ULI MEMBER–ONLY CONTENT: In an opening session of the 2021 ULI Europe Virtual Conference in February, Peter Frankopan, a professor of global history at Oxford University, said that many experts were warning about the possibility of a global pandemic, but the lack of preparation and early detection added to its toll.
“I was in Downing Street, advising the prime minister’s office in December 2019, and I was asked what were the biggest challenges facing the world in the next decade,” said Frankopan. “I said the biggest challenge was a pandemic and our lack of awareness and preparation for it.” The focus of the panel discussion was primarily on the recovery and how the global health community can prepare for future pandemics.
Michala Marcussen, group chief economist and head of economic and sector research at Société Générale, said, “What we’ve seen from this crisis is truly exceptional. . . . It’s raising quite a few questions on our behaviors. If we think back to the global financial crisis, we were not in the same way questioning how we live and work to the same magnitude.”
Marcussen did point to some improving economic indicators. She pointed out that gross domestic product (GDP) in France during the first lockdown—or confinement, as the French describe it—was 30 percent below the fourth quarter of 2019. However, GDP in the last quarter of 2020 was just 8 percent below the same period in 2019.
“Now, the reason for those differences was very much about what the government allowed to continue to function during the second confinement period, which was keeping industry and construction open,” said Marcussen. “Nonetheless, an economy operating at 8 percent below its normal levels is still very severe and has a devastating economic impact.”
Marcussen also pointed out that vaccination programs should allow economies to open relatively soon and that government support throughout the pandemic meant that capacity had been protected, which would support the recovery. “This temporary economic support during the social distancing measures has basically allowed us to protect our productive capacity,” she said.
“And what we’ve also seen—and we observed this last summer—is when the economy is opened up again, we see the economy restarting fairly quickly. I think it’s very important that as we lift these various social distancing measures, we get the right balance in terms of easing the temporary support—not too quick, but not too late either.”
In the longer term, Marcussen said that it was vital that countries accept that there may well be further pandemics in the future. “We need to prevent a new crisis,” she said. “We need to think about how we can prevent new pandemics. And we need to think about how we can be better prepared to meet pandemics when they do happen. I think we do have to recognize that that risk is absolutely there.”
Marcussen warned that some jobs would be permanently lost to the pandemic and said that helping children and young people catch up on lost education needed to be made a priority. However, she added that she was encouraged by the fact that most governments are putting the green agenda at the heart of their recovery strategies. “In terms of securing that longer-term recovery, we’re seeing a lot of governments think about the green transition and this is something that I very much welcome—also in terms of the digital transition,” she said.
Many governments have also been talking a lot about investing in infrastructure, including green infrastructure. Again, this was something that Marcussen welcomed, but she also warned that it would need to work alongside shorter-term stimulus measures due to the long time frames involved in infrastructure projects. After all, according to the International Monetary Fund, it typically takes three to eight years to plan an infrastructure project and then a further three to seven years to build it out.
“So, if we’re thinking about getting the recovery on track—hopefully in 2022—you can appreciate that those lead times don’t make that type of policy a very good option for short-term recovery. That’s not to say we shouldn’t do it, because we need to think about the medium to longer term as well. But in the short term, what we’re seeing is that governments are focusing on other types of policy support and also focusing very much on upgrading existing infrastructure, which can be done at a quicker pace.”
In the longer term, Marcussen said that she had concerns that maintaining low interest rates could lead to problematic inflation, but she acknowledged that rates needed to be kept low initially to support the recovery. “I would expect to see the economy’s restart quite quickly, but I think the recovery behind will be a slow and choppy one,” she said. “I think we’ll still be in a fairly low interest rate environment for quite a long time.”
For Frankopan, one of the biggest question marks regarding the long-term impact of the crisis relates not to economic recovery but to governance. Asian economies are emerging from the pandemic with far lower levels of public debt than their European counterparts and have been generally seen as being more successful at protecting their citizens from the virus. Moreover, countries in eastern Europe are suffering from a brain drain to the West, which was already hampering growth before the pandemic struck. All of that combined could see countries moving away from liberal democracy.
“Countries like Poland and Hungary [are] going in another direction of looking for much more radical types of governments, looking towards Asia for its models,” he said. “And that involves compromises around the press freedoms, around freedom of speech . . . what normal looks like. I think that Asian models look attractive to lots of people for a reason.”
He added: “Ultimately, it will come down to how good our central bankers are. How good are the brains who work for the government? And that’s really the Achilles’ heel of the Western model right now. People who are clever go to work in the private sector, and the governments have to work extra hard to pull in the finest minds. If you’re in China, very obviously you have to work either with the state or for the state.”