The ongoing pandemic has evidently produced various impacts on the world economy, yet some of those impacts are not clearly visible at the moment while others may be exaggerated. Invest Foresight spoke to Professor Peter Morris Oppenheimer, a specialist in global economic issues and financial markets, about the COVID influence and its aftermaths.
According to Professor Oppenheimer, “The pandemic clearly has not caused physical damage of the type that arises in a war zone. Of course, some people have lost their lives, which is very sad; but being brutal about it, the majority of deaths appear to be among the elderly. There is no question of physical damage to economic infrastructure or buildings. What has happened is a kind of dislocation and interruption of accustomed activities. The interruption may be severe. An obvious example is the airline industry. Internationally, there has been a huge drop in air traffic. Air companies are not merely pausing, but are dismissing skilled staff including pilots and engineers. Smaller airlines have gone bankrupt. We cannot yet know to what extent the dislocation will prove to be long-term and structural, rather than merely short-term. It will depend partly on geography. Within Western Europe, one can readily travel by train and by car. To cross the Atlantic, on the other hand, you need an aircraft. But the fact is, there may in future be significantly less transatlantic travel, especially for professional or business meetings. People have suddenly become accustomed to meeting remotely. And it is attractive, because it saves time and money – which means correspondingly less demand for airline services.
“Apart from airlines, analogous effects apply to restaurants, hotels, theaters, concerts and the whole leisure sector. In some countries – and Russia appears be one of them – the public may already find on offer almost as many cultural or sporting events as before the pandemic; but in many other countries, including my own, that is not yet the case, and it is unclear how fully or how quickly things will return to what we previously considered normal. Much more broadly, we don’t yet know to what extent the habitual functioning of the world economy will change.”
“Economists tend to be viewed by the public as experts who can predict what is going to happen to the scale and pattern of production and incomes. In reality,” Mr Oppenheimer says, “economists are not particularly good at forecasting, and certainly not in the face of a virtually unique occurrence such as the present pandemic. We are familiar with the so-called trade cycle, where there are modest fluctuations in the neighborhood of the total capacity of an economy. Aggregate output rises and falls moderately around a long-term trend. And mathematical modelling can capture many of the normal responses to uncertainty which give rise to such movements. We now have something entirely different: a governmentally decreed interruption or diversion of economic and social activity, in order to eliminate a disease. There is no historical precedent for this. Accordingly, statements to the effect that ‘this is the worst recession since…’ the 1930s, or indeed (in the British case) the so-called South Sea Bubble of 1720, have very little meaning. Estimates of how large a reduction in any country’s gross domestic product for the year 2020 will be inflicted by this interruption – 2%, 5% or 10% – are little more than hopeful guesses.”
“Similarly,” he believes, “nobody really knows when we shall get back to normal, or indeed what exactly the regained ‘normal’ will look like. Is it possible to ensure the viability of musical ensembles by making people pay to listen to them on the web? It may well be possible, but we have not yet organized it. Once again, the effects of shutdowns during the pandemic are unlikely all to be temporary: the experience will surely bring some permanent changes in ways of doing things. Nor need it typically be a matter of “All or Nothing”. Old and new arrangements will exist side by side, with their relative prominence varying over time. In some areas transitional dislocation may last for years rather than months. There are likely to be many varieties of experience and of adaptation to new circumstances.”
Economic resurgence will surely occur in the near future, yet its extent is uncertain. As Professor Oppenheimer pointed out, “Release of suppressed or delayed demand can promptly kindle a post-pandemic recovery of the world economy. We shall see reversal or correction of the drop in global output. But the question is, how much? Will output swiftly regain its previous peak, or will it remain some percentage points short? The difference is crucial for unemployment levels, and for the need to develop new structures or procedures in the way the economy works.
“Take a basic example: shopping – an activity cherished by the British, whom Napoleon supposedly dubbed ‘a nation of shop-keepers’. Mail order and home deliveries of food, clothing and other items were making significant inroads into traditional shopping habits even before the pandemic. Will this tendency now intensify? If so, big changes will result in the appearance of city centers and of shopping suburbs. As well as in transport habits. There will be less journeys by individual householders, far more deliveries by van from central warehouses or depots. This will harmonize with other life-style changes already noted – in particular, more working from home by office staff and by suppliers of professional services. Car ownership patterns may alter, with greater recourse to hiring for short periods rather than permanent possession.
“The likelihood of such developments is all the greater, because the pandemic has coincided with action on climate change. Cars themselves, of course, are going to become electric (or at least hybrid). And there is emphasis on giving greater priority in town centers to cyclists and pedestrians. Still more important, the virtual cessation of air travel during the pandemic has brought a massive curtailment of greenhouse-gas emissions, and it will be interesting to see how far governments can agree in future to restrict air travel through taxation and other measures.”
“Some people say that the pandemic, together with environmental policies, will bring globalization to an end – but that is going much too far,” Mr Oppenheimer believes. “Insofar as globalization means trade in goods, that will certainly continue, even if – as may or may not happen – trade becomes a smaller proportion of national outputs. A key factor sustaining trade will be the differential location across the globe of minerals and of manufacturing centers – the latter including especially China and India. And if trade in oil and gas gradually loses prominence, other items including rare metals required for modern technology will partially take their place. In manufacturing, moreover, trade will be sustained by competition, and by specialization in the production of components.
“In the same way, international communication will continue even if travel diminishes or merely ceases to grow. As already noted, people are likely to journey less to company meetings, and instead conduct discussions on Zoom, WhatsApp or other electronic media. That changes the form of international communication, but not the reality. Tourism admittedly poses a bigger challenge. To some extent tourist attractions such as particular buildings, archaeological sites or works of art can also be viewed remotely. But people will still want to visit other countries when it’s safe to do so – and if they can afford the cost. On balance there may be less global travel, but that does not mean the end of globalization. It means a change of tempo, a change of style, perhaps some deliberate restriction, but not a revolutionary shrinkage.”
Many of the above factors involve time allocation. Peter Oppenheimer suggested that “The changes to come may well lead to a greater consumer preference for leisure, meaning sitting quietly at home and reading, or playing games on the internet, and so on – as opposed to hurrying from one place to another in pursuit of new things to do.” The question may be asked, is not one person’s leisure another’s unemployment? It is important, of course, that the increased “leisure” be voluntary, not enforced. And episodes of hardship for groups within the population are not always avoidable when economic structures change. It is important, now as in the past, for governments to ensure that financial support is available to assist such groups over the transition.”
“Whether the pandemic is likely to trigger significant political changes is hard to say,” Mr Oppenheimer concluded. “We see many things happening at present which have to do not with the pandemic, but rather with social media – things like fake news, sudden emergence of slogans, or explosive reactions to specific incidents. In recent weeks, everybody in the West has been talking about the shocking murder of George Floyd by the police in the US. That has given rise to widespread protests against racist injustice towards black people – not merely to-day but over the past several centuries. If the pandemic has political effects, it will be because populations in lockdown devote even more time and attention to social media than they were already doing before the pandemic arose. Social media themselves, on the other hand, and their exploitation by campaign groups – and indeed by individuals such as President Trump – are clearly affecting political and social developments in many countries. Why else, one may ask, do authoritarian states ranging from the People’s Republic of China to the Kingdom of Saudi Arabia endeavor to restrict the access of their citizens to social media? That, however, is a completely different topic.”