This post is Part 2A of what will now be a three-part series. The thrust of my argument from here on is that for nations to strive to return to globalised business-as-usual post-Covid-19 would be a mistake; indeed, it may not even be possible. Some of us argue that life won’t and, indeed, shouldn’t be the same again after this global health crisis. The advent of the Covid-19 pandemic gives us the opportunity to reshape our thinking about economics, politics and society in a way which could – at the risk of hyperbole – underwrite the longevity of mankind. For at least a decade I’ve belonged to a community which deals with the evidence suggesting that our First World existence in particular is unsustainable from the perspective of the economy, energy and the environment. Covid-19 is a wake-up call. The virus itself could kill millions of people. However, the shock to the global economy now being triggered by governments around the world to fight the disease means that all bets are off as to what happens next. This post starts by looking at the immediate impact of what’s widely being termed as ‘lockdown’.
The Urgent Issue: Cash
Governments around the world are imposing lockdown on their societies. The aim is to buy time by preventing Covid-19 from spreading more quickly than it otherwise would without lockdown. We’re buying time to build health service capability and resources, and to develop a Covid-19 vaccine. It’s a race against time.
The problem is that we’re now between a rock and a hard place: to prevent societies being overwhelmed by the disease itself, we have to curtail massively the functioning of national economies and, by extension, the global economy, not to mention the normal workings of civil society itself. The Prime Minister has written to every household in the country reinforcing the government’s ‘stay at home’ strategy. Other noises from government are suggesting that the current lockdown could extend well beyond the planned end date of Good Friday, perhaps into the autumn.
In Italy, families who’ve been observing lockdown there are running out of patience; moreover, they’re running out of money. There are early signs of social unrest with reports of people raiding a supermarket for food. There are closed social media groups forming with the purpose of organising raids on supermarkets. In 1906, the American journalist, Alfred Henry Lewis posited that there are just nine meals between mankind and anarchy.
The old adage, ‘cash is king’ was never more apposite. Around 6.5 million Britons have no cash savings. A quarter of UK households – that’s almost 5 million households – have less than £100 in savings. About a third of the population has less than £2,000 in savings. There are 980,000 people on the Universal Credit state benefit. In recent days, an additional 477,000 people applied for Universal Credit implying either actual or imminent financial hardship being experienced by one-and-a-half million people before they get out of bed in the morning. Not only are we tackling a virus pandemic, soon we could be tackling in parallel a hardship pandemic.
The question is, does the government have contingency plans to address the issue of people simply running out of money? Notwithstanding the unprecedented levels of financial support now being injected into society by the government (in reality the money will come from future taxpayers, of course), hundreds of thousands, if not millions of British citizens are now staring, or are about to stare severe financial hardship in the face. In his letter, the Prime Minister said, ‘The government will do whatever it takes to help make ends meet and put food on the table’. Let’s hope he’s as good as his word.
Then there are companies themselves. Thousands of businesses are entering a form of suspended animation with their furloughed employees receiving Coronavirus Job Retention grants in lieu of wages. However, the question is how many companies will be able to survive hibernation for three, six, nine months, and then resurrect themselves to recommence trading thereafter almost as if nothing had happened? It seems to me that many good businesses could fail alongside weaker companies, and that whole sectors of the economy could be moribund for a protracted period post-Covid-19.
In my previous post I wanted to set the scene for answering the question, ‘Coronavirus: where’s this heading?’ I explained that I pursued an interest in how and why civilisations (aka complex societies) come and go. It strikes me that the Covid-19 pandemic represents the type of threat that has afflicted previous civilisations to the point of destroying or at least transforming them. I’m not necessarily arguing that Covid-19 will destroy or transform our complex society. However, I’m interested to consider whether Covid-19 could at least change our current way of life based on the facts of the matter and the history pertaining to previous civilisations.
Some commenters have already intimated to me that such thinking is hokum from the outset. For example, one commenter, SJ, provided me with an expeditious critique of Part 1 of this trio of blog posts informing me that, ‘Kunstler takes too simplistic a view’ and that Ronald Wright (‘A Short History of Progress’) uses ‘very personal perceptions based on limited and incorrect information’. SJ asserted that Covid-19 ‘is a minor virus in the grand scheme of things’ and that ‘Armageddon is a long way off’. Of course, SJ could be absolutely right and he may well have the last laugh here.
