May 4, 2020
77% of companies have reported Q1 earnings and it is no surprise the pandemic has taken an enormous toll. The earnings results provide support to pundits suggesting a longer economic recovery than some earlier, more optimistic predictions. The economic impact of the pandemic may well call into question much of what used to be normal, from the future of sports to the established global order.
The foundations of today’s global economic order were laid at the United Nation’s “Monetary & Financial Conference” which took place in 1944 when delegates from 44 nations got together in Bretton Woods, New Hampshire. The purpose of the conference was to plan the rebuilding of economies after the destruction of WWII. This conference created the International Monetary Fund (IMF), the World Bank, and envisioned the US dollar as the new “global” currency. Many currencies soon became pegged to the US dollar as a means of maintaining stability. The conference saw free trade as an integral part of the future. Stable currencies, and promise of redevelopment capital, were not all that was needed for trade to develop and persist. Security was paramount, and the US military made this possible.
The result was the greatest economic expansion in history. In 1945 there were 68 countries; today there are 195. Worldwide per capita incomes and life expectancy have soared especially in many less developed nations. The economic prosperity of market-based economies ultimately led to the fall of communism in Eastern Europe, and the fading away of Europe’s conceptual Iron Curtain. Concurrently, China adopted more free market approaches under Deng Xiaoping, and morphed from an agrarian society into the world’s second largest economy.
Today’s crisis has produced much finger pointing for the cause and effect of the pandemic, especially in the world’s two largest economies. Some in the US suggest the virus originates from a Wuhan lab. Meanwhile, the Chinese have sought to posture themselves as good global citizens, with transparency of purpose and “gifts” of medical supplies. Nationalistic views from each country are on the rise, but this is no surprise as both have been taking a more protectionist stance for some time. Security issues are also increasingly uncertain. Even before the Coronavirus outbreak the Europeans were making noise about the role of NATO, with the French President Emmanuel Macron suggesting “Europe is on the edge of a precipice” and warning of a Post-NATO Europe.
Global leadership is always in short supply, and it is even harder to find right now as countries fall into survival mode. Will the global order to which we have been accustomed be replaced by regionalism or do we nosedive back into protectionism? How will countries group together for security purposes in the future? By the time we find a vaccination for the coronavirus, we might already be moving towards a new global economic and security order. Let’s hope that competition, innovation and creativity do not get sacrificed along the way.
Gary B. Martin