Cold open: We are trying to manage an economy which we are deliberately closing down. And we don’t know how long that will have to last.


Paul Laudicina: I'm Paul Laudicina, chairman emeritus of Kearney and founder of its Global Business Policy Council, and this is Coronavirus: a world transformed. 

We’re recording this episode on Wednesday, April 1, and here’s the state of the world this week. 

Let’s start by looking at the state of the global economy. At the Global Business Policy Council, we’ve outlined four possible global scenarios with our current baseline global forecast at zero percent growth in 2020. The worst case projects a low of minus 1.6 percent. And even our best-case scenario foresees growth at only 1 percent. These different scenarios will, in our view, be driven by two key variables: how much we cooperate across international borders and how much social cohesion we see the difference between our most optimistic scenario in which we return to very favorable levels of global cooperation and social cohesiveness. And the polar opposite conditions in our most pessimistic scenario is almost $17 trillion in global economic output. So, huge swings in global economic performance are possible, depending on how much global cooperation and social cohesion might prevail. And of course, the amplitude and depth of the recession and the velocity and trajectory of recovery will depend on how long it takes before the world can recover from COVID-19. 

We're very fortunate to have with us here today to kick off this podcast series, envisioning a post-coronavirus future and the unsettled state of the global economy, Martin Wolf, CBE, associate editor, and chief economics commentator at the Financial Times of London.

We have a fascinating conversation for you. You’ll hear Martin share a breakdown of how this crisis will affect the global economy and the economies of specific regions like northern and southern Europe, the US, Latin America, and China. He shares his analysis of how changing political tides are shaping governments’ reactions to the crisis. And he gives us multiple possible visions for recovery—and even a hypothesis about roaring years ahead.


Interview with Guest

Paul Laudicina: Martin, welcome. It’s great to talk with you again as one of the longest-standing thought-leader contributors to the Global Business Policy Council, going way back to our 1995 CEO retreat in Hawaii and many subsequent Kearney annual CEO retreats around the world—from Shanghai to Istanbul to Rio de Janeiro to Chicago. And boy, how the world has changed since then. Thanks, Martin, for sharing your insights today at what I expect you would probably agree is the single most challenging set of circumstances facing the world in our lifetime. And I’d like to begin there. Martin, in your view, are we now at the most challenging juncture in global economic conditions in our lifetimes? And if so, give us some indication as to why you think that to be the case.

Martin Wolf: Well, first of all, it’s a great pleasure to be talking to you again. I’d forgotten how long it is since I started—25 years. It’s an amazingly long time. 

So the answer, I think, to your question is I don't think we know yet. It seems to me very plausible that the downturn in economic activity that we will experience over the next 12 months will be the steepest we’ve had since the 1930s. I think that’s very plausible. And it’s for very different reasons from any other comparable slowdown or slowdown we’ve experienced since the Second World War, which is very important. Therefore, it’s an unknown and correspondingly uncertain event because it’s so new, but it is different also in the upside, which I think one has to understand. 

We know what caused it. We sort of know when the disease problem is going to pass. And therefore, we can, I think, be possibly relatively optimistic that economies will recover once we get back to normal lives. And we, at least at the moment, could believe the economic system itself is not broken, which is how it seemed between 2008 and 2009. So it’s certainly clear that this is one of the two most challenging events of my lifetime, the other being the global financial crisis. It’s not clear to me that in the end, if we look back at it five, 10 years from now, it will seem to be quite as an important, quite as important, a break, a line cut across world history in economic terms as I think the global financial crisis was, but the truth is, at this stage, we simply don’t know.

Paul Laudicina: Well, that’s interesting, Martin, and it in some ways is perhaps an even more hopeful look to the future than I was expecting. But when you say it’s substantially different than previous shocks to the system, I guess, is that because you see this as a deliberate supply shock to manage a health crisis, as distinct from other crises or economic dislocations that we suffered through?

