No one knows how long the pandemic will last, how many people will fall ill, how many lives the coronavirus will claim. But the economic and political consequences of the outbreak are already emerging. Measures to contain the pandemic are disrupting public life around the world.
Starting with China, production had come to a standstill in one country after another. Global supply chains are broken. You don’t need a lot of imagination to see a wave of bankruptcies approaching in many industries where every last cent counts.
Even before the full impact of the pandemic can be felt in countries across the Global South and the Asia-Pacific region, the economic effects are already devastating. Local lockdown policies have left millions of workers in Pakistan, India, Bangladesh, Indonesia and Thailand with no choice but to return to their villages and countries of origin to survive, and by doing so increasing the risk of spreading the virus into even the remotest and poorest corners.
At the same time, the collapse of consumer demand has caused global brands to cancel their orders, hitting major textile producers like Bangladesh or India. Local movement restrictions, the suspension of key port and logistics networks in China send ripple effects through global supply chains. Cut off from their supplies, manufacturers in Malaysia or South Korea have to halt production and lay off workers. Border trade, for instance between Myanmar and China, is taking a hit. The collapse of tourism hits Thailand, the Philippines and Indonesia. The sudden slump in Chinese demand has shaken the commodity markets, hurting palm oil exporters like Malaysia and Indonesia. Commodity exporters like Mongolia, which are highly dependent on the Chinese market, already feel the pain resulting from the oil price war between Russia and Saudi Arabia.
The economic response
Some countries in the Asia-Pacific region, such as Singapore, South Korea and Japan, have quickly launched unprecedented packages of measures to cushion the impending economic crisis. Emerging economies like Thailand, India, Malaysia or Indonesia have set up stimulus packages, too. Not all countries, let alone least developed countries, will be in a fiscal position though to install the kind of safety umbrellas needed to protect their small and medium businesses, freelancers and workers.
Whether these and other potential immediate measures are sufficient to stop the economic downturn depends on how deeply the crisis eats through the system. After past epidemics, a brief, sharp slump, the economy was usually followed by a quick return to growth. Whether this will also be the case with the corona crisis depends on many factors, not least how long the pandemic lasts.
Governments now have to deliver. This is because the crisis is by no means limited to the economic sphere. The ability of states to protect the life and limb of their own citizens, is also being put to the test – and the stakes are nothing less than the fundamental legitimacy of the Leviathan. Decades of austerity policies and of health care systems cut-backs to the absolute minimum have hollowed out state structures; many people worry whether their nations will still be able to cope with major crises. And what does solidarity with others mean when the only thing we can do is to isolate ourselves?
Each nation on its own?
An international pandemic cries out for a coordinated global response. So far, however, many nations have pursued a solo effort. Even within Europe, there is a lack of solidarity. As in the euro crisis and the refugee crisis, Italy in particular feels that its partners have let it down. China cleverly took advantage of the lack of European solidarity and sent a plane to Italy, its Belt and Road partner country, loaded with medical supplies. In the meantime, Berlin has recognised the geopolitical dimension of the dual crises – coronavirus and refugees – and is concerned about the attempts by external powers to divide Europe. In the Asia-Pacific, regional organizations are increasingly stepping up to help one another. ASEAN foreign ministers approved the establishment of a regional fund to respond to the COVID-19 pandemic. A similar emergency fund scheme has been adopted by members of the South Asian Association for Regional Cooperation (SAARC).
The crisis is also fuelling the US-China hegemony conflict. For some time now, there is a bipartisan consensus in Washington to decouple the American from the Chinese economy so as not to strengthen the competitor for global supremacy by supplying Beijing with its money and technology. Globally positioned companies now need to re-assemble their supply chains overnight. Will all of these corporations return to China when the immediate crisis is over? Corporate executives would then have to think twice whether to willingly ignore the geopolitical marching orders from Washington. This may offer a major opportunity for emerging economies like Vietnam or India.
And how will Europe’s companies reposition themselves after the crisis, after the costs of being overly dependent on Chinese supply chains have become all too clear? In the debate over whether the Chinese company Huawei should be excluded from the expansion of the European 5G infrastructure, Europeans already had a taste of how great American pressure can be. The corona crisis could then accelerate a development that has been going on for some time: deglobalisation. As a result, the global division of labour could disintegrate into competing economic blocs. Economies may gather around a regional hegemon to get rid of unwanted competitors through incompatible norms and standards, technology platforms and communication systems, or exclusive connectivity infrastructure and market access barriers.
Where will this leave the poorest countries who are struggling to climb up the global value chains? Has their moment for catch-up industrialization passed? How can countries like Bangladesh, Myanmar or Pakistan provide livelihoods to millions of workers if global brands decide to produce closer to their home markets? And how can middle income countries like Thailand or Malaysia climb up the global value chain if this chain is cut for geopolitical reasons? Deprived of strategic options, they may end up being much more vulnerable to pressure from their regional patron.
