The world after the COVID-19 pandemic
 |
| The world after the COVID-19 pandemic |
The global economy will be shaped in the coming years, according to three directions. It will restore the balance to the relationship between markets and the state in the interest of the latter. This will be accompanied by a rebalancing of hyper-globalization and national independence, and also in the interest of the latter. We will have to adjust our ambitions for economic growth downward.
We will find nothing better than a pandemic to highlight the inefficiency of markets in the face of collective action problems and the importance of the state's ability to respond to crises and protect people. The Coronavirus Disease COVID-19 crisis has led to a loud voice calling for universal health insurance, stronger protection for the labor market including temporary workers, and protection of local supply chains for critical medical equipment. The crisis has also prompted countries to prioritize flexibility, resilience, and reliability in production over cost savings and efficiency through global outsourcing. The economic costs of the shutdowns will grow over time, with the massive supply shock caused by disruptions to domestic production and global value chains producing a downward shift in aggregate demand as well.
But while the COVID-19 pandemic is reinforcing these trends, it is not the primary force driving them. The three trends - greater government action, the undoing of hyper-globalization, and lower rates of growth - preceded the pandemic. And while it can be seen as posing major risks to human prosperity, it can also herald a more sustainable and inclusive global economy.
Let us consider here the role of the state. The neoliberal consensus on market fundamentalism has been in decline for some time now. Designing a greater role for government in responding to economic inequality and insecurity among people has now become a key priority among economists and policymakers alike. Although the progressive wing of the Democratic Party in the United States failed to stabilize the nomination process for the party’s candidate for the presidency, it largely dictated the terms of the debate.
Joe Biden may be a centrist, but on all fronts of politics - health, education, energy, environment, trade, and crime - we find that his ideas lie to the left of the thinking of Hillary Clinton, the former party candidate for the presidency. In the words of one journalist, "Biden's current set of policy prescriptions would have been considered radical if it had been proposed in any previous democratic presidential primaries." Biden may not win in November. Even if he wins, he may not be able to - or may not be willing - to implement a more progressive political agenda. Nevertheless, it is clear that the trend in both the United States and Europe points towards greater state intervention.
The only question here is what form this most active country might take. We cannot rule out a return to the old-fashioned model of state control over economic and social life that achieved few desired results. On the one hand, the shift away from market fundamentalism could take a truly overarching form focused on green economies, good jobs, and rebuilding the middle class. It is clear that reorientation in this way must be adapted to the economic and technological conditions at the present moment, and not simply to imitate the political instincts that prevailed throughout the three golden decades following World War II.
The restoration of the state goes hand in hand with the renewed primacy of the nation-state. Everywhere talk is about dismantling globalization, disengaging, repatriating supply chains, reducing dependence on foreign supplies, and favoring domestic production and financing.
The United States and China are the two countries that set the tone here. But Europe, which has always been on the edge of a larger fiscal union, does not provide sufficient counterweight. During this crisis, the European Union once again retreated from transnational solidarity and asserted instead of national sovereignty.
A retreat from hyper-globalization could lead the world down a path marked by escalating trade wars and the rise of ethnic nationalism, which would damage everyone's economic prospects. But this is not the only result envisioned.
It is possible to envision a more rational and less intrusive model of economic globalization that focuses on regions and areas where international cooperation really pays off, including global public health, international environmental agreements, global tax havens, and other areas vulnerable to the impoverishment of the neighbor policies. Otherwise, nation-states will not be burdened with how to prioritize their economic and social problems.
Such a global order would not be hostile to expanding global trade and investment. Rather, it may facilitate both as long as it opens the way to restore domestic social bargaining in advanced economies and formulate appropriate growth strategies in the developing world.
Perhaps the most damaging possibility facing the world in the medium term is a significant decline in economic growth, especially in the developing world. These countries have witnessed a good quarter of a century, with a remarkable decline in poverty rates, improvement in education, health, and other development indicators. In addition to the massive public health burden the pandemic imposes, these countries now face major external shocks: sudden stops in capital inflows and sharp declines in remittances, tourism, and export revenues.
But once again, the COVID-19 pandemic highlights a pre-existing growth problem. Much of the growth in the developing world outside East Asia has been driven by demand-side factors, particularly booms in public investment and natural resources that have been unsustainable. Export-oriented industrialization, the most reliable tool for long-term development, appears to be running out of life.
Now, developing countries will have to adopt new growth models. The pandemic may serve as the alarm needed to recalibrate growth prospects and stimulate the needed reconsideration on a larger scale.
As much as the global economy has already been on a fragile and unsustainable path, the COVID-19 crisis illustrates the challenges we face and the decisions we need to make. In each of these areas, policymakers are not without options. It is possible that the results will be better or worse. But the truth is that the fate of the global economy is not dependent on what the virus does to us, but rather on how we choose to respond to it.