Martin Wolf: Well, first, it is clearly a supply shock. And in that regard, I’ve been thinking about this a bit. The only really major supply shock that we’ve had to live through during my professional lifetime, with the two oil shocks, which had admittedly very different consequences, but were also enormously disruptive, we tend to forget how disruptive they were on a number of different dimensions. So it’s a supply shock. 

And that is, it creates certain special problems if it’s a supply shock, but the special sort of supply shock in that, as you indicated, it’s a response to a pandemic, an event, which everybody knew was possible, but we haven’t experienced on this scale for a century. And it isn’t a supply shock which cuts off the output of a particular essential input to the world economy. It essentially is a supply shock in the sense that we want everybody to go home. We have decided we want everybody to go home for a while. And that’s, that’s a very special sort of problem. We are trying to manage an economy which we are deliberately closing down, which you certainly didn’t want to do during the old shocks that happened to us. And we don’t know how long that will have to last. 

And of course, in the supply shock, there is a demand shock too because, of course, a very large number of things that we historically have wanted to go out and buy, particularly services, entertainment, travel, you know, add travel, all the rest of it. We don’t want to buy either, so it’s a predominantly supply shock, but it has an enormous demand shock element too. So I think it has some echoes of the oil shock, some echoes of the financial crisis because there’s a financial dimension to this, but it clearly is generous, and we are civilized since the Industrial Revolution has, has actually not experienced anything quite like this before.

Paul Laudicina: So when you look at different regions of the world and how they might suffer through this crisis, the extent of the damage that they’ll experience and the prognosis for how they’ll come out of it, tell us a little bit about what your prognosis is for Europe, already challenged by Brexit even before COVID-19. And, of course, the prognosis for the United States which in some ways, importantly, will not be unrelated to whether or not there’s a change in government leadership. I’m assuming you would agree. And then, of course, importantly, the impact on emerging markets and developing countries generally which have to be in somewhat desperate conditions we’ve already seen, haven’t we—unprecedented capital flight that leaves one very concerned about how developing countries will emerge from all of this.

Martin Wolf: Yes, I think these are all right questions. I think we need first of all to recognize what we all share—the global dimensions of this. The supply and demand shocks are common to us all. Everybody’s worried about the pandemic to some degree.

Obviously, it’s probably a bigger concern for countries which are relatively old, directly, but they’re all worried to some degree. And of course, the impact on demand has an effect across the world. Just think of the tourist industry, which is an enormously important industry across much of the world, including many emerging countries. And it also affects everybody through what’s happened to financial markets, which has been very dramatic and in effect will affect everybody through trade. Large chunks of the world demand have been closed down. Supply chains have been disrupted. So, as I wrote in a recent piece: In a pandemic, no country is an island. And we are all going to be affected by what others do and what is happening

And within that broad context, the results of our highly integrated global economy and different regions have slightly different problems. In particular, I would separate out countries which have fiscal room, have their own currencies which are internationally acceptable and accepted. Therefore, they have monetary policy freedom and a very staunch substantial amount of fiscal policy freedom. For those countries, basically, North America, Western Europe, Japan, other advanced, emerging advanced countries in Asia, Australasia, and so forth, and of course, to some significant degree China, it’s a domestic trauma first and foremost, though the international aspects affect them. 

Now, here, we think about all these developed countries, what they share is the trauma or the set of choices associated with managing the pandemic itself and because of the very rapid rise in cases and death rates, though least of all the East Asians for separate reasons, a concern that their health systems will be completely overwhelmed, that death rates will shoot up as a result, that the health system will basically disappear in instability to deal with any other problem. So they’ve decided to a greater or lesser extent to shut their activities down. And, of course, a great many of their more prosperous people, sources of a lot of demand, are older, and they’ve basically decided to shut themselves down. So they all share this closure problem to a very high degree more, much more than anywhere else in the world.

They have, however, the offsetting advantage that they have the fiscal capacity though this will have costs in the long run and the monetary policy capacity essentially to pay people to stay at home, to keep people’s purchasing power going to grow to a greater or lesser extent cushioning people, therefore from trauma, moving the trauma as it were into the future in some significant way. And that gives them certain freedom of maneuver, options, degrees of freedom in managing the crisis, which is very beneficial to them. 

