The world dreams of returning to normal. Of this crisis remaining in memory as just a nightmare. People cling to old adages of dubious legitimacy, such as that time heals everything. But nothing will be the same. The deaths, the insecurity and the anxiety on the one hand, and the disappearance of a large part of small and medium-sized businesses and commerce, and private and sovereign defaults on the other, are wounds that will remain for a long time in the most affected societies. It is, moreover, a global phenomenon.
Crises are times to learn. What was done wrong and what can be done better. This is not the time to improvise. It is imperative and necessary to plan ahead. Above all because another characteristic of this crisis is the speed at which events unfold. There is limited time to act.
The Second World War is the experience that seems most appropriate for understanding the problems we will have to face to emerge from this crisis. Pain, violence and human rights violations are not overcome by forgetting. Nor is the destruction of every value chain and of civilization, or the poverty that will arise. We must win the war against the virus as in the Second World War, by creating a new economic, social and political order. As in that war once it was won, economic collapse will be a reality and we will no longer be able to “go back to normal”, because the world will have changed. As in those times, we will have to show that we have statesmen and people capable of facing the situation and recreating a new reality for the next fifty years.
Indeed, just as the Second World War brought us the Marshall Plan, which made it possible to rebuild production and the supply chain in Europe, and Bretton Woods, which established a new global financial order, we will have to reshuffle the deck, that is, create new rules and institutions to which all nations adhere. As happened at Bretton Woods, this will require the cooperation of almost every country in the world. And this may be an opportunity to integrate China into the process of “building” that new order. I chose this word on purpose because it would be a serious mistake to speak of “rebuilding” the international order. And a mistake to think that it will be enough to have a single leader pulling the train.
The day after will find the United States in the midst of one of the most momentous and socially divisive presidential elections since the Civil Rights Movement, with double-digit unemployment and its capacity for subsidies exhausted. Will it be able to assume the role it had in those years? Does the world have a John Maynard Keynes in the UK, or a Henry Morgenthau, father of Franklin Delano Roosevelt’s New Deal? The fundamental idea behind the Bretton Woods Conference and the Marshall Plan was the notion of open markets. Economic nationalism was in decline. It meant that countries would maintain their national interest, but trade blocs and spheres of economic influence would no longer be their means. The second idea behind the Bretton Woods Conference was the joint management of the Western political-economic order, which meant that the major industrial democratic nations were to reduce barriers to trade and capital movements and coordinate financial policies.
Today globalization, which had been achieved after many years, has entered a shadow. Systems seem to exhaust themselves just as they are about to consolidate. A curious phenomenon that repeats itself throughout human history. Before the coronavirus, the isolationist ideas of the pre-World War II era had once again triumphed in the United States, as a by-product of uneven growth or unequal access among its population to the benefits of globalization and education. A divide was created between the “red states”, less exposed to the benefits of globalization, and the “blue states”, where the large urban centers and the most prestigious universities operate, receiving most of the educated immigration from developed countries. Now the United States will face double-digit unemployment (probably between 15 and 20 million people) and economic sectors that have disappeared for various reasons: among them because the lockdown or quarantine is an induced coma in which, when the patient wakes up, it will find that its business, its domestic or international market, its demand, will have changed or disappeared. The conditions for a V-shaped economic rebound will not exist, however many subsidies or zero interest rates are granted.
Before this crisis, Argentina based its expectations of recovery on the following pillars: generating hard currency revenues through traditional exports of agricultural commodities, gas and oil, and mining products. It relied on foreign investment in those areas, particularly in shale and mining, on a real estate boom, and on an increase in domestic consumption and therefore in tax collection through value added tax, all in parallel with greater control of public spending once the social sectors most affected by the restrictive policies of the previous government had been compensated. But at the same time, and very importantly, all of this was helped by a global economic recovery with a thriving China. Nothing I have described has escaped the direct and indirect damage of Covid-19.
One does not need to be overly pessimistic to imagine that, as a consequence of this outlook, there will be, among other things, political changes in many countries, social instability and a rise in terrorism. An increase in the number of countries in default is inevitable. Countries with ever-growing trade deficits will not be able to get out of them because of the global crisis, much less while paying ever-higher interest to service an ever-growing debt, thereby stifling local and global growth. It will be necessary to plan for the flow of capital movements and financing, and for mechanisms to promote market stability and avoid the sharp exchange rate swings that will arise.
All this can only be achieved through a collective effort capable of creating the institutional framework, mechanisms and tools to promote the necessary economic development, not only to reach the levels of growth the world had at the beginning of the crisis, but to lay the foundations of a new world, a new social, political and economic order.
(*) Alfaro-Abogados
