Global economy in tailspin

306
Rashid Ahmed Mughal

Economy has always been prone to shocks- sometimes political and sometimes natural, sometimes due to human errors and sometimes lack of effective control and wrong policies.

We know about the great depression of 1933 and we saw the equally devastating depression in 2008. The first was the result of World War-1 and the second was due to excessive greed of individuals and big corporations to make quick money by ignoring and setting aside the financial norms.

The results were horrific. Unemployment soared globally and trade came to a near standstill. Bankruptcies broke all records and people lost more than half of their assets overnight.

Billions of Dollars were wiped out of the financial system. Some bankers and financial experts even described the 2008 Depression worse than the one in 1933. Came November 2019 when Covid-19 surfaced and with it another natural disaster, first in terms of widespread deaths in China, Europe, America and Asia and then virtual suspension of trade and movement of people.

World saw lock-downs in practically every country and one felt as if life came to a standstill. The pandemic was accompanied by historic drops in output in almost all major economies. U.S. GDP fell by 8.9 percent in the second quarter of 2020, the largest single-quarter contraction in more than 70 years.

Most other major economies fared even worse. The pandemic resulted in an unprecedented economic contraction in 2020 in the EU area with real GDP falling by 6.1%, more than during the global financial crisis.

Though EU response to the crisis was fast, forceful, and well-coordinated at all levels and member States provided strong support to business and workers, notably through short-time work schemes, in addition to substantial liquidity support to firms, however, three years down the road, world is still struggling to be back on the pre-Covid-19 level but with little luck, so far.

According to Professor Erik Bryn Jolson, outgoing Director, MIT, Information Technology, “This is a huge shock to the economy, but it’s also a big restructuring of the economy.

There’s going to be a fundamental change in the way companies work. We’re compressing 10 years of structural change into 10 weeks.

There’s going to be a big division between nimble and slow companies”, he says. Numbers tell the story about the COVID-19 pandemic’s immediate impact on the U.S. economy. A 4.8% decline in gross domestic product in the first three months of 2020. More than 40 million unemployment claims in 10 weeks. An unemployment rate close to 15%.

These numbers are stunning, even compared to the Great Recession of 2007–2009. But the comparison helps explain what the economy may look like once the immediate impact of the pandemic has subsided.

“Firms used the Great Recession to change the structure of their workforce to focus on more technology-centered production,” said a postdoctoral associate at the MIT Initiative on the Digital Economy.

“This will be at the forefront of the response to COVID-19.” The presence of technology to support remote workers has taken center-stage in the last three years. Video conferencing, collaboration software, and customer service chat bots have allowed knowledge workers to remain productive while working at home.

At the same time, the absence of technology such as machine learning has left the manufacturing industry at a loss to manage rapidly shifting supply chains and the healthcare industry is struggling to compile and analyze data on the effectiveness of COVID-19 treatment.

According to experts at the MIT Initiative on the Digital Economy (IDE) technology will impact the future of work, for companies as well as employees, in the months and years ahead.

A big part of that is a shift to a more digital economy. That has been going on for some time and will continue for some time, but the current situation is compressing the efforts of a lot of businesses, managers and workers to become more digital.

Even when you have technologies in place like Zoom or Slack, people don’t always make full use of them; they stick to the old ways of doing things, and for most companies, if it is broken, they don’t fix it.

Most of us have been forced to think about whether we can work remotely. It hasn’t worked for everyone, but overall digital tech has been quite impressive, so that’s a win.

According to the productivity curve, companies don’t adopt powerful technology right away — whether it’s artificial intelligence and digitization, or electricity and the steam engine.

When they do adopt the technology, productivity goes down, and it can be one or two decades before they realize the benefits.

Right now, companies have no choice but to restructure. Because it’s dangerous for people to be next to each other, companies are trying to think about how to produce value and input without people getting together.

There are two options: Have employees work remotely, or have robots and machines do some of the work.

Companies are scrambling to see if they can do one or both of those things. Data shows a huge increase in remote work. One-sixth of Americans were already working at home, and another one-third switched from working in the office to working remotely. That means half the U.S. workforce is working at home.

The writer is former Civil Servant, GoP and Consultant: I.L.O & I.O.M.