Now, within that, Europe has essentially two sort of big-ish problems. One, it’s very elderly. I think that’s clearly one of the reasons death rates have been so high in Italy, for example: a lot of old people. And secondly, within the eurozone, in particular fiscal capacity is very unevenly spread. And countries don’t have direct control of the monetary system either. 

So there’s a lot of tension emerging within the eurozone over how the capacity of the region as a whole, which is perfectly adequate to cushion these shocks will be shared out. And that’s creating a lot of tension between North and South because the North has far more fiscal capacity than the South. And at the moment, it seems to be pretty clear: the problem is going to be solved by an enormous part of the cost of all this ending up on the balance sheet of the European Central Bank. And that will, I think, help in the short run very, very substantially, but it will create some interesting problems later on. 

You raise the issue of Brexit. And I think in the present context, it’s not going to be very important, whether it goes ahead or not. And I sort of suspect it won’t go ahead at the end of the year. It’s a second-order or even third-order issue compared to what’s happening here. 

So the big European question, I think is: Will there be the will and the energy to keep the eurozone together despite all the tensions? And my guess is there will be because I think the European Central Bank is, in the end, going to assume everything on its balance sheet, which is going to explode in the process, and they will finance the governments. That’s my guess. 

And given that, I think the Europeans will be able to get through this crisis; their health systems are relatively sophisticated. And by the end of this year, I think a combination of lockdowns, improved testing, the beginning of quite a lot of beginning to identify lots of people already had it. They’re going to be able to manage this reasonably well. 

The US: younger, obviously, has some of the disorganization problem of the Europeans, strangely enough, because this is so obviously a federal issue, and different states have different capacities and wills to respond. I expect that it will take quite a while, but the US will finally get hold of the pandemic too. And in a few months, cases will begin to turn down. Some of the health systems in some states will go under. I will be surprised if at the end of this, some political changes don’t happen simply because people will realize that sometimes there are shared problems which you can’t sort of wish away. They’re real; they’re there. You can’t pretend they don’t exist and, and in the end, I expect the Americans to confront this one way or the other. 

Once the pandemic is turned into a manageable problem—it’s the combination of testing and bringing down the levels to more reasonable the extent of the disease to a reasonable level, happens, economies will begin to recover. 

Though I think full recovery won’t happen either in Europe or America until we have cures or a vaccine. And that looks like being close to two years from now. So it’s going to be a complicated, slow process—but ultimately, I think manageable. 

Now, if we look then finally at the emerging world, most emerging countries or many emerging countries are relatively young, so the direct impact will be smaller. 

That won’t be true in Latin America, which is going to be very, very hard hit by the commodity price fall, the capital flight, which is dramatic, deep recession seems clear, huge increases in fiscal deficits. Will they be financed? Probably only in part, so I expect tremendous explosions of social anger and difficulty in much of South America. 

And African society absorbs these things because it has to, but obviously, there’s going to have to be a lot of assistance to Africa and quite a lot more assistance to other more advanced emerging countries than people now think. I expect we’re going to have to replenish the IMF; there’s going to have to be an awful lot of this. But the direct impact of the pandemic in most of the emerging world should not be that great. It’s going to be primarily a huge economic shock from which they will emerge a couple of years from now. And for them, it will feel a little bit like 2009. 

Now there’s one huge difference from 2008–9, which is very negative and very significantly negative, and I’ll just conclude with this, which is China. In 2009, the Chinese economy exploded; it grew nearly 10 percent. And in the process, it generated a tremendous growth dynamic for commodity exporters everywhere and indeed for the world economy. Even though it was much smaller relatively then to the world economy than it is now. It seems almost certain China will have a recession this year. Overall, I think that’s what’s going to happen. It certainly won’t grow much. And it’s not going to pick up dramatically next year either. And so that engine of growth will not exist in the world economy, and that will be particularly important for emerging and developing countries. 

