Covid-19 has brought the global economy to its knees
The pandemic has been an enormous...
...synchronised global economic shock on a scale...
...which has not been seen since the second world war
By the end of 2020 the world’s GDP may be about 7.5% lower...
...than it would have been without the pandemic
Globally more than 15% of young people...
...who were in work before covid-19 have lost their jobs
Widespread lockdowns have turbocharged changes...
...that were already affecting the world economy...
...in technology, finance and trade
How governments adapt to these seismic changes...
...will determine how rapidly countries’ economies can recover
In April this year...
...American unemployment was the highest since the Depression
Back then around a quarter of Americans were jobless
But from the bleak Depression of the 1930s...
...was born the “New Deal”
An ambitious federal plan to create jobs...
...and kickstart the economy
40% of those seeking work have found it
We have a long way to go...
...but we are on the way
The crises of the 20th century forced governments...
...to change their policies for the better
It’s often been the case...
...that after big periods of economic upheaval...
...you’ve had a reforging of the relationship...
...between the individual and the state
The second world war was followed...
...by an expansion of the welfare state in Europe
And high unemployment and inflation of the 1970s...
...led to Ronald Reagan’s and Margaret Thatcher’s...
...free-market economics
But in the 21st century the largest economic shocks...
...have not led to such a change
The global financial crisis
People thought maybe you’d have a rethinking...
...of how banking worked
But in the end, you only got incremental reform
The effects of trade with China were not adequately anticipated...
...by Western policymakers
They did not think about the impact it would have...
...on some workers who were exposed to it and...
...I don’t think enough thinking had been done...
...about the implications of big tech...
...for the economy and society
Those on the losing side...
...of these economic shifts have felt left behind
The result is: you’ve got the rise of populist politicians...
...like President Trump
The vote for Brexit
The rise of right-wing, economically nationalist populism...
...around the world
And then among the young you have this leftward drift
This support for politicians like Bernie Sanders, for Jeremy Corbyn
The pandemic is the fourth economic shock of the 21st century
This time, governments could choose to respond differently
In the aftermath of the global financial crisis...
...many governments, especially in Europe...
...chose to tighten their belts rather than spend
The result was slow economic recovery
You had governments which turned to fiscal austerity...
...to cutting spending to balance their budgets too soon...
...which also weakened the recovery...
...and made it slower than it otherwise could have been
Now we have the pandemic...
...an economic downturn that’s very deep
And I think it’s important that governments...
...don’t repeat the mistakes of the 2010s
So far, spending is exactly what governments have been doing
And to pay for that spending governments have been borrowing...
...a lot
To keep borrowing costs down...
...central banks in America, Britain, Japan and the euro area...
...have created new money worth almost $4trn
That money has financed household-income payments...
...furloughed millions of workers and bailed out businesses
At the moment, interest rates are very low...
...and so despite the fact that you have this enormous debt...
...that’s been run up as a result of the pandemic...
...the costs of servicing it are not high
So there is no doubt that there’s space...
...for governments to support the economy
But no one knows if—or when...
...interest rates are going to rise
And should that happen...
...it’ll be the taxpayer forced to shoulder the burden...
...of this vast public debt
The balance governments have to strike...
...is not turning to austerity too quickly
But then once, if and when interest rates start to rise...
...to be aware that they are very indebted...
...and they need to ensure that their fiscal policies are sustainable
The pandemic has brought about enormous changes
Perhaps the biggest is that for many people...
...the office has gone from here...
...to here
And on the whole, they seem to prefer it
60% of Americans who can work from home...
...want to continue doing it at least one day a week after covid
And in the long term...
...it could boost economic growth and actually decrease inequality
One of the chief constraints on growth...
...was the fact that it was very expensive to live near cities...
...where jobs were increasingly congregating, especially good jobs...
...in places like London, Paris, San Francisco, New York, Tokyo
So there is clearly an opportunity...
...if people do shift towards working from home...
...to ease that constraint
Working remotely has been made possible...
...thanks to a fast and widespread adoption of technology...
...which existed before the pandemic...
...but wasn’t being used to its full potential
This digital push that’s now taking place...
...as a result of the pandemic...
...will lead to accelerated change in the economy
Ultimately, disruption is what drives long-term living standards
The important thing is that governments...
...I think, embrace this change rather than standing in the way...
...and seeing it as a scary force that must be stopped
Of course, not everyone will benefit...
...from the remote-work revolution
The urban service sector, in particular, is expected to shrink
But voters may be more likely to support disruption...
...if the risks are shared more equally
When the world went into lockdown...
...millions of businesses found themselves unable to operate...
...and with no way to pay their employees
So governments were forced to respond in an innovative way
I think that’s because there was this widespread sense that...
....you couldn’t do anything about the fact that you were unemployed...
...as a result of the restaurant at which you worked being shut
Lockdowns were a bolt from the blue
And so the government stood behind everybody...
...and replaced household incomes to an extraordinary degree
In America Congress announced a stimulus package worth $2trn...
...which included direct cash payments to almost every American
The British government rolled out a £30bn job-support scheme
And in Europe’s five largest economies...
...more than 40m workers were placed...
...on government-funded, short-work schemes
The downside to furlough schemes...
...is that they do have this potential...
...to keep people locked in zombie jobs...
...which aren’t coming back when the economy recovers
But the principle, that household incomes in some sense...
...can be underwritten during a large economic shock...
...over which those households have no control...
...is, I think, an interesting one that could be applied in future
What we’re seeing this year...
...is that governments can move pretty fast...
...to put money in the pockets of households directly...
...and the households will spend that money
Direct cash transfers to households do work fairly well...
...and are not subject to quite the same level of haggling...
...and perhaps the same degree of waste...
...that you might get with other forms of fiscal stimulus
While governments have sought to intervene domestically...
...internationally there has also been an increase in protectionism...
...when countries shield their industries against foreign competition
The crisis has caused panic about the fragility of global supply chains
Stalled production lines across China
The global supply chain right now is disrupted
A lot of firms this year...
...paid a lot more attention to their supply chains
And it’s more fashionable now to think about the robustness...
...and resilience of those supply chains...
...which often means bringing them closer to home...
...or at least diversifying your suppliers
There was concern in particular around personal protective equipment
Many countries blocked export of PPE and similar items
According to the IMF...
...there have been almost 120 new export restrictions this year
This is coinciding with a movement towards protectionism...
...on a global scale, with a trade war between America and China
And it’s clearly a risk that coming out of the pandemic...
...you have leaders who are...
...very concerned about promoting national champions...
...less concerned about competition rules...
...and really want supply chains brought home
Despite this shift towards protectionism...
...there is reason to be optimistic
Government economic response to the virus...
...has been swift and on a massive scale
I don’t think many people would have predicted...
...that government would act that fast and that capably
They’ve acted much better...
...I would say on the economic side...
...than they have in terms of controlling the disease in many countries
As with the economic shocks of the 20th century...
...covid-19 presents an opportunity...
...for a reforging of the relationship between...
...government and the individual
In ways many hoped would follow the previous shocks...
...of the 21st century
The question is whether today’s politics is up to the job