by Dr. Syed Nadeem Fatmi 9 April 2020
The world is badly affected by the pandemic with which it is incapable of dealing effectively and regarding its duration no nation can guess. The economic implications of the novel coronavirus pandemic must not be taken as a simple problem that any macro economics can solve or overcome. In fact, the world may be witnessing a fundamental shift in the nature of the global economy.
The immediate crisis may be of both supply and demand. Supply is falling because companies are closing down or minimizing their workloads to protect workers from contracting COVID-19. Lower interest rates can’t make up the shortfall from workers who are not going to work.
There would be a decrease in demand because people are locked in, and many of the goods and services that were consumed are no longer available. Because of the worldwide lockdown in the likelihood of getting infected, demand management might at most have a very tiny effect and not necessarily the most desirable one, from the point of view of public health.
The world is facing the prospect of a big shift, a return to natural self-sufficient economy. This shift is the very opposite of globalization. While globalization entails a division of labour among disparate economies, a return to natural economy means that nations would move toward self-sufficiency. If the governments can control or overcome the current crisis within the next six months or a year, the world would most likely return to the path of globalization
But if the crisis continues, globalization could unravel. The longer the crisis lasts, and the longer obstructions to the free movement of people, goods, and capital are in place, the more that state of affairs will come to seem normal. In this sense, economic interests and legitimate health worries could coincide. Even a small requirement, for instance, that everyone who enters a country needs to present, in addition to a passport and a visa, a health certificate—would be an obstacle to the return to the old globalized way, given how many millions of people would normally travel.
According to F. W. Walbank in ‘The Decline of the Roman Empire in the West”, in the disintegrating Empire, there was a gradual reversion to small scale craftsmanship, producing for the local market and for specific orders in the region.
In the current crisis, people who have not become fully specialized enjoy an advantage. If you can produce your own food, if you do not depend on publicly provided electricity or water, you are safe.
The less you need others, the safer and better off you are. Everything that used to be an advantage in a heavily specialized economy would now become a disadvantage.
The movement to natural economy would be driven not by ordinary economic pressures but by much more fundamental concerns, like, epidemic disease and the fear of death. Therefore, standard economic measures can only be pacifying in nature: they can and should provide protection to people who lose their jobs and have nothing to fall back on and who frequently lack even health facilities.
Even so, the human toll of the disease will be the most important cost and the one that could lead to societal disintegration. Those who are left hopeless, jobless, and without assets could easily turn against those who are better off. Already, majority of people in our nation are poor. If more people emerge from the current crisis with neither money, nor jobs, nor access to health care, and if these people become desperate and angry, incidents such as looting may become commonplace. If governments have to resort to using paramilitary or military forces to quell, for example, riots or attacks on property, societies could begin to disintegrate.
Thus the main objective of economic policy today may be to prevent social breakdown. Advanced societies must not allow economics, particularly the fortunes of financial markets, to blind them to the fact that the most important role economic policy can play now is to keep social bonds strong under this extraordinary pressure.