Covid-19 has had an immediate and massive impact. But how will it affect the longer term? That is far harder to tell.
What do we already know, after 10 months of Covid-19? We know that the world was ill-equipped to cope with a pandemic. It has caused about 1.1 million deaths worldwide, mostly among the elderly. Moreover, some countries have suppressed the disease far more successfully than others.
We know that Covid-19 has inflicted a huge global recession, but one that has been far from equal across countries. This has inflicted particularly serious economic damage on the young, the relatively unskilled, working mothers and vulnerable minorities.
We know that “social distancing”, partly spontaneous and partly enforced, has damaged all activities dependent on human proximity, while benefiting ones that help people stay home. This has slashed travel.
We know that vast numbers of businesses will emerge heavily burdened by debt and many will fail to emerge at all. Intervention by the fiscal and monetary authorities has been unprecedented in peacetime, especially in countries with internationally accepted currencies.
We know, not least, that the "blame game" over the pandemic has destabilised relations between the United States and China. Moreover, the pandemic has already called globalisation, especially of supply chains, into question.
What are the longer-term possibilities? Here are 10 aspects.
First, future of the pandemic. It is possible that a vaccine will be available quite soon and that it will be made available across the globe not much later. But this combination seems unlikely. If so, the disease will remain a threat for a long time.
Second, permanence of economic losses. These depend partly on how soon the disease is brought under control, but also on how deep the scars will be, particularly, the impact of unemployment, bad debt, increased poverty, disrupted education, and so forth.
The world economy and most individual economies will probably be permanently smaller and their peoples also poorer than they would have otherwise been.
Third, structure of economies. Will these return to the way they were before Covid-19 or will we stop travelling and commuting to offices for good? The likelihood is that it will be both. Travel will resume. So, too, will commuting. But they may not go all the way back to the pre-Covid status quo.
We have leapt into a new world of virtual engagement we will not leave. This will change some patterns of living and working for good.
Fourth, enhanced role of technology. This is not going to reverse. At the same time, the centrality of the tech giants has increased the focus upon their enormous influence. Pressure to regulate monopolies and increase competition, especially in the tech sector, is likely to increase.
Fifth, the expanded role of government. Big crises tend to cause a step change in the role of government. Particularly significant is pressure to “build back better”. So governments are likely to be permanently more interventionist than before the pandemic?
Sixth, unwinding of interventions. Central banks are committed to “low for long”, in interest rates. Provided real and nominal interest rates remain low, governments will be able to manage their own debts and help manage the restructuring of the debts owed by others.
At some point, fiscal deficits will have to be reduced. Given the pressures for spending, that is likely to mean higher taxes, especially on the wealthy “winners”.
Seventh, effect on domestic politics. Some countries have shown effective responses to the crisis, while others have not. Whether a country is democratic or not has not determined this difference. Part of what does is whether the government cares about its effectiveness.
Populist demagogues, such as Jair Bolsonaro, Boris Johnson and Donald Trump have performed poorly. This may force a shift against their performance politics.
Eighth, impact on international relations. This is a truly global crisis and one that can be effectively managed only with global co-operation. Yet trends in the direction of unilateralism and international conflict have been reinforced by the pandemic. The chances are good that this will get worse now, especially between the US and China.
Ninth, future of globalisation. The globalisation of goods had already slowed after the 2008 financial crisis. It is likely to slow further post-Covid-19. The multilateral system is likely to be further eroded, especially the World Trade Organization and the trade disputes between the West and China will not be resolved. At the same time, virtual globalisation is likely to accelerate.
Finally, management of the global commons. On this, Covid-19 is a double-edged sword. One side is the increased desire to do things better, not just domestically, but also globally, notably over climate. The other is the reduced legitimacy of international agreements, especially in the US, which has withdrawn from the Paris climate accord and the World Health Organisation.
Covid-19 is a profound shock. It follows the huge disruption of the global financial crisis just 12 years ago. It is sure to have large long-term consequences for business, the economy, domestic politics and international relations. Much will change. We can guess some of it. Much remains uncertain. – Copyright The Financial Times Limited 2020
