By Mriganka M Bhowmick
It is not the time to get worried by pondering over the economic consequences of the coronavirus pandemic. Rather, it would be more prudent to accept the reality and chart out a new economic and business strategy based on the possible outcomes of the pandemic. Without much ado, it can be said that world has entered into a recession and it may leap towards a depression stage too. Evidently businesses and nations will take corrective measures to safe guard its own interests keeping view of its short and medium term economic health. Long term strategy discussion is of no use as the corona disaster is emerging and evolving everyday making economic forecast next to impossible.
Standing amidst an overwhelming wildfire of coronavirus, world has realized that it is an unprecedented situation where the production and consumption both get affected across the world. Moreover the Non Pharmaceutical Interventions (NPI), erstwhile the only remedial measures available to mitigate the spread of novel coronavirus, prescribed social distancing, separation and isolation as key measures. These interventions are in contrast with fundamental concepts of globalization which promotes interconnectivity and integration of transnational economies. So it can be expected that businesses and developed economies will gravitate towards a new paradigm by taking multiple self correcting measures to reduce the excessive dependency on outsourced production facilities in far away geographical locations like China. A knee-jerk reaction towards “Make Local-Sale Local” will push de-globalization in trade and commerce at faster pace.
De-globalization is not a new buzz-word which took birth due to corona crisis. The practice of de-globalization began in the aftermath of global financial crisis in 2008. A protectionism to keep domestic economy healthy as foremost national interest reduced free flow of capital, trade and people substantially post the financial crisis in 2008. It is evident from the fact that global trade volume grew at an average 3.5% yearly from 2009 to 2018 in comparison to average 7.6% yearly growth before 2008. As a result of deceleration of global trade, the cross broader capital flow has also reduced substantially. However, cross-border lending was tilted towards Emerging Asia than developed economies, but that has also started coming down since 2017. Furthermore, multiple stringent immigration controls with frequent visa denial, especially by US, created hindrance to integrate global labour market. The feeble sign of de-globalization has intensified in last one and half years due multiple protectionist commotions like China-US trade war, or US-Europe anxieties, or Japan-Korea tensions. As US starts retreating from globalization towards economic nationalism, China pitched itself vehemently as a new champion of globalization by proposing inter-nation connectivity through the Belt and Road Initiative and cooperation amongst nations. Although a part of world was a bit skeptical as it looked like a ploy to export the surplus capacity of Chinese heavy industries.
In the backdrop of a hesitant transition from globalization to de-globalization, the corona pandemic broke out. Needless to say that the corona crisis will further intensify and consolidate the de-globalization in world economy. The crisis is not only a public health catastrophe but it has also brought multiple shocks simultaneously like demand shock, supply shock and an impending financial crisis. The factory closures and suspension of production have already created a disruption in global supply chain. It has exposed the global corporations to the danger of having a long distance off-shore production lines and excessive dependency on cheap destination like China on critical products like life-saving medical equipments of COVID-19 test kit, syringe and even simple face mask.
In the awake of this crisis global corporations will surely start exploring the option to bring the production line closure to its market place, especially for US and Europe. Thus the exercise to re-shoring is bound to happen soon. Air connectivity being the key medium of transmission of the virus will be avoided for longer time. This will result in the reduction of interdependency and transnational cooperation to fuel economic growth through model of globalization. In a situation like this, it is predictable that governments, corporations as well as individuals tend to be abstained from cross border complex trade contracts and the focus will be back to domestic market rather than international market in short and medium time frame. But the good part is that globally banks & financial institutions are well capitalized and better managed at this point of time in compared to financial contagion of 2008. So it will prove beneficial to revive the global economy once the dust of the corona crisis settles down.
Since COVID-19 crisis has brought multiple shocks to the economy simultaneously, it is least expected that recovery of economy will take the V-curve, that is, after slowing down in first quarter economy will bounce back in second quarter. Rather, it would be more likely to take a U Curve where global economy may remain flat for some time before it moves upward. So for the time horizon in downward as well as the flat zone the global trade and commerce will retreat globalization and try to shield itself from complex regional business environment. It is expected that global interconnectivity will resume only after the invention of successful vaccine of COVID-19, albeit it will be gradual as organizations will take time to restore human resource, production and supply chain. The optimism lies with the fact that the effective government policies, harmonies co-operation amongst the nation, right response from businesses can limit the present downturn and its duration. World already experienced this spirited effort of revival and co-operation post Lehman Brothers crisis in 2008-09
De-globalization is a child of economic crisis which brings domestic market as centre of gravity instead of global market. The fragile condition of economy necessitates tariffs and quotas to preserve the local market for sustainable national economy. Many argued that de-globalization prioritizes values above interests, cooperation above competition, and community above efficiency. Echoing the same sentiment the great Hungarian thinker Karl Polanyi pointed out “de-globalization is about re-embedding the economy and the marker in society, instead of having society driven by the economy and the market.” The immediate aftermath of a global crisis needs a healing period as economy, be it global or domestic, needs time to reorganize itself to prepare for next growth cycle. The journey of de-globalization post COVID-19 shock will continue in short and medium time frame. But it will bring back the long term sustainable globalization in future, may be in a different format.