • U-shaped: This scenario is the ugly sibling of V — the shock persists, and while the initial growth path is resumed, there is some permanent loss of output. Is this plausible for COVID-19? Absolutely, but we’d want to see more evidence of the virus’ actual damage to make this the base case.
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