An unprecedented crisis with deep uncertainty grips the global economy as Covid-19 has triggered tectonic shifts. There are still mounting tensions about challenges posed by global emergencies.
Lockdowns have been imposed in cycles. Lockdowns, quarantine, and work-from-home are non-pharmaceutical public-health interventions, although debates are surrounding their effectiveness. Concerns about pollution, climate-crisis, disaster, causing health hazards are equally important.
These multiple burdens triggered the trade-offs between lives and livelihoods, disruptions in economic activities with trans-border repercussions. The adoption of safety strategies has led to protectionism equivalent to a rise in trade or transaction cost by 3.4 percent on top of 8 percent average global tariff (WTO), causing an anti-trade fervour. Despite global cooperation for finding vaccines, nothing concrete is in sight so far. Thus, lockdown and unlocking strategies run in cycles.
What is novel is the multi-dimensional nature of the crisis severely affecting both internal and international exchanges. Since the expansion of production networks in the 1980s, thanks to ICT, the decline in trade costs, and tariffs, the "frictionless" world saw a trans-border movement of people, capital, and services as supply chain flourished with virtual transactions.
World Development Report (World Bank, 2020) pointed out that trade war and conflicts worsened such trade since 2008 with a potential fall in global income by US$1.4 trillion.
Concern for de-globalisation stemmed from worries about the fragility of Global Value Chain (GVC)—accounting for 50% of global trade—and disruptions of offshore sourcing of critical goods, affecting the velocity of movement of goods, labour, and capital.
As the world is expected to experience a downfall of trade by one-third, a decline in FDI by 30 percent (UNCTAD) and fall in remittances by 20 percent (World Bank), concerns about "retreat of globalisation" is real.
The backlash against globalism and the emergence of populism or hyper-nationalism in times of crisis is replete in history. Concern about deepening social inequalities, poverty, and pitfalls of hyper-globalization existed long before Covid-19, in the post-Global Financial Crisis (GFC) period.
We need to admit that Covid-19 has accelerated the "de-globalisation" that started after GFC in 2008-09. However, the fear of de-globalisation is oversized. Nonetheless, this time it is due to crumbling demand, supply bottlenecks, pandemic-led protectionism, and safety barrier.
What is important is properly managed globalisation– like Vietnam, South Korea, Japan, Singapore or Taiwan—with a mixture of strategies and policies. Obsession with either hyper-protectionism or hyper-nationalism will obstruct paths to restoring financial stability, social inclusion, public health, and sustainability, and make re-establishing preconditions for global engagement a distant dream.
Right now, achieving Sustainable Development Goals (SDG) is necessary. Post-pandemic SDGs need restructuring for balancing triple crisis- economy, ecology, and epidemiology—with new technologies such as 3D printing, robotics or AI so that the world reconnects despite "social distancing". A good public policy should focus on technology for Water-Sanitation-and Health (WASH).
To restart globalisation, the role of the developmental state in instilling a sense of digital optimism is of utmost importance. What is the role of government? It is the role of a conductor in an orchestra, orchestrating the rhythms of different instruments of fiscal and monetary policy. The role of the entrepreneurial state is necessary to unbind the "Prometheus", and getting rid of "Leviathan".
A new cohort of entrepreneurial talent needs to be developed for creating new jobs, formalisation of the informal economy, structural transformation as well as generating demand, and public support for sectors related to public health, development of pharmaceutical sectors (PPE), R&D in vaccine research etc.
For reviving global engagement, investment in technology, infrastructure, financial access, enabling insurance purchase, financial awareness, developing new skills for new necessities, regulatory framework, protecting the vulnerable, etc is necessary for including people at the bottom of the pyramid.
Covid-19 is like taxation on health with negative multiplier effects—adverse impact feeding back into every facet alike tax-hike in Keynesian macroeconomics. Waning consumer and investors' confidence slackening investment rate is retarding growth, and we need a balancing welfare programme with adequate provision of the stimulus package and a sense of community feeling and trust-building.
Both federal and state governments have an extensive role to this end. The best way "global good" is achieved for the world economy as global commons is via devising domestic economic policies for the pluralist world economy.
Domestic factors are important for countering the inverse relationship between "preparedness" (wearing masks, contact tracing, sanitising, disinfecting) and lockdown. More preparedness means less shutdown, and hence, more scope of the revival of economic activity via appropriate fiscal, monetary, and social protection policy.
Hallmark of East Asian experience in handling crisis shows government's role as a gardener uprooting the weeds, and watering the roots of the plants. There are 3D nations such as dazzling (South Korea, Vietnam, Taiwan), dancing (Indonesia, Singapore) and depressing (India, Brazil, Russia, USA) with 3S (shining, shimmering, and struggling) statuses.
Digitisation could be a game-changer. Without being Panglossian, there are, no doubt, evidence of its effectiveness in domestic value-chain (food, agriculture, online platforms, gig economy, etc). This will enable integrating into regional and global spheres via virtual trade thanks to the reorganisation of production.
Countries like India being a leader in IT-led service sector cannot afford to lose the steam; however, manufacturing and hi-tech sector development is important, as leap-frogging to service sector-oriented growth might not be the only way out.
As non-farm sectors have more potential for catching-up, governments should consider creating non-farm jobs. Also, investment in green growth via subsidies in green clean technology—wind, solar, bioenergy—for nudging investors are important.
These have higher social returns with positive externalities. If AI and emerging technologies are used for extracting value from "big data", with machine learning, etc to deliver "social goods" that would help to sustain the positive impact. An industrial policy with defined targets is necessary. Digital optimism realization depends on setting these preconditions for a soft landing.
True cocktail of a constructive institution, policies, political culture, are needed for a full recovery cycle. Governments should have a rich menu of pragmatic policies for harmonisation of domestic and international objectives.
Keynes in "The End of Laissez-Faire" wrote: "The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse, but to do those things which at present are not done at all".
For that, we need vision, transparency, accountability and moral compass, not narrow parochialism based on divisiveness.
The countries that have been able to take care of such factors have demonstrated ability to handle any pandemic and hence, are better prepared to reconnect to the production network, and restarting the growth engine with a reconfiguration of global trade order. These would mean more intraregional trade with the neighbours.
We could envisage the emergence of the regional value chain with a multi-polar world led by East Asia. Otherwise, the sub-optimal conditions will be akin to raising Non-Tariff-Barriers (NTBs) blocking exchanges.
Safety as an NTB is a kind of invoking artificial restrictions. But internal adjustments would open opportunity for building dynamic comparative advantage via online-trade–promotion, the substitution of trade based on physical proximity.
Domestic resilience by using digitisation and robotics will usher in a new model of comparative advantage and establishing a secure source of supply without fear of being confined into "narrow domestic walls". For fighting the pestilence, not inward-looking lurch but creating suitable conditions for overcoming the apprehension of de-globalisation is sine-qua-non.
Globalisation should be taken as an instrument for achieving longer-term domestic goals. Role of G-20 or even expansive G7+3 nations is important for global cooperation with the concerted effort of experts from different fields.
For re-establishing global order, we need impeccable sailors leading the ship in stormy weather rather than self-professed quacks unable to tame a tempest.
The author is a professor of economics at the Hanyang University in Seoul, South Korea.