Old man, poor man, a 21st-century tale

le vieillard et le pauvre, conte du 21e siecle

Old man, poor man, a 21st-century tale

Alain Roch

Alain E. Roch, MBA

President and CEO

Alain.Roch@bluebridge.ca

For the first time in the history of humankind, people’s lives  are taking precedence over the economy. This observation should lead us to reflect on two quasi-existential questions:  Why now, and what are the consequences for humanity?

Why this choice during the COVID-19 pandemic?

Because it’s the worst health threat? Like Yuval Noah Harari, Israeli historian and author of Sapiens: A Brief History of Humankind, I am not sure it is the worst global health threat ever faced. The influenza epidemic of 1918-1919 was worse; the AIDS epidemic was probably worse, and pandemics in previous eras were certainly far worse. As pandemics go, this is actually a mild one. In the early 1980s, if you contracted AIDS – you died. The Black Death [the plague that ravaged Europe between 1347 and 1351] killed between a quarter and half of the affected populations. The 1918 influenza killed more than ten percent of the entire population in some countries. In contrast, COVID-19 is killing less than five percent of those infected, and unless some dangerous mutation occurs, it is unlikely to kill more than one percent of the population of any country[1].

Be that as it may, international organizations and governments around the world  appear ready to allow a disaster, an economic catastrophe, to save lives. If that occurs, it will represent a true cultural revolution, an historic reordering of the hierarchy of our values, where human life is deemed more valuable than money.

 

Gaping chasms

Management of the COVID-19 pandemic is leading the world economy to an unprecedented recession.

The United Kingdom is in the midst of the European continent’s worst recession, as its gross domestic product (GDP) plummeted 20.4% in the second quarter, wiping out 17 years of economic growth. Australia is in its first recession in 30 years. India announced a record 23.9% drop in its GDP. The United States, the world’s largest economy, recently reported that its GDP had contracted by a 32.9% annualized clip in the second quarter, while Canada’s GDP contracted at an annualized rate of 38.7% over the same three-month period, its worst quarterly performance since data compilation started in 1961.

In Asia, the pandemic is widening the gaps between countries and exacerbating inequality. To stem the crisis and aid the most vulnerable, the governments of emerging Asian countries have unveiled programs worth $3.6 trillion (3.026 trillion euros), or 15% of their GDP, while aid and stimulus plans in advanced economies reach 32% of their GDP.  China is apparently the only bright spot in all this gloom, as it has managed to avoid a recession by containing the epidemic.

 

The hidden weaknesses in China’s recovery

Back on the upswing, exports suggest renewed strength in the world’s second-largest economy. In fact, China’s exports jumped at an annual rate of 9.5% in August, after posting a 7.2% increase in July, according to figures released by China Customs. This unexpected performance comes at a time when the COVID-19 pandemic has dampened global demand and the United States has been trying desperately to reduce its trade deficit with China.

Ironically, China’s surprising resilience is tied to a number of factors, including strong global demand for medical and protective equipment, but also for electronic products due to growth in teleworking and distance learning, as well as a drop in exports from other emerging countries that are still affected by the pandemic.

Does this vigorous export activity mean the Chinese economy is healthy? Not necessarily. The drop in imports, at least in value, shows that Chinese domestic demand is starting to falter. Imports fell by 2.1% in August (compared to August 2019), after decreasing by 1.4% in July. Domestic consumption in particular is lagging, unlike investment, notably public investment, which has been supporting growth since activity recovered in April.

 

What are the consequences for humanity?

For the first time in close to a quarter of a century, extreme poverty will increase around the world. According to a recent Word Bank report, management of the COVID-19 crisis will push as many as 150 million people into extreme poverty – defined as living on less than $1.90 (1.61 euros) a day – by the end of 2021. United Nations Development Program publications reveal that increases in poverty rates, almost mechanically, translate into increased mortality. For instance, a 3% decrease in gross domestic product for developing countries may be associated with between 47 and 120 more infant deaths per 1,000 live births…

This begs the question:  When should we disregard the health figures and focus on economic data and perhaps save lives? At what point is the cure worse than the disease? This is a legitimate question that brings us face-to-face with our vision of the world, our convictions, our fears, our religions, and our aspirations and our values.

[1] “Every crisis is also an opportunity”, Yuval Noah Harari, The UNESCO Courier, March 2020.