The Financial Express

Covid crash: The context

Imtiaz A Hussain | Published: March 16, 2020 21:56:47 | Updated: March 22, 2020 20:51:04

Covid crash: The context

It was coincidence for sure: the superstitiously unlikely 13th falling on a Friday; and the start to what may become the most crippling global economy since the 1930s depression. As springtime in the northern hemisphere was about to spring, what actually sprung was climbing COVID-19 casualties setting new peaks every day, and global stock-exchanges plunging to new troughs. Such has been the damage behind national borders closing and global production networks shuttering that any realistic remedial endeavour must go beyond the stop-and-go. Bringing in long-haul view would inform us where the COVID pandemic belongs in the broader context of global economic performances, what recovery strategy to avoid, and where to probe for quick but effective cures. Our target must now shift to the post-2020 era, not concurrent salvation efforts, no matter how imperative they may be. This 4-part series attempts so, the first appraising the length, breadth, and depth of the damage done, the second probing the instruments available, that is, how much leeway the philosophical bent of critical governments will permit, the third reassessing the likely post-trauma global economic architecture; leaving for the fourth to bring in possible silver linings from some unintended COVID-19 consequences.

Of course, we already know travel has been rudely but realistically halted. Many sectors have been hit: from airlines to hotels, tourist agencies and resorts, entertainment hot-spots, sports of just about every kind, insurance, and food supplies; and shipping, with which, in addition to all of the above, also cargo transportation, literally of all raw materials, from those that feed and fuel us, including how they affect our livelihood and clothing, and to actually ultimately producing goods, which drag in port storage and container industries. Imagine how many non-essential workers would immediately be laid-off, with those more essentially needed facing a Damoclean sword determined by how long the pandemic lasts. At last count, if China's claim to have rounded the COVID-19 corner is accurate, at least 6-8 weeks of a clampdown/closure/quarantine should be expected in new hot-spots, but since not all countries have the China-type authoritarianism to get things done so speedily, perhaps upwards of two months. Imagine even worse: the epicentre shifting from Italy elsewhere. The world could be consumed, if not from direct virus threat, then from the broader fear it will instil.

Obvious questions arise. How will the laid-off people survive that long before publicly ventilating fears and frustration? Social welfare measures in developing countries (DCs) can buy some time through relief gestures, but less developed countries (LDCs) will need much more from fewer sources to weather the storm. As the next article will elaborate, the term 'emergency' is one whose time has not only come, but whose longevity will also increase the population proportions remaining dependent.

Mentioning 'welfare' invariably shifts our perception and mindsets to the middle and lower classes. They will, no doubt, be at the firing-line forefront. Yet, behind them the upper classes have also been hit, and their hurt will also grow. One clear indicator is the stock market, whether traditional or blue-chip. By March 13, key global indicators had plummeted dramatically, with many same-day plunges on March 12 ('Black Thursday') of levels last recorded in 1987, amid the most significant recession before the 'great' one of 2007-10: the Financial Times Index (FTSE's 5.5 per cent down) in London, New York's Dow Jones (DJIA's 19.9 per cent down), Shanghai Composite Index's (SHCOMP 1.52 per cent down), Tokyo's (Nikkei, 4.4 per cent down), and so forth, with blue-chip Nasdaq (9.43 per cent), and S&P (9.51 per cent), mirroring similar crashes. Corporations in all of the aforementioned sectors faced the brunt, while the ripple effects trickled down to every grocery store, leaving more empty shelves than fully-stocked ones, and consumers, who could not even find face-masks (with a nefarious illegitimate industry spawning, supplying even 'fake' versions, such has been the growing public frustration).

By placing government welfare provisions on the back-burner, those same consumers now face the prospects of constituting the COVID-19 epicentre, as it shifts dramatically westward from Wuhan, China, to Milan/Lombardy in Italy (perhaps the most convincing power of secular globalisation amid the most ferocious outbreaks of patriotism). With growing incidences and casualties from the Ural Mountains to the US Pacific coast and 'emergency' declared in country after country, even as this is being written, each citizen must now rely upon their private insurance and private hospitals to salvage victims from the rut. Many might simply and suddenly face short-term bankruptcy, while hospitals which simply do not have either the space or the facilities to absorb influxes, may show what the true face of an 'emergency' is.

Escaping plights such as this COVID-19 pandemic has not historically been entrusted to private sector initiatives or strategies. We noted how the 1987 sub-prime catastrophe, particularly inside the United States, blew into the 2007-10 Great Recession only because private sector curbs were not imposed nor maintained. Massive government 'correction' measures, of which reducing interest-rates to zero not only began as a short-term ploy, but continue to stay to even today, indicated how escape-routes have become institutionalised in an era driven by private-sector enterprises. Of future reference is how this, what has been dubbed 'neo-liberal' era (that is, with privatisation, free trade, and deregulation as key features), is being shaken more vigorously in its foundations. A majority of stake-holders deny this even today, a point to which the next part returns.

Still, the neo-liberal moment, though officially inaugurated by John Williamson in 1989, was the logical formula to escape of the 1987-8 recession. Black Monday (October 19, 1987) witnessed a sharp stock market dive by 22.6 per cent, the largest in US history, with S&P indices 18 per cent and S&P futures 29 per cent. Eight other stock-exchanges plunged by 20-29 per cent (all the other major economies), three 30-9 per cent (Malaysia, Mexico, and New Zealand), and three by more than 40 per cent (Australia, Hong Kong, and Singapore). Just under $2.0 trillion of losses were entailed then. The United Nations posits COVID-19 losses exceed more than that amount already, though obviously set to spiral.

In other words, what we face could be the gravest recession, comparable to the 1930s depression. Note one significant difference: previous crashes reflected endogenous catalysts with a changing external context (global competitiveness shifting towards one country, the United States in the 1930s from Great Britain, a hiccupping Japan in 1987, from the United States, and 2007-10 again, this time from both China and the United States, and the United States hiccupping against China this year); this crash is catalytically exogenous (disease and petroleum-price collapse, but both with enormous endogenous consequences), yet reaffirming China's ascendant role as most determining over the United States.

How we prevent such a degeneration requires the collective efforts, not necessarily of all, but one group today, another tomorrow, and so on, until the disease is quelled, non-discriminatory recovery opportunities get opened, and each country comes to the rescue of others by encouraging transactions, resource flows, and pragmatically interacting all around. These are precisely the desperate needs seriously threatened by other independent forces, such as populism, finding a new lease of life in disseminating the disease.

The next part (to be published on March 20) picks up the pieces from here.

Dr. Imtiaz A. Hussain is Dean (Acting), School of Liberal Arts and Social Sciences (SLASS) and Head, Global Studies & Governance Program Independent University, Bangladesh




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