Continued from last week

The Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Barcena, recently warned that the Coronavirus (COVID-19) pandemic will have devastating effects on the global economy that will certainly be more intense than and distinct from those felt during the 2008-2009 global financial crisis. She argued that the COVID-19 crisis will go down in history as one of the worst the world has endured. She explained that this virus endangers an essential global public good, human health, and it will impact an already weakened global economy, affecting it both from the supply and demand side, whether through the interruption of production chains, which will severely hurt global trade, or through the loss of income and profitability due to higher unemployment and greater difficulties to pay debt service obligations.
The initial shortage of products and parts from China affected companies around the world, as factories delayed opening after the Lunar New Year and workers stayed home to help reduce the spread of the virus. Apple’s manufacturing partner in China, Foxconn, faced production delays. Some carmakers including Nissan and Hyundai temporarily closed factories outside China because they couldn’t get parts. By March, countries such as Italy had closed all but the most essential factories. The pharmaceutical industry, bracing for disruption to global production since February, reported fears of drug shortages as India faced lockdowns 24 March. India supplies nearly half of the generic drugs for countries such as the United States. Most trade shows, cultural and sporting events across the world have been cancelled or postponed.
Andres Ortega, senior research fellow at the Elcano Royal Institute in Spain stated that this pandemic is four shocks in one. This is simultaneously a human shock, a supply-side shock, involving production, and a demand-side shock involving consumption, with the added danger of a new financial crisis. It may be, as Holman Jenkins, economics columnist at the Wall Street Journal, suggests, that recession is part of the eminently sensible method used to combat the virus. In other words, the suppression of demand that results from keeping people in their homes at least implicitly promotes public health.
On the other hand, increasing numbers of supply chains are seizing up or stalling. According to Andres Ortega, this is partly due to the fact that they have become much more complex than they were in 2008. Many factories making machinery, cars, toys and other products have had to cut or cease production for lack of vital components. They often originated in China but, with border closings inside the EU, also increasingly affect intra-European supply chains. The pandemic has laid bare our mutual economic dependence, the degree of interdependence on which we rely. And there is no shortage of people advocating retreat.
For example, Bruno Le Maire, the French Finance Minister, says “we should reduce our dependence on great powers such as China.” That statement is not far removed from the proposals of the United States Secretary of Commerce, Wilbur Ross, taking advantage of coronavirus. Many companies have realized the risks of this over-interdependence and intend to curb it. A recent Bank of America report states that 80% of the multinationals investigated plan to repatriate part of their production, known as re-shoring, a trend that COVID-19 could turn into a tidal wave.
Although walls, unlike with social distancing, do not halt its spread, the virus is going to lead to greater national emphasis, or regional emphasis at least, on production. This includes the field of medical supplies. The crisis has revealed, for instance, Europe’s over-dependence on medicines manufactured in China and India which has slashed its exports. The reaction of the Czech Health Minister, Adam Vojtech, when he pointed out that Europeans depend on such countries for a third of their medicines mainly generic, and that their production should be brought to Europe to ensure supply, may prove to be paradigmatic. As though in response, China, with its own pandemic apparently under control, is airlifting massive deliveries of health supplies to Italy and Spain.
Contrast that enlightened action with President Donald’s Trump unilateral suspension of flights between Europe and the United States. This action not only damaged transatlantic relationships even further. It also runs contrary to the advice of the World Health Organization (WHO), which advocated for continued flights precisely in order not to disrupt the supply of medical aid. That said, while COVID-19 and the way of addressing it is slowing physical globalization down, it is also promoting an ever more digital, online form of globalization. Remote working has won scores of new converts, as have online services and e-learning in schools.
Holger Schmieding, Chief Economist at Berenberg Bank in London stated that Courier companies, operating by van and bicycle, are ultimately based on physical realities. It stands to reason that systems using drones and other autonomous systems will make headway, as has already happened in China during this crisis. The same applies to digital services for detecting illnesses using artificial intelligence, and robots for all manner of services.
Holger Schmieding argued that it is enlightened globalism in action. The World Health Organization and the multilateralism, indeed the globalism, that it represents has had its centrality restored. At the same time, the crisis has also involved the comeback of the nation state. What the coronavirus crisis thus demonstrates is that there is no implicit or explicit contrast between these two forms of government. They go hand in hand.
Kallum Pickering, Senior Economist at Berenberg Bank in London on his part argued that leadership also matters. These are times demanding individual leadership, certainly, but above all collective leadership, something that is not yet taking place in Europe. They also require rehabilitating the idea of a global community in the face of what is undoubtedly a global menace. Populism too is also present in some reactions, or lack of reactions, to this pandemic.
The virus, as Thomas Wright and Kurt Campbell have argued, reveals the limits of populism, a populism that is essentially against globalization and that puts nation first. What has not occurred yet, though, is to put a lid on discrimination or national narratives, which have come back with renewed vigor. This is damaging because it is actually imperative for international cooperation to advance, not retreat.
To conclude, when the pandemic is finally overcome, globalization will resume but in a guise that is less intense and different from the one we have known up to now. The global standstill will have lasting and not necessarily positive consequences. The proper response to tackle the pandemic is to implement solutions that will “distribute the future,” and its financial risks, more evenly. Global problems require global responses. This is consistent with the ethos of globalization. Only international cooperation helps. In short, more international cooperation is required to deal with present and future pandemics, first to address present dangers, second to mitigate future risks.
Cooperative measures must be undertaken at the international and regional level, between governments, in public-private partnerships and between private-sector partners. At the international level, the World Health Organization is already taking a leading role through its Strategic Preparedness and Response Plan. However, stronger regional and national responses are also required to address diseases of zoonotic origin, as well as other pandemic risks. It is true that the cost of inaction is sky-high.
To make it all possible, more government financial support is needed. This should take the form of public sector grants and private sector tax credits. If the private sector is to bring new drugs and detection equipment to market more quickly, its risk of failure must be mitigated by government. It is unrealistic to expect the private sector to bear the full risk of research and development. It is also unrealistic for governments to wait for a miracle to eliminate future pandemics. Governments must act. They need to cooperate, not just on R&D, but also on risk assessment and management.
For Research and Development (R&D) to be more effective, it is imperative to increase the scientific culture of sharing, so that medical research is pooled more effectively and more quickly internationally among public and private sector actors. This may be one of the most promising avenues available, and if successful would reach communities in both the developed and developing world. Global health risks are simply global. The solutions must be as well.
Finally, free market advocates also need to rethink their approach. Dealing with pandemics will involve additional government resources for research and development into novel viruses and early detection tests. These activities will need to be spread out in government laboratories, such as the United States National Institutes of Health (NIH), as well as in private foundations such as the French Institut Pasteur, and at public universities and research facilities. Delaying appropriate government responses will only bring more illness and death. Strengthening international cooperation on research and development, as well as risk assessment and management, would be consistent with the ethos of globalization and would do much to reduce risks associated with future pandemics.