Prospects of globalisation and Covid-19

Covid-19 has derailed many things, one being the globalization project

The outbreak of the new coronavirus, covid-19, that began in Wuhan, China, has had a far-reaching historically significant global change. More than 200 countries have confirmed cases of the virus, with the wide nature of the transmission mechanism remaining unclear. Pandemics are not just passing tragedies of sickness and death. The omnipresence of such mass-scale threats, and the uncertainty and fear that accompany them, lead to new behaviour and beliefs. People become both more suspicious and more credulous. Above all, they become less willing to engage with anything that seems foreign or strange.

Nobody knows how long the covid-19 epidemic will last. If it does not become less contagious with the arrival of summer in the northern hemisphere, nervous populations around the world may have to wait until a vaccine is developed and rolled out. Another major variable is the effectiveness of public-health authorities, which are significantly less competent in many countries than in China. What is missing from globalisation is political globalisation and human globalisation. We need to recognise that the world is as strong as its weakest links. We have countries turning their backs on the United Nations. This is not fit for the 21st century. Global agencies are doing their best, but their shareholders, the governments, are not reforming and empowering them. That is the challenge. The current pandemic has made people aware of this. Hopefully, we can use this as an opportunity to learn, so that we do not have another pandemic and also are better able to manage other systemic risks such as climate change.

History offers intriguing precedents for what might come next. Consider the famous financial crisis following the “tulip mania” in the Netherlands between 1635 and 1637. This episode is particularly well known because its lessons were popularized by the Scottish journalist Charles Mackay in his 1841 book, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. To Mackay, the tulip crisis seemed to prefigure the speculative surges of capital into railroads and other industrial developments in North and South America during his own time. Throughout the book, he milks the episode for all its humour, recounting stories of ignorant sailors literally swallowing a fortune by mistaking tulip bulbs for onions. The tulip mania coincided with the exceptionally high mortality of the plague, which was spread by the armies fighting the Thirty Years’ War. The plague hit the Netherlands in 1635, and reached its peak in the city of Haarlem between August and November 1636, which is precisely when the tulip mania took off.

We are not entering de-globalisation, but only entering globalisation of a different nature. We are more likely to see less of manufacturing trade, but more services trade. Asian countries recognise that they need the benefits of globalisation. Of course, we also need policies to manage the risks of globalisation.  It also requires investment in improving hygiene and sanitation, upgrading of slums and informal settlements, investing in health research, investment in regulation and enforcement

Like today, early modern Europe’s plague epidemics spawned vast conspiracy theories. The less obvious the origin of the disease, the more likely it was to be attributed to some malign influence. Stories circulated about sinister hooded figures going door to door “anointing” surfaces with contagious substances. Outsiders– foreign merchants and soldiers– as well as the marginalized poor were fingered as the culprits. Again, a nineteenth-century source offers powerful lessons for today. In Alessandro Manzoni’s 1827 novel, The Betrothed, the plot reaches its high point during the plague outbreak in Milan in the 1630s, which was considered a scourge introduced by foreigners, not least the foreign Spanish Habsburg monarchy that ruled Milan. The novel became a potent catalyst for Italian nationalism during the Risorgimento.

Likewise, the current pandemic, covid-19, has resulted in factory closures and production suspensions and disrupting global supply chains. Producers are taking steps to reduce their exposure to long-distance vulnerabilities. So far, at least, financial commentators have focused on cost calculations for particular sectors: automakers worried about shortages of parts; textile makers deprived of fabric; luxury-goods retailers starved of customers; and the tourism sector, where cruise ships, in particular, have become hotbeds of contagion. But there has been relatively little reflection on what the new climate of uncertainty means for the global economy more generally. In thinking through the long-term consequences of the covid-19 crisis, individuals, companies, and perhaps even governments will try to shield themselves through complex contingent contracts. It is easy to imagine new financial products being structured to pay out to automobile producers in the event that the virus reaches a certain level of lethality. The demand for novel contracts may even fuel new bubbles, as the money-making possibilities multiply. already playing into today’s nationalist narratives. To some Americans, the Chinese origins of the disease will simply reaffirm the belief that China poses a danger to the world and cannot be trusted to behave responsibly. At the same time, many Chinese will likely see some US measures to combat the virus as being racially motivated and intended to block China’s rise. Conspiracy theories about the US Central Intelligence Agency creating the virus are already circulating. In a world flooded with disinformation, covid-19 promises to bring even more.

As we know globalisation is very good as it lifts people out of poverty, creates opportunities, spreads vaccines and medicines, jobs and finance. That is one of the reasons India, like many other developing countries, has seen rapid progress. It is sharing of ideas, technologies, skills, good and services, and finance with other countries which defines the beneficial part of globalisation. But it also very dangerous and can be very ugly. I always think globalisation as the good, the bad and the ugly. In order to harvest the benefits, one has to manage the risks. But what we are seeing is that people are not managing the risks, and this is making globalisation dangerous. Dangers like pandemics are the spillovers of globalisation. Integration of China with the world economy, 1.4 billion tourists and business travellers around the world every year are not only spreading good things, but also spreading bad things.

Take the case of pandemics like that of the covid-19. The rapid growth of cities like Mumbai and Wuhan, which have airports, means that anything that happens in these cities can go across the world in just a few days. And this is what we are seeing in this pandemic. This spread is not only in pandemics, we saw this spread in the financial crisis in 2008 too, cyber viruses which are spread around the world are another example, and there are also existential unintended consequences of rapid growth coming from globalisation, like climate change. There is no wall high enough even for mighty countries like India, China and the USA to keep out the great threats in the future. These are the threats such as climate change, pandemics and financial crises. These high walls keep out ideas, technologies, vaccines and finance.

If we are talking about Asia, my sense is that we would continue to see a rapid growth of Asian economies like India, China and Indonesia. They will also recover when the pandemic is over. We will see growth in other places too, but at a slower pace. We are not entering de-globalisation, but only entering globalisation of a different nature. We are more likely to see less of manufacturing trade, but more services trade. Asian countries recognise that they need the benefits of globalisation. Of course, we also need policies to manage the risks of globalisation.  It also requires investment in improving hygiene and sanitation, upgrading of slums and informal settlements, investing in health research, investment in regulation and enforcement.

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