Business News/ Opinion / Views/  Opinion | The covid crisis could alter the appeal of public ideals

Major epidemics have in the past fundamentally changed the course of history. The “Justinian plague" marked the end of the high noon of the Byzantine Empire. The extraordinarily high mortality of the Black Death altered the relative prices of factors of production, driving the technological and Industrial revolution in Western Europe.

It is still unclear how the covid-19 pandemic will play out. Will it be halted in its tracks by a vaccine or herd immunity? Will the economic recovery be Z, V or U-shaped? Be that as it may, policymakers are now alert to deadly public health black swan events.

Current indications are that the demographic havoc of covid will be nowhere near the levels of the Plague and Spanish Flu pandemics, where mortality was measured in tens of millions. Caution is also needed while extrapolating lessons from a localized low-tech era to a globalized post-industrial world. Despite high mortality, both the third plague epidemic and the Spanish Flu had a transient economic and social impact.

One persuasive argument is that the covid pandemic might accelerate the creative destruction already afoot. The decline of offices, greater use of information technology, artificial intelligence, and remote interpersonal transactions, particularly in the commercial, educational and medical spheres, all pre-date covid. These trends could accelerate. If alternative ways of doing things work, the transition to a greener economy might be advanced.

Globalization was in retreat in the wake of a resurgent nationalism. Might public health concerns and the covid shock to global supply chains hasten the localization of product and labour markets?

It is hard to see globalization declining alongside an accelerated shift to digital platforms. Countries would still need to cope with demographic transitions and market failures in labour markets, with the supply of blue-collar workers constrained in some, and skilled workers in others. Greater self-reliance in strategic areas like food and diversification in sourcing could reduce the vulnerability to disruptions of global supply chains. But nobody disputes the welfare claims of trade made long ago by David Ricardo. These were tested by the cascading Smoot Hawley Tariffs of the 1930s, only to transform a major recession into the Great Depression. Globalization resumed its long-term triumphal march after World War II. Greater diversification of supply chains might actually intensify globalization.

Countries have much more to gain through cooperation, and nowhere is this in greater evidence than in public health. The dangers of underinvestment in public health systems have been exposed in a stark manner. But even countries with robust systems have not covered themselves with glory, making the race for a covid vaccine a global enterprise.

The crisis has ignited a light at the end of a long tunnel of a fragmenting European Union, with new prospects of the mutualization of public debt. Could this be a pointer to which way the battle between globalization and nation states is tilting? Transnational corporations were increasingly at odds with nationalistic governments. The legitimacy of the latter could be enhanced in the developing world, which is struggling to keep the flag of globalization flying even as the West seems disenchanted with it.

The most dramatic short-run changes could be political. Feudalism was dismantled by the plague, as it was too labour-intensive to survive high labour mortality. Fast forward, the rise of right-wing leaders in the wake of the Global Financial Crisis was a response to the failure of neo-liberalism to provide correctives for growing socio-economic disparities. These leaders, however, have not been able to shield the poorest in a major crisis. The seductive populistic charm of power-centralizing right-wing democratic leaders has also lost some sheen on account of their apparent contempt for science, resulting in a bumbling response to covid-19. Relatively decentralized responses have shown greater effectiveness in this crisis with so many uncertainties.

Liberalism has not escaped unscathed either. The crisis has underscored the importance of state capacity on one hand, and laid bare new tools to curtail democratic freedoms on the other. Women leaders have fared better, drawing attention to the value of good, compassionate leadership over muscular nationalism. This could shatter the glass ceiling in politics. A swing of the political pendulum back towards the centre-left, greater decentralization, and renewed focus on state capacity might well be the most enduring political impact of the pandemic in the West. The American election later this year should be an interesting pointer.

Pre-covid, growth in advanced countries was slowing even as it accelerated in Asia, with this tipped to be an “Asian" or “Pacific" century. The shift in economic weight was not matched by a shift in soft power because of a democratic deficit. The G7 countries were considered the fountainhead of global best practices. This has been belied by the better handling of the health crisis by countries like South Korea, Singapore, and even China. From a geopolitical perspective, the covid crisis, aided by the realization that democracies can elect autocrats, might lead to greater parity in soft power between Pacific and Atlantic nations, strengthening authoritarian tendencies in the former even as they weaken in the latter.

Alok Sheel is RBI chair professor at ICRIER

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Updated: 11 Jun 2020, 04:10 AM IST
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