Conflict and Leadership
Shock Resistance Prevention: Lessons From the 2020 Pandemic

The worst-case scenario has been avoided with the pandemic gradually reaching a plateau. The economic incentives of governments were sufficient to prevent the collapse of the global economy. If the coronavirus pandemic eventually becomes a lesson for international politics and the global economy, then let this be a lesson about resilience to sudden shocks, writes Andrey Sushentsov, Programme Director of the Valdai Discussion Club.

Spring 2020 will go down in history as one of the most striking episodes of the new century. The “perfect storm” created by the coronavirus pandemic coinciding with the shock of falling oil prices drove the leadership of most countries to the brink of catastrophe. The leaders had to make tough decisions, choosing not between good and bad options, but the least bad of several unattractive options.

The current situation can be seen as a stress test for the international political and economic system. A gradual exit from the crisis has allowed us to conclude that the existing structures must have the ability to overcome the simultaneous impacts of a large-scale crisis, comparable to a meteorite shower. The developed countries are slowly reaching a “plateau” – in terms of the incidence of coronavirus, where the situation is slowly stabilising. Measures to stimulate financial markets have proved to be quite effective and thanks to them, on the whole, it has been possible to prevent the crisis from flowing into the financial sphere. Social stability at this stage will depend on incentive-based measures. The blow to the real sector will begin to smooth out as the strategy of opening the economy takes root and lends itself to less and less uncertainty.

In April, the crisis bottomed out, and a gradual recovery is expected in May. This is evidenced by the absence of a repeated outbreak in China and the fact that Germany and the United States are beginning to gradually lift restrictions. But at the same time, the speed of recovery in the wake of the crisis remains unclear. Properly, it will determine the nature and extent of this crisis – whether it becomes a one-time shock or gives rise to a protracted recession.

The risk of a prolonged crisis remains high. Economies are opening very slowly for fear of a second outbreak. At the same time, the shock already suffered may reveal the unforeseen weaknesses of economic systems that were not obvious in normal times. It is not yet clear how countries that are not issuers of reserve currencies will cope with the crisis. At the same time, countries which export raw materials that face a double shock situation remain especially vulnerable.

At this stage, we can distinguish three stages of crisis response among the leading countries, and an analysis of each allows us to draw conclusions for the future.

The first stage was an emergency response to the most acute outward manifestations of the crisis. The primary features of this have been a crisis of demand, a halt in production and the consequences of social distancing. Governments were forced to adapt fiscal policies and develop packages of government incentives for the respective economies, and new monetary policy was supposed to support the circulation of liquidity. Most governments are now adjusting to new realities. Significant changes in social practices are expected, such as the rise of e-commerce, as well as digital forms of management, training, and production. In the business sphere, those who are ready to adapt will survive; they also include those which have a margin of safety, develop flexible production, or receive state support on time. 

At the second stage, which we are now approaching, a partial lifting of restrictions is expected. Slowly but surely, consumption will increase. Surviving businesses will receive an impetus for growth in the face of reduced competition and cheap loans. Some of them, however, will go through a process of mergers and acquisitions. As the sensation of the emergency diminishes, other background trends will begin to flow. The countries which have had to endure double and triple shocks will be the most vulnerable.

At the same time, social practices that have proven their worth will become part of everyday life, and the growth of biotechnology in the pursuit of a vaccine will continue after the coronavirus pandemic. The lifespan of these new practices will be at least several years.

However, the third phase of the response to the crisis, which will consist of strengthening resilience to such shocks in the future, is most significant. Here, the most important components will be the development of such features as flexibility among management systems and stress tolerance among businesses. There will be an impetus to further reduce the human component in production and management. It will be replaced by artificial intelligence algorithms and robotic services. States and large enterprises will feel the need to create airbags to dampen the consequences of such crises in the future. They will stockpile food, goods, cash for a rainy day, etc.

International tensions around the world’s key industrial manufacturer – China – will continue to increase. Economic risks were high long before the coronavirus pandemic, due to trade wars unleashed by the United States. Under the new conditions, this trend will intensify. Large Western companies will withdraw their production from China, diversifying production chains and avoiding political risks. Many countries will feel the need to transfer critical industries inside their territories.

Environmental studies will receive a new impetus as a political trend in which one will see the strength of the international economy guaranteed in peaceful coexistence with nature.

Finally, biotechnology, and especially the development of new drugs and vaccines, will become the new frontier of geopolitical confrontation. State sovereignty will actively extend to this area; countries will reliably protect it and will compete with each other, striving to ensure the adequacy of the accumulation of medical material and equipment. The goal will be to prevent situations in which a pandemic of this kind can undermine the well-being of the state and society.

Analysing the current situation with the reaction of national governments to the coronavirus pandemic, we can conclude that the worst-case scenario has been avoided. The pandemic is gradually reaching a plateau. The number of new infections has stopped growing exponentially. The economic incentives of governments were sufficient to prevent the collapse of the global economy. Gradually, consumer demand is beginning to recover. If the coronavirus pandemic eventually becomes a lesson for international politics and the global economy, then let this be a lesson about resilience to sudden shocks.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.