Leadership During Catastrophic Times
Swapan Jyoti Sarma
In the Book of Genesis Noah appears as the ninth in descent from Adam. He is represented as the patriarch who, because of his righteousness found favour in the eyes of the Lord. When God saw the corruption of the earth He was determined to destroy it by causing a massive flood. He gave Noah divine warning of the impending disaster, promising to save him and his family. Noah was instructed to build an Ark, a large boat that would ensure safety. In accordance with God’s instructions Noah took on board the Ark the male and female specimens of all the world’s species of animals. After the flood abated, the earth was replenished with animals from the Ark. The entire surviving human race descended from Noah’s three sons.
An analogy is found in a Vaishnava legend. Indra, the God of rain and lightning, was angry with Krishna for opposing and preventing the people of Vrindavan from performing sacrificial worship to appease him. To punish the people of Vrindavan Indra invoked clouds to rain for seven days and seven nights and flood the region. In response Krishna lifted Govardhan Hill, under which all the animals and people of the region took shelter, safe from the rains of Indra’s fury.
The two anecdotes give an inkling of how a leader steps forward to protect his followers who are faced with a crisis of survival. Today, leaders across the world are still grappling with the catastrophic economic crisis that engulfed the entire globe following the outbreak of the Novel Corona Virus Pandemic in early 2020.
The International Monetary Fund in its quarterly World Economic Outlook published in April 2020 projected global growth in 2020 to fall to (-)3 percent. This was a massive 6.3 percent fall from its projection made a mere three months earlier, in January 2020. Gita Gopinath, the India born Chief Economist at the IMF, said that the world faced the worst recession since the Great Depression (1929-39), and far worse than the Global Financial Crisis (2007-08). The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars. Income per capita is projected to shrink for over 170 countries. Countries reliant on tourism, travel, hospitality, and entertainment will be hit the hardest. Developing economies like India faced additional challenges of possible massive reverse flow of capital.
Just about nine decades earlier the world in general , and the US and the developed nations in particular, grappled with a humungous economic crisis which came to be known as the Great Depression (1929-39). In October 1929, the New York Stock Exchange saw rapid fall of stock prices, losing billions of dollars and wiping out thousands of investors. US and the rest of the industrialized world spiralled into the abyss of the deepest and longest-lasting economic downturn in history. In the US, by 1933, almost 13 million people, representing 25 percent of the workforce were out of work. Those still employed took massive pay cuts. More than 5000 banks collapsed. The Great Depression became a global phenomenon, engulfing the tenuous economies of Germany, Brazil, Poland, Argentina, Canada and countries of Southeast Asia.
Herbert Clark Hoover, the Republican 31st President of the United States (1929-33), had had to face the Great Depression soon after taking charge. He has been criticised for his inept handling of the crisis. Initially, President Hoover held his belief in minimal government interference in the economy. By 1931, he reversed his earlier approach and embraced government intervention in the economy. The US government authorized the lending of $2 billion to banks, railroads, and other privately held companies, and spending $300 million for the nation’s first relief and public works projects including construction of the Hoover Dam on the Colorado River. Policies were implemented for stronger protections for labour and substantially increased federal subsidies for agriculture. Unfortunately, it did not make much of an impact.
Franklin Delano Roosevelt was elected president in November 1932. A Democrat, he won a record four presidential election and held office from 1933 till his death in 1945. In his presidential campaign, Roosevelt asserted that he would help “the forgotten man at the bottom of the economic pyramid,” and pledged himself to “a new deal for the American people.”
The New Deal is often summed up by the “Three Rs”: Relief for the unemployed, Recovery of the economy through federal spending and job creation, and Reform of capitalism, by means of regulatory legislation and the creation of new social welfare programs. Roosevelt’s New Deal reshaped American political culture around the principle that the government is responsible for the welfare of its citizens. The economic policies of laissez faire were quietly buried and the national discourse revolved not around the question of whether the federal government should intervene in the economy, but how.
The New Deal saw the US Congress passing legislation aimed at boosting agricultural prices; providing government funded employment; providing federal grants to states for salaries of government workers; running soup kitchens and direct aid to the poor programmes; setting down prices and wages and allowing workers to form unions; guarantee that money deposited by individuals in banks would be repaid by the federal government if the bank went out of business and increasing worker protections and building long-lasting financial security for Americans.
