How the pandemic is hitting the reset button on the world economy and international cooperation

Last September, business leaders and academics across Europe and the US began calling for a reset: the need for businesses to act more sustainably, to treat their stakeholders more equitably, and global warming seriously. They were focusing on ESG – “environmental, social and governance” – factors.

Six months later, as an unforeseen global pandemic sweeps grimly across the globe, the calls for a reset have become more urgent than ever. But the reset is also being redefined. And the global recession that is being unleashed by the pandemic has massively compromised our social and economic capacity to move towards even a modest reset.

Just when business leaders need to cooperate and apply vision to redefine their roles in society, they have been plunged into an unprecedented struggle to save jobs and fend off bankruptcy.

At the same time, just when we urgently need our political leaders to come together and lay the international foundations for this reset, they are being sucked into national emergencies facing their hospital and health systems, and the challenge of saving thousands of lives.

Just as our governments need to cooperate in bringing the pandemic under control and minimising the harm from having to shut down our economies, so the prospects of international cooperation are arguably worse than at any point in the past seven decades.

Three years of “America first” politics from the White House has shaken the foundations of international cooperation, and of the institutions set up after the second world war to ensure cooperation. Two years of attritional trade war have weakened all our economies, deepened the recession we have fallen into, and damaged our ability to drive a recovery.

And Donald Trump’s obsession with the US presidential election, just seven months away, has politicised the massive practical challenges facing people, businesses and jobs across the globe, and compromised the ability of experts worldwide to work together on solutions.

The Financial Times captured this set of dilemmas neatly on Saturday, talking about the fragility of the social contracts needed both within and between countries to address the present extraordinary human and economic crisis: “… to demand collective sacrifice you must offer a social contract that benefits everyone”.

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This is going to be massively challenging when so many groups have been affected so differently: while many privileged professionals, knowledge workers and government officials face no more than the nuisance of working from home, millions are employed in poorly paid jobs in restaurants, shops, hotels and tourism businesses that have fallen off a cliff.

Others in health care jobs are working round the clock, exposed to the coronavirus, risking their lives. Government support programmes channelled to large companies and those in formal employment are proving next to useless for those in the gig, or informal, economy. The elderly are the main victims of the coronavirus, but the young are the main victims of the economic shutdown, with educations and monthly pay cheques in jeopardy.

And this is only to mention those in rich Western countries that have strong and sophisticated economies, trusted governments, generous welfare systems and well-equipped hospitals.

In short, getting support to those that most need or deserve it would be a massive challenge in its own right. But throw into the mix a deepening recession and deep-seated disagreements on the kind of global economy we want to see emerge from the crisis, and the social contracts required for harmony are being stretched to breaking point.

We see these stresses already as governments squabble with each other over masks, Covid-19 test kits, respirators and other equipment needed to save lives. Look at the accusation of the US government’s “piracy”, after it reportedly diverted masks destined for Germany back to the US.

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And as China – now with surpluses as Hubei emerges from the first brutal wave of the coronavirus – offers supplies to the world, we see suspicions about not-so-subtle efforts to build soft power. This is an obvious opportunity for China to come charging to the world’s rescue.

And it is clearly in its interest – its own recovery from the coronavirus means nothing when the rest of the world’s economies are in deep trauma, borders closed to the billions of dollars of goods China needs to sell to the world’s consumers. But its heavy-handed diplomacy is putting this opportunity for soft power in jeopardy.

A more profound disagreement is emerging over how China, Europe and the US have tackled the coronavirus crisis. China is keen to demonstrate to the world that its top-down state-managed assault on the virus provides a superior model not just for getting on top of Covid-19, but also for managing the economy.

Beijing can make a good case: six provinces surrounding Hubei, which bore the brunt of the coronavirus, all of them the size of medium-sized European economies, have escaped with few Covid-19 cases, and a tiny handful of mortalities.

The Western media, still suspicious of Chinese data and angry at the early efforts to hide the emergence of the epidemic, have bent over backwards to demonstrate how governments in South Korea, Taiwan or Singapore have managed the coronavirus well without exerting heavy-handed state power. They have also been keen to gloss over the free-enterprise messiness of Western responses to the crisis.

This is really not the time to arm-wrestle over the comparative merits of different social and economic models. The result is that innocent citizens are needlessly suffering and dying.

Instead, the priority must be to let experts – whether medical or economic – work closely together to dig us out of this mess as quickly and with as few casualties as possible. New institutions will need to be built – global institutions – that take lessons learned from Covid-19 and use them to make sure we are better prepared when the next pandemic comes.

The post-Covid reset is likely to involve more big government than many libertarians would like. It is going to need higher levels of latency in our just-in-time supply chains. It is going to need better-funded health care systems, and health security plans that mirror today’s food security arrangements.

And new social contracts need to be built that involve less extreme inequality. This will doubtless be the task of decades, but in the meantime let them focus on lives and livelihoods.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view