A protester in Hong Kong holds a British National (Overseas) passport during a protest against China’s national security legislation for the city. Photo: AP

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People gather at Tamar Park, overlooking Hong Kong’s Victoria Harbour, to watch the sunset. For some people weighing the pros and cons of staying in Hong Kong, in the wake of the city’s political protests and the coronavirus outbreak, Singapore may seem a safe haven. Photo: AFP

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US Federal Reserve Chair Jerome Powell speaks at a news conference in Washington on March 3. Photo: Reuters

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People walk past the New York Stock Exchange on February 12. US stocks have rallied to an all-time high this month despite worries over sluggish economies in China and Europe and the coronavirus outbreak. Photo: Getty Images / AFP

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Chief Executive Carrie Lam meets Luo Huining, then secretary of the Communist Party’s Shanxi provincial committee, at Government House on December 3. Luo has been appointed director of the central government’s liaison office in Hong Kong. Photo: Information Services Department

Chinese who cry racism amid Covid-19 forget they’re as bad as the rest of us

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How the greedy elite failed us, putting profit before pandemic preparedness

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Chinese paramilitary policemen in Shenzhen. Photo: EPA

China’s world leadership dreams fade as belt and road projects sour

President Xi Jinping has become accustomed to casting himself and China as natural heirs to the leadership of the global system. But is a country that regularly violates global norms, standards and laws really the right country to lead the world? Photo: Xinhua

Why China must ban exotic animals from the dining table for good

Customers line up outside a store suspected of selling trafficked wildlife in Anji city in Zhejiang on January 17. Chinese law allows the captive breeding of wildlife for commercial purposes, provided that companies obtain a licence from provincial authorities. But such licences are often used to cover up illegal trade. Photo: Anti-Poaching Special Squad via AP

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Opinion

by Andy Xie

Opinion

by Andy Xie

How the greedy ruling elite failed us, by putting profit before pandemic preparedness

The global ruling elite, who ignored expert warnings of a pandemic, are even now proposing stimulus measures to prop up markets, rather than truly help people
Expect any attempts to align supply chains to health care or welfare imperatives to meet fierce resistance from vested financial interests, further holding back economic recovery

Andy Xie

Published: 1:00am, 6 Apr, 2020

Why you can trust SCMP

As the Covid-19 pandemic unfolds, hundreds of thousands may well die, possibly even millions, if the hot weather cannot slow the disease in the southern hemisphere. Governments and people may pin their hopes on effective medicine and/or a vaccine coming come soon, but neither is likely. This catastrophe may well last well into next year and change the world as we know it.

While the virus is a natural phenomenon, the ensuing tragedy should have been preventable. Infectious disease experts have been predicting a pandemic like this as a certainty. Yet, the global ruling elites ignored it.

Instead, they gather at Davos every year to talk about power, money and technology – mostly about its potential for making money. They have not focused on the No 1 responsibility of any ruling class – the safety of the people. If health care systems had been prepared for a pandemic like this, there would be 100 times fewer casualties.

Instead of protecting people, they spent trillions of dollars bailing themselves out after creating the 2008 global financial crisis through their greed. Then, they built huge financial bubbles to make themselves richer than ever. If there is justice, these elites should go to jail for their criminal negligence.

The current chorus from these same influential people is about how to keep stimulating the economy with trillions of dollars. Their real purpose is to prop up financial markets, not to help people. When the stimulus cost is tallied, it is likely to surpass US$10 trillion, twice as much as proposed now.

While financial assistance for the unemployed is necessary, help for big businesses is hard to justify. The US government has budgeted US$500 billion to help businesses. For years, many of these businesses have used their profits and borrowed more to buy back stocks. Helping them is a grave injustice. Such policies only make the world less stable.

The trillions of dollars in aid will not return the world to where it was; this is not like restarting a disrupted film. The global economy could fall by over 20 per cent in the second quarter, the biggest drop ever during peacetime. Any recovery during the second half of the year, or beyond, is likely to be anaemic for four reasons.

First, life cannot go back to normal so soon. Social distancing may slow down Covid-19, but will not eliminate it. If people return to their old ways, the virus is likely to come back. Social distancing, even loosened, has a significant impact on the services industry.

The tourism sector, for example, will remain shuttered for the foreseeable future. It employs one in 10 people in the non-agricultural sector. This factor alone will keep the global economy below the 2019 level for at least two years.

Second, this crisis has exposed the fragility and unaccounted extra costs of maintaining a global supply chain. Electronics and car industries have been severely interrupted. Just-in-time inventory management and the concentration of parts production has left the global economy extremely vulnerable to a black swan event such as Covid-19.

The cost is more than just to the gross domestic product. When the production of health care equipment and medicines is interrupted, lives are lost, unnecessarily.

Political forces are likely to ensure global companies rearrange their supply chains to reflect national interests, not just profit maximisation. This process of deglobalisation will slow the economy and generate considerable inflationary pressure.

Third, the Covid-19 crisis has burst financial bubbles built up since 2008. The US stock market, for example, is normalising, which could wipe out US$15 trillion in wealth. As the slowing global economy increases credit risks, the overleveraged shadow banking system may catch fire.

American companies have been borrowing for years to buy back stocks. Some of their bonds are likely to default. This kind of debt crisis will be a significant drag on the global economy.

How China’s renewed focus on health and welfare will transform business

Lastly, the crisis is forcing governments to reallocate resources to health care systems and other forms of welfare protection. The US spends nearly one-fifth of its GDP on health care but is failing to cope with a pandemic like this because resource allocation has been driven by profit, not the safety of the masses. As vested financial interests resist the reallocation of resources, the economy is likely to be dragged down.

Hong Kong’s property market is a small but extremely egregious example of screwing people over for the benefit of the rich. With people asked to stay at home, the city’s small and subdivided flats with their congested conditions – making it so much easier for a virus to spread – are literally killing people.

People become depressed when confined in small spaces for too long. Hong Kong’s property market is at best a screw-the-poor and rob-the-middle-class plot to benefit the rich and powerful, often in the guise of an everybody-can-get-rich casino. This crisis has exposed it as a bloodsucking conspiracy against the people. Is a revolution avoidable?

In this grim tragedy, the good news is about the scientific race for new equipment, medicine and a vaccine to fight the virus. Human ingenuity tends to become turbocharged under extreme pressure. The discoveries during the second world war have powered the tech economy ever since. The discoveries made during this Covid-19 war may unleash a wave of bioscience advances to benefit mankind for ages to come.

Andy Xie is an independent economist

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