- “Social spending could become the new defence spending”
LONDON – Avonhurst’s Head of Global Political Strategy, Tina Fordham has outlined some of the reasons COVID-19 is such a unique threat to existing social and political systems – and how we can expect to see its impact play out in the immediate and long-term future at home and abroad.
Fordham, who was Citibank’s Chief Global Political Analyst and has over 20 years’ experience advising institutional investors, corporate boards and international organisations about global political developments and their implications for markets and the investment environment, has recently been seen commenting on the political and economic fallout from the crisis on Bloomberg TV and CNBC.
“Without meaningful economic solidarity measures, the EU’s days are numbered”
An extension of the Brexit transition period is still highly likely, believes Fordham: “There is very little political oxygen to negotiate a new trade deal in the jaws of the pandemic crisis. But the European Union itself has again been tested. Italy has been among the worst-hit and has been stung by the weak response from Brussels. Without some form of meaningful economic solidarity, the EU’s days are numbered.”
For US elections, both the outcome and the process are more fluid. Explains Fordham: “Most investors expected a second Trump term based on the outperformance of the US economy and financial markets. The pandemic has reversed those achievements, though at the same time, the impossibility of campaigning has deprived his putative competitor, former Vice President Joe Biden, of a platform. So the case for a Trump second term is weaker, but without momentum and mass mobilisation of Democrats, the case for a Biden victory is not compelling either. The machinery of voting is also in question if there is any form of lockdown in place in November. We simply don’t have another historical parallel to compare this with.”
Fordham is awake to the fact that we are only seeing the first wave of the crisis: “Second and third wave effects have yet to be unleashed. The crisis is likely to hit emerging market economies especially hard. A further risk factor is rogue states or actors who look to exploit the distraction of world leaders to make a power or territorial grab.”
“Social spending could become the new defence spending”
Fordham believes that the crisis will change how the social safety net is viewed: “Discussions of a universal basic income will gain prominence as the reality of rolling lockdowns and large numbers of people prevented from working on a regular basis sets in. Of course, measures to strengthen the social safety net come at a cost, but social spending could become new defence spending. After all, if we’re willing to allocate significant resources to fight against conventional enemies, the public may insist that we be as prepared against an invisible foe. We are already seeing companies take steps to increase social protections for their workforces, and government threats to withhold support from companies paying dividends and engaging in buybacks. This could lead to a boost for the “S” in ESG investing.”
“The COVID-19 crisis will be transformational, dramatically accelerating the shape of the 21st century.”
Says Fordham: “Previous crises were painful, but a pandemic is different; the “fear factor” tends to be much more visceral and long-lasting. The policy response suite is more complex: you can’t send in the troops, nor can central bank action alone fix the problem. Responding to the COVID-19 crisis and being prepared for future pandemics will move to the forefront of policy making. It’s not a matter of getting through the next few weeks—it will be 18-24 months before we’re through this, and once we are, we’ll be entering uncharted territory.
“The future of the US-China relationship, the most important relationship in the world – tensions will flare up again in the second half. I don’t agree with the view that China emerges from the pandemic as more powerful on the world stage – COVID-19 could be a much more significant catalyst for a ‘Jasmine Revolution’ than an economic crisis.”
“Populists have little to offer now, but we risk a resurgence amid the economic dislocation that will follow.”
Continues Fordham: “It’s striking to see the boost in approval ratings for leaders across the board, but this is a common response to a collective crisis, unifying the country under trying conditions. The leaders that survive will be the ones who are good at communicating and maintaining the trust of their people. In some cases, the beneficiaries of public trust will surprise us, and new leaders will gain prominence.
“After the worst of the crisis has passed, populist leaders will attempt to capitalise upon the dislocation and return to their playbook of pitting groups against one another and playing upon public fears. This risk of a return to populism, and potentially in a more radical form, makes the pressure for a sufficient, bottom-up policy response all the more crucial. Without it, the next election cycle will see a return to the toxic politics of division, which would limit prospects for the recovery.”
“The new wave of political leaders could have frontline experience in fighting healthcare battles, as 20th century leaders had military experience”
Says Fordham: “The next wave of political leaders could come to power because they have competence in crisis-fighting and managing complex systems. In the 20th century, marked by two world wars, leaders with military experience were sought after; in the 21st century having “frontline” experience could mean healthcare. This could lead to a new wave of political leadership, with major implications for social spending and stakeholder capitalism.”
“Globalisation is like gravity – an incontrovertible fact”
“Globalisation has been slowing for some time; US-China trade tensions, sanctions and tariffs have all done their part to bring this about. The US-China relationship is the most important relationship in the world. We had been on track in 2020 for a trade deal and an easing of tensions, but the pandemic and questions over China’s role in combatting it have complicated the picture and US-China tensions are likely to flare up again. But, whilst the rate of globalisation and integration may ebb and flow, globalisation can’t go into complete reverse either. It is, like gravity, simply an incontrovertible fact.
Shortages of medical equipment and PPE have exposed the degree of dependence on foreign suppliers as well as an insufficient supply. This will have to change going forward. The risk is that the crisis becomes a pretext to limit trade in non-essential goods too. Manufacturers will be grappling with the likelihood of at least 18 months of periodic full or partial quarantines, and this will force a rethink. Returning production nearer to consumer markets will clearly become more appealing in the new normal, and this will in turn lead to higher wages and other production costs.”
“Sometimes investors forget that the primary responsibility of the state is h