Tuesday 19 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on May 4, 2020 - May 10, 2020

In a time of crisis, trust is a key currency. Not just trust in the system, but as a foundation for economic recovery. Here, we look at the essence of what makes an economy tick, how this relates to the current Covid-19 crisis and its impact on the most vulnerable, and the role of government in building a bounce-back economy based on trust.

It is a misnomer that economics is the study of consumption and production, financial markets, corporations and investment. As Paul Krugman, winner of the 2008 Noble Prize for economics, argues, economics is not about money. It is about people and the ordinary business of life — working, buying things, selling things, making things. For the most part, the economy is reasonably predictable because of one underlying factor — trust — trust in the system, trust in regulations and trust in the people with whom we make transactions. At the country scale, this translates into a correlation between the degree to which people feel “that most people can be trusted” and gross domestic product (GDP) per capita. This makes perfect sense as the more you trust someone, the more likely you are to do business over an extended period of time. For businesses, trust lowers transaction costs and frees up funds to be spent elsewhere.

Trust and the Covid-19 crisis

In the current Covid-19 crisis, trust is as important as ever, not just in the public health system but also in the economic system and the behaviours it encourages. In New Zealand, for example, exceptional communication from the prime minister and trust in the system have resulted in a compliant population whose collective behaviour has almost eradicated the virus.

At the other end of the spectrum, Swedish epidemiologists have argued for a “light touch” based on “nudging” behaviours. It has forgone extreme lockdowns and kept restaurants open, albeit with some physical distancing restrictions. Colleges and high schools are closed and social activities are limited to groups of less than 50 people. Citizens are encouraged, not forced, to self-isolate.

The reason Sweden has the confidence to adopt this policy is trust. Looking at the “Trust vs GDP” graph, it is evident that the countries that have been the most successful (though not perfect) in managing the Covid-19 pandemic are in the top right — New Zealand, Australia, Hong Kong, Canada, Germany and Singapore.

Besides high levels of trust and higher GDP, these countries also have another factor in common — robust public health systems that have been reinforced in recent months. This is an important point, as it allows governments to make bolder decisions while at the same time offering the public reassurance and confidence (to go out and spend) knowing that the health system can cope with reopening.

At a more provincial level, Anis Chowdhury and Jomo Kwame Sundaram opined in early April that the approach adopted by the state of Kerala in southwest India was a model for emulation. Early precautionary “physical distancing” interventions slowed the virus and gave the government time to engage with civil leaders to design appropriate strategies, with a special focus on vulnerable communities. Their approach was “whole of government” and “whole of society”. It mobilised society and ensured no one would be left aside. In short, they built trust.

Trust and the vulnerable

Covid-19 does not discriminate. Everyone is vulnerable — either directly from the disease or indirectly by its economic and social fallout. Any one of us could lose a loved one or a job, have to make do with less, or slip into poverty or hunger. It is therefore in all of our interests to ensure systems are put in place so that everyone has the tools and resources at hand to endure the coming hardships. We need to build additional layers of trust into the social and economic system to ensure the cooperation of all segments of society on the road towards recovery.

An online survey undertaken by the Department of Statistics Malaysia from March 23 to 31, 2020 (n = 168,182) illustrated the vulnerabilities of all Malaysians and the breadth of the Covid-19 impact. For example, 71% of respondents who were self-employed had sufficient savings to last up to one month with no income, while 58% of private sector employees, 39% of government-linked companies’ employees, and 31% of multinational corporation employees were in the same boat. Nearly 53% of respondents indicated that they were severely impacted by the Movement Control Order (MCO). Nearly half (46.4%) of the self-employed have lost their livelihoods.

The vulnerability of many in the community is profound. It is expressed in anxieties arising out of real concerns about disrupted livelihoods, and a sense of foreboding that social mobility will be in decline for the near future. Even though the economic impact hits the B40 and M40 segments of society differently, its psychological impact and distress is felt equally across the socioeconomic categories. This means that the government needs to address both the B40 and M40 cohorts who are exposed to financial stress and are beginning to experience a decline in well-being. Developing capabilities to tailor interventions for different vulnerability categories becomes an important determinant of the efficacy of government interventions. It all rests on trust.

