A fundamental shift?

Professor Branko Milanović, formerly lead economist in the World Bank Research Department, writes, in Foreign Affairs, that “As of March 2020, the entire world is affected by an evil with which it is incapable of dealing effectively and regarding whose duration no one can make any serious predictions. The economic repercussions of the novel coronavirus pandemic must not be understood as an ordinary problem that macroeconomics can solve or alleviate. Rather, the world could be witnessing a fundamental shift in the very nature of the global economy.

The immediate crisis is one of both supply and demand,” he explains, saying that “Supply is falling because companies are closing down or reducing their workloads to protect workers from contracting COVID-19, the disease caused by the new coronavirus. Lower interest rates can’t make up the shortfall from workers who are not going to work—just as, if a factory were bombed in a war, a lower interest rate would not conjure up lost supply the following day, week, or month … [and] … The supply shock is exacerbated by a decrease in demand due to the fact that people are locked in, and many of the goods and services they used to consume are no longer available. If you shut countries off and stop air traffic, no amount of demand and price management will make people fly. If people are afraid or forbidden to go to restaurants or public events because of 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.

He says that “The world faces the prospect of a profound shift: a return to natural – which is to say, self-sufficient – economy. That shift is the very opposite of globalization. While globalization entails a division of labor among disparate economies, a return to natural economy means that nations would move toward self-sufficiency. That movement is not inevitable. If national governments can control or overcome the current crisis within the next six months or a year, the world would likely return to the path of globalization, even if some of the assumptions that undergirded it (for example, very taut production chains with just-in-time deliveries) might have to be revised.” This ~ self-sufficiency ~ is, I suspect, the sort of effect President Donal J Trump wants to achieve, but it needs to be affirmed that the global pandemic is not his doing.

Professor Milanović says that “if the crisis continues, globalization could unravel. The longer the crisis lasts, and the longer obstacles to the free flow of people, goods, and capital are in place, the more that state of affairs will come to seem normal. Special interests will form to sustain it, and the continuing fear of another epidemic may motivate calls for national self-sufficiency. In this sense, economic interests and legitimate health worries could dovetail. Even a seemingly 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 constitute an obstacle to the return to the old globalized way, given how many millions of people would normally travel.” It may, he adds, resemble the unravelling of the Western Roman Empire about 1,500 years ago, when the so-called Dark Ages began.

In the current crisis,” he says, “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 not only safe from disruptions that may arise in food supply chains or the provision of electricity and water; you are also safer from getting infected, because you do not depend on food prepared by somebody else who may be infected, nor do you need repair people, who may also be infected, to come fix anything at your home. The less you need others, the safer and better off you are. Everything that used to be an advantage in a heavily specialized economy now becomes a disadvantage, and the reverse.” The same will apply to countries and regions. The USA, for example, given its size, population, climate and resources, is able to be nearly self-sufficient. Add Canada, with its abundant resources and fresh water, and the North American region IS self-sufficient. Europe might be close to self-sufficiency but Britain, for example, outside of the EU is not … but the EU has massive, brittle sub-regional fault lines and it is not clear to me that it can continue as one, united region.

Screen Shot 2020-03-20 at 07.36.11What about China? It has a large territory and a HUGE population but it lacks energy and water … but both are found in Siberia and I have no doubt that China can, easily, defeat Russia in a war which would aim to redraw Russia’s Eastern border at somewhere around the River Yenesi and make Siberia a quasi-independent Chinese client state.

asean-member-countriesCan Australia be self-sufficient? What about India? Malaysia? Likely not, but, an expanded ASEAN, which includes Australia and New Zealand, might get very close. Asia, generally, lacks only reliable, clean energy to be reasonably self-sufficient. Nuclear energy is the best short to midterm answer for both China and India and their ASEAN neighbours.

I think that the Middle East is a socio-cultural nightmare that will, within the next quarter-century be embroiled in a series of brutal, bloody internecine wars that will last for decades and will leave the region in ruins.

Africa and South America could be self-sufficient IF they can ever overcome their own socio-cultural and political problems.

Branko Milanović writes that “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, some 30 percent of Americans have zero or negative wealth. 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, such scenes as the recent escape of prisoners in Italy or the looting that followed Hurricane Katrina in New Orleans in 2005 might 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.” He says that “the main (perhaps even the sole) objective of economic policy today should 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.” I disagree.

I think that the main objective of advanced societies will be to protect themselves from waves of anger that will, without a doubt, erupt from less well developed (in socio-cultural and economic terms) regions. I understand that’s a cold, even cruel assessment, Screen Shot 2020-03-03 at 07.41.15105299820-1530185072891gettyimages-985410892but I believe it is the one that will prevail. It has nothing to do with the personality of leaders … Prime Minister Justin Trudeau and President Donald Trump might be polar opposites in their views about globalization and climate change and so on but each is being and will be driven by domestic political pressures, and the ordinary people of America and Canada are frightened and they want the borders closed ~ the doors slammed shuts and the windows barred and so on. The simple fact is that George Soros and Greta Thunberg and even Chief Woos …

… don’t matter very much when people fear for their very lives. Canada may increase foreign aid, even as North America build walls, and Team Trudeau may continue to talk about feminism and climate change and reconciliation, but the clear, near-term, strategic goal is to stop the spread of the pandemic. That will take years, not just weeks or months. Americans and Canadians will lose patience with anyone and anything that seems to detract from protecting them from the virus.

If the Middle East descends, more quickly, into chaos and war and Arab oil supplies dry up then Canada will, quickly, build pipelines to get Alberta’s oil and gas to Atlantic Canada, Québec and Ontario, where half of all Canadians live in a small (1,000 km long) strip stretching along the shores of Lakes Erie, Huron and Ontario and the St Laurence river between Windsor and Québec City. No one will worry much about the feelings or even the legal rights of the Kanestake and  Tyendinaga Mohawk nations.nor will they care much about getting to “net zero” or being kind to refugees. Fear does that to people.

I agree with Dr Milanović that globalization is going to be a near-term casualty of the COVID-19 pandemic. But I suspect that, because it is going to take years, not months to contain it, public opinion is going to shift away from global concern, like climate change and feminism, and towards local, parochial concerns … survival. As the walls go higher and higher some regions ~ Europe and North America for sure, China and South-East Asia, perhaps ~ will make a fundamental shift in approach. Their peoples will demand greater self-sufficiency even if, in America’s case, that means being a. bit nicer to Canada and even, in China’s case, going to war with Russia.


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