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Global pandemic or new global order

By Abid Aziz. Dated: 3/24/2020 11:51:38 PM

At a time when this global pandemic, Covid-19 has cost more than 10000 lives, infected around 2 lac people and forced thousands of millions of people in isolation, the implications other than health must be secondary. However ignoring them will be a fallacy in terms of their potential implications on the vital variables that matter in the global realm. Among these variables, Economics and economy is what needs our concern. This concern is not limited to the consequences on global economy but what is exceedingly important and intertwined with this is its potential to redefine the modern day economics. This shift is likely to decide the future trajectory of policy tools at our disposal not just on the global spectrum but in our local economic framework of Jammu and Kashmir.
The impact of Covid-19 a global pandemic on global economy is matter of numbers to the extent that it affects different measurable and quantifiable variables like, global GDP, unemployment, growth rates etc. As we are standing at the tip of the ice-berg given the unstoppable contagious nature of this virus, these numbers fail to reflect the fissures in the global economic system for two main reasons. 1) these numbers are still projections given the fact that we are not at the end of this pandemic, 2) the projections and data provided by china is uncertain because of the latter's historical record of providing less than credible numbers. Notwithstanding the projections the damage is recorded in terms of crashes in stocks ranging from Indian national stock exchange which lost almost 15 lac core in a span of one week to London stock exchange. The transmission has been through demand and supply mechanisms which are the bedrock of the market economy/ capitalism. The epi-centre of the outbreak was in Hubei province, which accounts for about 4.5% of China's output, followed by the strong tremors felt throughout the country. The efforts to contain the spread of virus resulted in shutting down factories, restrictions of labour mobility, and cutbacks in service sector activities. Given the pivotal role of Chinese economy, its contribution in global GDP which accounts for 16.3% and reliance of economic giants on china for cheap inputs and labour, the global supply chain was affected and International trade feeling a drag. As the outbreak is gripping more countries with each passing day global supply of goods has halted and firms are finding it impossible to fill orders. This supply side shock is accentuated by "just in time" manufacturing processes which allows a firm to carry on the production without any provision for inventories. Presence of inventories can prove a cushion during such unforeseen contingencies and exogenous shocks. E.g. one of the firms that supplies electronic parts to automakers across Europe has shut down its operations in Italy which has been the badly hit country so far due to this pandemic. This disruption in the supply chain has led to lay-offs and further added to the global unemployment. The forces of demand are also badly hit and this is replicated in all major economies where this outbreak is making inroads. As the measures to contain this pandemic include travel bans, keeping consumers at home (quarantine), the demand has slowed down. Due to social distancing and isolation measures the consumption levels are dropped. As a result there is increase in prices due to shortage of supply and fall in employment and interestingly there is fall in prices due to slack in demand which further adds to the unemployment. We must not forget that all this is unfolding at a time when global economy had just started to recover from the 2008 financial crisis, when productivity levels were low not only in India but also in china, USA and UK and other European countries. In India we are facing a slowdown of unprecedented scale with IMF forecast slashing the growth rate to 4.8% from 6.1%. Further global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, and IMF projections of 3.3% with likelihood of negative growth in the first quarter of 2020.these numbers may change given the unstoppable spread of the outbreak and thus may usher in new recessionary period for global economy. Interestingly this recession may be different from all other previous recessions in terms of its impact and indiscriminate spread like the covid-19 itself. The textbook understanding of the recessions would tell us that recessions are cyclical with crusts and troughs without leaving any impact on the structural framework of the economies. However, this recession may potentially usher in structural changes in global as well as local economies. This is where it can be a watershed movement in the history of global economic order and the way economics is understood.
