Making the Best of a Post-Pandemic World
Insofar as the world economy was already on a fragile, unsustainable path, COVID-19 clarifies the challenges we face and the decisions we must make. The fate of the world economy hinges not on what the virus does, but on how we choose to respond.
CAMBRIDGE – The global economy will be shaped in the years ahead by three trends. The relationship between markets and the state will be rebalanced, in favor of the latter. This will be accompanied by a rebalancing between hyper-globalization and national autonomy, also in favor of the latter. And our ambitions for economic growth will need to be scaled down.
There is nothing like a pandemic to highlight markets’ inadequacy in the face of collective-action problems and the importance of state capacity to respond to crises and protect people. The COVID-19 crisis has raised the volume on calls for universal health insurance, stronger labor-market protections (including of gig workers), and protection of domestic supply chains for critical medical equipment. It has led countries to prioritize resilience and dependability in production over cost savings and efficiency through global outsourcing. And the economic costs of lockdowns will grow over time, as the massive supply shock caused by the disruption of domestic production and global value chains produces a downward shift in aggregate demand as well.
But while COVID-19 reinforces and entrenches these trends, it is not the primary force driving them. All three – greater government action, retreat from hyper-globalism, and lower growth rates – predate the pandemic. And while they could be viewed as posing significant dangers to human prosperity, it is also possible that they are harbingers of a more sustainable, more inclusive global economy.