Initial Government Reactions
However, there are others like me who are postulating that Covid-19 could be a gamechanger, not because it turns out to be a major virus per se (rather than SJ’s ‘minor virus’), but because of the extraordinary nature, scale and speed of the economic and social responses by governments around the world. Some people are already arguing that governments’ reactions to Covid-19 could be more deadly in the long run than the disease itself. They say this because of the socio-economic havoc that could unfold as a consequence of governments’ actions thus far.
SJ’s ‘minor virus in the grand scheme of things’ has within a few weeks of being discovered resulted in 1.7 billion people being confined to their homes, by law, in many countries around the world. There’s never been such a swift and concerted onslaught on both global economic activity and personal freedoms in the history of mankind – to which even common sense says there almost certainly has to be consequences. Of interest is that Sweden is going against the grain – for now anyway – and is not enforcing lockdown in the way that other nations around the world have been doing. All the best with that strategy, Sweden; it’ll be an interesting control experiment.
How Dangerous Is Covid-19?
Nobody really knows at the moment how dangerous is Covid-19 because meaningful data are still being gathered and analysed. The data are changing by the day and there are conflicting models of the virulence of the virus. However, that’s not the point of this post. It may turn out that tens or hundreds of thousands of people die or, indeed, multiple millions may die. The death rate is already causing health systems to buckle and I fear that we’re still at the thin end of the Covid-19 life-and-death wedge whatever the eventual mortality rate turns out to be. Of course, it will transpire that some countries have a better capability and strategy to fight the disease than others, in which case mortality rates will vary accordingly, certainly in the shorter-term. Africa could be the continent to watch; here The Guardian newspaper argues that the West needs to ‘dig deep’ and assist the Africans – as if we’re not going to have enough problems of our own. On the other hand, The Taxpayers’ Alliance is arguing that the UK’s £14.6 billion Foreign Aid budget should be diverted into the British people’s Covid-19 war. Where should aid begin?
One Public Health England scenario predicts that 80% of the population could be infected, that the initial battle against the disease could last for a year or more and that up to 7.9 million citizens could require hospitalisation. The number of predicted UK deaths ranges from 50,000 to 500,000 but could be orders of magnitude lower according to some models. See, for example, The Wall Street Journal article of 24 March ‘Is the coronavirus as deadly as they say?’ based on research carried out by two professors of medicine at Stanford University. There are other similar studies appearing elsewhere not least Dr John Lee writing in The Spectator magazine (28 March), ‘How deadly is the coronavirus? It’s still far from clear’. That said, in Spain in recent days a record 832 people died of Covid-19 in a single day. A crude extrapolation would indicate a potential annual death rate there of over 300,000 coronavirus victims, albeit one would like to think that this would be mitigated by actions being taken now to fight the disease.
The immediate challenge is the production and procurement of Covid-19 testing kits. We’re fighting blindfolded at the moment. If you don’t test you can’t manage, and you can’t fight a virus if you don’t know where it is. Anyway, let’s set Covid-19 itself to one side for now and look at the repercussions of what is, by any standard, a global health crisis.
There’s No Problem
Per commenter SJ’s sentiment, there’s a school of thought which says Covid-19 will be a blip, albeit a pretty significant blip, in the great scheme of things. In simple terms, the thinking goes that we’ve been here before, one way or another, and the combined economic firepower of countries around the world will pull us through the Covid-19 pandemic without too much trouble. The Telegraph’s Ambrose Evans-Pritchard perhaps sums things up nicely:
‘An economic sudden stop for two months does not fundamentally matter – any more than a national holiday fundamentally matters – provided that the state acts as a shock absorber and keeps the productive system whole, avoiding mass bankruptcies and [an unemployment vortex].
Those that borrow in their own currency and have sovereign central banks can offer this backstop. Sub-sovereigns such as Italy and Portugal will be (are already?) in trouble, and so will fixed-exchange rate states such as Saudi Arabia – but that’s a topic for another day.
Put crudely, a transfer of public funds worth 15% of GDP to the private sector is an accounting mirage. Firms and households accumulate a surplus while in lockdown/survival mode. This prepares the ground for a V-shaped recovery once pent-up demand is unleashed. The money flows back to governments later as fiscal windfall payments arrive. The debt ratio gradually comes back down. Bingo!’.
In general, economists will probably tell you that in due course, post the Covid-19 recovery, it will be business as usual: a return to global trade and everything that goes with it. They may be right, of course. However, the question is, after what could turn out to be a salutary experience, do we really want to return to globalisation as usual, assuming it’s possible in the first place?
