Not since the depths of the financial crisis has panic set in on the scale experienced over the past week. Conversations on the bus, at work and in the pub, arefocused on the prospect of a deadly disease spreading uncontrollably. Stock markets are falling as fear about the coronavirus spreads and the unfolding cost for the world economy becomes increasingly apparent.
Wall Street has suffered the fastest reversal since 1933 – the depths of the Great Depression – dropping by more than 10% in a week from record-breaking highs to the lowest point since 2016. More than $5tn (£3.9tn) has been wiped off the value of global markets over the past week alone. The FTSE 100 is not immune, plunging the most in a week since the 2008 crash. Markets are expected to fall further this week.
In the battle to contain the coronavirus through travel bans, school closures and the cancellation of business conferences, the damage to companies, economic growth and living standards could be untold. According to Capital Economics, world growth could collapse into recession for the first time since 2009 in the aftermath of the banking collapse. While the safeguarding of life takes primary importance as the death toll around the world climbs, the secondary knock-on impact to the economy will also have lasting repercussions. Hopes are the consequences will turn out to be limited. But chances are the damage could be grave, as the costs become more apparent by the day.
Faced with the growing impacton lives and livelihoods, it is clear that another parallel from the 2008 chaos is needed: a rerun of the coordinated international response to ease fears around the globe. But against the backdrop of nationalism and protectionism in Britain, the US and several other nations, such thinking could be entirely wishful.
During the last crisis of the international economic order, Gordon Brown led the global response by bringing together the world’s richest nations to tackle it together. Labour’s last prime minister played an instrumental role convening the G20 to organise the fightback by expanding government spending.
Until Brown stepped in to push the G20 as the vehicle for a greater global response, handling the fallout had been uncoordinated and shambolic. Even though his task was complicated by a relatively protectionist American president in George W Bush, a quick glance across the Atlantic now seems to render his difficulties wholly benign compared with the current tensions in global relations.
After the London meetings of the G20 in early 2009 with the banking system on its knees and riots on the streets, the world’s wealthiest nations agreed an unprecedented and concerted fiscal expansion, promising to create or save millions of jobs which would otherwise have been destroyed, with a price tag amounting to $5tn. It is hard to imagine such an approach in today’s increasingly nationalist world.
Despite that fightback preventing the Great Recession from becoming a rerun of the Great Depression, the collaboration didn’t last long. Soon after began the slide into austerity, populism and protectionism in many nations, leaving the door open to Brexit, Trump, the AfD, Bolsonaro and Orbán.
Today the world seems lacking in figures to orchestrate such a fightback. Boris Johnson is missing in action, unable to travel as far away as northern England, the west country or Wales to show leadership in the face of devastating floods. Donald Trump believes that all is fine in his election year, dismissing the biggest single-day crash in American stock market in history and labelling coronavirus as the Democrats’ latest “hoax”.
The story of the outbreak speaks volumes about the constitution of the world economy and political landscape after decades of ever-closer integration. At this time of questioning and challenging the international order, it is the tale of late capitalism writ large.
Despite only joining the world trade system two decades ago as a bit-part player, China, at the centre of the coronavirus outbreak, now accounts for around a fifth of the world economy and is key to supply chains the world over – a factor severely amplifying the economic fallout. Rising numbers of middle class citizens, cheap flights and better transport have boosted tourism numbers worldwide from about 500 million in 1995 to more than 1.3 billion in 2017. People are increasingly on the move, and with them, infectious disease.
Health scares are becoming more frequent, with increasingly evident links to global heating and extreme weather events. Rising flood waters, bush fires and hurricanes restrict access to sanitary water, food and living conditions, while applying added pressure to healthcare systems.
After a decade of austerity the fear is that the NHS might lack the capacity to respond, and it was confirmed last week by the eminent academic Sir Michael Marmot that austerity has had a disproportional impact on the life expectancy of the poorest in Britain.
Pandemics are more easily spread and have a greater impact as a result of globalisation, complex supply chains, travel and tourism. A world of 24-hour news and social media fuelled by rapid advances in technology – including the spread of fake news – fans the flames of panic.
It is a situation where fear can spread faster than the pathogen, says David Owen, chief European economist at the US Bank Jefferies, who warns that most economic losses from outbreaks of infectious disease result from the actions of unaffected individuals.
There are multiple lessons. Globalisation, technology and climate change make the spread of viral disease easier and incubate many other social and economic ills. But lurching headlong into a protectionist and luddite world will not provide adequate and lasting solutions.
The scale of our collective problems demand international coordination.