Lessons Learned From the Coronavirus Crisis and What Comes Next

The coronavirus pandemic is proving to be the greatest challenge faced by the international community since the Second World War.  While some individual countries and regions have faced specific challenges that may have been greater on a local or regional level, this crisis is reaching every corner of the globe and has the potential to severely impact all countries and regions.  In fact, this is all-but-certain to be the greatest health emergency since the misnamed Spanish flu epidemic that infected 25% of the world’s population one century ago and left tens of millions of people dead.

Unfortunately, we are just in the early days of this crisis, which emerged from the markets of the central Chinese city of Wuhan just three months ago.  In fact, while the number of people having being diagnosed with the coronavirus, or Covid-19 as it is more accurately named, has risen dramatically in recent weeks, the current number of infections is likely just a very small percentage of the number of people that will eventually be infected.  

Furthermore, some studies suggest that only a small fraction of the actual active cases of the virus have been diagnosed so far.  Likewise, the number of deaths caused by coronavirus so far is probably just a small fraction of the total number of fatalities that will be caused by the virus, especially as the crisis spreads to poorer areas of the world in the coming weeks.

These facts indicate that there will be many major developments in this crisis in the next weeks and months, with the numbers associated with this crisis soon to become almost unimaginable.  As a result, it is probably too early to draw too many conclusions regarding this crisis, including why it emerged, how it spread so far and so fast, and who was to blame for this devastating pandemic.  However, we should try to learn some early lessons from this crisis so that we can both slow its spread around the world and work to prevent future crises of this nature from causing the same level of disruption, or worse.

The spread of the coronavirus from its epicenter in the central Chinese province of Hubei has been staggering.  At the end of January, there were less than 12,000 known cases of the coronavirus, and all but 159 of these cases were in China.  By the end of February, this number has risen to 86,600, with less than 8% of these cases being found outside of China.  

In fact, there were still some hopes in late February that the outbreak could be contained as, apart from China, the only other major outbreaks were found in Iran, South Korea and Italy.  Unfortunately, over the past month, the number of cases has risen nearly one million, with more than 90% of these cases now found outside of China.  This was due largely to the failure to prevent the Italian outbreak from spreading outside of its hotspots in northern Italy.  In fact, more than half of the current active cases of the coronavirus are now found in Europe, while many of the outbreaks underway in other regions of the world are directly linked to the Italian outbreak.  Now, there are major outbreaks underway in the United States, Turkey and elsewhere and there appears little chance that any part of the world will emerge from this crisis unscathed.

While there still much to learn about Covid-19 and how this crisis will evolve in the coming months, there are already some lessons that can be learned.  Here are some of them.

China’s Global Connectivity Comes With a Price: China’s economic miracle witnessed the world’s most populous country achieve average annual economic growth of 10% for a period of four decades, a process that lifted hundreds of millions of people out of poverty and made China the world’s second-largest economy.  Furthermore, China became the unchallenged center of global manufacturing, starting as a low-cost production center and now challenging the United States to be the world’s high-tech hub.  

However, China’s rise has generated a backlash.  The recent trade war between the United States and China that dominated the economic headlines until the eruption of the coronavirus crisis was a product of this growing resentment towards China’s role in the global economy and its domination of many manufacturing industries.  Nevertheless, governments and businesses were often hesitant to criticize China as the Chinese market was now their leading growth market for exports and contributed an ever-greater share of their revenues.  In fact, prior to the coronavirus outbreak, China was forecast to generate nearly one-third of all of the additional economic output generated on a worldwide basis this year.

Now, as the coronavirus crisis first disrupted global supply chains and then exposed many economies’ complete reliance upon Chinese manufacturers for many of the essential products and materials they need to combat the effects of this crisis, there are serious questions being raised about China’s extensive role in the global economy.  There are now questions about the impact of the over-reliance upon China that many countries and industries now face, questions that could lead to a dramatic shift in economic policy and could reduce future investment flows into China and lead to more protectionist policies being enacted by governments around the world.

South Korea is Unique: South Korea’s handling of its own coronavirus outbreaks has been widely praised by the international community, as it was one of the first countries outside of China to face a serious outbreak, with the number of cases of the coronavirus in that country rising from zero in mid-February to more than 7,000 less than three weeks later.  However, unlike in Italy, South Korea did an outstanding job in quarantining infected groups and carrying out widespread testing for the virus.  As a result, the number of new cases of the coronavirus in South Korea has risen very slowly in recent weeks, with an average of just around 100 new cases being discovered on a daily basis during that period.

