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Coronomics takes over the world

News: Apr 03, 2020

– The rapid and global phase that we are witnessing right now can be likened to neither a classic recession nor a war. Instead, it is an entirely new phenomenon – coronomics.
This is how Martin Henning, Professor of Economic Geography at the University of Gothenburg, explains it.

In order to understand what is particular about coronomics, you have to look at the type of economy we have become used to over the past 20 years, Martin Henning explains.

– The world becoming more globalised means for example that we rely on incredibly complex and global logistics. Production chains with large inventories are outdated, instead components are delivered to companies in perhaps 20-minute intervals. The parts are manufactured in a large number of countries, which means that it is difficult to say where a car is really manufactured.

Changed global economic conditions

Businesses’ investments in other parts of the world are steadily increasing. This has led to the fact that approximately a third of the trade between countries is now taking place within different corporations instead of between them. And the ownership situation is a complex one.

– Add to this a fairly stable global financial sector – except during the financial crisis – increased labour mobility, increasingly comprising employees within the service sector, reduced trade barriers and fast information flows. Three blocs, the US, EU and China, are competing for the top spot in the global economy.

But for the past few months, this situation no longer applies. The coronavirus, Covid-19 has changed global economic conditions.

– The key word is mobility, Martin Henning explains. Suddenly, international travel is prohibited, and in reality domestic travel as well, and preferably we should only gather in small groups. Obviously, the travel industry is suffering, but so are all types of industries associated with travel, such as hotels, restaurants, events of various kinds, as well as supermarkets and shops. Business travel and commuting are also in decline, as well as some goods traffic. There are tailbacks, goods and services are delayed, production is rescheduled. The crisis has severely impacted labour-intensive industries, where wages are often lower. Those who are already vulnerable are the first to suffer, thus increasing the social inequalities that already exist.

Many find the current situation analogous to the outbreak of war.

– But that analogy falters: during war, a country switches to wartime production, but currently they are switching to – nothing whatsoever.

Fewer opportunities

Having fewer opportunities to meet also has other consequences that are more difficult to define, Martin Henning points out.

– It is when we meet and perhaps find ourselves taking part in an unexpected discussion, that new ideas are born. Of course, you can meet through Skype or Zoom but there will not be the same spontaneous exchange of ideas that you get when you are having a beer together. The amount of spontaneous, unplanned innovation that does not happen, is of course impossible to measure. But the fact that people are not meeting may have both social, creative and financial consequences.

Serious events wreaking havoc on the global economy is obviously not something that politicians and business executives are unaware of. But a severe crisis impacting both the US, EU and China simultaneously is simply something for which we were unprepared.

– And nobody knows how long the coronomics will last, Martin Henning explains. In about a month, things will perhaps return to normal, or the epidemic will strike again in the autumn. And unpredictability is the number one thing investors fear. Many expect the government to take charge and support businesses, thus saving jobs. But the treasury cannot match the industry turn-over in terms of amounts; Volvo AB and SAS for example generate billions each month, how can the government compensate for that? So the fact that politicians are hesitant and being uncertain about what to do is not so strange. There simply are no obvious answers to how the situation should be managed, since it is not like anything we have ever seen before.

Constructive in the long run

But one positive aspect is that all crises contain a component of change that may be constructive in the long term, argues Martin Henning.

– Governments all around the world should try to do everything to support the new business models and creative initiatives that have started cropping up in different places: Restaurants offering take-away food, hairdressers cutting customers’ hair at odd hours, assembly workers in factories working at a safe distance from one another. All the solutions are perhaps not perfect but it keeps operations up and running, while we wait for things to turn around.

Because we will see a return to normal, Martin Henning points out.

– Many people are wondering whether the global economy has simply had its day, and whether the best thing would be to return to national systems, like in the old days. But I would argue that that would be disastrous. Global trade has increased prosperity, in an astounding way, for most people around the world. Life has become better, simpler and more enjoyable. An integrated world is so much more beneficial than a more provincial way of life. Perhaps coronomics will instead make us realise the importance of global collaboration, so that we are better prepared and can act together next time a serious crisis strikes.

Facts
Coronomics describes the impact the coronavirus is having on the economy. According to Martin Henning, it is having the following consequences:
- Declining travel
- Decreasing demand for services
- Decreasing demand for products
- Hampering business innovation
- Creating financial concerns
- Creating difficulties in global supply chains
- Creating pressure on public finances; both healthcare costs, business support and compensation to individuals
- Certain parts of the labour force are severely impacted, such as workers who are paid by the hour, as well as employees in the tourism and hospitality industries
- Peculiar consumption patterns, such as unnecessary stock-piling

 

 

BY:
031-7861081

Originally published on: medarbetarportalen.gu.se

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