The New Deal was the practical implementation of the theories of British economist John Maynard Keynes to energise the economy through deficit financing in order to stimulate consumer demand, and thereby promote economic growth. It was held that government spending put money in consumers’ hands which would allow them to buy products made in the private sector. Then, as employers sold more and more products, they would have the money to hire more and more workers, who could afford to buy more and more products, and so on. Roosevelt believed that this was the way to reverse the downward economic spiral .
It is now accepted that the New Deal was only partially successful. The US Supreme Court ruled against several New Deal initiatives , frustrating Roosevelt’s efforts. Ironically, it was another catastrophe, the World War II (1939-45) that enabled the United States to recover from the Great Depression due to massive military spending.
Despite similarities, it will not be fair to compare the Great Depression with the global recession brought about by the Covid 19 pandemic. One reason being – we are not yet out of the recession. We cannot hazard a guess about the full impact of the present crisis- how big a hole the world economy finds itself in, how much time and effort will be required to claw out of the hole and take steps towards prosperity.
There has been massive contractions of most economies including China, whose GDP which has been on an upsurge for the last 40 years, which declined by a massive 7%. China however, believes that the impact is temporary and its economy has great resilience and potential to bounce back to the growth path.
Germany which expects a contraction of 6% of its GDP, is allocating 350 billion euros to prop up its economy. The German government is bailing out struggling businesses by providing unlimited loans and taking equity stakes. Nearly 5 lakh German companies have applied to have their employees join short term government work programmes to avoid job losses. Chancellor Angela Merkel said, “We’re doing whatever is necessary….and we won’t be asking every day what it means for our deficit.”
Japan’s export driven economy expects a fall of 3%. The postponement of the economy boosting Summer Olympics has been a big setback. Japan is in course to infuse $ 1 trillion relief package. Measures include cash payments to individuals and small businesses, interest free loans, delayed tax payments and travel & tourism coupons. Prime Minister Shinzo Abe said, “We will protect employment and life at all costs”.
UK, struggling with the post Brexit negotiations, was already facing a recession when Covid19 struck. With Prime Minister Boris Johnson himself affected by the virus, the country faced with uncertainty. Rishi Sunak , the billionaire Indian origin British banker turned politician, at age 39, took over as Chancellor of the Exchequer in PM Boris Johnson’s cabinet in February 2020. The measures announced by the UK government included pledge to pay 80 percent of workers’ salaries for several months to prevent loss of jobs; offer to reimburse self-employed workers for lost wages; deferred tax payments; increased unemployment benefits; loan program for small and midsize companies; and provided rescue aid to charities. All these could add up to 400 billion pounds which is 15 percent of the UK GDP.
Italy, one of the earliest countries to be hit by the virus, expects that the economy will contract by at least 8% this year. Prime Minister Giuseppe Conte announced an emergency sum of 25 billion euros in March, amounting to roughly 1.4% of the country’s GDP. Measures to support employment and workers included tax deferrals, and postponement of mortgage payments and utility bill payments. This was followed by a 55 billion euro stimulus package in May which includes a mix of grants and tax breaks and offers help to families, including subsidies for childcare and incentives to boost the ravaged tourism sector.
In the USA, the Trump administration has been mired in controversies and contradictions. The handling of the pandemic has been chaotic but steps to manage the economy have been more coherent. The US Federal Reserve has cut interest rates close to zero, reduced bank reserve requirements to zero, purchased $2 trillion in Treasury bonds and mortgage-backed securities, bought corporate and municipal debt, and extended emergency credit to nonbanks. Congress passed a $2 trillion stimulus package in March including direct payments of up to $1200 to individuals, hundreds of billions of dollars in loans and grants to businesses, increases to unemployment benefits, and support for hospitals and health-care providers. This was followed by a second stimulus package in April worth $500 million to help small businesses and hospitals.
The international organisations have also stepped up their efforts. The European Union agreed to a 500 billion euro package to provide emergency lending and other assistance to member countries, businesses, and workers. The International Monetary Fund has set aside $100 billion to lend to member countries that are facing acute financial crises because of Covid19, with preference given to emerging economies. World Bank committed more than $150 billion to counter the pandemic’s effects. Till now India has received the largest loan at $1 billion.
