ASIA
14 May 2020
The Normal Economy is Never Coming Back
We are now in the midst of a very long and difficult transition from lockdown to a return to normal, according to Laurence Boone, Chief Economist at the Paris-based OECD.
The Covid-19 crisis is unique in that it affects everyone, every country, and every economic sector at the same time, said Boone in an interview for the International Economic Forum of the Americas conducted by Reuters Breakingviews' Global Economic Editor Swaha Pattanaik. This is unique because crises are normally contained in one sector or geographical area of the world.
But the pandemic is also widening inequality as certain populations are disproportionately affected, notably those in densely populated areas, those with little social security, and those who cannot do teleworking and become unemployed. Further, emerging economies are more affected than advanced ones.
The Covid-19 crisis has many economic implications, Boone said. In particular, there is a need for a better balance between efficiency and resilience, notably for global value chains.
This means many things -- better diversification of sources of supply by reducing reliance on one source of supply, notably for medical supplies and equipment; strategic stockpiles of health and other essential goods and less focus on just-in-time production systems; longer term supply contracts; and while reshoring some production capacities is an important component, it would be too costly to try to onshore all production.
Second, we need better social safety nets and fairness. But we must also recognise that the wages of many health and other essential workers are too low. The social value of these workers exceeds their market value, and this must be corrected.
Third, it also means better preparation for risks like health care, climate change and cybersecurity.
Overall, Covid-19 has highlighted the critical role of government, according to Boone. But how can it be paid for?
After the Global Financial Crisis, Europe demonstrated the folly of economic austerity, which depressed economies even further. It will be important to grow out of the higher debt by making our economies more agile and flexible, and fostering the movement of capital and labour from lower to higher value added activities. But more progressive taxes will also be necessary argues Boone
How quickly will we recover from the Covid-19 economic crisis? There will not be a V-shaped recovery, according to Boone. We are now in the midst of a long transition phase from a lockdown to a return to normal.
This transition will take a long time, perhaps until mid-year 2021, as we still have neither a treatment or a vaccine for Covid-19. This transition period is long because many borders will remain closed for some time. And even as borders open, people's behaviour will be affected, they will not necessarily rush to travel again. Also some sectors will also remain affected, notably hospitality and tourism.
One of the most disappointing aspects of the Covid-19 crisis has been the dearth of international cooperation, Boone said. We could have done a lot more in terms of sharing data, experiences and lessons. Different countries do not even measure fatalities in the same way.
But the pandemic is also widening inequality as certain populations are disproportionately affected, notably those in densely populated areas, those with little social security, and those who cannot do teleworking and become unemployed. Further, emerging economies are more affected than advanced ones.
The Covid-19 crisis has many economic implications, Boone said. In particular, there is a need for a better balance between efficiency and resilience, notably for global value chains.
This means many things -- better diversification of sources of supply by reducing reliance on one source of supply, notably for medical supplies and equipment; strategic stockpiles of health and other essential goods and less focus on just-in-time production systems; longer term supply contracts; and while reshoring some production capacities is an important component, it would be too costly to try to onshore all production.
Second, we need better social safety nets and fairness. But we must also recognise that the wages of many health and other essential workers are too low. The social value of these workers exceeds their market value, and this must be corrected.
Third, it also means better preparation for risks like health care, climate change and cybersecurity.
Overall, Covid-19 has highlighted the critical role of government, according to Boone. But how can it be paid for?
After the Global Financial Crisis, Europe demonstrated the folly of economic austerity, which depressed economies even further. It will be important to grow out of the higher debt by making our economies more agile and flexible, and fostering the movement of capital and labour from lower to higher value added activities. But more progressive taxes will also be necessary argues Boone
How quickly will we recover from the Covid-19 economic crisis? There will not be a V-shaped recovery, according to Boone. We are now in the midst of a long transition phase from a lockdown to a return to normal.
This transition will take a long time, perhaps until mid-year 2021, as we still have neither a treatment or a vaccine for Covid-19. This transition period is long because many borders will remain closed for some time. And even as borders open, people's behaviour will be affected, they will not necessarily rush to travel again. Also some sectors will also remain affected, notably hospitality and tourism.
One of the most disappointing aspects of the Covid-19 crisis has been the dearth of international cooperation, Boone said. We could have done a lot more in terms of sharing data, experiences and lessons. Different countries do not even measure fatalities in the same way.