COVID-19 is the world’s greatest public health crisis in over a century. In most global crises, the real economy is undermined, and solving the crisis means restarting the economy. Here, the world has been required to shut down much of its economy to fight the health crisis. This abrupt curtailment of the real economy to address the public health crisis has transmitted to the financial economy, disrupting markets and liquidity and depressing asset prices. That sequence is very different from 2008 when a crisis erupted in the financial economy and transmitted to the real economy. Thus, comparisons between today and 2008 must be made carefully. Having said that, three critical lessons from 2008 have thus far gone unheeded:
Never before have so much science and innovation been focused on solving a single problem. But we should also be very mindful of what the aftermath of the crisis might look like. Will we continue to turn inward or join together to solve big global problems?
We are in this together. Accounts of the G20 response to the 2008 crisis touch on the initial messiness of coordination, but for the most part, government leaders quickly understood that they would either stand together to solve the crisis, or they would fall separately.
More than a decade later, a growing number of countries have now turned inward in the false belief that, like medieval fortresses, they can pull up a drawbridge and isolate themselves from the rest of a modern, tightly interconnected world in which trade comprises 60 percent of global GDP. Competition rather than cooperation has characterized some of the responses to the pandemic.
While it is likely that this crisis will accelerate the reconfiguration of global supply chains that was already underway, it is important for us to pause and consider what we stand to lose if de-globalization continues on its current path. Medical experts understand that viruses and epidemiology do not recognize borders and have set an example for all of us in how they are sharing information aimed at mitigating the spread of the virus, treating the ill, and creating a vaccine. They know that a half-hearted and fragmented approach to a global enemy is not going to work. Global coordination worked in 2008, and we should apply it to this crisis as well.
Act now, not later. While we had multiple warnings over recent years that health-care systems around the world were not equal to the inevitable outbreak of a pandemic, our continued focus on the here and now distracted us from planning for the long term. But pandemics are not the only long-term global challenge we continue to kick down the road. As long-term stewards of our clients’ assets, State Street has urged companies and their boards to focus on the long-term risks to their ability to generate value. And, while institutional capital is more important than ever in helping to solve the long-term challenges we face as a society, investors alone cannot remedy destabilizing global forces like pandemics, climate change, or inequities tied to wealth, education, or health-care access. Focusing on the long term has to be part of our daily work, whether we are investors or government leaders. Like the financial regulators in the wake of the 2008 crisis, we need to take action today to avoid bigger problems in the future.
Leadership matters. We know from history in general, and the 2008 financial crisis in particular, that effective leadership makes all the difference during difficult times. Governments and institutions need to provide leadership and the infrastructure and expertise required to make progress. Unfortunately, in the decade since the financial crisis, many of the postwar multilateral institutions have declined in influence and effectiveness, and too many governments are polarized. This pandemic should be a wake-up call for all of us to re-examine the government’s role and capability to lead in times of crisis, both at home and abroad. If the government cannot protect the health and safety of its citizens against enemies seen and unseen, what is its purpose? This is a time for government leaders to step up and take responsibility, to focus on our common humanity and the better angels of our nature.
I have no doubt that we will ultimately win the fight against COVID-19: Never before have so much science and innovation been focused on solving a single problem. But we should also be very mindful of what the aftermath of the crisis might look like. Will we continue to turn inward or join together to solve big global problems? Will we act now to fend off tomorrow’s disasters or continue to kick the can down the road? Will we hold our national and international leaders to the highest standards of integrity and effectiveness or succumb to the disease of indifference and cynicism? None of us individually can control the COVID-19 pandemic, but we can control our reaction to it—and the lessons we draw from it.