So commodity-exporting countries, countries which have been large net importers of capital, countries with very high debt levels, particularly in the private sector, I think are going to have a terrible time. And I suspect that in the end of this, the crisis for emerging and developing countries through the indirect economic effects of the crisis will be bigger than in the developed countries which have all these means of cushioning the blows.

Paul Laudicina: Martin, you talked about the difference between the 2008 financial crisis and the crisis that we’re in now. Your latest book, The Shift and the Shocks: What We’ve Learned— and Have Still to Learn—from the Financial Crisis, obviously lays a lot of this out. But what do you think we have learned or should have learned from the 2009 shock to the system to better handle the somewhat different shock to the system that we’re experiencing now?

Martin Wolf: The main focus of that book was on the fragility of the financial system and which I thought of as structural and deeply rooted and the way in which the financial system and the leverage we’d created within it sort of had created vast fragility, which was very, very difficult to manage. 

The origin of this crisis was very different. It’s a very special sort of supply shock, a real economy shock, not a financial-sector shock. Now, so the financial sector here is a secondary factor. But of course, it is still a crisis propagator. And we’ve seen this in recent weeks. We’ve seen it in the collapse of stock markets, the impact of that, on confidence. We’ve seen it in the capital flight from emerging developing countries, which seems to be unprecedented. I think I read today that capital flight from emerging countries in the last month has been $83 billion, which is an enormous amount of money. So it’s still a propagator. 

Now, there’s good news and bad news here, I think. The good news is that it looks at the moment (famous last words) that the core banking sector is stronger, significantly stronger, than it was during, before, during, and immediately after the last financial crisis, better capitalized and better able to bear losses. And of course, if major banks start going down, you’re back in really horrible territory from an economic point of view. At the moment, that seems unlikely. 

But there’s a very important qualifier to it, which is there’s an enormous amount of leverage in the economy, particularly in the non-financial corporate sector, a lot of non-financial corporate businesses around the world, certainly including America, have borrowed a vast amount for many different reasons, a lot of it for financial engineering. And revenue is going to collapse for these companies, and it hardly is difficult to guess. An awful lot of businesses are going to go bankrupt or would be bankrupt in this situation normally.

Now, there will be a lot of pressure to rescue them. And you can see already huge sums being put aside, for instance, in America. I think it’s called the CARES Act, and I think of it as a slush fund to save big corporates in large part, but even so, there’s going to be a limit to how much this can happen without, I think, restructuring debt.

But I wouldn’t be very surprised despite the fact that banks are much stronger than they were, if, as I said, we have a lot of bankruptcies. A lot of losses will emerge that will affect some very important actors in the system, pension funds, for example, insurers. All these are unknowable things at the moment, but it’s very plausible. And, and ultimately, when businesses go under, their banks tend to be very badly damaged. And while banks are better capitalized than they were, and vastly much more so in the US and more in the US and in Europe, they still have very high leverage.

We could still have waves of bankruptcy going through the system. And the question is, how do we handle that? It affects confidence; it affects people’s perceived wealth. It will, of course, affect inevitably the value of the stock market. It may mean more fiscal packages will be required.

So the fragility will be there, is there. I think it’s going to emerge in different ways. With luck, it won’t affect the core financial system to anything like the same degree as last time. But that depends a lot on how these recessions are for how long they last.

Paul Laudicina: And of course, we don’t know how long it’s going to last and what the amplitude of the shock will be. That’s why we’re updating every two weeks our Global Economic Outlook with  new data in mind.

Now, Martin, you have—the purpose of this podcast is to try and to the extent that it’s possible with all of these variables, to look ahead. And you talked earlier about Europe and the question coming out of this crisis about the extent to which this will be an impetus or perhaps even a barrier to further European integration. There’s the broader question, of course, of globalization generally. You wrote a pretty definitive book back in 2004 of why globalization works. My question is, is it still working? And in your opinion, will the coronavirus lead to more cooperation and integration? You said, after all, no country is an island. Is it likely to lead to what we four years ago called to the consternation of many a world that was moving from globalization to islandization? How do you think we’ll come out of this? There will be prognoses on both sides of this ledger. More integration, less integration? How do you see it?