The window to the future is wide open
The corona crisis amounts to an enormous field test. Millions of people are experimenting with new ways to organise their everyday lives. Business travellers are switching from flights to video conferences. University teachers are holding webinars. Employees are working from home. Some will return to their old patterns after the crisis. But many now know from personal experience that the new way of operating not only works, but is also more environmentally and family-friendly. We have to use this moment of disruption, the immediate experience of deceleration, to generate long-term behavioural changes in the fight against climate change.
People are experiencing a wave of solidarity in their neighbourhoods, at work, and within their circles of friends. We can build on this experience of solidarity to make society as a whole more cohesive again. If we manage to overcome the crisis together, we are creating a symbol at the dawn of a new era: a community that stays together can meet any challenge.
However, reacting to the crisis also poses dangers. Borders are being closed around the globe, visas are cancelled, and entry bans are imposed on foreigners. The record number of orders for industrial robots indicates that the production chains will be made more resilient to breakdowns through a decisive step towards greater automation. Digital automation may shatter the hopes of emerging economies ready to take advantage of the opening spots in global supply chains. Already today, the factory floors of global manufacturers in India or Vietnam are populated by robots. Growing foreign direct investment seeking to diversify supply chains will drive growth, but it may be jobless growth.
Developing economies must not be left alone to cope with the devastating effects of the crisis and its social aftermath. It is in the very interest of European countries to assist them in their recovery. Last but not least, our planet cannot afford any more austerity. The investments in the social-ecological transformation necessary to mitigate global warming need to be made now, and must not be out-crowded by the cost of the corona crisis. We are, indeed, all in this together.
Hyperglobalisation is making us vulnerable
The global crisis has raised awareness of how vulnerable hyperglobalisation has made us. In a globally networked world, pandemics can and do spread across borders at high speed. Global supply chains are all too easily cut. The financial markets are vulnerable. Right-wing populists want to close the borders and isolate themselves from the world – but that is the wrong answer to the global challenges of epidemics, wars, migration, trade and climate change. Rather, our goal should be to address the root causes of these crises. To do this, the global economy must be placed on a more resilient foundation.
The global financial system, which is held together by not more than duct tape, urgently needs re-ordering. For over a decade, central banks have not been able to counter deflationary trends through monetary policies. In the crisis, governments with expansionary fiscal policies are jumping aside. Politically, this means a return to the founding logic of parliamentarianism, the principle of ‘No taxation without representation’. In other words, the financial systems must be put back under democratic control.
Conflicts arise from excessive interdependence. These conflicts must be cushioned by international norms and multilateral cooperation. Unlike the 2008 financial crisis, however, this time there is no coordinated response from the twenty largest economies. The geopolitical rivalry of the great powers on the one hand and the right-wing populist call for isolation on the other hand stand in the way of greater international cooperation. The existing elements of multilateral governance need to be strengthened with concrete contributions. This can begin by providing more solid funding to the World Health Organization and continuing with a G20 meeting to coordinate economic crisis management. Here, the Germany-led “Alliance of Multilateralists” can prove its value added.
The desire for a fundamental reorganisation of our economic activity and collective life has never been greater. Like a spotlight, the corona crisis is illuminating the geopolitical, economic, ideological and cultural fault lines of our time. Might this crack in the edifice even signal an epochal break? Does the age of turbo-globalisation end with the decoupling of the major economic blocs? Are the oil price wars heralding the end of fossil industrial economies? Is the global financial system changing into a new regime? Is the system guarantor’s baton going from the United States to China, or are we experiencing the breakthrough of the multipolar world?
What is certain is that the coronavirus could lead to a breakthrough of a number of trends that have long been hidden. All of these developments are mutually influencing each other at breath-taking speed. This complexity suggests that this crisis will go deeper than the 2008 recession. The pandemic could be the burning fuse on the powder keg of a global system crisis.
An earlier version of this article was published in the International Politics and Society (IPS) journal.
Marc Saxer is the Head of the Asia Department at FES Berlin. He previously served as director of the FES offices in India and Thailand and coordinated the regional program Economy of Tomorrow in Asia.
The views expressed in this blog series are not necessarily those of FES.
This website gives you regular updates of FES regional projects and activities across our Asia country offices.
It offers news articles on current debates and a range of research publications and policy briefs to download.
A new FES study investigates how women in Asia are affected by digitalization and automation and explores feminist perspectives on the digital economy...
Around the world, women conduct the majority of (un)paid care work. In Asia, the care sector is particularly large. A new FES study investigates what...
China has become Indonesia’s largest trading partner and its third largest foreign investor. Indonesia’s Global Maritime Fulcrum and China’s Belt Road...