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Supply chains will shift. The guiding principle will change from ‘just in time’ to ‘just in case’. All sourcing will no longer trace back to China.
Sourcing would be geographically more diversified and alternate suppliers would be tapped for the same input. Covid-19 will not put an end to globalisation. The logic of carrying out production where the cost is the lowest will continue to operate. But the cost of insuring that supplies will not be hostage to unpredictable shutdowns in any particular source location would be built into the costs that are minimised.
From Just in Time…
As globalisation ceases to be Sinification, prices will rise. One major factor in keeping inflation ultra-low all through the last 30 years of globalised growth has been the combination of economies of scale, rising productivity and State subsidy driving production in China.
Global commodity prices would stay low till recovery is fully underway, which would dampen the upward pressure on prices somewhat.
However, the extra-loose monetary policy adopted in most parts of the world to combat the Covid-19 contraction would create conditions that favour inflation to pick up speed fast as and when demand recovers. That such inflation did not materialise in the wake of significant quantitative easing during and after the Global Financial Crisis does not negate this trend — after all, China was still in action to hold the price line.
Inflation would not be wholly unwelcome either. One of the surest methods to reduce the size of a nation’s debt relative to GDP is to let prices inflate GDP — remember, debt is never inflation-adjusted.
A loan of Rs 1 crore remains Rs 1 crore to be serviced with interest payments and repayment, whether inflation is at 2% or at 8%.
Debt today shifts costs to the future. If we do not want to burden the next generation with a huge pile of inherited debt they have to service, debt should shrink in the current generation itself. That means inflation. When prices rise,
the real consumption of all those with fixed incomes shrinks and savings go up. These savings can be taxed away to pay down the debt, or it can be invested to raise the level of output to once again shrink debt relative to GDP.
Healthcare would receive institutional strengthening, around the world. People would appreciate that Covid-19 need not be the last pandemic. It makes sense to build up the capacity to meet possible peak demand, just as we build up the capacity in the power sector to meet peak demand, even when demand during the bulk of the day is lower. The capacity can be made available, during off-peak times, to others who lack the capacity, via medical tourism.
Work from home will not become the norm, but flexible working will become mainstream. Fewer women would leave the workforce to have children. Men, leaving aside the most porcine male chauvinists, would have learnt to share housework and caring for children and the elderly, during the lockdown and the learning is likely to carry over.
More women would stay on in the workforce to compete for senior positions. Welcome more women CXOs.
Factories could turn more capital intensive, but treat the workers who remain better. Worker retention will work along with GST to aid formalisation and bring in worker benefits.
…To Just in Case
Travel would be reserved for select occasions, most meetings taking the form of videoconferencing. The demand for broadband, webcams and related accessories would, well, zoom.
Air travel could entail routine testing for pathogens as part of the protocol for airport access, so that only disease-free travellers would fly, and planes can operate at full capacity.
Politics will take an illiberal turn in most places, including India. The lockdown under a disaster emergency has allowed the State to concentrate power and act with reduced accountability. It would be reversed but, except in places where the historical memory of fighting for precious democratic rights has been kept alive, not in full.
In India, it would serve a useful purpose. The pandemic response has shredded the façade of democracy, to reveal spurning of migrant workers as citizens, their open treatment as indentured labour who can be locked down in transit and redeployed for farm work wherever they find themselves, a calculus that their votes can be secured with some preelection money transfer, the distrust of the State and institutional arrangements revealed by stigmatisation of healthcare workers, including doctors, by middle-class citizens, widespread Islamophobia and criminalisation of democratic protest by slapping cases under draconian laws on protesters against the Citizenship
(Amendment) Act. Clarity should foster a movement for democracy.
The US comes out a diminished hegemon, led by someone who commends injecting disinfectant into patients and commandeers medical supplies meant for other countries while de-funding global health. China is making a hash of seizing the vacated space. India has an opening.
To begin with, India could send the Crop Care Foundation to vanquish the locust invasion threatening eastern Africa.
(Views expressed are author’s own)
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