Covid-19 and the changing geopolitical landscape

The Institut Montaigne sets out the below scenarios as the most likely outcomes of the Covid-19 crisis:

• Recovery in its literal sense, a return to “normal” – the world as before, perhaps with some additional action on global health co-operation.
• A shift in world political leadership and economic power, according to which countries and regions most effectively limit the pandemic’s damage and prevent its return.
• A concerted effort by coalitions of the willing to do whatever it takes – however disruptive – to mitigate future pandemics and other global threats.

Below, I consider the global megatrends that might determine which of these scenarios transpires.

Transparency and Good Governance are under threat

Crises spawn emergency measures. Such measures tend to linger long after the declared threat has passed. Leaders who have, in recent years, introduced tough measures to counter military coups or terrorist threats, have not always found good reason to lift them.

In the context of Covid-19, emergency measures are being introduced by several governments, with worrying potential consequences. At least five countries have suspended all print media. Others are planning to go ahead with scheduled polls while suspending election campaigns – to the inevitable advantage of incumbent rulers. One country has introduced a 20-year prison sentence for “peddling falsehoods”, a handy pretext for imprisoning political opponents. These actions are not the sole preserve of regimes widely regarded as despotic.

And, while national governments increasingly desperate to lift lockdowns remain focussed on daily body counts, they will have less appetite for countering the malevolent actions of others. Now may be open season for creeping territorial gains, arrests of pro-democracy campaigners and extortion of foreign companies. 

Instability is more likely

The pandemic has thrown social inequality into sharp relief. A recovery that closes the gap is more difficult to achieve in times of recession, escalating the risk of public discontent.

Covid-19 may force large-scale repatriation of migrant workers, with the loss of valuable remittances to their families. The Migration Policy Institute reports that low and middle-income countries receive more in remittances than they do from Foreign Direct Investment and Official Development Assistance combined – around US$529 billion in 2018. 

Imagine the pressures when the pandemic hits densely packed refugee camps and slums. How can governments such as Venezuela, already in crisis and highly dependent on oil exports, survive increased instability?

Global leadership is shifting

National leaders who are perceived to have failed to protect their populations are already blaming other countries or international bodies for the spread of the disease. This encourages retaliation and erodes trust. 

Russia and China have sought international credit for exporting or donating protective equipment to those countries hardest hit by the pandemic. Their critics have countered with the allegation that much of what was delivered was defective. The EU’s foreign policy chief, Josep Borrell, calls this a harmful narrative of the politics of generosity.

With the stage set for China and the US to increasingly play the roles of rival bipolar powers, is there an opening for a third axis?  Former Australian Prime Minister Kevin Rudd imagines a group of nations defined not by economic and military might, but by common attachment to multilateralism; a sort of M7 to mirror the G7. This might include Europe, Japan and Korea. Britain could well attempt to span the Atlantic, as political differences between Washington and the capitals of Europe grow more pronounced.

Duncombe and Dunne describe the decline of a liberal world order but suggest that non-governmental organisations might step into the gap left by isolationist governments.

Globalisation is being re-shaped

Writing from the historical crossroads of globalisation, Prof. Dr. Tarık Oğuzlu, of Turkey’s Antalya Bilim University, argues that globalisation is undoubtedly here to stay. But what form will it take in future?

In 2018 global trade in goods and services rose 2.9% and 8% respectively, continuing an unbroken upwards trajectory since 2009. However, this decade of trade growth was already being reversed before Covid-19 struck. Trade volumes in 2019 were down by around 1% year on year, due in part to US-China tensions that seem less likely to ease in the shadow of a post-pandemic blame game. Globally, huge imbalances are evident: just ten nations account for around 52% of all trade in goods and services.

Significantly, since 2011, developing economies’ exports to each other  surpassed their exports to developed economies. If – as seems plausible – the response to Covid-19 is to repatriate industries, untangle complex supply chains, and tighten border controls and visa regimes, trade globalisation will increasingly be driven at regional level. 

