At the time when the world searches feverishly
for the means to cope with the economic and social havoc caused by the Covid-19
quarantine, potentially more important but barely noticed dynamic processes have
been started around the globe. While the germs of these processes were seeded when
the powers fought valiantly another manmade calamity – the Great Recession 2008,
it took almost 12 years for the period of their germination to be completed.
In the retrospect, what happened in
2008 was an instinctive reaction of the global capitalist system to adapt to emerging
economic realities that did not fit the political order of the day. But the ‘Old
Guard’– fearful of potentially unfavorable to them repercussions provoked by the
redistribution of wealth worldwide – stupefied the instinct by issuing
unlimited amount of what still serve as the global reserve currencies, that is US
dollars, Euros, Yens, etc. Unfortunately for the administrators of monetary
drug, the magic wand of ‘monetary easing’ has a limited time span and when it
fails – now or later – the last bastion of l'Ancien Régime will hang out the white flag and its remaining defenders will learn the
meaning of Latin phrase Vae victis: woe
to the vanquished.
The daily news provides ample evidence
to that conclusion. For easy reference, let classify them in three groups:
political, economic and social.
On the political front, the news
leads to conclude that:
- The
established international structures have malfunctioned because none of
them – be it UN, G7, EU, OECD, etc. – managed to raise its status as a forum
to tackle global issues, multilateral action for which is glaring. In
fact, while private citizens embrace the reality of ‘social distancing’
and restrict their contacts within their surroundings, the national
governments distance themselves as well and are less willing to put their
fate in the wrong (global) hands.
- Western
concept of solidarity has cracked further. In time when the access to
relevant medical supplies became urgent, the countries with their surplus
have pretended not to hear the distress calls from their less fortunate partners
with Covid-19 issues. Figuratively speaking, such indifference may be
interpreted as the signal used in the old French navy “sauve qui peut” (save yourself if you can) that
was used to indicate that a ship cannot be saved through collective
efforts and must be abandoned.
- Many
national governmental bodies have shown their political impotence. Being left
without the staff under the quarantine rules, they failed in the
democratic countries to instill the sense of security raising doubts
within the population in their ability to act. Observing on TV their
leaders “working from home” or, worse, staying sick in bed – as, for
example, Canada’s Justin Trudeau or UK’s Boris Johnson – makes the watchers
question whether they can rely on such authority in the first place. Several
episodes of medical and support staff walkout from nursing homes in Spain
and Canada indicate that public faith in the integrity of social system
approaches the point of no return.
- Traditional
mass media lose their lead in forming the policy agendas. Increased social
restrictions have interrupted the normal channels of transmitting
information from closed sources to mass media. In the atmosphere of evaporating
public trust in traditional sources of data and a greater importance of
social media, single bloggers become as potent political agenda setters as
professional journalists are.
From the economic point of view, it
is hard to ignore the following points:
- Western
governments disregard for budgetary discipline is again on the rise. Last
year, the US government suspended the requirement to observe national debt
ceiling for two more years. Last March the Canadian government failed to
release its annual budget as it does annually and which also serves as a
vote of confidence in the Parliament. For the time being the EU is still
resisting calls to implement extraordinary borrowing measures that would
cover the support programs of some ‘southern’ members of the EU –
so-called ‘Coronabonds’ – but as the economic situation deteriorates because
of nationwide lockouts, the sources of funding for the affected industries
need to be found anyway.
- The
central banks of developed countries have introduced significantly stronger
financial measures than in 2008-9 to bring about the stability of existing
economic system. Yet, this supposedly potent counterattack in the defense
of ‘old order’ has a risk to become suicidal as it may prompt the collapse
of social welfare systems of the participating countries.
- Recent
jerky movements of stock indices, which go out of line with the macroeconomic
developments potentially provoked by the interference of large institutional
players – such as central banks or treasuries – that intervene to support
national ‘economic flagships,’ reveal that the news of additional financial
support do not convince other market players.
- The
existing laissez faire trade system
is under heavy strain that may tear it apart. A supposedly minor
disagreement between Saudi Arabia and Russia on the crude oil quotas has
rapidly degenerated into a major issue that hit hard the interests of main
powers. The national governments of non-OPEC+ oil producers – notably, Mexico
and Brazil – had to join unwillingly the discussions on supply cuts
whereas other countries, such as USA and Canada, tacitly support what
amounts to forming a new cartel agreement. The latter development contradicts
their self-professed principles of free market exposing their moral
corruption at least.
