- Covid19 and a new economic order
By: Maryam Khan
On March 11, when the World Health Organization announced the outbreak of the novel virus, COVID-19, as a pandemic– economists around the world hinted at yet another round of devastating demand and supply shocks. By mid-May, the statistics showed that COVID-19 had infected over 7.9 million people worldwide in 215 countries, with over 432,000 deaths. With a continuous burden on the governments and overwhelmed health-care systems around the globe, there has been an implementation of strict public health measures to respond to an outbreak as huge as the coronavirus. Ranging from social distancing to a complete lockdown, the measures have been perpetually constraining the socio-economic activities of countries with serious repercussions.
But interestingly, while most ongoing debates centre on finding adequate measures to balance out public health efforts` that would curb the virus, and neutralize the economic impact of the virus– both simultaneously, what is being missed by analysts around the globe is the imminent threat, the pandemic seems to be posing to the global order.
No financial crisis in the past can be an adequate guide for a post-pandemic economy. However, at the same time, it’s also true that financial crises in the past have underlined significant changes in economic thinking and policy formulation. For instance, the post-world-war II economic thinking was largely inspired by John Keynes’ general theory. Likewise, by the looks of it, a post-pandemic economic thinking may have to undergo a relevant metamorphosis.
I say this because there has never been a pandemic outbreak before in a world such as ours– globalized, integrated and economically interdependent. With the significant drop in global consumption patterns, what we see is a direct hit at the global value chains (GVCs). From research and development to final product, the stages of production are scattered around the world. If China is the hub of manufacturing, Sub-Saharan countries are the cornerstone to supplying resource-based goods like oils and minerals. With such complex economic interdependence, the effect of a shutdown in Wuhan, China, seems to reverberate in the international value chain even before covid-19 caused lockdowns in other parts of the world.
It’s time to rethink economic institutions! Restrictions on trade openness, changing political systems– with globalization bidding us farewell, we need to underpin a new economic theory that withstands the burden of this changing economic order
While the US-China trade-war has already caused disruption in the smooth functioning of global value chains, covid-19 has seemed to only expedite it. With the curtailing of demand and consumption, national economies will have to rethink models with a reduced reliance on GVCs. The novel pandemic has seemingly made us realize that markets cannot work and run on the single motive of ‘profit maximization’ at the cost of human life. These global corporates rely on community for operation, and the novel pandemic has affected the community in such adverse ways that it has consequently affected business operations.
Not to forget that the novel pandemic has seemingly curtailed the adverse implications of Climate Change, signifying the need to be environmentally conscious outside a pandemic world too– this has made the consumers revisit their current consumption patterns, putting more value on sustainability, pressuring businesses, especially MNCs, around the world to account for ecological concerns in their businesses. The pandemic might force businesses to look beyond the maxim of profit maximization and towards social responsibility.
Pritim Sorokin, a Russian-American sociologist, once stated that “society is never the same as the one that existed before the calamity. For good or ill, calamities are unquestionably the supreme disruptors and transformers of social organization and institutions.”
With the turmoil in the world market due to covid-19, it may seem insolvent, but covid-19 seems to an opportunity to reduce in the long term the prevalence of lifestyles based on large volumes of energy and material throughput. However, at the same time, imperatives such as social distancing to lower the risk of community transmission, seem to be reinforcing commitments to individualized rather than public and shared modes of consumption, posing serious threats to globalization.
It could be said that with consumption patterns undergoing alterations due to economic and social offshoots of this pandemic, there could be a need to rethink economic institutions. These changes in consumerism are forcing us to reimagine the role of the market and states, challenging policy-makers to navigate policy responses that inherit all these changes. Analyzing policy responses in the most accurate and definite way may not be possible, but stipulations can be made as a potential economist. Curbing of globalization may result in more stringent protectionist policies. Such as the case with the ongoing US-China trade war.
Moreover, with the diminishing consumer demand for global chains and brands as a result of pandemic, many countries such as Hong Kong and South Korea, seem to be showcasing autocratic tendencies resulting in policies that inhibit trade and foreign investment. The result of such stringent protectionist policies can strengthen internal oligopolies and vested interests. A diminishing export markets will cause losses to countries from their natural and human endowments. Workers will have lesser opportunities to move up the value chain by earning, spending and saving more. Thus, overall – with the changing spending behavior of consumers and long-term risks to value chains, we may be moving from globalization to de-globalization.
We might not be able to save globalization from its impending doom, but there is, however, still room for making a smooth transition towards a new socio-economic order.
Policy-makers need to adopt policies that enhance domestic production and industries, to move and revert towards more self-sustaining methods of economic growth in order to tackle growing protectionism and autocratic behavior of states.
Next, the need for strong socialist frameworks is becoming dire─ to propel and practice sustainable means of production and consumption in the society, we may need to move towards less resource intensive methods of consumption. This has been the most compelling debate over the years between the Democrats and Republicans in the USA. With covid-19 expediting the need to adapt to more sustainable economic practices, it has become inevitable for global businesses in large economies (such as the USA) to overlook the ecological side to further their profit-maximization.
Lastly, it’s time to rethink economic institutions! Restrictions on trade openness, changing political systems– with globalization bidding us farewell, we need to underpin a new economic theory that withstands the burden of this changing economic order.