Martin Wolf: I think on balance, it seems to me more likely than not that this event will reinforce already existing trends towards de-globalization, less globalization. And it is more to me a question of degree than direction. I might be surprised—pleasantly surprised since I think this will be a great pity. But I think that seems plausible. 

Since the global financial crisis, the integration of trade has at the least halted on some dimensions—it’s already gone back quite a bit.

So capital market integration has already been slowed significantly. In some respects in that might now go further. This tremendous hostility to movement of people—hostility to migration into the developed world—is really pretty well universal. We can’t, of course, stop the flow of ideas. But there are some quite remarkable efforts, notably by China, to control the flow of information through the Internet. And there’s been quite strong efforts to nationalize, to create walled gardens, in the Internet too. 

So I would say the background tendencies have been towards resistance to globalization, indeed de-globalization. This is reinforced of course by the more recent developments, some of which you prefer to have the election of politicians who are while clearly hostile to global economic integration, trade, the rules governed, multilateral order. Obviously, Donald Trump is the most important such figure. But Brexit is another example of this. It’s very clear that Mr. Modi represents de-globalization in India. Real reversal of the liberalization is beginning but clearly there. China’s openness to trade, if you look at its ratio to trade to GDP have fallen sharply. There was already, very much introduced by Mr. Trump and followed by others, a very big increase in resistance to inward foreign direct investment from China. 

So I would say, that’s where we were before they started. And then there’s this huge shock, and it’s added an important additional element. Well, two. One is simply fear. And when people are frightened, they, I think almost inevitably and naturally, become tribal. They become inward-looking. They trust outsiders less, and in this case, this is really reinforced by the tendency which you can see across the globe to impose controls on the movement of goods, which are deemed essential for domestic health. 

So I think I read recently—I reported this recently—24 countries have imposed export controls on goods relevant to managing the pandemic: things like masks, ventilators, all this sort of thing. And components also were affected. In China, they were affected by the lockdown in Wuhan. 

So people suddenly think, “Well, here’s a crisis. We have to rely on ourselves.” The foreign suppliers we used to rely on turned out not to be reliable because we don’t control them. In the last resort, we only control ourselves. So we should build up a domestic capacity in everything that’s essential. And there are lots of things that people can deem essential: medical supply looks obviously essential, but people can start thinking all sorts of other things are essential. 
And I think people who are economic nationalists or nationalists are also economic nationalists will say, well, this all shows that global economic integration isn’t safe. We can’t guarantee our security. And therefore, we must now pursue greater self-sufficiency.

And there will be one final element in this that goes beyond that, which is we are seeing an unparalleled since the war, the Second World War, increase in the direct intervention of governments in their economies in all sorts of ways, and this is quite understandable in a crisis. But when governments start doing things like that, they don’t go away very easily. So I expect governments to play a bigger role in our economies, including microeconomic intervention. 

And it’s already obvious, for example, in the US, which is, we think of as the home of free markets. Mr. Trump is much more interventionist than Ronald Reagan, for example. So I think for all these reasons, we are moving into a new era of resistance to globalization, self-sufficiency, and government intervention. 

The only big question to me is how far that will go. And that depends a lot on how badly wrong economies now go, how quickly we recover, what sort of politicians are in charge at the end of it, which we can’t foresee. But I think the direction is going to be either no more globalization for quite a while or quite possibly a significant pullback. But I don’t expect a moment pullback on the scale of the '30s. Because the awareness, the extent of integration is so great, the awareness of opportunities and interests in international exchange is so widely shared for so many countries, not the biggest, it’s so essential to their strategies, their prosperity, and so forth that I don’t see this, as, you know, going back to real islands, as it were, self-sufficient islands. But I think the direction is clearly going to be away from steadily rising globalization.

