Covid-19: how it will change the world | The Economist

published on July 2, 2020

I had a car the economists deputy editor

hello my name is Callan Williams I'm

senior economics writer at the economist

and I am joining ed to answer your

questions on this call I'd like to think

that's what would happen I'm not sure it

is what's going to happen and partly

because I think we're going to go

through a very very difficult time in

the economy and big economic disruptions

tend to unsettle politics and to create

grievances and resentments the second

thing is a context in which this

pandemic struck and it's it's one in

which the post Second World War

order is breaking down where China is

clearly the rising power where the

United States certainly under Donald

Trump has either the less willingness or

capacity to be able to play the role of

sort of of overarching power who is

prepared to get involved all over the

world to try and sort out people's

problems and I think that sort of sense

of a world that's slightly falling apart

and a more rival hrus world where the

United States is worried about Chinese

power the pandemic has comments hit hit

the world and just when those those

issues are becoming more intense and so

I I think I fear that it makes them

harder to solve rather than easier to

solve

[Music]

his era of globalization was very much

slow and long before the Kovach pandemic

came along and that was only partly

related to the election of Donald Trump

it was slowing even before he became

president and I think that was that was

a kind of lingering after effect of the

financial crisis but you know what the

historical experience tends to show is

that crises tend to kind of reinforce

pre-existing trends and antique

globalization was one of them the

financial markets are hoping on this

idea of a v-shaped recession and that's

the idea that you know in one quarter or

perhaps in two quarters GP will decline

by perhaps a you know an astonishing

amount but because lockdowns will come

to an end people will make up for lost

time and you'll see a quick rebound back

to where we were at the beginning of

2020 I think what people are now

starting to wonder is whether that

really is going to happen and in

particular they're looking at what's

happening in China which began to ease

its lock down in kind of late February

in March and at the moment I mean it's

certainly the case that economic

activity has has recovered from its lows

but it's still a long way off the

Chinese economy is running at about 90%

capacity or compared with what was up

before the pandemic hit and that's

really for a few reasons

you know what seeing is that people are

going back to the office and going back

to the factory and all that kind of

stuff basically because they have to but

what they're not doing is going out and

having really spending the money having

a good time

investing in big things and what that

means is that the sort of supply-side of

the Chinese economy has it has in a way

got back to normal but there's a the

demand side hasn't and that means that

unemployment is going to probably be

persistently quite high in China for

quite a long time so if people working

in restaurants in bars in shops and all

that kind of thing there just isn't

really demand for their services and so

I think what you're going to start to

see now is as you know various American

states start to loosen down loosen their

lock down so now of course as Europe

starts to come out a lot

I think it's very unlikely we're going

to get back to where we were at the

beginning of this year first effects of

this disease was interruption supply

chains and I think that might remain

with companies in that they might

diversify their supply chains and that

was kind of happening anyway because

China is becoming a more expensive place

to manufacture things as against that

supply chains have a strong driving

force for getting costs down and of

being optimized and they're they're

pretty intolerant of inefficiencies and

so that will still sort of be pushing

very strongly in the other direction I

guess one thing I might add today is to

think about the financial system and

about how that world you know that's

part that's part of a supply chain to

you know how a power company is able to

access finance in order to start

producing stuff what you're seeing now

really across the world is really

unprecedented levels of uncertainty and

so I think what you could see is that

you know financing new projects and

getting people to commit to projects

could actually become very difficult and

this is starting to show up in the data

now where if you look at surveys of

managers you know they're asked what are

your plans for investment and so on

they're much much lower now than they

were even in the absolute depths of the

financial crisis of 2008 9 and and back

bear in mind back then you know some

people really thought the financial

system was going to come to a complete

stop

[Music]

