Post-virus future: 4 trends that will shape the global economy
As the coronavirus pandemic has swept across the world, the media have been rife with predictions of an imminent economic crisis of historic proportions. The scenarios range from apocalyptic to slightly less so, which is understandable, since a cure for COVID-19 has yet to be found, and a vaccine isn't expected any time soon. The more optimistic prognosis envisages this as a chance to remake society and build a better future.
"The Great Lockdown"
The IMF predicts that the world will 'very likely' experience the worst recession since the 1930s, and expects the global economy to contract by 3% in 2020, which is a sharp downturn after years of continuous growth. Strict social distancing orders and lockdowns implemented by authorities around the world brought much global economic activity to a halt. The FTSE, Dow Jones and the Nikkei indices have all seen massive falls since the outbreak began. Global trade could, by various estimates, plummet by 13% to 32%, depending on the depth and extent of the crisis.
According to Goldman Sachs, the United States GDP is projected to nosedive by 24% in the second quarter of the year. And when GDP plummets, people lose jobs.
In China, some 80 million people may already be out of work, with more to join them. The pandemic is disrupting global supply chains and international trade and is putting a significant strain on national healthcare systems. Travel restrictions implemented by nearly 100 countries have left tourism, leisure and hospitality sectors, and transportation services in a shambles.
The IMF has dubbed the current crisis "the Great Lockdown".
With the global health emergency adding an unprecedented level of uncertainty into the equation, the leading economists and global thinkers map out a new life after the virus. Here are the four principle trends likely to shape the global economy in the post-COVID era.
New isolationism (aka "islandisation")
The virus spreads with movement. Since the start of the pandemic, governments have tightened travel regulations between and within countries, which are likely to stay in place with varying degrees of severity at least through the end of the year.
While most epidemiologists agree the current virus outbreak will last between 18 and 24 months, coming back in waves of different intensity, borders can't possibly stay locked for that long.
To facilitate limited cross-border movement, group-based isolation models are already coming into play. Australia and New Zealand have committed to introducing a trans-Tasmanian "COVID-safe travel zone", the Baltic states are creating a "travel bubble" for their citizens. In contrast, the European Commission has released guidelines for lifting travel restrictions "between areas or member states with sufficiently similar epidemiological situations". Greece, on the other hand, is planning to mandate so-called "health passports" for tourists entering the country – such travellers will be waived an otherwise mandatory quarantine. Similar steps will be, likely, taken by other countries in an attempt to renew international travel, yet prevent new virus outbreaks.
Speculation about the introduction of the so-called "immunity passports" for US citizens have been circulating for quite some time now. Still, civil right activists, including the American Civil Liberties Union – the country's largest civil rights group, – are sceptical about the idea. The thinking behind it is to identify those that could safely return to work and resume travel. This would disproportionately hurt the non-immune population and jeopardise civil rights and liberties – perhaps even tempting some to get sick just to develop anti-bodies and continue with their lives.
Isolationist tendencies in manufacturing are kicking in as well. Up until now, significant companies organised production using global value chains – that is, relocating production to low wage countries to cut costs. After the economic crisis of 2008/09, global value chain expansion may have come to a halt. However, recent developments revealed many countries, including the US, have been heavily relying on Chinese imports. It became painfully apparent with regards to medical protective equipment.
The same holds true for electronic components, automotive parts, pharmaceuticals, metals and other supply components imported from China and, to a lesser extent, Taiwan, Mexico and Vietnam.
In the wake of the coronavirus supply chains have been thrown into disarray: logistics became virtually impossible to control, and the prices on specific articles sky-rocketed as components and raw materials became scarce. With the IMF's World Uncertainty Index (WUI) "three times the size of the uncertainty during the 2002–03 <…> (SARS) epidemic and about 20 times the size during the Ebola outbreak" many corporations started to consider regionalisation of manufacturing. The US-China trade war has been another factor influencing this decision.
Disruptions introduced by the virus will likely remain a problem even after countries ease lockdowns and restart economic activity, so producing vital goods within national borders will become a priority. This may signal a retreat by global companies in favour of local players. As for export-oriented Asian economies, they may want to turn "inwards" catering more to local markets.
Reducing nonessential economic activities and offering added value
The current crisis isn't your ordinary economic crisis. The prescription for solving a regular financial crisis is relatively simple: the government spends and doles out stimulus funding until people start consuming and working again. In the case of the coronavirus crisis, it's health safety first. Therefore, we can't aim at fast economic recovery, as the whole point of quarantine and social distancing is to stop people from going to work and spreading the disease.
