Will Covid-19 Lead to Economic Decoupling and Deglobalisation?

by Chelsea Liu

HEC Paris: Will the Coronavirus Lead to Economic Decoupling and Deglobalisation?

(image source: The Economist)

Recently, I was able to watch a webinar hosted by HEC Paris concerning current issues of the coronavirus and its likely economic impact. It is presented by Jeremy Ghez who is an Affiliate Professor of Economics and International Affairs at HEC Paris and discusses whether “the coronavirus will lead to economic decoupling and deglobalisation?”. The following is an overview of the webinar with also some of my personal opinions.

Firstly, Ghez discusses the meaning of “economic decoupling” and “deglobalisation”, particularly in context of coronavirus and the current international, economic relationship between nations. Economic decoupling talks about the degradation of the interdependence between China and the USA, who are “developing in very different and interdependent ways by relying on distinct technologies, standards, and supply chains”. This would lead to “a world dominated by two separate systems” and not one single global integrated market anymore. In other words, this could lead to deglobalisation and is nicely illustrated throughout the front cover of the The Economist magazine. However, Ghez does point out that this trend of deglobalisation is not entirely due to the coronavirus as evidenced by an analyst’s quote in the Harvard Business Review where “US-China tensions, populism and nationalism in Europe and the looming risk of a global recession” could “challenge the operation of global corporations”.

Ghez starts the second point off with an interactive poll asking whether the coronavirus will be a game changer for the global economy. The options were: A - there will be a before and an after (the crisis will make a significant impact and change on businesses and the global economy); B - There is potential that businesses will come out normally (but there might be a long term change); or C - where this is only a temporary crisis not of economic nature and will pass by. As presumably expected C was not a popular choice but there was an interesting 50:50 ratio between those choosing A or B. This suggests that still an amount of people believe that the economic impact of coronavirus will not be huge. But we do also need to take into account that the people who took part in the poll are not representative of the whole global population. It is very likely that we have less opinion from people with a non-economic related interest or career since they might not be aware of this economic talk in the first place. 

I personally went for A since the entry point of coronavirus into many economies is entertainment and tourism domestically and trade internationally. For tourism-dependent countries, desolate streets once filled with all the hustle and bustle will acutely leave a vacuum in their economy and the contagious nature of the virus will also restrict international trade, causing a domino effect on the secondary then tertiary sectors. This poll led into a discussion of the 4 fundamental assumptions that Ghez thought where the coronavirus would challenge globalisation. In other words, these assumptions are seen as crucial for the normal operation of the world and if one is to alter, then this could lead to a challenge in rethinking current business models and the possibility of deglobalisation. These are: freedom of movement, our access to knowledge we need, an eternal trust in our institutions and the idea that change in always linear. In the talk, all four have seen to have started to take a u-turn in response to the coronavirus.

The third part was also initiated with a poll: Which roles would be best placed to reinvent (a “new normal” for business)?. Options were: global companies, companies with strong ties to global economies, asian companies, western companies or tech giants. Amongst these, an equal amount went for asian and western companies and a lot went for tech giants and those with strong international economic relationships. Outside these options, sunrise companies as well as business schools were popular options. So a “new normal” of business for the coming future, as Ghez explained will be much more localised with the advantages of technology. However, this does not directly suggest the loss of a united global market. In a way, this could actually be more efficient with the idea of a “shared value”. Shared value advocates increasing investment in the economic ecosystem to prevent it from collapsing inside and thus saving yourself as well. A great example is the tech company Dyson who have turned their machinery towards producing ventilators to aid the current crisis so that they help to stabilise the global economy and market which they live and breathe under. Ghez calls this “real globalisation”. In this way, I think that both natural and human resources are more efficiently used since there is a greater incentive by self-interest and a need to prevent an unstable economy in which they themselves will severely suffer from.

To end, I want to touch on another interesting idea. Ghez suggests that there is a lack of diversity in a seemingly already diverse world. What he wants to emphasise is that the advisors, i.e. advisors to politicians, require more diversity where how they are trained needs to be rethought. If they come out form the same schools and background experience to the politicians, there would be a lack of novel ideas.

I strongly recommended a listen to some of the ideas discussed in this webinar (see below,; the talk starts at around 32:30):