Vaccines are a shot in the arm for growth, but only more long-termism will help us build back better
As we mark the one-year anniversary today of the World Health Organization issuing an alert on the novel coronavirus, it is hard to believe that much of the world is still living under lockdown restrictions. To me, the past year has reiterated the importance of expecting the unexpected. This pandemic was not a "black swan" event – we knew it was a risk. Yet nobody considered it possible for governments to shut borders and lock down populations.
In my view, one of this pandemic's nastier effects has been the way it has divided people. It has led to physical separation from each other; political rifts that have undermined responses to the virus; and social divisions, including unrest and riots. Close to home, I found the lack of solidarity which blocked the supply of masks into Europe's Schengen area, and the lack of coordination between the major European capitals during the first lockdown, surprising and shocking. The COVID-19 crisis was disastrous, in my view, for the functioning of the Euro area and the state of multilateralism.
Perhaps the biggest lesson I've taken from the past year is the global lack of long-termism. This is not just in immediate stress points such as healthcare infrastructure, which in many countries has suffered from under-investment and was poorly prepared for a health crisis. We most need long-termism in our preparation for global systemic risks. Pandemics do not respect national borders, just like the last global downturn emerged from systemic risk to the financial system.
2020: a wake-up call as economic imbalances widen
I believe COVID-19 is a wake-up call exposing fundamental deficits in sustainable and resilience-driven ways of doing business. I have witnessed the pandemic worsening structural weaknesses in economies globally over the past year. We are seeing growing income inequality, both between the richest and poorest and by gender, as women are disproportionately exposed to insecure employment and job loss. The vast public borrowing to finance fiscal stimulus responses is further fuelling an already massive debt overhang that is sustainable only as long as interest rates stay low. Countries with larger debt overhangs typically do not have stronger growth rates – quite the contrary.
The huge stimulus deployed to fight COVID-19 economic shutdowns has hit many countries' fiscal and monetary firepower and is weakening their economic shock-absorbing capacity, or resilience. This threatens the sustainability of their long-term recovery. We know that large-scale fiscal spending, while helpful today, will only support long-term growth if it is directed to productive use. Yet I do not see governments setting out ambitious plans for bold fiscal spending on infrastructure investment or other transformational change.
I truly believe we need more long-term vision from both governments and corporations. In systemic crises like the present, governments must play an active role and we need more multinational cooperation, not less. Governments' challenge is not only to rebuild economies today, but to build back better for sustainable long-term economic growth and better preparation for the next crisis. We must not confuse the current economic bounceback with a structural recovery. It isn't.
2021: a much brighter outlook, but vaccines do not immunise against lasting economic scars
This year is already very different to 2020 thanks to the huge global effort to produce vaccines. Vaccinations are a shot in the arm not just literally, but also for growth. They should clear the path to exit lockdowns this year, and I feel optimistic about the global economic recovery. COVID-19 has been a vast global economic stress test, but it is also one of the shortest downturns in recent history.
The big challenge I see for 2021 is how we tackle these structural shifts that are accelerating due to COVID-19. These are critical issues for insurers, as long-term investors and underwriters of long-term risks. There is no quick solution for structural weaknesses such as inequality, debt overhang, the current ultra-low interest rate environment – and especially climate change, which unlike COVID-19, does not have an expiry date. If left unchecked, these problems will become forces for social unrest, as we witnessed at the US Capitol in January. The sense of anger and injustice in that protest reflected a decades-long build-up of disparities in wealth, health, income and opportunity.
Vaccines will not cure the economic and societal imbalances that have intensified in this crisis. My hope is that policymakers will not waste this crisis and instead will use it to bring about a policy reset. We have an opportunity to choose a policy direction that prioritises more inclusive and sustainable economic growth through redistributive policies and greener investment.
This will require long-term decisions from policymakers, even if unpopular in the short term. Today's divergence between Main Street and Wall Street has gone too far. Approaches such as targeting inflation and being guided solely by aggregate macro figures like GDP growth or unemployment rates will not lead to success. In the corporate world, there is no doubt in my mind that companies which rise to long-term challenges and seek to operate inclusively for all society are more likely to capture sustainable returns in the long term. I believe only when the public and private sectors turn this crisis into a reset can we build back better. 2021 could be a very special year for a reset of policies – the current fresh policy direction on both sides of the Atlantic looks promising.