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The world BC (before Covid-19) and AC (after Covid-19): Role of government

COVID-19 is an epochal event that promises to shake up the historical timeline when we look back on the year 2020. So many aspects of our daily lives changed during the pandemic that  characterizing life as BC (before Covid-19) and AC (after Covid-19 ) is not an exaggeration.

While we are still living under the pandemic, there is reasonable optimism that a working vaccine could be widely available by the middle of 2021 even as the World Health Organization (WHO) cautioned the general public on the effectiveness of the seven vaccine candidates in the phase three test. We can already be looking at one of the most enduring impacts of the Covid-19 pandemic - the increasing role of the government in the AC world.

The past seven months living under the pandemic not only highlighted the importance of the government in keeping life moving along during the lockdown, but also exposed the many shortcomings of the current social and economic setup in many countries.

Almost half of the world’s 7.8 billion population underwent some degree of lockdown in the past seven months. Governments across the globe provided some direct subsidy to make up for the lost wages of the furloughed workers. They also spent billions to subsidize businesses to minimize the layoff of citizens in affected industries. All workers, who could work via computers, were put on work-from-home (WFH) arrangement. All central banks dropped interest rates and flooded the financial market with liquidity to help the economy. Governments everywhere also rushed to impose quarantine and physical distancing rules to minimize infection-spreading, sending in policemen and the military to enforce new isolation rules in many cases. Education departments all over the world substituted regular schooling with online teaching to keep the 1.4 billion students away from possible infection in schools.

All the draconian steps from virtually every government have seen relative levels of successfully containing the social and economic damages. Never in human history during peacetime were governments playing such a prominent role in the economic and social life of everyone; though one could say we were at war with an invisible enemy.

The leading role of governments in handling the pandemic will likely continue after the crisis recedes by next year. The measures that we adopted to cut down the pandemic damages have left a host of problems that only governments can address.

The foremost issue facing many countries is structural unemployment from the unprecedented speed of new technology adoption during the pandemic. The most notable of which is WFH, automation in response to supply chain disruption and home entertainment in place of social gathering. Generally,these changes take years to happen, but their incorporation was compressed within a few months due to various quarantines. New technologies notably provided the enabling power to most of these changes, and these technologies offered significant productivity gains down the road if the users adopted a mentality of more production rather than consumption.

The transformations also rendered a lot of skill sets of workers obsolete in the new AC paradigm. The workers adjusting to the latest technologies can’t be possible without active involvement of governments.

The second issue is the precarious state of government finances around the world. The International Monetary Fund (IMF) estimated that advanced countries’ debt to gross domestic product (GDP) ratio would reach more than 100 percent on average at the end of the year as these spent their way to support the economy during the pandemic. This ratio is higher than the debt-to-GDP percentage at the end of World War 2.  For developing countries, the ratio will reach an unforseen 65 percent by the end of 2020. We should note that very few countries could afford the lockdown after the initial round in April and May.

How each government will keep spending to address infrastructure shortcoming exposed by the pandemic when its finances face a slowing economy that is adjusting to new technologies will test the governance capability of every country. The rising inequality brought about by the pandemic will likely aggravate the call for a new social contract between the government and its people at a time of resource constraint.

The third issue challenging all countries is the heightening geopolitical tension brought by Covid-19. Chinese-American rivalry intensified significantly during the health and financial crisis as the United States moved to withdraw from WHO and decoupled from the world’s joint efforts at vaccine development and allocation and from multilateral approaches to international issues, among other political initiatives that escalated tensions around the world. The narrowing gap of economic output between the two countries has heightened anxieties about the end of US economic and technological dominance.

The decoupling between the two economic powers will change the multilateral economic and geopolitical setup in place since the end of World War 2. The new complex global geopolitical landscape in the AC world calls for enlightened governments everywhere to work for a new international order.

The myriad problems facing all countries in the post-Covid-19 world mean holistic, innovative  governance is more important than ever before.


Dr. Henry Chan is an internationally recognized development economist based in Singapore. He is also a senior visiting research fellow at the Cambodia Institute for Cooperation and Peace and adjunct research fellow at the Integrated Development Studies Institute (IDSI). His primary research interest includes global economic development, Asean-China relations and the Fourth Industrial Revolution.

New Worlds by IDSI (Integrated Development Studies Institute)  aims to present frameworks based on a balance of economic theory, historical realities, ground success in real business and communities and attempt for the common good, culture and spirituality. We welcome logical feedback and possibly working together with compatible frameworks (idsicenter@gmail.com).

**Also published in: https://www.manilatimes.net/2020/09/06/opinion/columnists/the-world-bc-before-covid-19-and-ac-after-covid-19-role-of-government/764792/

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