In India, as early as March 26, Prime Minister Modi announced an Economic Relief Package under worth Rs 1.75 lakh crore (roughly 0.8% of the GDP). Benefits included free foodgrains to poor and cash to poor women and elderly, cooking gas and cash transfers to selected sections of the lower-income households, insurance coverage for workers in the healthcare sector and wage support to low wage workers in terms of benefits for those currently working, as well as those who might lose their jobs. This was followed by the announcement on 13th May of a total Rs 20 lakh crore stimulus package—close to 10% of the Indian GDP. The package focussed on cottage industries, MSMEs, small businesses, labourers and migrant workers – both in the organised and unorganised sectors, salaried class, middle class and industry.
Across the world, stimulus responses of countries vary from 1% to 12% of their GDP. What is apparent is that the steps taken by most countries to deal with the Economic Crisis is reminiscent of New Deal of President Roosevelt. The focus has been on unemployment, healthcare small businesses and the those sectors of the economy which have been worst affected. But whether and when the world economy gets back to its pre Covid 19 status and steps on the growth trajectory is a matter of speculation. The possibility of social and political upheaval across the globe cannot be ruled out and fraught with grave dangers.
Since time immemorial whenever humanity has faced a survival endangering crisis, the panacea has been an all encompassing holistic approach –much like Noah’s Ark- with concern and place for everybody. In addition to economic stimuli, leaders will have to evolve strategies that will lift their nations from the morass caused by the recession. To find the way forward, let us see what great leaders of various fields, did in the past. Perhaps therein lie the lessons for today’s global leaders.
Engagement. Do what you can do best. In 1915, Antarctic explorer Ernest Shackleton’s expedition ship The Endurance became stuck in the ice. He realized that he and his crew would have to wait out the brutal winter on a floating iceberg. Shackleton insisted that each man maintain his ordinary duties: sailors swabbed decks; scientists collected specimens; others were assigned to hunt for meat. He knew that daily routines and tasks, including manual labour, would help establish order and thus ground his men in uncertain time that was filled with danger.
Open channels of communication. When faced with a crisis, ordinary citizens find themselves in a state of shock and confusion. It is necessary to provide them credible information. During his Presidency, Roosevelt, starting March 12 1933, delivered thirty live radio ‘fireside chats’ in the years of the Great Depression as well as World War II. He spoke about the unfolding crisis and explained the actions he and Congress had taken to address them. His tone was reassuring and his words were plain spoken language.
Keep faith. As the United Kingdom was threatened by the Nazi war machine in the World War II, Prime Minister Winston Churchill encouraged his people to keep faith, “We shall not fail or falter; we shall not weaken or tire. Neither the sudden shock of battle, nor the long-drawn trials of vigilance and exertion will wear us down. Give us the tools, and we will finish the job.”
Give people a role and a purpose. During the civil rights movement in the late 1950s and early 1960s, the Reverend Martin Luther King, Jr, asked his followers to sit in, march, and otherwise protest racial discrimination. On August 28, 1963, he delivered the iconic speech “I have a dream… ..” from the steps of the Lincoln Memorial in Washington, D.C which resonated across the 250,000 civil rights supporters gathered there and beyond.
Innovate, experiment and learn. When confronted with ambiguity and chaos, strong leaders do not lose their bearings but quickly adapt and get comfortable with the situation. They commit themselves and their followers to navigate through the turbulence, adjusting, improvising, and re-directing as the situation changes and new information emerges. Courageous leaders also understand they will make mistakes along the way and that they will have to unlearn and relearn. In 1985, Steve Jobs was fired from Apple, the company he created. He took the opportunity to reassess himself and start from scratch with new projects such as NeXT and Pixar. Eventually, he re-entered Apple and became CEO, showing that passion can be stronger than failure.
Empowerment and diversity. There is a need to listen and take counsel from a diverse group of people , even from critics, which can result in the winning edge. During the Kurukshetra war, a crucial difference between the Pandavas and the Kauravas was that while there was empowerment and diversity in the Pandavas, the Kauravas were dogmatic and uniform. The Pandavas had a diverse team of warriors consisting of unusual fighters such as Ghatotkacha and Shikhandi. Furthermore, during the eighteen day war, every evening the Pandava camp sat down to take stock of the day’s events and strategise for the next day’s battle. The Pandavas took advice from their women, notably Kunti, Draupadi, Hidimba (Bheema’s wife) and Subhadra (Arjuna’ wife), relying on their problem solving skills during crisis management.
Swapan Jyoti Sarma : A Graduate in Economics from Cotton College, MBA from Guwahati University and LLB from Govt. Law College. Sri Sarma joined LIC of India as a Direct Recruit Officer of the 14th Batch and rose to the cadre of Deputy Zonal Manager.