TL;DR – Normal is dead, so don’t be naively expecting business and life as usual after CB.
There is little doubt that the COVID-19 pandemic is one of the biggest disasters the world has seen in years and years. In fact, some people have even described it as World War 3. The scale of the pandemic is global and the impact on lives are in the millions.
However, the intensity and severity of this pandemic should not be measured only by the number of infections or deaths. It is just as important to take into account the consequences of the financial crisis that is bound to happen once we’ve gotten the global health crisis somewhat under control.
At this point, most Singaporeans seem more concerned about lives than livelihoods. Many are probably thinking that life will go back to normal once COVID-19 is over. Some may even be naively expecting business and life as usual once the circuit breaker period is over.
But nah, it’s not gonna happen.
Normal died in February.
Even after the circuit breaker, or even after the pandemic’s over, life will not be the same again, mark my words. If anything, we can only expect a new normal.
You see, although throughout the history of mankind, we have seen pandemics and big-scale disasters where countless lives were lost – the first Asiatic cholera pandemic in 1817, the Spanish flu in 1918, etc – what we have today is different.
Different because of globalisation
So despite our progress and despite advancements in healthcare and the related technology, the fact that the coronavirus can bring the world economy to a complete standstill was not something that we were expecting to see.
And yes, it’s because of globalisation.
Many of us, today, take globalisation for granted. It’s a way of life for us. Today, global supply chains are so central to the world economy that it feels like this has always been the case. Although international trade has always existed, today’s international trade as we know it is fairly new.
In some ways, we can say globalization is a post-1980s phenomenon. Even the term globalisation became a buzzword only in the 1990s. Coupled with the world wide web and digitalisation, it has transformed our world at a very high speed. So much so that until recently, it felt like globalisation’s here to stay forever. Until COVID-19 came along and now, it looks like things might not be the same again.
The challenges ain’t just about border closures, temporary travel restrictions or even social distancing protocols. But it’s more of how policymakers and businesses are now realising how fragile the just-in-time (JIT) delivery system of the global economy is, and how dependent national economies are on such a fragile mechanism.
It’s now hit us that with globalisation, the world economy is now so intertwined and countries so interdependent, the breaking of a single link in the chain is enough to cause a collapse of the world as we know it.
China was hit first. And it pretty much shut down the majority of its economy. Within weeks, this decision led to a supply shortage across the globe. Big MNCs were not getting their parts, small businesses were not getting their cheap corporate gifts and retailers were not getting their orders fulfilled. Everyone all over the world felt it.
As an example, let us take a look at the situation during the SARS outbreak 17 years ago. Back two decades ago, the world was not as interconnected. And China, and East Asia in general, were not the big players they are now in regards to global supply chains. Back then, China accounted for only 4-5% of global manufacturing, and today, China alone accounts for close to 20%.
Such is the difference between good old international trade and globalisation.
With globalisation, MNCs spread their production lines across the globe, taking advantage of cheap labour and lower taxes, wherever they found them. This means that it’s rare that a product is completely sourced, made and assembled in its home country.
But COVID-19 has thrown up some soul-searching questions for policymakers and businesses and one important one is whether the risks of globalised production outweigh its benefits.
So our next question must be: Is globalisation at risk?
Academia and analysts have also started pondering over the issue of whether the COVID019 crisis will undermine globalisation. This is already happening.
Here, let me extract the relevant part from Deloitte’s weekly global economic update (4th May edition),
Many countries have already engaged in protectionist action related to the crisis. Several have imposed restrictions on exports of medical supplies, drugs, and food. These include the United Kingdom, Brazil, India, Turkey, South Korea, and Russia. The intention of such policies is to assure adequate supplies, but the reality is that such action usually results in shortages. Restrictions by one group of countries could drive up global prices, compel other countries to follow suit, and thereby result in shortages.
Of course, one could argue that this is merely a short-term effect of a temporary problem. Yet we have already seen political and business leaders argue that the pandemic has exposed the fragility of global supply chains. The inference is that supply chains ought to be brought home to ensure against disruption.
In addition, the shutdown of factories in Europe and the United States will mean that when demand revives, it will likely be initially filled by imported goods from Asia that have been waiting to be shipped. The asynchronous nature of the revival of supply chains could spur protectionist sentiment.
Meanwhile, it’s probably useful to remind all that even before this pandemic, there were already murmurs in support of deglobalisation, and that in some countries, we were already seeing signs of that, especially from the China-US trade war.
