Transatlantic Dialogue VI – Global Economic Uncertainty: Managing the COVID-19 Shock
The sixth session of the BTI project’s transatlantic dialogue series “Troubling Trends in Transformation” co-hosted by the Bertelsmann Foundation North America (BFNA) focused on the economic and social consequences of the COVID-19 pandemic and how governments and the international community should respond to cushion this blow.
The findings of the Transformation Index BTI 2020 regarding economic transformation had already been bleak as they were. Hauke Hartmann (BTI) described the BTI results as a “a necessary reminder how battered many economies in the developing countries already had been, how heavily indebted many states were already before the pandemic and how persistently social inequality is marginalizing large parts of the population in many societies.” Insufficient economic performance on global average, paired with a looming debt crisis in many countries, was accompanied by only partially free and often unfair market and competitive conditions. This combination had left little hope that the socioeconomic marginalization of large parts of the population due to poverty and inequality could be overcome with any rapidity.
The economic and social fallout of the spread of COVID-19 thus hits many developing economies and emerging markets that are utterly unprepared to cope with such a major shock. Hauke Hartmann concluded that “the extent to which governments lacked any financial leeway before the crisis also illustrates their limited capacity for effective management in the crisis.”
In that sense, Rolf Langhammer (Kiel Institute for the World Economy) labelled the pandemic as a “terrifying combination of global demand and supply shocks which will diminish living conditions of all people in developing countries but to a very different extent.” To him, the overarching threat is a “huge social divide” as a likely outcome of the crisis. He differentiated by reminding of the divide between leisure industries / customer-oriented services and agricultural / manufacturing production (the latter less affected), the divide between those working in global supply chains and those in domestically oriented production (again the latter less affected) and the growing “digital divide”. He warned not to expect too much from China (unlike after 2008) and assessed that speed and timespan of recovery are uncertain so far. “Back to work” (production) will likely come earlier than “back to play” (consumption), he suggested. He called on debt relief, a reduction of protectionist measures by the G-20 and a stronger focus of development cooperation on primary health care systems as counter-measures. As one long-term result of the crisis, he predicted the return of the strong state.
Likewise, Carmen Reinhart (World Bank) held that a V-shaped recovery was unlikely and warned not to “confuse rebounds with recovery”. She agreed with the BTI 2020 grim pre-corona diagnosis by labelling the unfolding crisis “a double whammy” of a commodity-price shock and a pandemic-related crisis and reminded that “the initial conditions prior to this crisis in a lot of countries were a lot weaker than the initial conditions prior to the 2008/2009 crisis.” She lauded several initial responses and held that “the IMF and the World Bank have been doing record lending in over 100 countries”, approved of counter-cyclical monetary measures taken for the first time in several emerging markets but still warned that “as the shock persists, out tool-kit becomes more limited.” Noting that poverty is increasing, according to World Bank measures, for the first time again in many years, she called this “a big setback” and that indeed, “this time is really different.”
Rolf J. Langhammer
Fellow and former Vice President, Kiel Institute for the World Economy
Carmen M. Reinhart
Vice President of Development Economics and World Bank Group Chief Economist
Hauke Hartmann (Introduction)
Senior Expert, Bertelsmann Transformation Index BTI, Bertelsmann Stiftung
Anthony Silberfeld (Moderator)
Director, Transatlantic Relations, Bertelsmann Foundation North America
About the dialogue series:
The dialogue series “Troubling Trends in Transformation”, co-hosted by the Bertelsmann Foundation North America (BFNA) and the Bertelsmann Stiftung, intends to dig deeper into the findings of a troubled decade, both regionally and thematically. In cooperation with like-minded institutions and well-connected think tanks around the world, we discuss the current and future challenges to political and economic transformation as well as governance perfomance. The results of the BTI serve to kick off a broader debate on how to strengthen democracy, market economy and good governance in a post-COVID world.