In the wake of Covid, many people have written “it is the end of the world as we know it” essays. This piece by John Gray is amongst the most ambitious, the most sweeping in its attempt to describe how the world will change post-Covid. Whilst we don’t necessarily subscribe to the viewpoint of most of these “turning point in history” essays, it is hard to disagree with Mr Gray’s key message: “The era of peak globalisation is over.”
Firstly, it is clear that the insecurity created by Covid in Western countries about their dependence on imports in general and on China in particular will lead to a reset: “…the hyperglobalisation of the last few decades is not coming back either. The virus has exposed fatal weaknesses in the economic system that was patched up after the 2008 financial crisis. Liberal capitalism is bust. …A situation in which so many of the world’s essential medical supplies originate in China – or any other single country – will not be tolerated. Production in these and other sensitive areas will be re-shored as a matter of national security. The notion that a country such as Britain could phase out farming and depend on imports for food will be dismissed as the nonsense it always has been.”
Secondly, many of us who used to secretly hate the endless amounts of air travel that we had to endure to promote our business interests will no longer willingly jump on to flights unless we are forced to: “The airline industry will shrink as people travel less. Harder borders are going to be an enduring feature of the global landscape….A way of life driven by unceasing mobility is shuddering to a stop. Our lives are going to be more physically constrained and more virtual than they were. A more fragmented world is coming into being that in some ways may be more resilient.”
Thirdly, countries – rich and poor – will be forced to invest in healthcare because now rich taxpayers realise that they can’t bathe in champagne whilst paying low taxes whilst the rest of the population lives in hovels and has low/no access to healthcare: “The once formidable British state is being rapidly reinvented, and on a scale not seen before. Acting with emergency powers authorised by parliament, the government has tossed economic orthodoxy to the winds. Savaged by years of imbecilic austerity, the NHS – like the armed forces, police, prisons, fire service, care workers and cleaners – has its back to the wall. But with the noble dedication of its workers, the virus will be held at bay…”
Mr Gray also poses two very interesting questions regarding our future. Firstly, how will the role of the state change in the post-Covid world? His view: “With all its talk of freedom and choice, liberalism was in practice the experiment of dissolving traditional sources of social cohesion and political legitimacy and replacing them with the promise of rising material living standards. This experiment has now run its course. Suppressing the virus necessitates an economic shutdown that can only be temporary, but when the economy restarts, it will be in a world where governments act to curb the global market…If the limits of growth are eventually accepted, it will be because governments make the protection of their citizens their most important objective….”
Secondly, will the balance of power between nations change in the post-Covid world? “China’s position is more complex. Given its record of cover-ups and opaque statistics, its performance during the pandemic is hard to assess…The virus has provided a rationale for expanding the surveillance state and introducing even stronger political control. Instead of wasting the crisis, Xi is using it to expand the country’s influence. China is inserting itself in place of the EU by assisting distressed national governments, such as Italy…
The EU’s fundamental flaw is that it is incapable of discharging the protective functions of a state. The break-up of the eurozone has been predicted so often that it may seem unthinkable. Yet under the stresses they face today, the disintegration of European institutions is not unrealistic….
An increasing influence on the EU will come from Russia. In the struggle with the Saudis that triggered the oil price collapse in March 2020, Putin has played the stronger hand. Whereas for the Saudis the fiscal break-even level – the price needed to pay for public services and keep the state solvent – is around $80 a barrel, for Russia it may be less than half that. At the same time Putin is consolidating Russia’s position as an energy power. The Nord Stream offshore pipelines that run through the Baltics secure reliable supplies of natural gas to Europe. By the same token they lock Europe into dependency on Russia …
In the US, Donald Trump plainly considers refloating the economy more important than containing the virus….Unlike the British programme, Trump’s $2trn stimulus plan is mostly another corporate bailout. Yet if polls are to be believed increasing numbers of Americans approve of his handling of the epidemic…Whether or not he retains his hold on power, the US’s position in the world has changed irreversibly.”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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