The pandemic we are experiencing now is having an immense effect on how we go about living our daily lives. For us mere mortals, it is something we are learning to adapt to, which is proving difficult at times. However, looking at the bigger picture and observing how this is affecting things we have once taken for granted, is a different story. How has trade been affected by this pandemic, and how is the financial sector coping with such unprecedented measure? What are the impacts on those already disadvantaged by the global financial system? These are questions that both practitioners and researchers have been looking into, and likewise, I have been thinking about how global trade has been affecting both producers and consumers, as well as what the governance response should be.
To combat the pandemic countries around the world have imposed a lockdown (with some countries imposing more severe measures than others) on a third of the global population (to date). These measures have meant that “non-essential work” has needed to be carried out remotely utilising technology. What is important in understanding the notion of “essential work” and “essential employee” is knowing how such definition would affect the labour market as such a definition might give businesses a reason to layoff a number of their “non-essential workers” who may be considered disposable, given the current circumstances. This is particularly true since the UN predicted the losses of jobs would reach up to 195 million jobs worldwide. In the UK alone, around 200,000 jobs were lost in the span of four weeks and these numbers are expected to rise. Given a backdrop of zero contract hours, large illegal workforces in every major economy, and a high dependence upon migrant labourers who in most circumstances have limited access to social security (in the country in which they live), this has disproportionately impacted the most disadvantaged sectors of our societies.
The concepts of quarantine and lockdown, otherwise known as non-pharmaceutical interventions (NPI), are not a novel invention of the 21st century. Quarantine was first introduced as a measure to combat the spread of infectious diseases by Avicenna in 1025 in his book the ‘The Canon of Medicine’ which was later translated into Latin by the 12th century. ‘Lockdown’ as a measure is similar to the 40-day quarantine, suggested by Avicenna and later imposed in the 14th century in Florence, to combat the Black Death or the bubonic plague. In the not so distant history, NPI measures were used in the wake of the Spanish Flu in the United States in 1918.
This pandemic has, however, had perhaps the most serious negative economic consequences in living memory, resulting from the decrease in demand on products and services, and a decrease in the labour force, with flow-on consequences for wages, savings, pensions, and so on. One of the main reasons for the severity of the (projected) economic impact is uncertainty. Increased uncertainty about future income and employment prospects depresses current demand, especially for durable goods. Adding to this equation, uncertainty about the future of a specific market or the demand for a particular good adds an extra layer of complication for businesses and investors alike. This alone would discourage businesses and investors from engaging in commercial activities and will encourage them to reduce spending and cut down on costs, leading to more job losses.
As purchasing power has decreased, demand on products and services have decreased, which in turn, has led to an overall decrease in spending. This has led governments to intervene to help stimulate the economy and compensate for these losses. The UK and the US for example have announced packages to help people who suffered from unemployment due to the current epidemic. The question today is: how will long-term commercial uncertainty play out? How will it affect the producers – growers, workers, and businesses, and how will it affect us as consumers? To what extent can, or should, public money be used to cushion the fall?
This blog post will be developed into a working paper, looking at how trade and finance regulatory frameworks could be developed to manage the uncertainty caused by health epidemics. Do get in touch if you would like to collaborate with us on this project.