it's held up a mirror to them to the to

the most vulnerable aspects of society I

mean you know Singapore is a great

example of that you know it's a country

that apparently had dealt with the the

outbreak extremely well and then a few

weeks down the line there's you know

there's huge outbreaks in the in the

migrant labor camp that keep the

Singaporean economy going and there are

the kind of seedy underbelly of the

Singaporean economy and people there

have very poor access to health care and

of course there are still millions of

people who are uninsured in the US and

you know there's there are worries that

those people and though that you know

particular people lose their jobs that

people will be less willing to go

forward for testing and and so on so I

think what you could see and this

perhaps would be one of the biggest you

know upsides of the whole pandemic is

there the idea of you know a universal

access to health care that's free at the

point of use could could start to become

common sense in all countries so I think

the pandemic will make States more

powerful if you look back at you know

centuries of really of Western history

there's sort of two lessons that emerged

about the power of states one is that

they it tends to increase over time as a

kind of background effect and the second

is that states tend to become a lot more

powerful both during and after

immediately after periods of crisis you

know normally in a recession what

happens is that the state it doesn't

like saying this but it it kind of

accepts that in a recession businesses

will go bust and people will become

unemployed and it says that's okay

because the idea is that you want to you

know reallocate people and capital and

all that kind of stuff from areas that

were failing to areas that are up and

coming and that's how it normally works

but what's happened in this time is that

states of governments and politicians

are saying basically if we can we want

to avoid all bankruptcies and we want to

make sure that nobody becomes unemployed

what that does is it opens the door to

really significant government

intervention in the economy going

forward so you know let's imagine that

in a few years where we've moved to move

beyond

this pandemic but of course there will

be another recession at some point down

the line I think if it's generally

accepted that the government did a

pretty good job during this crisis of

protecting jobs and protecting firms

then people will say well heaven if it

worked last time then why not do it

again so I think we could see quite

radical changes in sort of expectations

of what the state should do and what the

state thinks it's legitimate for it to

do you often hear people say that one

thing at least good thing that's come

out of the pandemic is that has been

good for the climate you can calculate

you know how many hundreds of thousands

of tons of carbon dioxide haven't been

put into the atmosphere because there

have been fewer flights and so forth and

I suppose there is a sort of

demonstration effect you know people

might you know this is in the sense

something that doesn't normally happen

but as against that you know a poorer

world a world that has less inclination

to invest and a world as worried about

unemployment and life and death is a

world that I think is less inclined to

invest in the transformation of you know

the world to a sort of carbon free

economy there's one big wrinkle on that

however which is the oil industry the

price has collapsed

countries in the Middle East Russia

Venezuela that depended upon oil is a

very important the main source of their

foreign exchange earnings are suddenly

finding that they are getting enough

money to do the things they want to do

oil companies are beginning to see that

perhaps the oil price might not recover

for a very long time that also is giving

people a sort of incline and a glimpse

that there may be a future without oil

which is a very important component of

the transition to

away from a carbon-based economy I mean

it's gonna become more distant I suppose

in the sense that I think you know if

you're gonna have a meeting with someone

and face-to-face you know for the

foreseeable future there has to be a

pretty worthwhile meeting so I think the

idea of going for a speculative coffee

with someone well seen at least for a

while kind of weird

you're only your you'll reserve your

your ventures out of the house for

people that you sort of know you're

going to have a productive time with so

I think that will potentially you know

reduce the exchange of ideas and that

kind of thing and I think the same goes

for for travel business travel and

research travel and so on you know if

you look at what's happened say in the

scientific community and in economics

most papers research papers now most

research projects involve

a large team of people and also a

growing proportion of those projects

evolve people in more than one country

you know normally that might be the

America or Canada but you do get an

incredible diversity in cooperation and

I think that if you know meeting people

and traveling becomes harder you can see

a really really big hit to innovation

and patenting and all that kind of stuff

[Music]

probably quite a lot so we did a we did

a analysis a couple of weeks ago looking

at the countries which countries that

we're going to be most affected

potentially by by their by the turn down

and if you look at the very top of the

ranking so the countries most affected

they are true and dependent economies

Greece comes

unfortunately right at the top and then

Italy and Spain are printing in the top

as well and Turkey also is very high up

there particularly in Europe to tourism

ministers are starting to talk to each

other and say you know how can we make

this work if Greece doesn't have a

tourist season this year this summer its

economies and is in really really

serious trouble so what I expect you'll

start to see is people thinking you know

pretty creatively about what they might

do so if you take the example of Israel

earlier this week they said the hotels

could reopen but you could only stay on

the ground floor I actually remain

fairly optimistic about saying the

prospects that people will be able to to

travel and so on I think it it might

become something is open to fewer people

you know if if the flight from say

London to Spain is only allowed to be

two-thirds full because of the required

social distancing then that means the

ticket prices will have to go up and so

it would be available to fewer people

but my sense is that because this is

such an important issue for some

countries that is there people will find

a way of making this work if it's all

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