What many are failing to recognize is that it is extremely difficult for other countries to emulate South Korea’s success in slowing the spread of the coronavirus.  First, South Korea has been one of the world’s most successful economies in recent decades, generating high rates of growth that have allowed for significant investment in the country’s healthcare infrastructure.  Second, and perhaps even more important, South Korea has spent decades preparing for a potential attack from North Korea, making that country more prepared than any other for combatting pandemics, biological weapons attacks and other such events.  The question going forward will be, will other countries seek to copy South Korea’s level of preparedness when this crisis is over, and could they do so even if they wanted to.

Europe Struggles With Another Crisis: Of all of the early hotspots of the coronavirus crisis (Hubei, Iran, South Korea and Italy) it was the outbreak in northern Italy that brought an end to any hopes this this outbreak could be prevented from spreading around the world.  In fact, it was the early mismanagement of this crisis by the governments of Italy and a number of other European countries that led to a new round of questions about Europe’s inability to deal with crises.  This was the second global crisis in the past 12 years that, while not having its origin in Europe, was made much worse by troubles in that region.  The first of these, the global financial crisis, began in the United States, but was dragged on by a series of debt crises in Europe that took years to resolve.  This time, the coronavirus crisis had its epicenter in China, but much of its global dispersion was the result of mistakes made in Europe.

There are a number of reasons why Europe seems so ill-equipped to deal with times of crisis.  For example, the uncertain division of power between national governments and Brussels has led to a great deal of uncertainty as to how responsibilities for dealing with such crises are allocated.  Another problem in Europe is that the region appears to specialize in half-measures.  In the financial crisis, it took years before businesses and investors were confident that the euro could survive and that southern European countries would not drown in their massive debts.  In this crisis, precious weeks were wasted as national governments largely took too much time to restrict travel and public gatherings, and when they finally did act, it was much too late.  

All of these factors highlight Europe’s lack of cohesion, particularly when it comes to dealing with issues that provoke national interests.  Furthermore, as European economies have struggled to grow in recent decades, this crisis has exposed the region’s increasing fragility, as evidenced in the growing dependence of European economies on export markets to generate growth, a factor that is likely to lead to Europe suffering a greater economic downturn than any other region during this crisis.

US Contradictions: As the coronavirus crisis has spread to the United States, there were many concerns about how the world’s largest economy would be able to deal with the social and the economic impact of this pandemic.  On one hand, the US healthcare infrastructure is among the best-prepared in the world to deal with such a crisis given the advanced nature of many US hospitals and research centers.  On the other hand, the US’ healthcare system is notorious for its bureaucracy, its high costs and the fact that 8% of the country’s population is without health insurance.  So far, the US has one of the lowest fatality rates in the world during this crisis thanks to its high numbers of ICUs and ventilators and large number of highly-skilled medical personnel, but challenges to the country’s healthcare system await as this crisis persists and as the number of cases continues to rise.

Likewise, the political management of this crisis has been a very mixed bag in the US.  Some leaders, such as Ohio Governor Mike DeWine and Dr. Anthony Fauci deserve praise for their handling of their responsibilities during this crisis.  On the other hand, many national, state and local leaders tried too long to downplay the threat posed by this crisis, costing their country, states and cities precious time when it came to preparing for this crisis and preventing its rapid spread across the US.  In fact, some states still have yet to impose a strict lockdown on their populations.

Looking ahead, the vast size of the United States offers it both some reasons for hope and some causes for concern.  For example, apart from a few cities (most notably New York), population density in the US is much lower than in hotspots such as northern Italy and this should prevent US infection rates from rising quite as high as in that region.  On the other hand, the fact that so many population centers in the US are relatively distant from one another suggests that this crisis could persist longer than in more crowded parts of the world as it will pop up only later in some areas.  If this is the case, it could force longer lockdowns in some areas of the United States, something that would slow the country’s eventual economic recovery.

Slow or Partial Measures Were Insufficient: Each of the main lessons mentioned so far reinforced one main idea, that slow and partial measures are insufficient when dealing with a crisis of this magnitude and speed.  On one side, South Korea’s rapid reaction to the initial outbreak in that country was proof that, with a quick and comprehensive response, the outbreak could be contained.  Likewise, China’s seemingly-draconian measures in Hubei, while too late to prevent the virus from spreading outside of that region, were effective in preventing the crisis from escalating too much in other parts of that country.