Paul Laudicina: This obviously is going to change the calculus, won’t it, and the impact on certain kinds of businesses? And we of course work with business leaders around the world who are trying to mitigate damage to their customers, their shareholders, their employees, and stakeholders broadly. What can in your view, Martin, individual business leaders do at this point to try and mitigate damage to their enterprise and all those who are served by their enterprise, and do you see winners and losers? I mean, obviously travel, entertainment, leisure activities are, you know, going to be and have already been dramatically affected. But will there be other long-term casualties coming out of this? And is there anything that the leaders of those sectors, industries, companies can do to try and mitigate the damage at this point?

Martin Wolf: Well, let’s start with thinking about the immediate crisis period. Let’s say up to two years, we don’t know, then recovery fast or slow. 

It’s pretty clear there are going to be quite a large number of winners of enterprises, which are going to become spectacular winners. And we have been catapulted—all of us, the world, and it is now the world—into a virtual world, virtual communications. So the tech business as it’s evolved and businesses like Amazon and there are so many more of them around the globe are going to do spectacularly well. 

So there are going to be some massive winners—very, very important winners in our economies. And they happen to be already very, very strong companies. And as you said, there are a number of businesses in lines of activity that are going to be very, very hard hit. 

Now, so that then raises two questions: what, what can they do in the meantime? And secondly, what will the world look like afterward? And how different will it be from the world that we went into when we went into this?

And so on the first, on what can you do in the meantime, this depends a lot on the nature of the support that businesses are getting from governments. And governments are pursuing very different policies in helping businesses. Sensible governments like ours, and I think the Germans and others, are providing support to business to keep in being and conditioning it on maintaining their workforces to a significant degree but bearing a lot of the costs of maintaining their workforce. And the idea here is to keep viable businesses with all the skills embodied in their workforce. 

And that sort of assistance, I think, should help companies through this. Loan guarantees will help. But I can see that for individual businesses, there are very difficult questions. Do you take loans, which will ultimately have to be repaid to remaining being as you well? Do you sort of shutter yourself and hope you can restart again? And I think that will depend a lot on the actual granular detail of individual businesses: How dependent are you on your specific trained workforce? Can you replace it if you, if you mobilize it? Will it come back? 

All these are very, very difficult questions, and they’re going to be, I think quite business-specific and quite country-specific. And for multinationals, it’s going to be a complex combination of this.

But the central aim of major businesses must be to survive, take advantage of the help they have, and preserve their core capabilities and core human physical capital so that they can restart when it’s over. And that must be the aim: survival as a viable entity, even when the business activity itself slows dramatically. 

That’s going to be much easier for businesses with low debt and much more difficult for businesses with lots of debt. But they’re going to have to find some way of restructuring the debt. I think that’s likely to happen very soon. There’ll be lots of bankruptcy processes, which is fine.

Now, the future. And that really comes down to the question of, one, how strong the recovery will be, which we really don't know. But I suspect it might in this situation be relatively strong because it’s going to be like switching the economy back on again. 

And then the question is, are there going to be permanent changes in the pattern of human consumption? Will people go back to being tourists? Will they go back to traveling on airplanes or cruise ships? Will they go back to going out to restaurants? Will they go back to local shops? And the answer to that is they will go back to a lot of this, but there are some trends that will continue. The trends toward virtual activities will continue. I suspect that the trends towards people working in a more dispersed way have been accelerated permanently. Not everybody’s going to go back into an office again because it’s really rather nice to work from home. That varies for people. 

But I do, actually—I put forward this hypothesis in the talk I had today—I have this sort of view that people are going to say, this is my wilder hypothesis, that the people are going to say we’ve had two utterly miserable years, or one and a half— and let’s party. I mean, young people are not going to put up with this sort of life for very long there. 

Paul Laudicina: Isn’t that actually what happened after the Great Pandemic in 1918 that led to the Roaring '20s?

Martin Wolf: Yeah, I think people are going to want to roar. I think we will be surprised by how much gloriously frivolous consumption comes after this—everywhere.