The current POTUS, Donald Trump, is yet another curveball in this whole scheme of things. In the pre-Trump days, U.S. has always been one of the major players to lead the world in adopting certain concerted position regarding global issues. But not Trump, he’s not your usual POTUS-type of personality. He also appears to be more interested in domestic affairs than he is in global affairs, in playing a more visible world leader. In fact, he’s been criticising and sidelining the World Health Organisation (WHO) and has also halted funding recently.
If I can point you to the global financial crisis (GFC) in 2008/9, the G20 leaders discussed and even issued a joint statement to say they would not resort to protectionism. And mind you, the GFC was the greatest economic crisis since the Great Depression in the 1930s (although the COVID-19 crisis looks set to “surpass” GFC).
The G20 leaders’ position was shaped by the experience of the Great Depression when countries adopted beggar-thy-neighbour trade policies. That killed everyone. So back in 2008/9, the G20 countries shared that sentiment and committed to “prosper-thy-neighbour” instead, thereby avoiding a worse crisis.
So what about now?
Nope, there has been no concerted or joint discussions by the countries. As of now, we are already seeing countries imposing restrictions on trade and migration. Global cooperation is largely absent and acutely felt by how the supply chains have been disrupted. The US leadership is really being missed.
Then again, with Trump currently in charge, I’m also of two minds if it would really be better if US now decides to show up.
How would globalisation look like in the new normal?
I think there is likely to be a trend of governments offering incentives or subsidies for firms to move supply chains back to their home countries. But more importantly, we need to recognise that globalisation is not just about manufacturing things overseas. Many things can cross borders, including goods, services, money, people and yes, data.
In my mind, globalisation will not sink or tank because of COVID-19, but the pandemic will definitely change the nature of it. Even if fewer goods are being traded across borders, even if it will become harder to ship merchandise, other things will become easier. Because of COVID-19, many of us are getting crash courses in getting our work done online.
One good example is video-conferencing. We now have no choice but to embrace it, and as we do more of it, we realise how much good it does and how much time it can save. Perhaps physical trips and face-to-face meetings have been overrated and virtual meetings can be just as productive.
These digital know-how, in turn, creates opportunities, and can transfer the offering of products, goods and services. Not only does it change the work process, it can also trigger businesses to rethink their product offering and see if they can launch digital products.
Today, the quantity and value of data transmitting between countries is increasing. COVID-19 is likely to accelerate the growth even more. So is this globalisation or deglobalisation?
So long as no one quarantines data-bits across borders, then I think it can be boom time for digital products and digital work.
What’s gonna happen to our economy and our workers?
First things first, I think we all believe that one day, we will overcome COVID-19. Either a vaccine is developed, or enough people get infected that we achieve herd immunity, whatever. But yes, most of us will probably agree that one day, this will be over.
Secondly, whether you’ve realised it already, economists are practically unanimous in their assessment that the impact of this pandemic will be a global recession rivaling the Great Depression in its depth. There will be some very hard times ahead of us.
Thirdly, I think it’s inevitable that we will see a major collapse of the small business sector because of how long-drawn this COVID-19 battle is. If social distancing has to be observed and people are still encouraged to minimise social contact, a lot of changes in consumption habits will come. And as more and more people have their income affected or start to lose their jobs, spending per se will also be reduced. I can foresee that many smaller businesses are not going to be able to survive this downturn. Unless, of course, they can improvise and transform somehow to deliver either digital products or they can deliver their existing products digitally.
Fourthly, there will be a lot of job losses as businesses fold and sales drop. The numbers that many countries are reporting are the stuff that nightmares are made of. For instance, the US has lost 20.5 million jobs in April alone, and they’re not even at the peak of the coronavirus outbreak. In Thailand, they’re talking about losing 10 million jobs.
I don’t think Singapore numbers are reflecting the actual situation realistically since the Government is helping businesses with 75% wage support for these two months we’re on circuit breaker. But we can reasonably expect job losses once that wage support lifeline stops.
So be afraid. Be very afraid.
And if you have time now, you really should do three things.
One, do some financial planning. Be clear how much you have and how much you can sustain without income. Do some logical spread of investment, insurance and savings.
Two, think about what new sectors and jobs you can go into. Explore more than just your current sector or role, and have more than just one option.
Three, familiarise yourself with the new sectors and also go learn as much as you can regarding the possible new work that you can do. Take this crisis to rethink your work and income options, and also to upskill, reskill or better yet, multiskill.