Amid tumbling stock markets and crashing oil prices, JAMES BALL says the the country must be better prepared in future to protect people in an unexpected crisis.
Most of us, if we’re being absolutely honest, don’t pay much attention to the movements of the stock markets, let alone the bond or commodity markets – if we’re even quite sure what they are.
In a world full of a bewildering and often demoralising array of much more immediate news, the sign that overpaid traders and analysts think one overpaid CEO is performing better than another one feels a distant, alien world relevant only to the super-rich.
The reality, though, is this news – even while it’s often written in either a mind-numbingly dull or outright incomprehensible manner – matters tremendously to our real lives. It is about the value of our pensions, the likelihood of our keeping our jobs, the amount of money the government will take in tax.
In a capitalist world, whatever happens to the markets has seismic effects on us all, whether we own stocks or not.
What, then, has actually happened this week and how worried should we be? To keep it simple, stocks represent shares of major companies, and are ultimately bought and sold based on how much profit people think a company will make.
When an unexpected ‘shock’ hits the markets – and if coronavirus is anything, it’s a shock – investors react by changing their forecasts. If you have shares in airlines or hotels, for example, their prospects in a world hit by pandemic look much worse than they did before virus struck, so you might sensibly decide to sell.
These start to have wider effects: if people are travelling less, restaurants and retail shops in major tourist destination might make less money. Some of them, like some airlines and hotel chains, might fail – which means people will lose their jobs, and then spend less in supermarkets, or on Amazon, or cancel their Netflix subscriptions.
Most major global stock markets have fallen by 15% or more over the last few weeks – the biggest drops since the financial crisis of 2008 – meaning that investors with billions at stake think we are about to take a major, global economic hit. This isn’t the financial crisis, yet: it is instead a lot of people with money at stake predicting big problems are coming.
There is more to the current economic panic than just coronavirus – oil prices are also crashing. While to those of us who drive this may sound like unambiguous good news (cheap petrol!) it usually bodes ill: it means the many, many industries who need oil are less keen than they were to buy it, and won’t pay as much.
That means production is falling, meaning we’re buying less, signalling a global recession. The cause of the spectacular drop in oil price this time started with the initial effects of coronavirus, and a fall in demand for oil.
Its supply is usually managed and handled by a cartel of oil-producing countries, known as OPEC, who keep prices artificially high by agreeing not to compete too fiercely against each other. Usually, when demand drops, they mutually agree to drop their supply, protecting the oil price and their own national profits.
This time, Saudi Arabia and Russia could not agree on reductions to supply – and Saudi, the world’s largest oil exporter, has decided to punish Russia for not playing by the rules by exporting masses of oil, deliberately sending the price plummeting to try to bring everyone back to the table.
Such high stakes gambling at a time of global crisis has sent confidence plunging still further: rather than coming together to tackle the emergency, governments across the world seem to be pushing their own agendas, and doing so aggressively.
Stopping this kind of crisis turning into an economic disaster that could last for years will require huge, skilful, intervention from governments – including from governments such as the UK’s, currently run by people who would usually advocate for free markets and small government.
The challenge is tackling complex, interconnected systems: to contain coronavirus, people showing symptoms need to be able to self-isolate at home. This requires them to have access to sick leave and similar benefits, and in many cases employers agreeing to pay wages for casual workers even if they don’t come to work. Given millions don’t already have access to those kind of benefits, securing this needs government action.
If access to these kind of rights and benefits are secured – which, if they lasted, would be a huge and overdue positive from this crisis – they would require significant spending from employers, themselves about to be hit by huge loss of sales. So retail, hotels, airlines, and other businesses that were doing fine pre-coronavirus may need government support to survive.
Trying to work out how to support vulnerable people, keep jobs, and stop good businesses failing through no fault of their own – without allowing others to profiteer, or else without supporting already failing and bad businesses – is an incredibly tough task, needing significant expertise and management.
That relies on well-staffed, well-prepared government departments with access to deep expertise – as does the direct response to coronavirus itself. The tragedy for the UK economy (and many others) is that it cannot rely on access to this.
Coronavirus, contrary to the beliefs of too many people on the internet, can kill anyone who catches it. But it is much more dangerous to older people, those with pre-existing health conditions, or those who are immunosuppressed.
Like the illness itself, coronavirus’ economic consequences will be best weathered by healthy economies. The tragedy for the United Kingdom is that it does not qualify as one of these.
The financial crisis left our economy in tatters. UK wages have barely recovered in the decade since its nadir, despite rock bottom interest rates and desperate efforts to bail out companies at the core of the crash.
That dire condition has only been worsened by the treatment meted out to the economy by the UK government since 2010: just as medieval bloodletting robbed already direly ill patients of their most essential resource, austerity has left the UK far weaker than it ever needed to be.
We will need brave and inspired governmental response to the economic crisis we are about to face. Our health services need deep benches, good reserves, and to be ready for the frontline. But the Treasury, local government, the Department for Business, Citizens Advice and more will be needed to manage second order effects.
All of them, instead of being healthy and ready, are running on fumes, held together by dedicated staff working with the last of their resources, limping towards the starting line. The situation is not hopeless – people come together in a way that often seems unbelievable in a crisis – but our government has hobbled itself and in turn us, in ways that will only come apparent in this hour of need.
More people will lose their livelihoods, have no benefits, or even catch the virus, than needed to, because the UK walked into the crisis hobbled. We should not take this as a counsel of despair, but instead use it as a catalyst: next time we face a crisis, we must enter it better-prepared.