THE novel coronavirus pandemic has been the biggest global economic shock since the 1929 Wall Street Crash. In fact, its ramifications might be even bigger, given that, unlike the 1929 crash, our world is today an integrated global marketplace.
The 1929 crash was triggered largely by the crisis of over-speculation. During those years, there was no distinction between general commercial banking and investment banking. Banks could trade assets on their own behalf and on behalf of clients. Speculation linked to over-production led to the collapse of the capital markets. On the span of a single day, the New York plummeted disastrously. Overnight, billionaires became paupers. The spectacle of wealthy people throwing themselves from the rooftops of their proud towers became the iconic spectacle of those troubled times.
What made the crisis worse was that the Federal Reserve increased interest rates instead of reducing them. Firms collapsed precipitately. Unemployment fell to 24 percent. Britain as a world power had been in decline since the Anglo-Boer War of 1902. The pound sterling was losing its role as the global reserve currency. The reintroduction of the gold standard made matters worse. It reduced the room for manoeuvre for central banks. According to the theory of “hegemonic stability” as propounded by economists such as Charles Kind leberger, the stability of an international monetary order requires a leader or “hegemon” that is able to underwrite the system. The rising American republic unfortunately wallowed in isolationism during that decade. Those years were also accompanied by a relentless trade war among the world’s leading economies. A beggar-thy-neighbour policy was sooner or later bound to bring everyone into ruin.
According to the Berkeley economist Barry Eichengreen, fallouts from the 1929 crash were slow compared to what is happening today: “The production of goods and services fell by about a third, but over a period of three-plus years…The unemployment rate rose to about one in four, but over four years. Now what we are talking about is the possibility that the unemployment rate could shoot up very dramatically in a very short period of time.” Within the space of just weeks, more than 20 million Americans have joined the unemployment queue, while thousands of firms have sued for bankruptcy. Major airlines are teetering on the verge of collapse. Canada has switched oil production in Calgary altogether.
To be sure, America still remains Number One. But the signs of terminal decline are on the horizon. Uncle Sam still leads the world, with a GDP of US$20.49 trillion, as contrasted to China’s US$13.4 trillion. But when judged by purchasing power parity (PPP), China is very much ahead, with US$27.31 trillion.
The mandarins in Beijing are the first to shy away from such comparisons. They would prefer a quiet ascent to world power status. Through its Made-in-China policy and its multi-trillion-dollar trans-continental Silk Road project and relentless arms build-up, China is quietly repositioning herself as a super-power. The Chinese Yuan was recently admitted into the exclusive club of world reserve currencies and as a member of the IMF’s SDRs basket of currencies. China is at the verge of overtaking America. But she is in no position to underwrite the institutions of global order.
Matters have been made worse by America’s retreat from multilateralism. The trade war orchestrated by Donald Trump has been damaging for the open international trading regime that has guaranteed prosperity for my generation. When you add to it the tragedy of Brexit, then you get a grim picture of a gradual dismantling of the architecture of the New Europe. As I write, the borders of the EU remaining tightly closed due to Covid-19, amidst mutual recrimination. Italy has blamed her European partners for abandoning her to her fate. Earlier on, Paris and Rome had quarreled bitterly over the thousands of desperate African youths on rickety boats trying to cross the Mediterranean into Europe. Italy blamed France’s shadowy network of informal empire for destroying African economies, thereby forcing millions of African youths to attempt to emigrate into Europe. Like in the 1930s, Europe has become a theatre for a new ideological extremism. Populism has been on the rise in Hungary, Poland, Slovenia, Austria, Italy, Estonia and Sweden. No one knows what the post-Coronavirus Europe would look like.
For emerging economies, such as those of Africa, the pandemic has led to a capital flight of more than S$100 billion. Oil and commodity prices have collapsed. The spectre of debt and bankruptcy stares us in the face, and with it the fearful ogre of poverty and hunger. The prolonged lockdown has devastated local economies and undermined the social capital. In rich and poor countries, the lacklustre manner in which governments have handled the pandemic may trigger a crisis of legitimacy that could lead to upheavals and regime change.
From the viewpoint of global order, we should expect a deepening polarisation in international relations. At the height of the pandemic, there was mutual recrimination between China and America. When the pandemic blew out in the industrial city of Wuhan during last November, the Chinese blamed it on visiting American marines. Washington on its part blamed it as the handiwork of the virology laboratory in Wuhan. President Trump insisted on calling it “the Chinese virus”.
Conspiracy theories are currently all the rage. Some American lawyers are preparing a law suit to claim untold damages against Beijing. Our own indefatigable lawyers in Nigeria are making a claim of US$200 billion against China at the International Court of Justice (ICJ) at The Hague. The Germans are also charging Beijing for €149 billion (about US$160 billion). These potential lawsuits have caused not a bit of angst in Beijing.
There are some who view Covid-19 is a war that China has won without firing a shot. Knowing the warlike character of the Americans, they are unlikely to take it lying down, if they believe in their heart of hearts, that Covid-19 is a form of biological warfare that has been unleashed on their population.
The other aspect of Covid-19 that will polarise the world is the desire by some imperialist powers to use Africans as guinea-pigs in their quest for a new vaccine. Some French medical researchers were openly discussing on their national TV about how Africa is the “ideal” environment to test a new experimental vaccine. The WHO Director-General Tedros Adhanom Ghebreyesus, an Ethiopian national, had occasion to condemn that kind of racist rhetoric. He later complained of being the target of racist insults and taunts. To our dismay, the Trump administration announced they would be withdrawing their contributions to the organisation.
They accused WHO of allegedly being in cahoots with Beijing in concealing the culpability of the Chinese. The Chinese responded by pledging US$800 million in additional funding to the Geneva-based organization.
Ironically, the Chinese have also been throwing out Africans from their homes and from hotels in a new wave of racism that is unbelievably cruel and humiliating. Africa’s friendship with China will probably never recover from this shameful humiliation of our people.
Those who arrogate themselves the role of “Masters of the Universe” want to use the opportunity of the global pandemic to enforce a vaccine together with allegedly an invasive electronic surveillance implant that could undermine human liberty and the dignity of the human person as we have always known it. There are genuine fears that there is an undeclared agenda to reduce the African population. Many in Africa believe that this sinister agenda represents the rebirth of the spirit of Adolf Hitler and the Nazis.
The emerging polarisation of the world may engender new suspicions that will further aggravate international security. Further retreat from multilateralism will undermine global leadership which is so essential to maintaining global equilibrium.
Much is as yet shrouded in uncertainty. If the global pandemic beyond Q3 of this year, the world economy may face the prospect of a depression compared to the 1930s.
We are already in a global recession. Some economists predict that weface reduced global growth of 1.45 percent and a worst-case scenario of -1.2 percent. The modern world has known only one Great Depression – that of the thirties. The other depression was that of 1870, which is too far outside the purview of our contemporary imagination.
One thing is clear: an economic depression of global magnitude is likely to shake the foundations of international order beyond anything we could ever imagine.
In the bleak words of the German sociologist and jurist, Max Weber: “Ahead of us is not the bliss of summer, but, initially at least, a polar night of icy darkness and harshness, whichever group may outwardly turn out the victor. And when this night slowly begins to recede, how many will still be alive of all those for whom the spring had seemed to bloom so gloriously? And what will have become of all of you within yourselves?
Dumb acceptance of the world and man’s place in it?”
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