One thing that has been really missing in our global response to the coronavirus pandemic is any sense of international cooperation. To kill this virus, we have to kill it everywhere. Otherwise, it will come back to infect countries in second and third waves, unless they can completely shut their borders, which is impossible in this world.
Before we can begin to revive the economy, we must first have some administrative measures in place. We need to be confident that most people in an area that is being reopened are completely free of the coronavirus.
To get there, we need a lot of testing and tracking, new technology, and hopefully some medical advances. China has done that with the help of fairly intrusive technology apps which tell the person at the door where you’ve been and whether you’re clear to enter. Democratic countries may not be able to be so intrusive, but will have to use other measures.
In the medium term, we must recalibrate our response. Are the 2008-09 global financial crisis and this global pandemic once-in-a-lifetime or once-in-a-century events, or will we see a major crisis every 10 years or so? To defend against these crises, are we justified, as societies, in borrowing from the future and mortgaging our children’s inheritance? How much can we spend on these calamities? It seems as if countries across the world are saying, “Whatever it takes!"
But is it really feasible to do so every 10 years? What can we do to make our economies more resilient against such crises?
Hopefully, we will begin to move away from seeing massive stimulus as the way to resolve these problems, and instead look to the structural reforms we need in each country. Corporate leverage increased during the 10-12 years after the global financial crisis, and this left little margin for companies, which is why so many are looking to the government for assistance. Companies would do well to reduce fragility in their capital structure and operations so that they do not look to the government when this happens again.
What we are experiencing collectively today is akin to surviving a world war. I am hopeful that solidarity within a country, and perhaps across countries, may be rediscovered as we go through this horrendous experience. That will truly enable us to do what it takes to proof our world for the future.
Raghuram Rajan is former governor of the Reserve Bank of India and an advisor to the governing council of Krea University