Author: Mark Randall
Historical analysis of the economic and political outcomes of previous pandemics suggests the world will again be changed. As with all destruction there is an opportunity for creation, though the question not yet able to be answered is as to what level will there be a destruction/creation dynamic.
There is evidence that in the US – the Spanish flu (1918) -resulted in the reduction of manufacturing workers supply, increasing the marginal production of labour and capital per worker and thus increasing real wages. There is little doubt that as the capital per worker increased it played a key role in the 1920’s having amongst the highest rates in US history of progress in factory innovation, efficiency and safety- as championed by Henry Ford.
Earlier, the effect of the Black Death was the inversion of the ‘expensive land’/’low cost worker’ relationship. The significant reduction in workforce inverted the land/work curve resulting in higher wages, lower land costs and increased negotiating power for workers. The counter-actions taken by the ruling classes gave rise to revolt and resulted in an end of the feudal system.
If Covid-19 is used politically to impact deeply on trade links; as the spread of pathogen being based on travel and therefore globalisation, it could have a long lasting negative impact . During the open trading markets of the Roman Empire, incomes achieved levels that would not be reached again for more than a millennium.
At present it is too early to tell but it’s seems the toll of Covid-19 could be relatively low. Even so we may see embracing of new technologies to increase work from home capabilities which could have a lasting impact on productivity.
Also it is likely we will see an increase in the security of manufacturing supply chains for nations and free trade areas as recently saw the EU issue a blanket ban on the export of critical equipment directing all to internal needs. This is a fundamental challenge to the free-trading finance-based model of Brexiters.
Politically it looks like a continued period of volatility as anti-globalists look to capitalise on the routes of the pathogen whilst internationalists look for global agency and coordinated responses, as the only rational approach to growth and risk management.
In a matter of weeks, we will probably have a better understanding of the levels of destruction and therefore the opportunities for change.