As the world economy remains largely closed down, it is essential to understand what we are experiencing. We are not living through a recession. Nor are we witnessing a depression. We are suffering from something new, something I’d like to term a “Pandession”.
A Pandession is a new word because it is a new thing. Language is vitally important when confronted with something novel. If you don’t have the language, you can’t visualise, conceive of or think your way out of it.
In previous pandemics, the world allowed, to varying degrees, the pandemic to rip through the population, possibly because our ancestors’ relationship with death was different from ours.
I’m not talking about ancient history either. My parents experienced the 1957 Asian flu pandemic that killed an estimated 2 to 4 million people worldwide before it disappeared. We have chosen to minimise needless death at the price of huge economic damage.
This economic, social and political destruction is the Pandession.
A Pandession is a once-in-a-generation event. It is not an economic depression caused by policy failure like the 1930s Great Depression or a traditional economic shock like the 1970s recession. Nor is it the legacy of a financial/credit/housing binge which has to be paid for, as was the case in the 2008 boom/bust.
For Irish people, it is most certainly not the lost decade of the 1980s, which was almost entirely caused by terrible national governments, led by both Fianna Fáil and Fine Gael.
Remember the 1980s? The rest of the world boomed while the Republic, trapped in our own economic madhouse, slumped. For hundreds of thousands emigration was an option. In the Pandession, this may not be available if the world continues in lockdown.
A Pandession is entirely different from anything that has gone before. There is no economic blueprint, which is a huge opportunity if we think a bit laterally.
With epidemiologists warning us that this will occur again, we must accept a Pandession is now a feature of the global economy. In a sense, it is one of the biological costs of globalisation.
Pandessions might well be the key economic ailment of the 21st century. We need 21st-century ideas, not 20th-century thinking, to get us out of it. There is a very good chance that this Pandession will define the economics profession for decades to come.
Given what we are hearing from the medics, we should stop thinking of the world after Covid and should think of the world with Covid. We need to reframe the discussion towards a phrase like “living with Covid” rather than the up-to-now preferred “post-Covid world” narrative.
What can Ireland do?
Engineering recovery
Small countries, acting alone, can engineer recoveries. For example, during the Great Depression, Sweden suffered considerably less than the rest of the world, because when the rest were clinging on to the wreckage of the gold standard, the Swedes moved first in 1932, devaluing their krona by 30 per cent. They kickstarted their crucial industries, mitigating the economic fallout.
While the rest of Europe remained tethered to old ideas, the Swedes broke free. Sweden didn't ask permission or wait for others to act. The 1932 devaluation set the scene for the fabled Swedish Model that served the Swedes well from 1945 onwards, based on currency independence which the Swedes preserve to this day despite being fully fledged members of the EU.
In 1932, the Swedes identified their main industries – mining and forestry – and devalued to help them. This is just one example of how a small country can break ranks and do the right thing by their own people in a crisis.
Let’s examine Ireland in the Pandession.
Maybe the biggest opportunity for Ireland lies in the area of supply chain management. Ireland has proved itself to be one of the most successful cogs in the global supply chain, as evidenced by the huge presence of multinationals here.
The Pandession has profoundly affected the supply chain environment. Put simply, the West will never again allow itself to be dependent on China for essential manufacturing goods. The image of western countries queueing up and trying to outbid each other for personal protective equipment will have prompted a "never again" moment in capitals from Washington to Berlin.
Since the end of communism, the game for multinational companies has been extending the supply chains to more and more remote regions.
The State is ideally placed to benefit, if we can just stay one step ahead of the game
The key metric for supply chain management was price. The cheaper the location the better. No one thought about security or trust. Frankly, it did not matter who you were doing business with as long as that supplier was cheap. Once the cheapest bids were found, the supply chain algorithm did the rest.
This global business model suited China because its wages were a fraction of those in the West. Thus, large western companies located the labour-intensive parts of their business in China and the capital-intensive part in the West.
Because the State’s corporate tax system profoundly subsidises capital by making it cheap here, we experienced an investment bonanza. Now we have to negotiate the new reality, in which supply chains are truncated dramatically as companies opt for security over price, trust over efficiency, and relationships over algorithms.
New cold war
The US and China are on a collision course, the trajectory of which was evident before the Pandession, but the Pandession will crystallise something akin to a new cold war. Many countries will take sides. Europe will want to remain non-aligned but, despite reservations, it will be closer to the US in the final analysis.
Supply chains from here will contract dramatically away from China to either the home country or the country that the company, as well as the administration, trusts. A multinational circle of trust will emerge, and US companies will increasingly move home or amplify investment in “friendly” countries.
The Republic is one such country. We are trusted. We will enter an era of “relationship capitalism” where relationships matter. Truncated supply chains will lead to a renaissance in multinational manufacturing investment, as well as in services. On both counts the State is ideally placed to benefit, if we can just stay one step ahead of the game.
Staying ahead of the game means, like Sweden in the 1930s, having the courage to act independently. This column has in the past argued that the State can redefine its relationship with global multinationals, swapping corporate shares for outstanding tax bills, with the aim of setting up a sovereign wealth fund to be used not for pensions but for start-ups.
The Pandession is an opportunity to reset everything. It is a chance to deploy unconventional thinking to navigate a pathway out of this mess. The Pandession isn’t just a new economic term; the Pandession demands a whole new way of thinking.
Let’s think.