A man crosses the road in the practically deserted central business district in Beijing on February 24. Photo: Reuters
Opinion
Daniel Wagner
Daniel Wagner
Could a global coronavirus pandemic trigger an economic depression, forcing us to reckon with the downside of globalisation?
Since the last pandemic, globalisation has ensured a world more interconnected than ever, from supply chains to mass air travel. With the world on the cusp of a coronavirus pandemic, the drawbacks of a tightly linked global economy are becoming clear
The world experienced three global pandemics in the 20th century, in 1918, 1957 and 1968. All were the result of influenza, two of which originated in Asia. The deadliest was the 1918 flu, during which up to 100 million people are believed to have died, most of them in just four months.
Of course, that was before mass air travel, through which a deadly virus can travel from one corner of the globe to another in just 24 hours. That was also before the modern era of globalisation, in which supply chains and consumers are intimately linked to one another across the world.
The world’s populations and economies are now completely interdependent as a result of cross-border flows of goods and services, investments, technology, information and people. With the global pandemic of Covid-19 possibly upon us, we must reckon with the interconnectivity we have so willingly embraced over the past several decades.
In one sense, China is unique in terms of the impact the virus has already had on its economy and that of the rest of the world, since so many countries have made China their manufacturing centre.
In the less than two months since the eruption of Covid-19 became known outside China, the virus has not only decimated the Chinese economy, but sent shock waves around the world – from transport-related businesses and natural resource producers to manufacturers and the food industry.
From the smallest villages to the largest cities, China’s people are in lockdown and its economy is in free fall – transforming a manufacturing goliath into a whisper of its former self in just two months. Imagine what impact this virus will have if the lockdown lasts for the rest of this year.
The rest of the world will soon discover just how devastating the virus may be to their people and economy, as Iran, Italy, Japan and South Korea are already learning. All of those governments are in the process of implementing drastic steps to attempt to contain the virus.
They will also learn just how unprepared they are to meaningfully address a virus as contagious as Covid-19. Unlike China, they will not be able to effectively lock down and monitor their populations because they do not have a single ruling party that has been in power for decades with “minders” in place from every tiny village to its capital city. They also do not have the ability to build hospitals from scratch in two weeks.
Many economies in Latin America have hitched their wagon to China, in some cases allocating a large portion of their natural resource exports to Beijing. That was wonderful for them when times were good, but when they turn bad, it points to devastation for their economies, hardship for their people and eventual civil unrest.
The same is proving true in the Middle East and large parts of Africa, where a cascading waterfall of negative impact is slowly unfolding. Soon, Europe and North America will feel similar impacts.
In short, we could be witnessing the beginning of a global economic depression similar to, or perhaps even worse than, what the world experienced in 1929. Many aspects of the global economy are, of course, very different from almost 100 years ago, but then, as now, the downfall of major economies had a cumulative impact on the global economy.
Many have wondered what would tip the scales in the United States, which has been overdue for a recession for at least four years, based on historical precedent, with a stock market that has grown accustomed to overreacting to good news and ignoring bad news. Markets in the US and elsewhere seem to acknowledge that the world is about to face a reckoning.
A trader works on the floor of the New York Stock Exchange on February 24. Stocks fell over 1,000 points that day on concerns over the economic impact of the coronavirus. Photo: AFP
The Covid-19 virus may well prove that the many benefits of globalisation have a painful downside for which there is no rapid or controllable remedy.
Given how global calamity has been averted on many opportunities in recent years – whether via the outbreak of war, a serious recession or political crises – global pandemics are a useful reminder of just how vulnerable the world remains, a perpetual step or two from disaster.
Let us hope that this crisis does not turn out to be as calamitous as many of us are now imagining it could be. Or we may never think the same way about globalisation again.
Daniel Wagner is CEO of Country Risk Solutions and co-author (with Dante Disparte) of Global Risk Agility and Decision Making
This article appeared in the South China Morning Post print edition as: Virus highlights deadly downside of globalisation
