IGTA Journal - Summer 2020

When it comes to economic upswings, the past is rarely a good guide to the future. Nothing about the way the world looked before the nancial crisis, with mostly stable politics and economic exuberance in major parts of the advanced world, could have provided even a remote signal about the key traits of the past decade. But even in the depths of an unprecedented recession, three trends seem to be emerging that provide clues about the future. HEALTHCARE First, the state is set to play a much greater role in day-to- day life and economic activity, especially when it comes to healthcare provision. Across the world, the coronavirus pandemic has revealed that: 1) existing healthcare facilities have struggled to handle a sudden surge in demand; and 2) some countries rely too much on long-distance imports for crucial medicines and equipment, which creates a dangerous bottleneck when demand rapidly picks up. In response, governments are beginning to reinforce their healthcare systems. Beyond the near-term surge in spending to beat the virus, expect sweeping regulatory change, more healthcare spending and a more active trade and industrial policy to onshore production of key medicines and equipment. That crises reveal shortcomings that governments address thereafter is not really news. The partial repair of the global banking system after the 2008/9 nancial crisis is a case in point. However, there are crucial di erences between now and the 2008/9 experience. Unlike repairing the nancial sector, which required growth-sapping increases in regulation and capital in the banking system, improving and reinforcing healthcare sectors across the world should not drag on economic growth. With no past excesses to deal with, there is no payback in the years to come. No boom, no bust. Meanwhile, building a more resilient healthcare system will involve higher capital investment – in hospitals and factories – and more spending on research, doctors and nurses. That should be good for economic growth. SHORTER SUPPLY LINES Second, expect accelerated deglobalisation in goods trading. Frustrated by slow growth in the post-Lehman world and the increasingly visible costs borne by the losers from trade and immigration, rising economic nationalism had already started to put globalisation in goods trading into reverse in recent years. US-led protectionism under the banner of President Donald Trump’s ‘America rst’ trade policies had triggered a trade war with China. In Europe, the UK’s decision to leave the EU will raise trade barriers between the world’s fth-largest economy and the world’s largest single market. And in Asia, an ongoing dispute between Japan and South Korea extends well beyond trade and is rooted in the messy legacy politics of World War II. Now, reacting to the disruption in global trade ows and supply chains, manufacturing and production industries will shorten and diversify supply chains further, as well as raising inventories. As they forego some of the earlier gains of globalisation, some trade-orientated sectors will lose a bit of momentum in line with a slowdown in trading in goods. A public policy response to ‘onshore’ strategic industries and produce vital medicines and equipment at home will add to this trend of deglobalisation in trading in goods. INNOVATION Third, expect innovation to accelerate. A crisis can be the mother of invention. The coronavirus shock is likely to spur innovation in many elds, ranging from a more e cient use of labour and communications technology to increased use of 3D printing. Many companies that have already used such technologies well in recent years, especially those in the US tech sector and in high-end European manufacturing, have vastly outperformed their peers. If working habits change permanently, especially working from home, that will further raise demand for technologies that facilitate remote working. Expect higher investment in the years to come as many companies upgrade their capital stock and adjust working practices. This was slowly happening anyway, but now it will happen faster. Robotics, 3D printing, remote technologies facilitated by cloud computing – these will soon become the standard for many more companies and workers. In the long run, the resulting jolt to productivity from faster innovation may be stronger than the drag from deglobalisation in goods trade, as long as governments do not turn THE PANDEMIC HAS FLAGGED WEAKNESSES IN HEALTHCARE SYSTEMS THE WORLD OVER. SOLUTIONS FOR FUTURE CRISES ARE CLOSE AT HAND. KALLUM PICKERING FLAGS THREE MAJOR TRENDS FOR THE POST-COVID-19 ECONOMIC ECOSYSTEM POST-CORONAVIRUS MORE INNOVATION, LESS GLOBALISATION 08 June/July 2020 treasurers.org/thetreasurer IGTA eJournal | Summer 2020 | 37