What do we already know, after 10 months of Covid-19? We know the world was ill-equipped to deal with a pandemic. It has caused an estimated 1.1 million deaths worldwide, mostly among the elderly. In addition, some countries have suppressed the disease with much more success than others.
We know that Covid-19 inflicted a huge global recession, but that is far from equal in all countries. This has inflicted particularly severe economic damage on young people, low-skilled mothers, working mothers and vulnerable minorities.
We know that “social distancing”, partly spontaneous and partly imposed, has damaged all activities that depend on human proximity, while benefiting those that help people stay at home. This has reduced travel. We know that a large number of companies will emerge with heavy debt, and many will fail to emerge at all. The intervention of fiscal and monetary authorities has been unprecedented in peacetime, especially in countries whose currencies are internationally accepted.
Not least of all, we know that the pandemic’s “blame game” has destabilized the relationship between the United States and China. In addition, the pandemic has already challenged globalization, especially of supply chains.
What are the longer term possibilities? Here are 10 aspects.
First, the future of the pandemic. It is possible that a vaccine will be available very soon and not be available much later around the world. But this combination seems unlikely. If this is the case, the disease will remain a threat for a long time.
Second, the permanence of economic losses. These depend in part on how quickly the disease will be brought under control, but also on the depth of the scars, especially the impact of unemployment, bad debts, increased poverty, disrupted education, etc. The world economy and most individual economies are likely to be permanently smaller and their populations will also be poorer than they otherwise would have been.
Third, the structure of economies. Will these go back to how they were before Covid-19 or will we stop traveling and going to offices for good? It is likely that it will be both. The journey will resume. It will be the same for travel. But they may not go back to the pre-Covid status quo. We have jumped into a new world of virtual engagement that we will not leave. It will change some ways of life and work for good.
Fourth, the increased role of technology. It is not going to be reversed. At the same time, the centrality of the tech giants has increased attention to their enormous influence. The pressure to regulate monopolies and increase competition, especially in the tech sector, is likely to intensify.
Fifth, the expanded role of government. Major crises tend to bring about a drastic change in the role of government. The pressure to “build back better” is particularly important. Governments are therefore likely to be permanently more interventionist than before the pandemic?
Sixth, course of interventions. Central banks have committed to “low for long” interest rates. Provided that real and nominal interest rates remain low, governments will be able to manage their own debts and help manage the restructuring of the debts of others. At some point, budget deficits will have to be reduced. Given the pressures on spending, this is likely to result in higher taxes, especially for the rich “winners.”
Seventh, domestic policy effect. Some countries have shown effective responses to the crisis, 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 can force a change against their performance policy.
Eighth, impact on international relations. This is a truly global crisis that can only be effectively managed with global cooperation. Yet the trends towards unilateralism and international conflict have been reinforced by the pandemic. Chances are good that it is getting worse now, especially between the United States and China.
Ninth, the future of globalization. The globalization of goods had already slowed after the 2008 financial crisis. It is likely to slow further after Covid-19. The multilateral system is in danger of further eroding, especially the World Trade Organization and trade disputes between the West and China will not be resolved. At the same time, virtual globalization is likely to accelerate.
Finally, the management of global commons. On this point, Covid-19 is a double-edged sword. One aspect is the increased desire to do things better, not only at the national level, but also globally, especially when it comes to climate. The other is the reduced legitimacy of international agreements, particularly in the United States, which withdrew from the Paris climate agreement and the World Health Organization.
Covid-19 is a profound shock. It follows the massive disruption of the global financial crisis just 12 years ago. It is certain that this will have important long-term consequences for business, the economy, domestic politics and international relations. Much will change. We can guess part of it. Much remains uncertain.