On the other hand, the slow and partial actions taken in other areas of the world proved that such measures were not only too little to stop this crisis, but actually made it worse by allowing the crisis to spread to more parts of the world.  For example, the slow reactions to outbreaks in areas such as northern Italy and the Austrian Alps resulted in the number of cases in those regions rising rapidly, while the refusal to immediately suspend travel links and public gatherings in those regions allowed the virus to be spread throughout Europe and much further abroad.  Likewise, we have seen tremendous differences in terms of the measures put in place in individual states in the United States, resulting in new hotspots emerging in states were stringent restrictions have not been enforced in a timely or consequential manner.

As this pandemic continues to spread, questions will be raised about the ability of most societies in the modern world to impose the level of restrictions needed to prevent such pandemics from going global in the future.  While China and other authoritarian states seem more capable of imposing such harsh measures on their populations, other states, including democratic states, or states where there is little centralized control, are likely to find it much more difficult to do so.  We have already witnessed much backlash against the lockdowns that have been in place in Europe and other areas in recent weeks.  However, to truly prevent such a pandemic and to avoid the massive economic disruptions we are now seeing, such measures will have to be enforced in the future.

Transparency is Important: While democracies may struggle with locking down their populations, they are much better when it comes to another key factor in combatting such crises, transparency.  However, in this age of social media and fake news, even fully transparent societies are struggling to convince their publics of the seriousness of the threat of something like the coronavirus and the need to take drastic measures to combat such a crisis.  Furthermore, as democracies become more fragmented and polarized, what is fact for one person may be propaganda or fake news for another, lessoning some of the advantages brought by transparency.

Despite these new-found troubles, the need from transparency remains very important.  This is made clear by the fact that, to the detriment of the rest of the world, China was anything but transparent in the first weeks of this outbreak, costing the world valuable time to prevent the spread of the virus and to prepare a response for its proliferation.  Other countries have also not been as transparent as they should have been.  For example, no one outside of Iran knows the true extent of the crisis in that country, but it is certain that the number of cases and fatalities there is much larger than the Iranian government will admit.  When this crisis is finally over, there will undoubtedly be a greater call for transparency on issues that affect the entire world, such as the coronavirus pandemic.  Whether or not this call is heeded is another matter.

Sluggish Economies Were Vulnerable: Over the past couple of decades, a number of countries have struggled to generate much, if any, economic growth.  This resulted in sharp declines in public spending in these countries and often left them bereft of investment in key sectors that would prove important in dealing with the coronavirus crisis.  In fact, some of the countries that have suffered the most during this crisis are among those economies that have recorded the least growth in recent decades, highlighting the importance of economic growth to a country’s security.

Two of the best examples of this are Italy and Iran.  Over the past two decades, no large economy has recorded less economic growth than Italy, a country that has fallen sharply in terms of comparative wealth and technological advancement.  Since 2002, the Italian economy has grown by an average of just 0.1% per year, a dreadful performance.  This lack of growth has led to lower levels of funding for that country’s healthcare system (which was once one of the best in Europe) and has resulted in Italy losing many of its most highly-skilled younger people who have moved abroad in search of better opportunities.  The same could be said for a number of other countries in Europe, a region that, apart from a few standouts, has struggled to generate economic growth so far this century.

Iran is another example.  The combination of economic sanctions, low oil prices and major disputes with most of its neighbors has left the Iranian economy in a desperate position.  In fact, after shrinking by nearly 4% in 2018, the Iranian economy is estimated to have contracted by at least 7% last year, and now faces another year of terrible economic results.  This, coupled with the country’s inability to import much of the equipment or medicine it needs to combat the coronavirus, has left Iran particularly exposed to the full impact of this crisis, as we have seen.  Unfortunately, there are a number of other countries that have struggled economically just like Italy and Iran, a fact that could make this crisis much worse in the weeks and months ahead.

Debt is Here to Stay: Unsustainable levels of debt played a key role in the financial crisis of 2008 and 2009, which in turn led to efforts around the world to reduce debt levels, at least on the public side.  However, it was clear in recent years that debt levels were once again beginning to rise in many key economies, particularly privately-held debt.  Now, as country after country announces plans for massive bailouts and economic stimulus programs, public debt levels are about to take off once again, reaching new heights in many countries.  At the same time, the loss of revenues suffered as a result of the dislocations caused by the coronavirus crisis are likely to push private sector debt to much higher levels as well.  

The estimates for these new levels of debt are certainly foreboding.  For example, the United States was forecast to run a budget deficit of 4.9% of its GDP this year, a level that was already considered to be too-high-for-comfort by many as the Trump Administration’s tax cuts were leaving a big hole in the federal budget.  However, with the Trump Administration correctly launching a massive $2.2 trillion economic stimulus program to combat the effects of the coronavirus crisis, the US’ budget deficit is now projected to rise to between 10% and 15% of GDP, which would be its highest level since the Second World War.  

