Post – Coronavirus “new normal” – Restructuring the Global Economic Order (Part 1)

-Sardar Matkar 

 

It is increasingly clear that our world will be re-defined by Covid-19 pandemic effects on our health-risks, our society and its cohesive-ness and the dramatic restructuring of the economic rules by which businesses have operated traditionally. The burning question; across the globe, regardless of economic prosperity or poverty is – what will be required of nations and their people to overcome this crisis that has rendered traditional assumptions irrelevant?

 

In the western world, management and consulting companies like McKinsey are calling for a 5-stage approach of: Resolve, Resilience, Return, Re-imagination and Reform here; various countries are using this methodology or its variation to re-ignite their economy and social confidence on a priority. The issues faced by various countries are different and based on their demography, financial systems, and social rights of individuals.

 

The study of the fight to survive in the USA is one extreme example where its citizens are more focused on their constitutionally granted rights-to-freedom than their exposure to the pandemic and its almost fatal health-risks, while on the other end of this spectrum China has a complete lockdown on all information about the effects of the pandemic on its vast population. As their Covid-19 infection numbers mounted, so did the extent and intensity of the censorship of information from public sources.

 

The first majorly affected country (apart from China where the Corona virus originated) was Italy. The pandemic has had a devastating impact on the Italian economy as industrial output fell significantly. Italy's small and medium enterprises (SMEs) sector has a considerable percentage of manufacturing companies that contribute approximately one-third of value to the economy and half of total employment in the country. As Italy's economic structure is heavily dependent on SMEs, the spread of coronavirus has significantly affected the economy of Italy. SMEs rely on loans and finances to meet their business requirements. Due to the vulnerabilities facing by the Italian financial sector amid Covid-19, SMEs operations are negatively affected, leading to a significant decline of the Italian economy.

 

To stop the spread of the virus, Italy had to go in a lockdown in mid-April thereby affecting the production schedules of major manufacturing companies, especially in the automobile sector. While most auto manufacturers closed their production lines, many shifted their focus to manufacture ventilators required by medical staff to fight the pandemic and others shifted to producing personal protective equipment [PPE] and hospital equipment, using skeletal staff for these purposes.

 

On the financial side; Italian banks focused on Bitcoin trading platforms to buy and sell Bitcoin. [Bitcoin is a digital crypto-currency without a central bank or official administrator that can be sent / traded on a peer-to-peer bitcoin network without using intermediaries. Details here for more knowledge on crypto-currency]. For example, the Italian bank Banca Sella SpA was one of the first to introduce Bitcoin trading services using its HYPE mobile banking platform. This allows its customers total control over their funds without any interference from governmental authority and allows them the freedom to pay for products and services using crypto-currency. The bank here charges interest and service fees while allowing Bitcoin users a safe way to transfer money, locally and globally.

 

Being a part of the European Union [EU] the social and economic problems created by the Covid-19 pandemic were not stand-alone and had a ripple effect in other parts of Europe. While the pandemic spread throughout the world almost on a parallel basis, affecting populations across the world; on a regional basis, the upheaval across borders had a ‘displacement effect’ that had a negative effect on trade, industry and commerce, leading to an economic slowdown that is turning into an financial recession. Whether this recession can be stopped from turning into a depression will depend on pro-active financial policies by individual governments that will have to be strengthened by cooperative and mutually beneficial economic policies between Nations. [To know more about recession v/s depression do read this article].

 

 

In Europe, the impact of the pandemic is different in individual countries where some are more affected by others. Regardless of the severity of the impact, the pandemic needs to be dealt with on a top priority basis because EU nations are tightly integrated socially and economically. A common uniform response is required by the member countries to combat the common problem that has shocked their economic systems, especially in the area of health-care. The required response is complicated because the EU does not have a common fiscal authority and each government has its own response, which poses a problem for acting in a coordinated and uniform manner.

 

Considering the value chain of the EU – the manner in which industries produce goods and transport them across markets, the countries therein are far more integrated than assumed otherwise. When one EU country is severely affected, the problems transfer very quickly to all others. If one uses the example of the drastic destruction of the Italian economy, the ripple effects will be felt as lack of Italian products affect markets in other countries. The consequences of the corona pandemic shock are likely to be different. As the effect becomes more widespread, it’s possible that it may give a stronger push towards the economic and political integration of the EU.

 

One major reality shock to European countries was the failure of its health system. Earlier, there was a general sense that the European medical care system was superior and more robust in comparison to similar systems in Asia. By under-estimating the contagious nature of COVID-19 and its implications on the higher number of elderly citizens, they found out the hard way that their health system which was organized to address conventional health needs was poorly placed to deal with a pandemic. European countries did not understand quickly enough that this virus was an unconventional threat that could not be dealt with by conventional processes. The general lesson for EU was that – ‘if one uses conventional responses to unconventional events like COVID-19 pandemic, one is very likely to fail’. Ironically, they were the victims of their own successful health system, which rather than help contain the virus, ended up in spreading it.

 

To be continued..