Taking the experience of the vulnerable seriously

The immediate measures by the Malaysian government to bring forward the Bantuan Sara Hidup payment and Bantuan Prihatin Nasional one-off cash assistance for 8.3 million households of RM9.6 billion is welcome. The additional measure to allow the deferment of loan payments to banks is positive in the short term and will allow some breathing space for these borrowers (though many of these loans will need to be restructured).

However, as the pandemic sweeps the world, some are already losing their jobs and are not sure how to feed their families as they do not have adequate social protection. The Malaysian Institute of Economic Research also warned that the ensuing recession will result in some 2.4 million people losing their jobs, 67% of which will be unskilled workers.

Since the MCO was put in place, hundreds of non-governmental organisations (NGOs) have ramped up their efforts to extend basic necessities. Thousands from community and religious groups have come together to donate time, resources and money to others, and millions have turned their attention away from themselves towards those in need. However, the pain and suffering that the vulnerable face are not visible. Many of them do not know where their next meal will come from amid the fear of death and poverty.

The challenge that presents itself is beyond the capacity of individuals and groups to sustain over the next few years. We need the government to step forward to be the provider of last resort while society has to play its part and the private sector has to go beyond its corporate social responsibility contribution. It has to be government that offers both a backbone for stability and the platforms for higher forms of trust from which the economy can be reignited.

Developing the trust economy involves three key aspects:

1. An enhanced role for government

While different layers of government continue to plan new interventions and develop optimal mechanisms to lift the MCO, some rethinking about the role of government in shaping people’s behaviours may be necessary. One way forward is to propose some concepts around government taking a lead role in building a trust economy — that is to rebuild the confidence of people, business and markets by mitigating the risks associated with uncertainty. It essentially requires government to get the basics of society running smoothly (for example, food supply and basic services) so that people trust that the system is working.

The role of government is to intervene when there is market failure — in this case, due to the interruption of global supply chains and uncertainty of the future of industries linked to hypermobility. We need all of government to be truly “peduli rakyat” and “prihatin”. The government may need to step in and be the provider of last resort. It probably needs to consider going beyond its world-leading stimulus packages and ensure its remaining fiscal capacity is utilised appropriately to survive the Covid-19 marathon.

At the minimum, it needs to provide the certainty of having food on the table and access to healthcare and living amenities. This should apply to all members of society. Those who have lost their jobs will require upskilling and retraining with the support of the government to prepare them to participate in the next upcycle. We need to re-gear and reposition the role of government to be the driver and enabler to build back better. We need to improve the trust deficit between the system and the citizen.

2.Hyperlocalism and digital infrastructure

As society and economies are gradually unlocked, we may also need to adopt the concept of hyperlocalism and local economic development to generate economic activity (for example, circular economies) and employment at the local level, on a scale at which citizens are more likely to know one another and are more likely to have trust in others’ behaviour and motivation.

Adopting digital infrastructure that addresses both the fear of proximity and administrative obstacles (for example, cost and bureaucracy) is important. Digital infrastructure could also be used to enable money to circulate locally and contribute to the growth of local economies. The private sector will also have to play its role by working with government on practical ways to re-gear the economy and ensure that there are new jobs, food security and prospects of a better future.

3.Protecting the welfare of the people

The bold vision of a “trust economy” may require following the lead of Finland, Australia and parts of Europe in guaranteeing a basic or universal income for a period of time. Electricity and water bills for all may need to be guaranteed. Innovative ways of funding are also crucial, possibly involving a Goods and Services Tax zeroized for a broad spectrum of essential goods. Welfare will need to be restructured and technology will be needed for delivery and monitoring. It will be difficult, and possibly controversial, but building trust as a crisis management principle has currency well beyond Covid-19.


Hamdan Abdul Majeed, a former investment banker, is the managing director of Think City. Dr Matt Benson is an Australian geographer specialising in complex systems and human settlements. He is a programme director for Think City and is based in Penang.

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