In fact, these type of numbers are being replicated around the world as governments scramble to prevent entire sectors of their economies from collapsing.  As a result, already-high debt-to-GDP ratios are about to rise to even higher levels in most countries in the coming years.  Worse, as economic growth rates are forecast to be relatively tepid after the bounce-back effect in late 2020 or early 2021 has dissipated, paying off this debt will become increasingly difficult.  In fact, it is likely that governments around the world will be forced to make difficult spending cut choices, a situation that we have already visited in Italy, cuts that severely hampered that country’s ability to deal with the coronavirus crisis in an effective manner.

Nationalism and Protectionism Will Grow Stronger: If this crisis has exposed anything, it is the fact that the increase in nationalist and protectionist sentiments that predate this crisis have continued to grow stronger.  A good example of this is the “blame game” that has taken place since the crisis spread, with the blame for the crisis and its devastating impact on the global economy being handed to various countries, most notably China and Italy.   A good example of this is in Europe, where the European Union was meant to be the end of nationalism in that region.  Instead, as individual EU member states closed their borders, hoarded supplies and refused to assist their neighbors as the crisis spread across Europe, it was evident that nationalist and protectionist sentiment was alive and well in that region.

It is worth noting that international trade and foreign investment had been stagnant for many years before the coronavirus emerged.  In fact, trade and investment growth had stagnated well before the Trump Administration launched its trade wars with China and other countries, a sign that there was already a growing trend towards protectionism and localization (the production of goods, or the provision of services, close to their end-users).  Now, with this crisis exposing many countries’ complete dependency upon China or other foreign locations for many goods and services, calls for localization and protectionism are certain to grow, even as this crisis abates in the months (or years) ahead.  

Already, we have seen the rise of nationalist and protectionist sentiment play a massive role in politics in recent years.  This has been seen in the rise of Donald Trump on an “America First” platform in the United States, as well as the United Kingdom’s withdrawal from the European Union.  Likewise, more authoritarian governments have used these sentiments to justify their existence, often using the pretext of protecting their countries from foreign challenges to remain in power as long as possible.  Once this crisis eases and elections begin to take place again around the world, it is likely that nationalism and protectionism will again be key themes, this time competing with, or working in concert with, the “big governments” that will have emerged from this crisis due to the massive nationalization and bailout programs that will have been enacted during the crisis.

The Elderly Question: Unlike many previous pandemics, the coronavirus pandemic largely preyed upon elderly victims, as the fatality rate for younger and middle-aged people with the virus was extremely low.  For example, the average age of the people who have died so far from the coronavirus in Italy is 80.  In fact, Italy’s incredibly-high overall fatality rate from the coronavirus is due in large part to the fact that Italy is one of the oldest countries in the world and is a country where the elderly are much more in contact with younger people than elsewhere.

Well before this crisis, the issue of rising elderly populations around the world has been a worrying aspect for those of us who attempt to predict the future for the global economy.  The numbers can be staggering.  For example, the number of people living in Japan that are over the age of 65 has risen from 22 million in 2000 to 36 million today, a dramatic increase, especially when one considers that Japan’s working-age population has declined by nearly the same amount.  

In China, the number of people over the age of 65 has risen even more dramatically, rising from 88 million in 2000 to 172 million today.  Moreover, China’s over-65 population is forecast to double again over the next 20 years.  Altogether, nearly all of the world’s largest economies face the challenge of dramatically-increasing elderly populations.

One of the key questions for economists has been how can we make the over-65 segment of the population more productive, as in most countries, this segment of the population provides little in the way of productivity, while in some economies it is collecting large retirement benefits and is thus a drag on the economy.  This issue has again come to the fore, as during the coronavirus crisis, it is largely younger people that are suffering from the economic dislocations caused by a virus that largely spares them from any severe symptoms.  Indeed, the economic cost of protecting a country’s elderly population may prove too much to bear for some countries, particularly as the debts incurred by this crisis will have to be paid by younger generations.  When the inevitable government spending cuts have to be made, look for a good deal of debate on how much of these cuts should fall on retirement benefits, an issue that is likely to drive a deeper wedge between younger and older generations. 