The value of competent government may be recognised by investors favouring countries that have best contained the virus. The flipside could be a flight of capital from those countries that responded poorly, further complicating hopes of recovery, and feeding political unrest.

A new openness to experimentation

Covid-19 has unleashed unprecedented efforts to marshal resources. Regional development banks in the Americas, Asia and Europe are re-deploying capital to the pandemic response. In Europe, State Aid rules are being eased, allowing resources to be deployed more flexibly.

We are seeing a global shift towards “try it and see” approaches to finding what works, overcoming established cultures of death by committee. Genetic sequencing of the virus is being shared openly, and vaccine approval procedures are being streamlined. In cities, mayors are finding innovative ways to respond to the crisis, for example pop-up bicycle lanes which may become permanent. In normal times, the introduction of such simple yet important measures would be mired in difficulty.

The default response to the crisis will be a return to familiar practices, old power rivalries and entrenched political privileges. These old tendencies could be bolstered by newly-acquired emergency measures and access to citizens’ data. While plausible, and doubtless inevitable at some level, this path may prove unsustainable. 

For optimists, there is an opportunity for traditionally weak forces – let’s call them “society” – to gain new strength, as a result of a permanent shift in public attitudes. Their ascendency could be facilitated by a new economic reality in which governments can no longer afford to prop up failing industries. Investors could look to future-proof portfolios by shifting capital into sectors offering more reliable future growth. Enlightened governments and financial institutions may make recovery packages conditional on improved environmental, social and governance performance. Green conditions attached to the French Government’s Air France recovery package suggest this has already begun.

No-one knows which of these scenarios will play out, but if we allow ourselves one prediction it might be that the post-Covid-19 recovery will be disruptive. 

References

1. Is COVID-19 a Geopolitical Game-Changer?; Institut Montaigne; https://www.institutmontaigne.org/en/blog/covid-19-geopolitical-game-changer
2. Global Remittances Guide; The Migration Policy Institute; https://www.migrationpolicy.org/programs/data-hub/global-remittances-guide
3. The Coronavirus pandemic and the new world it is creating; Josep Borrell; European Union External Action Service (EEAS); https://eeas.europa.eu/headquarters/headquarters-homepage/76379/coronavirus-pandemic-and-new-world-it-creating_en
4. The world after covid-19; Kevin Rudd; The Economist; https://www.economist.com/by-invitation/2020/04/15/kevin-rudd-on-america-china-and-saving-the-who
5. Humanitarianism and the crisis of the liberal world order; Constance Duncombe, Tim Dunne; https://medium.com/international-affairs-blog/humanitarianism-and-the-crisis-of-the-liberal-world-order-98bc86a861c
6. Geopolitical consequences of COVID-19; Dr. Tarık Oğuzlu; The Daily Sabah; https://www.dailysabah.com/opinion/op-ed/geopolitical-consequences-of-covid-19#gallery
7. Global trade growth is on its longest losing streak in a decade; Dan Kopf; https://qz.com/1791936/global-trade-plummeted-in-2019/
8. Highlights of world trade; WTO; https://www.wto.org/english/res_e/statis_e/wts2019_e/wts2019chapter02_e.pdf
9. IDB to finance regional projects to support coordinated COVID-19 response; Inter-American Development Bank; https://www.iadb.org/en/news/idb-finance-regional-projects-support-coordinated-covid-19-response
10. ADB President Masatsugu Asakawa Announces COVID-19 Response Package Is to Triple to $20 Billion; Asian Development Bank; https://www.adb.org/news/videos/adb-president-masatsugu-asakawa-announces-covid-19-response-package-triple-20-billion
11. EBRD unveils €1 billion emergency coronavirus financing package; European Bank for Reconstruction and Development; https://www.ebrd.com/news/2020/ebrd-unveils-1-billion-emergency-coronavirus-financing-package.html
12. French government sets green conditions for Air France bailout; Flight Global; https://www.flightglobal.com/strategy/french-government-sets-green-conditions-for-air-france-bailout/138160.article