12/12/2020 Ten ways coronavirus crisis will shape world in long term | Financial Times

Special Report World Economy

Opinion Coronavirus pandemic

Ten ways coronavirus crisis will shape world in long term
Much remains uncertain for business, the economy, domestic politics and international
relations

MARTIN WOLF

Shoppers in Manila maintain social distance while queuing © AFP via Getty Images

Martin Wolf NOVEMBER 3 2020

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Covid-19 has had an immediate and massive impact. But how will it affect the longer
term? That is far harder to tell.

What do we already know, after 10 months of Covid-19? We know that the world was
ill-equipped to cope with a pandemic. It has caused about 1.1m deaths worldwide,
mostly among the elderly. Moreover, some countries have suppressed the disease far
more successfully than others.

We know that Covid-19 has inflicted a huge global recession, but one that has been far
from equal across countries. This has inflicted particularly serious economic damage
on the young, the relatively unskilled, working mothers and vulnerable minorities.

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We know that “social distancing”, partly spontaneous and partly enforced, has
damaged all activities dependent on human proximity, while benefiting ones that help
people stay home. This has slashed travel. We know that vast numbers of businesses
will emerge heavily burdened by debt and many will fail to emerge at all. Intervention
by the fiscal and monetary authorities has been unprecedented in peacetime,
especially in countries with internationally accepted currencies.

Commuting may not go back to the pre-Covid status quo © Valery Hache/AFP via Getty Images
We know, not least, that the “blame-game” over the pandemic has destabilised
relations between the US and China. Moreover, the pandemic has already called
globalisation, especially of supply chains, into question.

What are the longer-term possibilities? Here are 10 aspects.

First, future of the pandemic. It is possible that a vaccine will be available quite soon
and that it will be made available across the globe not much later. But this
combination seems unlikely. If so, the disease will remain a threat for a long time.

Second, permanence of economic losses. These depend partly on how soon the disease
is brought under control, but also on how deep the scars will be, particularly, the
impact of unemployment, bad debt, increased poverty, disrupted education, and so
forth. The world economy and most individual economies will probably be
permanently smaller and their peoples also poorer than they would have otherwise
been.

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Third, structure of economies. Will these go back to the way they were before Covid-19
or will we stop travelling and commuting to offices for good? The likelihood is that it
will be both. Travel will resume. So, too, will commuting. But they may not go all the
way back to the pre-Covid status quo. We have leapt into a new world of virtual
engagement we will not leave. This will change some patterns of living and working
for good.

Fourth, enhanced role of technology. This is not going to reverse. At the same time,
the centrality of the tech giants has increased the focus upon their enormous
influence. Pressure to regulate monopolies and increase competition, especially in the
tech sector, is likely to increase.

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Fifth, the expanded role of government. Big crises tend to cause a step change in the
role of government. Particularly significant is pressure to “build back better”. So
governments are likely to be permanently more interventionist than before the
pandemic?

Sixth, unwinding of interventions. Central banks are committed to “low for long”, in
interest rates. Provided real and nominal interest rates do remain low, governments
will be able to manage their own debts and help manage the restructuring of the debts
owed by others. At some point, fiscal deficits will have to be reduced. Given the
pressures for spending, that is likely to mean higher taxes, especially on the wealthy
“winners”.

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Seventh, effect on domestic politics. Some countries have shown effective responses to
the crisis, while others have not. Whether a country is democratic or not has not
determined this difference. Part of what does is whether the government cares about
its effectiveness. Populist demagogues, such as Jair Bolsonaro, Boris Johnson and
Donald Trump have performed poorly. This may force a shift against their
performance politics.

Eighth, impact on international relations. This is a truly global crisis and one that can
be effectively managed only with global co-operation. Yet trends in the direction of
unilateralism and international conflict have been reinforced by the pandemic. The
chances are good that this will get worse now, especially between the US and China.

Ninth, future of globalisation. The globalisation of goods had already slowed after the
2008 financial crisis. It is likely to slow further post-Covid-19. The multilateral system
is likely to be further eroded, especially the World Trade Organization and the trade
disputes between the west and China will not be resolved. At the same time, virtual
globalisation is likely to accelerate.

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Finally, management of the global commons. On this, Covid-19 is a double-edged

sword. One side is the increased desire to do things better, not just domestically, but
also globally, notably over climate. The other is the reduced legitimacy of
international agreements, especially in the US, which has withdrawn from the Paris
climate accord and the World Health Organisation.

Covid-19 is a profound shock. It follows the huge disruption of the global financial
crisis just 12 years ago. It is sure to have large long-term consequences for business,
the economy, domestic politics and international relations. Much will change. We can
guess some of it. Much remains uncertain.

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