Figures reveal that the coronavirus, though dreadful, is far less lethal than the Hiroshima-Nagasaki bombs. While few were spared by those, simple, but strictly imposed, precautions appear to protect people from this latest outrage.
Prognosis for the future is not yet clear of course, although China, where the disease is believed to have surfaced initially, has come up with optimistic results. Yet, herein lies a contradiction that is deeply disconcerting for liberal schools of economics. The solution for keeping disaster at bay is accompanied by the possibility that globalization may end up turning on its head.
To appreciate the point, let us locate ourselves in Wuhan around the time the virus struck for the first time. A few people probably fell sick and some even died. Soon enough though, the affected as well as the dead were too many to be ignored. People began to suspect that there was no obvious cure for the illness. Such perceptions should have led to grim pessimism about the sustainability of everyday economic activities.
The phenomenon is not comparable with the slowdown of economic growth that has concerned the world for a year or more. Policies exist to deal with such cyclical economic problems. As opposed to this, the stories of economies grinding to a halt on account of non-economic reasons, such as battles and pestilences, are wholly different. In the present case, economic measures, like financing medical research, can bring succour to an extent, but short of a miracle, the problem may not be solved too soon.
How does the coronavirus attack stock markets? As already noted, apprehensions about the functioning of the commodity producing economy in general create concerns that returns from financial assets could plummet. Under such circumstances, share market operators engage in a nervous selling spree. Stock markets turn bearish and prices of paper assets actually begin to collapse. Notice in the present context that it is uncertainty surrounding the smooth flow of commodities that initiates the financial meltdown instead of things happening the other way round. For example, the Sensex was around 42,000 in January despite our growth rate slowdown. With the arrival of the coronavirus, however, there was a manifold increase in apprehensions about an impending recession. On March 25, when the government was already in damage control mode, the virus-infected Sensex slid down to 28,535.
In a globalized world, it is a simple exercise to sell off in one part of the world and invest in distant shores. Assume then that worried sellers in China invested in Italian stocks. This, initially at least, should have been good news for Italy. Italian share markets probably witnessed rallies accompanied by a rise in the European stock indices there.
Money, however, is not the only object that flows freely across national borders. Globalization has given rise to a nouveau riche middle class and international tourism happens to be one of its major consumption items. Besides, people travel in search of work, education and medical treatments as well. If any of these international travellers come from virus-afflicted regions, they pose a threat for the local residents of the countries wherein they end up parking.
One cannot rule out therefore that the virus was already present in a small way in different parts of the world when the Wuhan problem assumed epidemic proportions. Further, while conditions in Wuhan were turning dismal, healthy but unwary foreign tourists might have been travelling in China, or sick Chinese in Italy and elsewhere. Such people ensured that quite apart from money transferred from China, the virus too began to cross national boundaries. Ignorance about its arrival and the absence of safety measures gradually accorded the driver’s seat to the virus even as stock markets flourished. Soon, however, knowledge dawned and, as with the Wuhan case, stock markets stumbled in these countries too, responding to worries about the well-being of their economic fundamentals.
Here onwards, the story simply self-repeats and soon enough we are sitting on the lap of a pandemic, hand in hand with a worldwide financial collapse. Taking the cue from China, authorities everywhere have rushed forward now to impose lockdowns, forcing human beings to live in isolation, thereby suffocating economic pursuits of pretty much every variety, except possibly self-operated household firms. With workers alienated from workhouses, not only is production stifled. What is worse, income flows dry up. Purchasing power is now being partly protected by State-announced packages involving income support, repo rate induced interest rate reductions, EMI relief and so on, but whatever demand is generated thereby cannot be matched by sufficient production in most sectors till workers get back to work. Elsewhere, such as in the automobile industry or real estate, it is doubtful that the all-pervasive gloom will permit low interest rates to improve demand either.
Besides, stimuli announced in rich countries appear to be boosting sagging stock markets mostly and that too intermittently. It is unclear, therefore, who in these affected economies are truly benefiting from government largesse. In India, on the other hand, around 90 per cent of the workforce belongs to the informal sector. Till the virus is under control, these workers are staring at a kind of hunger that might make the infamous Bengal famine of 1943 resemble a minor episode at best.
In the organized sector, the major victims are the tourism and aviation sectors. Virus-driven recession in these and possibly other industrial enterprises is leading to a fall in crude oil prices. In spite of this, overall shortages in supply vis-à-vis demand are driving up the prices of daily necessities. Price rise in the face of freely falling crude prices could be yet another phenomenon the world will need to accept, possibly well into the distant future in the worst case scenario.
The outcome is a type of economic breakdown no less novel than the coronavirus. It is partly coronavirus induced Keynesian in character, as in the case of aviation. But it is partly also a combination of paid unemployment accompanied by lockdown prompted supply shortages. Wage goods are likely to face inflation, caused by dwindling supply. If the devastation lasts long, the prices of luxury goods may fall too. And stock markets could continue to resemble roller-coaster tracks.
Trial runs for the coronavirus vaccine have been initiated, but confirmatory results are not expected for a long while yet. There are no sure-shot medicines that can cure the affected either. As we noted at the very beginning, however, coronavirus is not exactly a total annihilator. Yet, paradoxically enough, unless the virus is convincingly eliminated, lifestyles will change dramatically for years to come.
People will live in semi-isolation. For a prolonged time span therefore, the biggest economic victim will be globalization itself. It is not clear yet how international commodity trade will suffer, but countries will not be eager to entertain for years explorers from abroad. Humanity will metamorphose into mask-wearing strangers, living in claustrophobic confinement, a far cry from the ecstasy of globalization.
Even assuming that the virus disappears, the terror of its re-emergence may well lead globalization to self-destruct. On the brighter side, humanity might mutate into a less selfish species, even if this sounds like an absurd drama.
The author is former Professor of Economics, Indian Statistical Institute, Calcutta