When William Shakespeare coined the phrase ‘Beware the Ides of March’ in 1599, it is unlikely that he was considering how prophetic his words would appear just over 400 years later. When the history of the second decade of the 21st century is written, March 2020 will have an extensive chapter indeed. What will that chapter look like?
Much of it, of course, will be devoted to the unprecedented and almost haphazard series of responses to the novel coronavirus as it spread from China to Europe and the world. Epidemiologists will be busy for some time discerning the lessons of this process, while public health experts will dissect the effectiveness of the range of efforts deployed to contain its fallout. Public policy experts, political scientists and politicians of all stripes will undoubtedly engage in a roaring debate about just how much of a state we need to be adequately prepared for the next pandemic, and I am confident that economists will raise concerns about the effectiveness and efficiency of any chosen policy instruments.
But equally critical will be the future shape of the world economy itself, the platform through which all international economic transactions flow, and which is affected by economic, political and cultural factors on a global scale. We live in a world that is uniquely connected, but right now, this connectivity has been revealed to be extraordinarily fragile. Here are three features of the world economy to watch closely as the pandemic is brought under control. All three are integral to the current level of globalization, but their future is now under a cloud.
The first feature is the global organization of production, which depends on the ability to move information, managers, goods and services across borders with as little friction as possible. While global information systems remain reasonably robust, the ability to move managerial talent around the world is now compromised, as nation after nation – even within the European Union – imposed border controls in a manner not anticipated when global supply chains were designed. It is unlikely that the newfound dispensation of states to impede mobility will be unwound either soon or entirely, which will demand that the supply chains that deliver the goods and services we depend upon will have to be adapted in meaningful ways. It is also the case that pressure to produce more of those goods without which our medical systems (and much else besides) can function domestically will increase markedly. The phrase ‘economic security’ will soon join ‘food security’ to reinforce the trend towards economic nationalism.
The second feature is the waning effectiveness of global institutions to undergird globalization. This might seem counter-intuitive, but close examination of sector after sector of the global economy reveals that it is states and firms which act to facilitate and bolster economic exchange, not global institutions. The future of the WTO, for example, already under intense pressure due to American recalcitrance over dispute settlement procedures, is about to enter a period of life support, as states will increasingly bend international norms (read here as a commitment to liberalization) to deliver what they perceive as critical goods and services to their society from domestic sources of production. Similarly, there is a growing sense that a global standard for intellectual property rights is beyond the reach of the three leading players (America, China and the EU), meaning that this increasingly critical piece of the world economy will continue to be fragmented rather than unitary in its organization. Globalization has been under pressure on several fronts since the global financial crisis of 2008-2009, and the spread of COVID-19 promises to accelerate its retreat further.
The final feature to watch for is the obverse of the decline of global institutional support for globalization, namely the refusal of states – and especially countries which are also great powers, and there are several of these – to relinquish their authority over borders. Such authority, as we have seen, gives them incredible power over the very possibility of international economic exchange. States have for decades now been hesitant to wield this authority, because for them, the cost/benefit calculation has inclined towards openness rather than protectionism. The pandemic, however, has recast this calculation, just as it promises to upend further the coalition of economic and political forces in favour of openness. States remain by far the most powerful agents in the world economy, and now the most powerful among them will be less interested in economic openness and underwriting globalization. This will be perhaps the most important among the many legacies of the novel coronavirus pandemic.
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I do not believe, however, that we are going to return to a world reminiscent of the Great Depression. There are simply too many connections that still run deeply throughout the world economy, and our knowledge of what to do is much more advanced than those dark, frightening years. We know how to print money, for example, and for all its national limitations, there is a genuinely global lender of last resort, known as the US Federal Reserve, which is turning on the taps for the world (as it rightly should). The global organization of knowledge (not to be confused with intellectual property rights) is being harnessed in the fight to control the pandemic’s spread. And despite the hand-wringing over cultural difference among the world’s diverse peoples and religions, voices sympathetic to some version of mutual accommodation correctly point toward the benefits of civility and cooperation in our multiple and overlapping interactions.
We are not entering a new medievalism, come what may. But I do believe that we are leaving behind the highly globalized world economy of the past several decades, which has in any case not worked for far too many of its inhabitants. As we strain to glimpse the end of the pandemic on the horizon, we should also pay attention to how the future of the world economy will be so very different from its immediate past.