Global economy will be inexorably transformed after the year of Covid, writes Harini Calamur

“On 31 December 2019, the WHO China Country Office was informed of cases of pneumonia unknown etiology (unknown cause) detected in Wuhan City, Hubei Province of China. From 31 December 2019 through 3 January 2020, a total of 44 case-patients with pneumonia of unknown etiology were reported to WHO by the national authorities in China,” begins a WHO situation report from January 2020. An almost bland beginning to the year that will gone on to be seen as the year that all our lives changed.

According to WHO, there have been 78 million+ infections worldwide, and 1.7 million plus deaths so far. The dreaded second wave is yet to begin, and countries already ravaged by the first set of lockdowns are moving towards a second phase of lockdown. As the vaccines start rolling out, and the world anticipates normalcy with bated breath, here are three things that have forever changed in the world economy:

Diversified supply chains

a) The diversification of supply chains – For the best part of two decades, China has been the manufacturing base for the world. It manufactured everything from batteries to toys, from high-end gadgets to kitchen appliances. Even before Covid struck, there was murmurs of companies diversifying their supply chains and looking at other bases for manufacturing, apart from China. Part of it was the looming trade war, brought about by President Trump. The cost of tariffs imposed by the Trump administration on China made the cost of China-made products more expensive.

The second was about putting all your eggs in one manufacturing basket. With the Chinese government bringing in more laws to combat pollution, the relative advantage of China as a cheap manufacturing base was on the decline.

According to Gartner, 33 per cent of global supply chain leaders surveyed said they would be moving sourcing and manufacturing activities out of China. It is likely that there will be regional production networks.

The economic efficiencies derived from a world factory will disappear and it is likely that the era of low prices is over. However, if manufacturing is going to move to multiple geographies, this means some of the economic benefits that accrued to China from being the world’s manufacturing hub, will be derived by other regions.

Reverse migration

b) the rise of small towns and country life for city dwellers – If we look back at the last pandemic and its impact on the west, you will see a similar pattern. In the UK and the USA, those who could afford it, moved out of large, overcrowded cities, and into the countryside near the big cities. Across the world, as people went into lockdown and began working from home, geography became history for certain professions and skills. And we are seeing a similar trend across the world. Mega cities like London, San Francisco, New York, and Mumbai – traditionally magnets for the ambitious, have suddenly lost their sheen. People have moved back to communities where they feel most secure, to environments that allow for social distancing.

Governments now need to ensure that the infrastructure in these satellite towns – health, internet, schooling, water – are in place, to cope with the coming influx of people. As the large mega cities reduce in population, there will be a rise in mini cities that allow a cleaner, healthier and more affordable lifestyle for people. Rather than having a few large cities that are engines of the economy, nations will have a number of smaller engines that drive growth. It is up to the governments to recognise this trend and build for it.

c) The rise in economic inequality and the call for increased regulation of transnational corporations– informal economies, the world over, have been devastated by Covid-19. Women, labourers, gig workers, are amongst those most impacted adversely. The UNDP warns that if adequate action is not taken by governments across the world, over a billion people will be pushed back into extreme poverty by 2030.

Super-rich fare well

At this point of time, the only people who seem to have benefited from the pandemic are those belonging to the super rich category. A report by Pricewaterhouse Coopers and the Swiss Bank UBS, revealed that billionaires increased their wealth by almost 25 per cent at the height of the pandemic. Jeff Bezos, Mark Zuckerberg, Mukesh Ambani and the rest seemed to have done well, while most people in the world do not even have jobs to go back to. It is this disparity, seemingly unbridgeable that is rankling many -- the perception that the uber rich get away by not paying taxes, by not paying their people well, by decimating the rights of workers and breaking the laws of nations – in evading tax. Going forward, it looks like the loopholes that allow the fat cats to not pay tax anywhere, will be closed. It is likely that large monopolies are broken and a new normal, sans mega corporations, will come about.

And finally, it looks like we can manage to run a world while not polluting it. Much of what Greta Thunberg has been advocating in terms of a more sustainable way of running the world is possible. The world managed it, literally at a day’s notice. Going forward, sustainability will need to become part of our economic lexicon. If there is one good thing that has come out of the pandemic, it is the knowledge that sustainability is not an impossible dream. That drive towards sustainability will be a different kind of boost to the economy.

The writer works at the intersection of digital content, technology and audiences. She is a columnist, visiting faculty and filmmaker.

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