The coronavirus has reshaped how we think about the economy and society. The governments of most countries have had to put their economies into hibernation to protect people from a disease: something which we have not encountered before.
To handle the pandemic’s repercussions, these governments have had to “dig up” wartime economic textbooks and look at how countries were reconstructed following World Wars I and II, or after natural disasters.
At the Polish Economic Institute, a governmental think-tank in Warsaw, we have termed this set of tools – which is similar in many countries but varies according to circumstances, such as financial capabilities – pandenomics. This is the set of norms and rules that apply to the production, distribution and consumption of goods and services during the pandemic.
Pandenomics constitutes a different type of rules that need to be applied when confronted with a health-related challenge, rather than an economic one. This term could also accelerate changes in how we think about the role of the state, consumerism and realism in international politics.
Simply put, this problem is often described using the philosophical dilemma of a switch on tram tracks, which we can use to choose whether to save the economy or people – except that the tracks are connected and we have to decide which will be run over first. The economy and then society will suffer because of the economic crisis, or society will start dying, which will affect the economy.
Most countries chose to have “the tram run over the economy”, which will have a negative impact on society in the medium term; for instance, by increasing unemployment. Yet Spain’s experience of the pandemic shows that, in the long term, the regions that introduced a lockdown managed better.
It will be bad with a chance for improvement or very bad
Every day, the media publishes reports on the shock to the global economy. Over half of global GDP is generated in countries under lockdown. The breakdown of economic activity is worse than during previous recessions. Many sentiment indicators show that services and production in Italy and the eurozone are under extreme stress. Global demand for oil has fallen by as much as one-third and the number of new cars and parts sent to the US market has fallen by 70 per cent. The World Trade Organisation (WTO) forecasts that the coronavirus pandemic will lead to the biggest drop in international trade since the Second World War.
At the start of April, the WTO presented two scenarios for global trade in the years ahead. According to the optimistic scenario, turnover will drop by 13 per cent this year and increase by 21 per cent next year. Global GDP will contract by 2.5 per cent in 2020 and grow by 7.4 per cent in 2021. This scenario assumes a worse course of events that during the financial crisis in 2009, when international trade fell by around 12% and global GDP contracted by two per cent.
According to the WTO’s pessimistic scenario, global trade will fall by 32 per cent this year and grow by 24 per cent in 2021. Global GDP will contract by as much as 8.8 per cent this year and grow by 5.9 per cent in 2021.
Many companies have enough reserves and cash to survive three-six months. The way out for those that survive will be uncertain, featuring anxious consumers, alternating between limiting and increasing output, and new, difficult health protocols.
This all looks like the end of a certain era. It might be, but this will be for historians to judge. Like the interwar years of the 20th century, they might consider 1989-2019 a “golden age”. May the next one be a “silver age”, at least.
A Justinian perturbation
For historians, the reign of Emperor Justinian the Great marks the end of antiquity and the start of the Middle Ages. As ruler of the Eastern Roman Empire in 527-565, Justinian reformed the administration, the law and the army. He made an enormous contribution to the development of construction and infrastructure in Byzantium; the Hagia Sophia was built during his lifetime and on his initiative, among other things. More importantly, he wanted to restore the Roman Empire’s former glory. He was the last emperor who can be described as “great” – he managed to conquer Italy, Spain and North Africa. This was the peak of his achievements, though, because the reinvented empire, with the reformed legal and education system he created, collapsed after his death. In 541-542, the population of Byzantium was decimated by the Plague of Justinian. It killed 25 million people (Justinian caught it, but recovered), destroyed entire cities and reduced the birth rate for decades, all this when Justinian’s soldiers restored the old empire’s borders.
The perturbation for Justinian can only be compared to the later Black Death that closed an era that also began with a pandemic (it was the same bacterium, yersinia pestis). Unaffected, China was able to develop without interruption, which resulted in a higher level of social development than in the West from roughly the fourth to the eighth century. After these events, the Roman Empire only controlled Greece and Constantinople, to collapse after twenty centuries. No “Second Rome” was created or survived. The centre of political and economic gravity in the West shifted to Europe, which was developing very slowly. Political and economic systems, as well as inventions, were much less advanced than during the time of the empire. If Justinian had managed to restore Rome’s power, who knows what the world would look like now.
Today, we seem to be approaching this kind of perturbation. However, we are coping much better with the “plague” of our times, Covid-19.
After the many epidemics, and even pandemics, that ravaged the world in the 20th century, this one is affecting almost every aspect of our lives (especially in the rich West).
Slowing down
Moreover, in the richest countries, the rate of economic growth has been falling for many years. It is more difficult to achieve significant increases in productivity in economies based on services. In this group of countries, average GDP per capita growth was 4.1 per cent in the 1960s, 2.6 per cent in the 1970s, 2.4 per cent in the 1980s and two per cent in the 1990s. In the first decade of the 21st century, it was one per cent and in the next – if the recession in 2020 is similar to that of 12 years ago – it will be 0.8 per cent.
Many economists have started talking about the end of economic growth, the depletion of natural resources and destruction due to irreversible climate change.
If we fail to cope with the pandemic and its repercussions then – like Justinian – we will leave behind a bright period from a historical perspective, but the fate of the West could be similar to that of Byzantium. It will not be a spectacular fall but, rather, an undermining of strength that will cause a certain order to crumble.
The consequences of the Black Death, which is often mentioned today, were huge and wide-ranging. The most important effect did not take place until over 400 years later. The Black Death killed people in 1347-1351, earlier in Asia, from where it came. Nobody counted the number of victims precisely and, as we know, fear tends to magnify. Between 75 million and 200 million people died, according to most estimates.
An indirect consequence of the pandemic was the industrial revolution. There was a shortage of labour in rural areas so, to protect landowners’ interests, England’s King Edward III banned people from moving around the country and introduced laws preventing wages and prices from rising. This led to revolts. Eventually, mobility grew to a previously unimaginable level. Rigid social divisions began to blur and the conditions for the creation of what is now known as the middle class emerged. The Black Death accelerated the end of the feudal system and started the changes that led to the industrial revolution in England. It would still have occurred without the plague almost half a millennium earlier, but it would not be the same industrial revolution that we learnt (and continue to learn) about.
It is difficult to say whether the crisis triggered by Covid-19 is a disruptor of the world’s path of development or a catalyst. It is too early to tell. The coronavirus will certainly accelerate certain changes. This could be the case with global protectionism, which has been growing for years, or shifting the production of certain goods back to the West. For now, this article offers a cautious selection of the areas that could be affected by the pandemic.
History reminds us we should not be overzealous in predicting rapid changes and sudden progress as a result of an unexpected impulse, but Covid-19 will plant the harvest that we will reap.
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