Paul Laudicina: And I guess a lot of the extent of the damage and who the casualties are will depend also on the time element associated with this and the so-called whether we’re in a V recovery or a U recovery or an L-shaped response to all of this. Wouldn’t you agree that the time element here will have a huge impact on the extent of the damage across which kinds of industries and activities?

Martin Wolf: Yes, I think that, and that really ultimately relates to how credibly and completely, the public health authorities can get hold of the pandemic itself, bring cases down to a low level, and keep them down though. 

But I think in our case, there will either be really successful control operations, it will be brought under control, we will ultimately, as it were, become like South Korea, and then we can recover with some confidence. If we can do that, then I see no reason why essentially, much of the economy can’t be switched back on. 

That’s the optimistic view. The more pessimistic view, I think, is so that’s sort of V-ish, at least a good U. The more pessimistic view is it will be stop–start. We won’t get it under control. We’ll let the economy go, the number of infections explodes upward again, then we stop it again to manage the health system, even though the health system is improving over time and its ability to cope. And the stop–start undermines confidence; businesses find it very difficult to plan ahead, and then it’s going to become more like a couple of years. So it’s a very long U. 

Paul Laudicina: Or is it a W?

Martin Wolf: Well, it’s W. Yes, W-ish, perhaps with the subsequent legs up with smaller than the present, right? So it’s lots of W. So as it were with low, low Vs, yeah. U after U after U, maybe, anyway, then the question, of course, the crucial question is how much damage has this done to the core productive system? Have businesses really been shuttered effectively cease to operate effectively? How long will they take to recover and regain their mojo? We did find after the financial crisis—we were all surprised by how huge an effect it subsequently had on productivity growth. The basic confidence of business in the future seems to have gone, and by the way, that continues to be the case. Now if that happens again, we are really in trouble because it’s being superimposed on what is already a very weak period of productivity growth. That will be the nightmare. Is that impossible? No, it’s not impossible. 

So I think of those as the three options: the short, sharp shock, we get it under control, we’re back getting back to normal in the course of next year; a two-year process of up and down, which will be very bad, but then we go back to normal, normal-ish; or, you know, this is I think, the L, basically, after the financial crisis and now this, businesses just say, look, the world is too uncertain. We can’t manage this. We can’t assume growth; we can’t assume stability; let's hunker down and basically operate defensively for the foreseeable future. And if people do, everybody starts to behave defensively for the foreseeable future, then you can be in a very weak position in terms of corporate dynamism for a long time.

Paul Laudicina: And of course, one of the real levers that would potentially make a difference here is the quality of policymaking and policy engagement by leadership at every level of society and particularly government leadership. How sanguine are you about the future of any kind of  cooperate global system? And also, if you could just conclude with us, Martin, on what you think, is the ability of leaders, as you’ve said, unlike viruses, human beings have choices. And you urge us to choose well. Are you sanguine about our ability to choose well?

Martin Wolf: I’m not very. I would say that it is now reasonably clear that the quality of our political leadership in the advanced democracies, so that’s what I'm focusing on. I won’t talk about the world as a whole has deteriorated over time. I think it’s deteriorated partly because different sorts of people are going into politics, partly because politics has come to be seen as a much less noble calling than it did in the middle of the 20th century when there were such huge ethical and moral challenges. And partly because people have forgotten the nature of those challenges, what the '30s and the Cold War were about. That’s all ancient history.

And so the people in our societies and the politicians who the people choose are, I think, much less aware of the immense dangers of irresponsible policymaking, of the reality of political choices, and the differences making good choices and bad ones. 

And in addition to that, a very significant aspect of our time, which we don’t have enough time to discuss, is the rise of nationalism. The fall of the great ideologies, communism, the fall of the ideological war over freedom versus communism, the end of that, before that visibly Nazis and fascism. And the sort of consequence that, if you like individualism, seems so very sharp has come to seem very shallow and empty and greedy. And the reaction has taken the form of nationalist communitarianism. 

