There is a widespread belief that nothing will ever be the same after the coronavirus pandemic, with society, the role of government and the economy changing forever. Some predict we will see a society that shows more solidarity and a new economic model that works for all, and perhaps a greater spirit of international cooperation, for example on climate change.
So far, much of the discussion of the economic effects of the crisis has focused on the unprecedented national measures to both suppress the virus and support the economy, with the hope that it will bounce back quickly after the epidemic subsides.
But increasingly the sharp falls in output are beginning to resemble the beginning of the Great Depression rather than a short recession. The epidemiological evidence suggests that it could be up to two years, rather than a few weeks or months, before all of the severe restrictions on economic activity can be lifted.
While we don't know for certain how quickly the epidemic will recede, the lessons of history suggest that a substantial economic recovery will require global economic cooperation. Continuing to put up barriers to protect national economies, as happened in the 1930s, could turn a national recession into an even longer-lasting global depression in our highly integrated world economy. Will the pandemic crisis be the turning point in globalisation, and what would the economic and political consequences of its retreat look like?
The scope of globalisation
Since 1950, economic globalisation has transformed the world economy, contributing mightily to rising living standards but proceeding unevenly with many countries and individuals losing out. Globalisation's scope extends from trade in goods and services to international migration of labour and, more recently, to finance.
Each has involved international agreement (in the case of trade) or a consensus that reducing barriers to immigration and global investment will benefit all. Underpinning support for globalisation was a strong belief that international economic cooperation would reduce the chance of another war in the aftermath of the devastation of World War II. And the world's leading economic power, the US, saw the opening up of the world economy as the key to economic growth that would counter the appeal of Communism.
Globalisation produced both winners and losers. The economic miracle of European recovery in the 1950s and 1960s was followed by economic miracles in a number of Far Eastern countries, from Japan to Korea and China by the 1990s, raising the standard of living of urban residents to near-Western levels. The boom reduced global poverty by a billion, mainly in China and India. Globalisation seemed to have conquered the world.
Inequality and slow-down
But since 2000, the political impetus for increasing global economic integration has slowed, as concerns about its effect on inequality have grown. Global trade talks started in 2000 failed to produce an agreement, while the backlash against migration has played a key role in the rise of right-wing populist parties in Europe and America. And the costs as well as benefits of financial globalisation became evident in the 2008 financial crisis.
While the pace of globalisation may have slowed and political support for it has weakened, our world is more connected than ever. For American farmers and car manufacturers, China is their biggest market. Britain's role as a global financial centre is the linchpin of its economy. Developing countries such as Bangladesh and Vietnam are increasingly dependent on clothing exports. And remittances from migrants are vital to the economy of many poor countries, from the Philippines to Nepal to Central America.
The sharp slowdown in the two world's biggest economic zones, the US and the EU, will reverberate throughout the global economy and probably have its biggest effect on poor countries.
But as this global economic crisis deepens, the prospects of global cooperation that might temper its impact seem remote. The US, for instance, recently rejected a recovery plan proposed by the G7 because it wouldn't use the term "Wuhan virus" to describe COVID-19. Without such agreements, the economic crisis will be longer and deeper, and produce greater inequality both within countries and between nations.
Taming globalisation is not easy. The lesson of the 2008 financial crisis was that few countries were really prepared for international economic cooperation, despite the attempts to agree a global stimulus package in the G20 summits.
Now the coronavirus pandemic has led to even more barriers and recriminations between nations. Within the EU, countries have abandoned free movement and unilaterally erected national barriers to protect their citizens. There has been no serious attempt to share the economic burden, while Britain's exit from the EU will increase trade barriers further. The crisis has exacerbated the trade war between the US and China, with each blaming the other for the virus outbreak.
The lessons of history are not encouraging. During pandemics, societies have often scapegoated individuals, blamed foreigners and put up barriers to the outside world. Rather than the wartime spirit of World War II, a more disturbing parallel may be what happened in the interwar years after the last global flu pandemic of 1918-1919.
While the pandemic did not cause the slump in the interwar years, it was a harbinger of what was to come. The war-torn global economy sank as barriers to trade, competitive devaluation of currencies and the rickety structure of international finance exacerbated the crisis. Today, with our economies even more interconnected, we do not have the luxury of retreating into self-sufficiency to revive our national economies, as both the US and Germany did in the 1930s. Nor was the ultimate outcome back then one we would desire now.
The world now faces a stark choice. Find a way to harness globalisation to a common purpose, or retreat into isolationism and nationalism that will crash the world economy and increase international tensions. In the past, the US was the only country with the political and economic clout to organise a global response. Without strong US leadership, the prospects look much bleaker.
Author: Steve Schifferes - Professor of Financial Journalism, City, University of London