The economist James Meadway writes that the correct response to the COVID-19 crisis would not be a massive upscaling of production, but rather a massive scaling back of production.
This holds true for both the manufacturing and service sectors. Of course, different industries are being affected differently: aviation, tourism, and hospitality are hit the hardest unable to diversify and cope with the lost demand.
Major manufacturing companies, on the other hand – American household goods giant Kimberly-Clark and Coca-Cola with dozens of brand names under the belt, – are limiting the number of products they make, focusing on the ones in highest demand. Scalability, as well as the potential for diversification, will be a bonus: the UK Royal Mint, for instance, started producing medical visors for hospital use, while Dyson and many other manufacturers are producing ventilators or PPE. Being able to provide added value is also important: in the US national fast-food chains like McDonald's and Subway started to offer free delivery, others introduced everyday grocery items along with their menu staples.
Fast technological advances
Robotic automation and artificial intelligence (AI) will be crucial for the success of supply chains as they help reduce the need for humans to work face to face. With changing modes of consumption and interaction, more and more businesses will go "digital first".
Technological and mental barriers that made a presence on-site essential have been overcome – this is, in fact, one of the significant effects the pandemic has had on the work scene.
"I imagine the pandemic will speed up the development of the infrastructure needed to support our online work," says Susan Schneider, director of the "AI, Mind and Society Group" at The University of Connecticut, adding she's worried that "…in a post-pandemic world, corporations may make less use of human labour, replacing human workers with automation and AI. Computers and robots don't get sick."
Whether humans will remain the dominant workforce or not, remote work and learning that require connectivity and access to online resources, the increase in the number of online payments and day-to-day operations will make us even more dependent on tech companies.
While some sectors of the economy will never be the same again, new ones will gain popularity and attract investments, among them security services, independent communication systems, and self-sustaining housing solutions.
Stronger government involvement in social and economic life
During the COVID-19 crisis, the role of government has undergone a dramatic change. Nations are looking to their respective governments to mobilise medical resources, implement containment measures and offer financial help. Free market solutions aiming at making a profit rather than catering to the public good aren't much help when millions of people lose their livelihood overnight. The American government is offering small business loans and direct payments to a vast number of people. Apart from that, the Senate promised to pay $50 billion in bailouts to airlines and $130 billion in aid to hospitals. Germany will spend some €40 billion to bolster small businesses, and in Denmark, the government is ready to cover 75-90 percent of salaries if companies do not lay off their employees. But unprecedented help comes with unprecedented control.
Both democratic and authoritarian regimes imposed quarantines, closed borders and implemented a variety of stringent measures. In the streets of China, drones search for people without face masks and chastise them over loudspeakers. In Israel, the national security agency is now allowed to access infected individuals' phone records. The UK's recently passed coronavirus bill gives police and immigration officers the right to arrest suspected virus carriers and have them tested. Germany, Austria, Italy, and Belgium use data from major telecommunication companies to track people's movement. The list goes on and on.
Shoshana Zuboff, the author of "The Age of Surveillance Capitalism" believes a pandemic is a perfect chance for governments to start monitoring their citizens more closely.
Liberally-minded folks who fear this scenario are particularly concerned that, given the currently prescribed social distancing, activism has been reduced to "clicktivism". That means sitting at home on social media feeds and venting online, instead of rallying and being engaged in other forms of political protest.
When it comes to the economy, a certain degree of government intervention may not be such a terrible idea, as argued by free-market zealots. The Spanish flu of 1918 was, after all, a catalyst in the development of public health systems across quite a few countries, as many governments embraced the concept of socialised medicine.
Speaking about scenarios global economies might be pressured to follow after the pandemic, analyst Simon Meir uses terms "State capitalism" and "State socialism". The first model being predominantly concerned with pursuing exchange value, and the second – with protecting life itself rather than protecting markets. The extreme version of the latter would involve nationalisation of healthcare, food and energy production and, perhaps, providing free housing. State capitalism, on the other hand, doesn't allow for extensive state intervention into the economy, apart from short-term loans for saving businesses. The author, however, points out that these models are likely "to bleed into one another". And this is what we're currently witnessing, with the pro-market Trump administration openly talking about taking stakes in airlines, oil and defence companies in exchange for grants.
Well, crises do shape history. Hopefully, this one doesn't go to waste.