- Gold
price is on the rise indicating another bout of public doubt in fiat
currencies. What is worse, the stock of physical gold appears to be
dwindling when such online retailers like Kitco claim to be “out of stock”
or offering “very low quantity of product.”
Finally, the quarantine has further
stressed the social fabric that has already been under strain for some time
because:
- Lavish
wage subsidy programs for displaced workers announced by governments undermine
the importance of traditional trade unions, churches and other social
formations as vehicles, using which professional organizations and
communities formulate and advance their social agendas. Why do people need
intermediaries if their needs are recognized directly by government?
- Strict
quarantine rules give additional impetus to the breakdown of family ties that
have been already weakened in the Western society. Now, teleconferencing
is promoted as an alternative to family reunions, weddings, birthday
parties and even funerals that may become entrenched as a new cultural habit.
- Increasing
atomization of the society coincides with the opposite process of
shrinking private space. It has become technically feasible to use
personal communication devices to monitor the movements of their owners or
to control their actions. Given that in some countries face recognition
tools are already employed to detect transgressors of the quarantine rules,
the users of these devices are at risk of being followed relentlessly in
real time if such measures become legal under emergency laws.
Taken together these observations indicate
that the role of government as a guarantor of social security is expected to grow
in importance. What is more startling – at least, for the English-speaking
countries – is the trend towards a new function of government as an economic
planner. The first role seems to have been already accepted in the US – a stalwart
supporter of personal liberty – due to the ongoing erosion of community bonds further
accelerated by the current rules of ‘social distancing.’ The second trend is somewhat novel given the earlier
reluctance of US authorities to interfere in supposedly private economic
affairs. However, the vitality of private enterprises is contingent on predictable
future earnings that become blurred without the price stability that, in its
turn, can be achieved alongside with lax monetary policy only if adequate sinks
are available to neutralize the impact of excessive money supply on prices.
At the moment such sinks are found
in various national ‘wealth funds’ and private savings external to the western
countries, but whether they have extra capacity to accommodate the next, even
more generous, round of monetary easing is still unclear. Another channel of
money neutralization can be found in the government speculative buying of the
stock when it is cheap and selling dearly when the private investors stop
panicking. Such so-called ‘reprivatization’ after the emergency measures are
lifted – like it happened with the GM stock 10 years ago – is feasible, but if the
investors sense the trick this time, they may not return to the market. A
broader doubt is that if the US authorities failed to tackle the public finance
issues before, finding the working remedy now presents an even more insurmountable
task.
Other observations concerning specific
developments expected in the near future are the following.
First, as the cost of maintaining
horizontally structured organizations grows due to the logistics problems, such
business practices as outsourcing will decline. On the contrary, the cost of
maintaining vertically integrated holdings, especially if they are supported by
the government, will become relatively smaller. In adverse environment a new normal for
the organization is to be organized as a walled around medieval town rather than
an open-space horizontal network.
Second, the stock of previously accumulated
physical resources will be eventually depleted because of the current bout of
financial generosity on the part of national governments. In the aftermath,
those nations that assure the continuous inflow of essential products will gain
in prominence at the expense of countries that previously specialized in trade
of semi-finished goods. The same argument can be applied to domestic
organizations whose absence from the market – due to the quarantine measures – will
expose them to be irrelevant to the social welfare.
Third, the ensuing simplification of
organizational structures makes economies less productive, at least in the
short term until new trade patterns emerge. As resources become scarcer, social
welfare expenses must be reduced resulting in a greater income inequality that
will prompt societies to search for new forms of cooperative agreements.
Fourth, the private space will be further
eroded. Asian-style societies with their loyalty and respect for hierarchy will
find themselves more suitable for a new normal but modern libertarians will be
devoid of means to continue practicing their beliefs. The living on personal savings
will become unrealistic as the precarious state of existing monetary systems,
built on fiat money, will reduce the importance of money as delayed consumption
instruments. An option of immigrating to new lands, more favorable to
libertarianism, is similarly unfeasible because the essentially completed globalization
has left no refuge for escapists.
In short, the steady state of global
economic system that persisted in 2009-2019 is perturbed one time more and
significant changes are underway. They will benefit the countries and
organizations that are more accustomed to paternalistic modes of governance,
more self-sufficient in resources and less dependent on international exchange
as well as where popular cultures are receptive to hierarchical structures and do
not shy away from the public way of life.
