The coronavirus has acted with the power of a conquering army, upending long-established behaviors in global economics and politics. It is apparent that the virus will be similar to 9/11 in its power to alter global perspective for decades.
Some of these changes are immediately apparent; others more elusive. Some will influence the geopolitical landscape for years, while others will slowly change our economic behavior.
The first great change regards China, where the virus appears to have come under control, but at an unkown cost to the leadership of the ruling Communist Party. The Chinese government’s political legitimacy since Deng Xiaoping has been based not on communism, but on economic growth and the guarantee of an increased standard of living for its citizens. But how does the Chinese government maintain the perception that the party is all-knowledgeable regarding economics? Due to the virus, China’s GDP did not show 4% to 5% growth for the first quarter as the government projected. Instead, it shrank 6.8%. The same rosy projection never took into account the fact that China’s overseas customers are now in a virus shutdown, thus dramatically slowing China’s exports.
The virus has also called into question the issue of the competency of the Communist Party of China, due to the mismanagement of the crisis itself. Despite all the propaganda a massive dictatorship will throw at its people, the reality of botched leadership in fighting the early onset of the virus was obvious to the common person and has percolated throughout society. China’s leadership is exposed now, very much like Hans Christian Andersen’s emperor without clothes. How they will now behave both domestically and internationally remains to be seen.
The second force up for review involves the obscure term, “Just-In-Time Manufacturing.” This production concept developed in Japan in the 1950s, and it slowly spread around the world. Essentially, global manufacturing firms don’t hold inventory. Instead, they call on their sub-manufacturers to supply components as needed. Just-in-time is much more efficient than the old process and of course saves tremendous costs, since a manufacturer does not need to carry, warehouse, and finance inventory. But as we have seen in China, if the component factory can’t ship because of the virus, then the main factory can’t ship its finished product to its customers. In our new era, just-in-time manufacturing could become very harmful to the global economy. In many cases, however, its replacement won’t be a return to pre-globalized manufacturing, but rather will involve a move to 3D printing, with data inputs coming from around the world.
A third accepted wisdom that now appears misplaced has to do with the term “monetary policy,” the old reliable medicine the Federal Reserve uses to spark a failing economy. Monetary policy is the policy of central banks to adjust interest rates and influence the demand for and cost of credit. Typically when an economy dramatically slows, the central bank lowers interest rates to stimulate buying, effectively making things cheaper. But in the coronavirus-caused economic contraction, the Fed’s medicine has, for the first time, lost most of its potency. No matter how cheap a product becomes, you are not going out to buy, say, a car, if it means you might come into contact with people who are carrying the virus. Or look at smart phones. No matter how much you want to buy a new one, delayed shipments from Asia mean there are fewer phones available to buy. Thus the retail phone store may have to lay off people to accommodate reduced sales. These are problems that cannot be solved by the traditional means of monetary policy.
Another concept being challenged is the importance of cities in a knowledge-based economy. The common wisdom over the last 15 years has been that because it offers a setting where people can mingle and exchange ideas, the city, not the suburbs or rural areas, is where the future of the economy lies. This dynamic is why Amazon wanted to move to New York. But what if the pandemic makes the idea of large population masses seem unhealthy? What if through this pandemic we develop new and more effective ways to work remotely? How does this affect the future growth of cities?
Related to the issue of the future of cities is the need for offices and for extensive, physical university campuses. Now that we have the technology to work in teams but remotely, does working from home become easier than going to the office? Or will a large migration from offices to home offices have a long-term negative effect on society, culture, and interpersonal relationships? Will it prevent the much-needed face-to-face interchange of ideas that moves a society forward, especially in our new knowledge-based economy?
Of course as the pandemic increases in its velocity and then hopefully, eventually, peters out, it will become easier to understand how it has changed the world. But for the moment, the five global political and economic challenges described above appear to be inevitable.
Edward Goldberg is an assistant professor at New York University Center for Global Affairs where he teaches International Political Economy. He is the author of “The Joint Ventured Nation: Why America Needs A New Foreign Policy.” His new book “Why Globalization Works for America: How Nationalist Trade Policies Are Destroying Our Country” will be published this June by Potomac Books.