Not since the financial crisis of 2008 has the world been more in need of concerted action.
(Guardian) Not since the depths of the financial crisis has panic set in on the scale experienced over the past week. Conversations on the bus, at work and in the pub arefocused on the prospect of a deadly disease spreading uncontrollably. Stock markets are falling as fear about the coronavirus heightens and the potential cost for the world economy becomes increasingly apparent.
Wall Street has suffered the fastest reversal since 1933 during the depths of the Great Depression. The Dow lost more than 10% of its value in a week from record-breaking highs to the lowest point since 2016. More than $5tn (£3.9tn) has been wiped off the value of global markets. The FTSE 100 is not immune, plunging the most in a week since the 2008 crash. Markets are expected to fall further this week.
In the battle to contain the coronavirus through travel bans, school closures and the cancellation of business conferences, the damage to companies, economic growth and living standards could be unprecedented. According to Capital Economics, world growth could collapse into recession for the first time since 2009. The safeguarding of life takes primary importance as the death toll around the world climbs, but the knock-on economic impacts will also have lasting repercussions.
Given the growing impacton lives and livelihoods, it is clear that another parallel with the 2008 chaos is needed: a coordinated international response to ease fears around the globe. Against a backdrop of nationalism and protectionism in Britain, the US and several other countries, however, such thinking may be wishful.
Gordon Brown led the global response to the 2008 crisis by bringing together the world’s richest nations to tackle it together. Labour’s last prime minister played an instrumental role in convening the G20 to organise the fightback by expanding government spending.
Until Brown stepped in, handling the fallout had been uncoordinated and shambolic. Even though his task was complicated by a relatively protectionist US president in George W Bush, a quick glance across the Atlantic now seems to render his difficulties benign compared with the current tensions in global relations.
After the London meetings of the G20 in early 2009 with the banking system on its knees and riots on the streets, the world’s wealthiest nations agreed an unprecedented and concerted fiscal expansion, promising to create or save millions of jobs which would otherwise have been destroyed. The price tag amounted to $5tn. It is hard to imagine such an approach today.
The collaboration to prevent the Great Recession from becoming a rerun of the Great Depression did not, however, last long. SA slide into austerity, populism and protectionism began soon after in many nations, leaving the door open to Brexit, Donald Trump, Alternative für Deutschland (AfD), Viktor Orbán in Hungary and Jair Bolsonaro in Brazil.
The world today seems to lack figures who might orchestrate a fightback against the coronavirus. Boris Johnson is missing in action, apparently unable to travel as far as northern England, the West Country or Wales to show leadership following widespread floods. Donald Trump believes that all is fine in his election year, dismissing the biggest single-day crash in US stock market in history and labelling coronavirus as the Democrats’ latest hoax.
The story of the outbreak speaks volumes about the constitution of the world economy and political landscape after decades of ever-closer integration. At this time of questioning and challenging the international order, it is the tale of late capitalism writ large.
Despite only joining the world trade system two decades ago as a bit-part player, China, which is at the centre of the coronavirus outbreak, accounts for around a fifth of the world economy and is key to global supply chains, a factor that great amplifies the economic fallout. Rising numbers of middle-class citizens, cheap flights and better transport have boosted tourism numbers worldwide from about 500 million in 1995 to more than 1.3 billion in 2017. People are increasingly on the move, and with them, infectious diseases.
Health scares are becoming more frequent, with increasingly evident links to global heating and extreme weather events. Rising flood waters, bush fires and hurricanes restrict access to safe water, and food and sanitary living conditions, and put pressure on healthcare systems.
After a decade of austerity the fear is that the NHS might not have the capacity to respond, and the eminent academic Sir Michael Marmot confirmed last week that austerity has had a disproportional impact on the life expectancy of the poorest in Britain.
Pandemics are more easily spread and have a greater impact as a result of globalisation, complex supply chains, travel and tourism. A world of 24-hour news and social media fuelled by rapid advances in technology – including the spread of fake news – fans the flames of panic.
It is a situation where fear can spread faster than the pathogen, according to David Owen, chief European economist at the US Bank Jefferies, who said most economic losses from infectious disease outbreaks result from the actions of unaffected individuals.
There are many lessons. Globalisation, technology and climate change make the spread of viral disease easier and incubate many other social and economic ills. Lurching headlong into a protectionist and luddite world will not provide adequate and lasting solutions.
The scale of our collective problems demand international coordination.