The changes may likely be in:
Globalisation and market Economy: trump`s predecessor, Barrack Obama once remarked , "Globalization combined with technology combined with social media and constant information have disrupted people`s lived in very concrete ways- a manufacturing plant closes and suddenly an entire town no longer has what was the primary source of employment..." Such discontentment was in tune with popular sentiment of United States just before the presidential elections which saw Donald Trump rising to the occasion to forge ahead with immigration policies to save jobs of people. That is what he said in his inaugural speech "Buy American, hire American" in order to "make America great again". The Covid-19 has raised a question mark on Globalisation throughout the globe. Is it boomeranging to push economies down to the ebb or is it facilitating the drag on global incomes. As of now it's a double edged sword, while shaving incomes and jobs for people particularly in export led sectors and a transmission mechanism for the deadly Covid-19 from one place to other. A business unit stops its production at Wuhan and tectonic plates of the global economy expose the underlying fault lines as tremors are felt in India and across Asia- pacific. This may probably call for a revision of our trade policies. Are we too dependent on exports and imports (international trade). Is the principle of "profit" and division of labour, the two fundamentals of market economy the only guiding principles of our economic policies .the current crisis has exposed the free market exposition and its rampant misuse , the way we operate within Globalisation with winners and losers. Will self- sufficiency be renewed goal of economic policies. Amid current crisis where the only effective tool in containing the spread of pandemic is social distancing and isolation the principle of self sufficiency at all levels of economic order, ranging from household to the nation seems the plausible option. MacDonald's and CCDs are falling flat on their face currently while Daal and Roti made at home can bring you out of the crisis. The goal of self sufficiency is not new to India. During the early planning period particularly the third plan, self-sufficiency was a well outlined goal. The history prior to 1947 was a strong force behind this goal and heavy public sector spending. The bearish approach with free market economy was due to the "East India Syndrome" that Indian policy makers were suffering from. This syndrome or economic conservatism was rooted in the pre-independence globalisation which left India de-industrialised and colonised. This may be a new structural shift after the pandemic is over where people and economies will look forward to produce for the domestic demand and invest in less commercialised sectors of agriculture with minimum marketable surplus so far. Rearing a cow and expanding your kitchen garden may not earn us dollars but it certainly may save you dollars and bring home self sufficiency. This natural economics is more conducive to economies like Jammu and Kashmir which continue to be less exposed to the international markets compared to the rest of economies. We in Kashmir have been relentlessly converting our land otherwise meant for Rice and other food grains into horticulture to generate more income and marketable surpluses. This behaviour is based on "cost" and "profit" analysis of economic activities. This over emphasis on profit as the only motive is likely to see a change once the pandemic is over. The 'invisible hand' based on atomistic interests devoid of ethical codes may see a new shift towards more fair and equitable society where monetary aggregates may not be the only parameter of development and justice.
Changing global order; as the virus is putting various systems to a test to the extent of their ability and effectiveness in controlling the pandemic and protecting people, various institutions and systems may get exposed and their fragility may set in motion a different political shift. Moreover the global response to the pandemic may bring forth new global leaders, those who will coordinate the global efforts and response to the crisis. As we are in the middle of crisis this may be a call for more cooperation between global players to act in more coordinated approach to tide over the crisis and usher in more human form of globalisation with no losers and winners. However the more eminent shift in the dynamics of geopolitical power seems towards furthering away the bipolar players. This is reflected in the recent skirmishes amid the outbreak spread between white house and Beijing. The Racist undertones like "Chinese Virus" can't be ignored and neither can we ignore Beijing's outreach while supplying material assistance including masks and ventilators to Italy. The Vacuum left by the USA to act as global leader is being filled by china who is asserting itself as a global leader as the pandemic curve is flattening in the country. This was remarked by the Chinese foreign minister as "new standard for the global efforts against the pandemic. This shift is likely to have its incidence on the larger political spectrum of India. Prime Minister Modi has asking task ahead which demands more caution and discretion than political onslaught and leaves no scope for belligerent politics. The success or failure to combat the crisis will decide whether economic slowdown will be atoned or aggravated in the future.
The pandemic like a new world war may leave indelible marks on the global canvas, renewing hitherto economic and non-economic order.
*(The author is Assistant Professor, Economics, Department of Higher education, Govt Of Jammu and Kashmir.)