Globalisation | For
Globalisation is relevant in this context because the lethality of Covid-19 is directly proportional to the integration and interaction among people, companies and governments worldwide. Within weeks of emerging as a deadly virus, bar a handful of nations, Covid-19 has now been detected in every country on Earth. Globalisation per se is not new; human beings have always explored and looked for trading opportunities worldwide. Globalisation as we know it today emerged in the mid-19th century and grew rapidly in the late 19th and early 20th centuries. Globalisation as we experience it today is characterised by free trade; outsourcing; the communications revolution; liberalisation (freedom of movement of goods, capital and labour in particular) and legal harmonisation. Depending on your paradigm, economic globalisation can be viewed as either a positive or a negative phenomenon.
It’s difficult not to concede that as the direct consequence of a 200-year era of cheap energy (ie cheap fossil fuels, especially cheap oil), the benefits of globalisation are there for all to see. The conventional wisdom about globalisation is that it created a thriving international marketplace, allowing manufacturers to build flexible supply chains by substituting one supplier or component for another as needed. Adam Smith’s The Wealth of Nations became the wealth of the world as businesses took advantage of a globalised division of labour. Specialisation produced greater efficiency, which in turn led to sustained economic growth.
Globalisation | Against
On the other hand, over at her ‘Our Finite World’ blog, Gail Tverberg explained in 2013 why she felt that globalisation was a negative phenomenon, citing twelve reasons. Gail argued that globalisation:
Uses up finite resources more quickly.
Increases world CO2 emissions.
Makes it virtually impossible for regulators in one country to foresee the worldwide implications of their actions.
Acts to increase world oil prices.
Transfers consumption of limited oil supply from developed countries to developing countries.
Transfers jobs from developed countries to less developed countries.
Transfers investment spending from developed countries to less developed countries.
Leads to a huge US balance of trade deficit and other imbalances (because the US dollar is the world’s reserve currency).
Tends to move taxation away from corporations and on to individual citizens.
Sets up a currency ‘race to the bottom’, with each country trying to gain an export advantage by dropping the value of its currency.
Encourages dependence on other countries for essential goods and services.
Ties countries together so that if one country collapses, the collapse is likely to ripple through the system, pulling many other countries with it.
Other critics of globalisation include Naomi Klein, Joseph Stiglitz and Noam Chomsky who between them attack the phenomenon from three angles: global economic inequality, human rights’ abuses and cultural pressures (the powerful and often overwhelming dominance of Western culture).
Covid-19 is almost certainly a catalyst for questioning whether a wholesale return to globalisation per the status quo ante is in fact a desirable goal. Would mankind be better off in the long run pursuing an alternative strategy for international trading and cultural relationships? Policymakers around the world are already struggling to deal with Covid-19 and its aftermath. They’re having to confront the fact that the global economy doesn’t work as they thought it did. Globalisation calls for an ever-increasing specialisation of labour across countries – a model that creates extraordinary efficiencies but also extraordinary vulnerabilities. Shocks such as the Covid-19 pandemic reveal these vulnerabilities. Single-source providers, or regions of the world that specialise in one particular product, can create unexpected fragility in moments of crisis, causing supply chains to break down. In the coming months, many more of these vulnerabilities will be exposed.
Incidentally, I thought it was interesting and probably inevitable that a dinosaur, left-wing politician like the erstwhile UK Prime Minister Gordon Brown should at a time like this be arguing for the creation of a one-world government, presumably with him as its supremo?
What The Experts Are Saying
As I write this, analysts are suggesting that the immediate impact of Covid-19 has been to cost the global economy some $1.5 trillion in cancelled flights, postponed orders and businesses closing down. National and international sporting events have been cancelled. Other commercial and cultural events have been and are being cancelled hand over fist. Nation states are pulling up their drawbridges and fighting to protect themselves and their citizens against an invisible threat. The European Union – arguably the poster child of globalisation – is in mortal danger in its own right as its institutions fail dismally to respond to the Covid-19 tornado ripping through its member states. The EU’s overlords are, to all intents and purposes, pursuing an every-man-for-himself strategy. There are many observers now questioning both the desirability and sustainability post-Covid-19 of what has become hyper-globalisation.
In the third and final post of this series I want to explain how the world could look post-Covid-19 according to experts who have been anticipating the end of globalisation for at least the past decade or so. The post will describe a model embracing the economic, political and social dimensions of life after Covid-19 bearing in mind that – whether it deserved the reaction, or not – this previously unknown coronavirus is causing an unprecedented disruption to the world population.
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See you down the pub …