Five winners of the post-pandemic global economy, and a dark horse – Indiatimes

Five winners of the post-pandemic global economy, and a dark horse – Indiatimes

Even as Covid-19 continues to bubble up in hot spots all over the world, many people are asking which economies are poised to rise, and which to fail. The first principle is to understand the global environment at any point in time, which now means understanding which rules will be most critical in the post-pandemic world.

The pandemic is accelerating a broad turn inward that began after the global financial crisis of 2008. Globalisation had already given way to de-globalisation, with cross border flows of goods and money in decline before the pandemic hit. Now, even the leaders of nations that were among the biggest beneficiaries of globalisation, including China and India, have begun to champion “self-reliance”— a goal that in recent decades had been pursued mainly by isolated outliers like North Korea.

Governments are also increasing their control over the economy, commanding shutdowns and effectively nationalising business payrolls in ways that would have been unimaginable six months ago. Public debt and budget deficits are exploding in many countries.
The last redoubt of globalisation is the virtual economy, which has accelerated under the lockdowns. As people retreat home to work, play, shop and study, new habits are forming, and these habits are going to help virtual enterprises to continue growing rapidly — from a much higher base — after the pandemic.

What this means for the post-pandemic world is that of my ‘10 Rules of Successful Nations’, those on geography and trade, state competence, debt and investment will have the greatest impact on national success.

The four key strengths: a strong domestic market (or unusual export prowess); a competent government, measured here by the indicators that matter most right now, cases and deaths per million from Covid-19;  government debt and deficits; and digital sophistication, including heavy investment in research and development. Screening the major developed and emerging economies for these strengths yields a fascinating and rather surprising list.

Notable is the absence of the two economic superpowers. The US and China don’t make the cut, undermined by heavy debts and by doubts about how their governments handled the pandemic.
India too doesn’t make the cut of the major winners. It has long disappointed optimists and pessimists alike, and tends to rank middle of the emerging world pack on my ten rules. That hasn’t changed with the pandemic. India came in 13th out of 25 largest emerging countries in my post-pandemic screen, and ranked top ten in just one of the four key categories: India is relatively less vulnerable to the forces of deglobalisation, thanks to its vast domestic consumer market.

India’s score for government competence now ranks 13th in this category, with 55 deaths and more than 3,300 cases per million people. Its scores for government debt and deficits place India in the bottom half of the EM class, at number 19.

Finally, and more unexpectedly, India ranks only 16th in the emerging world for digital sophistication. It spends barely half a percentage point of GDP on research and development, and lands at number 14 in the World Digital Competitiveness Ranking put out by IMD, the Swiss business school.

Meanwhile, topping the list of potential post-pandemic winners are…

Germany: Leads no category but is near the top in all four. Its lockdowns lasted barely a month, thanks to a quick response so well coordinated between national and local governments. Germany under Angela Merkel, a trained scientist, makes the jousting between Washington and the states look even more embarrassing by contrast.

Germany was the rare country that went into the pandemic with relatively low levels of debt. It could afford the biggest domestic stimulus package of any major nation, and despite extending offers of stimulus to its fellow EU members, it will still come out with the lowest public debt, by far, of any major power. With Merkel leading the effort to create a European Recovery Fund, which could help bridge the continent’s north-south divide, her legacy may well be some sort of a European Renaissance.

Finland: Nokia may have gone the way of the dodo but its old nest is now home to Microsoft, and Finland keeps producing tech giants like Rovio, maker of ‘Angry Birds.’ A top ten tech power according to IMD. With a competent bureaucracy, little household debt and manageable public debt, Finland has no glaring vulnerability to the challenges of the post-pandemic period.

Switzerland: Perhaps Europe’s most streamlined, least centralised government, it has brought the Covid-19 death rate down to near zero, and created an economic relief agency that surprises small business by delivering support loans in a matter of hours.

Astonishingly competitive for such a small country, Switzerland has a smaller population than the Scandinavian countries, but has created twice as many top-100 European companies as the Scandinavian countries combined. The Swiss also generate among the most patents per person in the world and invest heavily in R&D, which is why Switzerland is a top five global tech power as well. (Its one weakness: household mortgage debt.)

Vietnam: Vietnam is realising its potential as “the next China”, a major export power. With an efficient post-communist government, Vietnam has had stunning success containing the pandemic, with only 34 deaths to date. As the rest of the world turns against immigration and trade, Vietnam continues to open up, signing 15 free trade agreements in the last decade. One of precious few nations that was attracting investment in its export factories at an accelerating pace, it is rapidly moving up the manufacturing ladder, from stitching together sneakers to making smartphones and AirPods. The domestic economy is leapfrogging the landline age straight into the mobile internet age. Outside a few small outliers, Vietnam is on track to finish 2020 as the world’s fastest growing economy.

Taiwan: Along with South Korea, Taiwan is one of the two nations able to grow at a rapid pace for five decades in a row. Both rank among the top EM countries on all four post-pandemic factors. Taiwan gets the spotlight by a narrow margin. Like South Korea, it invests heavily in tech and is already one of the world’s most digitised countries. But Taiwan has a slightly lower government deficit and debt, and has capped its Covid-19 death rate at 0.3 per million — lowest among major emerging and developed economies. The Achilles Heel for both is a relatively small and debt-soaked consumer economy, but Taiwan’s consumer market is slightly larger (as a share of GDP) and less debt-ridden.

Russia: A dark horse, Russia does not in fact score in the top five on any single post-pandemic factor. It makes the list largely because it has turned itself into a financial fortress mostly impervious to global markets. In 2014, the debilitating impact of international sanction for the invasion of Ukraine, coupled with a drop in oil prices, persuaded Vladimir Putin’s government to focus on paying down foreign debts and saving oil profits to seal itself from foreign pressure. Russian finances are now so solid, the ruble — unlike other petro currencies — no longer whipsaws with the price of oil. Serendipitously, this insulation from global markets could prove even more valuable at a time when more than half the countries in the world have gone to the IMF for financial help to survive the pandemic.

Thanks in part to the legacy of Soviet science and applied technology, Russia also has a reasonably advanced digital economy, one of the few to produce domestic internet companies that have the potential to withstand challenges from the American and Chinese giants.

It is telling of the coming era that a case can be made to include countries as different as Russia and Germany on this list. To thrive, economies will need a strong defense against the pressures of deglobalisation, debt, and meddling governments, coupled with an offense capable of exploiting the opportunities in the booming digital economy. Though to very different degrees all these nations, so often on opposite sides of history, share this mix of strengths for the future. They have a good shot at thriving in a difficult post-pandemic world.


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