Many Recent Trends Will Continue: Some of the longer-term trends that we have observed in recent years are likely to continue, no matter how great the disruptions from the coronavirus prove to be.  For example, the aforementioned localization trend is likely to accelerate now that countries have been shown just how vulnerable they are to disruptions to their supply chains and their access to vital materials.  Another trend that will be boosted by this crisis is the trend towards automation, as the disruptions to factories, warehouses and transportation networks caused by the need to protect workers from the coronavirus could have been mitigated by a higher degree of automation, a lesson that will have been learned by many businesses.

One trend that has been receiving a great deal of attention during this crisis has been home work.  For anyone that has had to sit in traffic for hours on end, the attractiveness of home work is clear and now that people have been forced to overcome the challenges of working at home, many businesses are likely to turn to home work as a means of reducing office costs and the wasted time travelling to and from the office (not to mention the environmental benefits).  Likewise, video conferencing is set to soar as businesses and organizations question the need to hold major events that force their attendees to travel great distances to be there.

As was mentioned earlier, the trend of stagnant levels of international trade and foreign investment in recent years is expected to continue in the wake of this crisis, as businesses attempt to source more of their goods and services locally, and as governments enact protectionist measures in response to this crisis.  Another trend to watch is the major attitudinal differences between younger and older generations, as younger generations will feel that the coronavirus crisis required great sacrifices on their part in order to benefit an older generation that has already benefitted from the economic and social systems put in place in the decades after the Second World War.  This could lead to growing resentment towards the elderly in some countries, widening the already considerable gap between different generations and leading to calls for older generations to pay their share when the bill comes due for the measures enacted to combat the impact of this crisis.

This Crisis Will Not Be Over Soon: Unfortunately, the predictions that called for the coronavirus crisis to be over in places such as Europe and North America by late April were little more than wishful thinking, as this crisis still has a long time to play out.  One look at China can confirm this.  While some sectors of the Chinese economy have gone back online in recent weeks, that country is still facing many lockdown measures more than ten weeks after the outbreak began there.  Furthermore, almost no country has enacted as strict of a lockdown as China did in the province of Hubei, and it is unlikely that any other country is able to enact so strict measures as China did.  Even as China has announced plans to relent on some of its restrictions on travel and public gatherings, it has had to quickly backtrack on some of these, including its new ban on foreign visitors to China and its decision not to reopen movie theaters.  Finally, there are many doubts about the accuracy of China’s figures related to the crisis, with much evidence to suggest that the death toll from the outbreak in China is much higher than Beijing will admit.

While it is sure that this crisis has a long time to play out, we still have a great deal to learn about the Covid-19 virus.  One major question is how this virus will react to higher temperatures as the summer begins to approach in the Northern Hemisphere.  Many scientists will be closely watching the situation in places where temperatures are already high, such as Florida or Singapore, to try and learn how the virus will react.  This creates much uncertainty as to whether or not the virus will continue to spread at a rapid pace in the coming months, or if it will recede for a few months, before coming back at full speed later in the year.  If it is the former, the restrictions that are now in place in most countries will have to be kept in place well into the latter part of the summer.  If the virus slows, but then returns in the latter part of the year, we could see many restrictions being kept in place well into 2021, a nightmare scenario for individuals as well as the global economy as a whole.

What is certain is that many great challenges lie ahead as the world reacts to the coronavirus crisis.  While some scientists warn that billions of people are likely to be infected, with tens of millions dying, the fact is that we still have much to learn about the virus, and we still have the chance to develop a vaccine for it, even if it takes many months to develop and make available to the public.  

One major concern is that, so far, the major outbreaks of the virus have largely taken place in developed economies that are better prepared to deal with the health and economic impact of this crisis (and even they have appeared very vulnerable).  As the outbreak spreads to poorer areas of the globe, the potential for massive numbers of fatalities cannot be ruled out, and the world’s developed countries are no longer in a position to offer poorer countries much assistance given their own struggles at the moment. 

As we move forward, the economic impact of this crisis will become more apparent.  Already, it is clear that most of the world’s largest economies are falling into a recession, one that could last much longer than is currently estimated.  Some forecasts suggest that many economies could see their output decline by as much as 10% this year, a figure not seen since the devastation brought about by the Second World War.  Meanwhile, social lives are being disrupted like never before, with families and individuals largely confined to their homes, with solitary walks, jogs or trips to the supermarket now being the extent of their lives away from their homes.  For children, the loss of access to their schools (and their friends) is a crippling blow, especially if schools remain closed until the next school year, or longer.  What is certain is that we are living in a period that will be recorded in history books for generations to come.  How it will be remembered remains to be seen, and hopefully, these future history books will record the resilience of the world’s population in the face of this dangerous pandemic and the impact that it is having on all segments of society and the economy.