And the communitarian aspect of this I understand fully, and the nationalism is a sort of byproduct of it. Once that’s the nature of politics, then you get, we know the sort of leaders that tend to be chosen too often in that sort of world. And the essential nature of those leaders is they don’t want to cooperate because they’re nationalist leaders; they see themselves as adversaries of one another. They can’t really cooperate, and their relations with one another are best transactional and certainly not rooted in any sense of a deeply shared global commons. 

And that I think is where we are in most of the West, not all, very much. So I think in the UK and US. Now in that context, when you in addition to that got this immense shift in world power towards China, the colossal suspicion of China as a completely different sort of society, autocratic, huge, threatening, and perceived as fundamentally unfair in the way it treats the world. 

It becomes unbelievably difficult to cooperate effectively, and Gordon Brown, our former prime minister, pointed this out we have responded to this crisis far less effectively in terms of global cooperation than we did to the financial crisis of 2008–9. There were some really remarkable acts of cooperation. I think that’s how we got through that crisis. 

It’s been far more difficult to do this now. And to be blunt, I mean, with Mr. Trump and Mr. Xi, you just can’t imagine it happening. So I do not expect to return to a cooperative world. And I think I’d like to—we have to. the best we can hope for is muddling through. 

In a world in which each leader is predominantly inward-looking and suspicious of one another but they are not guided by fanatical ideologies, they’re not fanatical nationalists. There are no fanatical communists. It’s sort of a post-ideological world in that sense. And therefore, it won’t work perfectly. It will work very imperfectly. There will be enormous amounts of friction and suspicion. It will be difficult to resuscitate the sort of dream one had in the '90s. The sort of global liberal order in the classical sense, but it might, we can also avoid the madness of the age of ideology. 

And with luck, there might be just about enough cooperation and then just enough common sense to avoid a breakdown. And that’s sort of what I hope for. I don’t hope, really, for more.

By writing my columns, I hope I will shift things a bit in this direction by leaning against the more inward-looking attitudes. And there’s one other thing I am optimistic about a little, which is that this crisis will have confirmed for most sensible people, most middle of the road people, that it’s really, really important at the least to have government in our societies which is basically competent, pays attention to science, understands how things work in the world, and tries to make that work. And if that’s the case, well, then things might not be too bad.

Paul Laudicina: Well, Martin, that is a very hopeful note on which to conclude this discussion. Thanks very much for sharing your views with us. Thanks very much, Martin.

Martin Wolf: Great pleasure.

Wrap-Up (Paul Laudicina)

Thank you to Martin Wolf for joining us. You can read more of Martin’s reporting on the crisis in the Financial Times. 

There’s only so much ground we can cover in one interview, and we’re aware there are undoubtedly many more questions that you might wish we had been able to discuss during each podcast. So don’t hesitate to be in touch with me with any additional insight we might be able to provide by contacting me at [email protected] or on Twitter @paullaudicina, and I would be happy to respond. 

We’ll be back with new episodes of Coronavirus: a world transformed soon. So stay tuned. More is coming.


About Martin Wolf

Martin Wolf is the chief economics commentator at the Financial Times, covering a wide range of topics including the state of the global, European, and British economies; the “global savings glut” and “secular stagnation”; global monetary policies; the rise of populism; the political economy of Brexit; the future of the eurozone; and the future of globalization. For his services to financial journalism, Martin was awarded a Commander of the British Empire designation in 2000.

Martin brings considerable practical experience to his writings. He was a member of the UK government’s Independent Commission on Banking between June 2010 and September 2011. Previously, he was a senior economist for 10 years at the World Bank’s division of international trade. Since 1999, he has been a Forum Fellow at the World Economic Forum, where he has served as a moderator and is a member of its International Media Council.

Martin is the author of highly regarded books on globalization, including Why Globalization Works and Fixing Global Finance. Fixing Global Finance describes how the financial crisis developed and what we can do to help ensure future global financial stability. China Business News named Fixing Global Finance its Financial Book of the Year for 2009. His most recent book on the global financial crisis is The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis.

Martin earned a bachelor’s and master’s degree from Oxford University.