This is the era of e-everything – economist
Though life is cautiously creeping back to normal, the economic damage caused by the coronavirus pandemic is still being counted. What’s in store for us? Our guest was listed among Time Magazine’s most influential world leaders – Jeffrey Sachs, professor of economics, director of the Center for Sustainable Development at Columbia University, and a senior UN adviser.
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Sophie Shevardnadze: Professor, it's so great to have you with us. We've been wanting to have a chat with you for the longest time. But wow, these times of pandemic, those are like the best times to actually pick your mind and maybe find out what is it that we're going into in our nearest future. So, large companies go bankrupt one after another, the global economy stands to lose more than 5 trillion dollars in the best-case scenario, some experts suggest that we're currently in the eye of the hurricane and the worst is yet to come. Do you think they're right? And how much worse can this get?
Jeffrey Sachs: We're obviously in a very deep crisis. It is highly differentiated across the world and I think this is the most important point. In the Asia Pacific region the epidemic is getting under control. The policies have been smart and effective in stopping the spread of the virus in China, Japan, Korea, Australia, New Zealand, Taiwan, Hong Kong, Vietnam, Malaysia and so on. In Western Europe and the United States, the epidemic was not controlled effectively at all. And in the US, we have a complete mess, because we have a failure of national leadership, mass deaths (more than 110,000), social unrest, economic catastrophe, and throughout most of the rest of the Americas, Brazil, for example, and Mexico, - terrible, terrible outcomes. Then the question is the rest of the world including Russia, including Central Asia, including South Asia, including Africa. The battle is on right now, will it be more like the Asia-Pacific experience of stopping the spread of the epidemic? Or will it be more like the experience in the Americas of the epidemic being out of control? And it's a very difficult battle and it's a very important question. My point is this epidemic can be controlled, but it requires very strong public health measures. It requires strong cooperation of the public. It requires good leadership that is very clear on putting a priority on stopping the spread of the virus. The reason I mentioned all of this is that if the epidemic continues as a disease, the economies will not recover. We will not have trade, tourism, the investments. We will have a continuing, very deep economic crisis. And so really to my mind, good economics right now means good public health, stop this virus from spreading, learn from Asia, see what they have done successfully, get this applied in our own countries. I only wish the United States were going this way. But I'm quite pessimistic, unfortunately.
SS: So I completely agree that some countries have dealt with this pandemic better than others. And it was just so difficult for everyone because it was something completely new. No one had answers, nor the professors, nor the doctors, nor the presidents, no one knew how to deal with it. We still don't know so many things about this pandemic. And the way it looks, it's not going to be completely over until the vaccine is discovered and the best-case scenario is what? Early winter? And we're still talking about a second wave... And so even if we do contain and try to minimize the damages from this disease, from this pandemic, we still won’t see the end of it for another 6-7-8 months. What does this mean for the economy?
JS: Oh, I think at a minimum, it's half a year, two years. Even if there is a vaccine, which would be very, very good luck, it would take quite a bit of time to test it for safety. You can't just have a vaccine that works on a test group and then say, now we're going to put it into the bodies of billions of people. That would be completely reckless. And so the truth of the matter is, even though there's a lot of hope for vaccines coming early, it's not going to be the solution to the next wave, the next wave of this epidemic. It's going to be quite a long time before there is really an effective vaccine that is already given to a large number of the world population. So we have to fight this by public health means. What is it that the East Asian countries knew or figured out? First, they wore facemasks, very basic. They don't transmit the virus to others, they take precautions. They are screened at the workplace, if there's a fever, go home. They have quarantine facilities, they are contacting, testing and tracing infected people. In other words, if you're with symptoms, you get tested immediately; if you are positive, your close contacts in the family or at the workplace or in places that you visited are also quickly contacted and tested. So these are standard procedures for fighting epidemics and they really should be applied everywhere urgently right now. What it means for the world economy is we are definitely going to have a significant disruption of the world economy for a long time to come. The truth is, even if there were a solution to the virus, we will not have a V-shaped recovery, meaning that we're going to bounce back anywhere near the rate that we have gone into a deep decline. People are not going to go back to normal practices. We're not going to get a construction boom, anytime soon because we have more than empty office spaces everywhere. People are going to stay home and work from home if they are in the kinds of work that allow for online activities. People are not going to be tourists travelling around the world at the same rates as before. For an oil-based economy like Russia, the price of oil is going to be considerably lower for quite a long time than it was before. For countries that depend on remittance income, this is going to be depressed. I don't believe in a quick recovery, I believe in a prolonged crisis as being more likely. And I think we're going to need global cooperation for the recovery phase. This is also very tricky because unfortunately, the United States is trying to oppose cooperation. It's trying in the middle of all of this crisis to make a new Cold War with China. And that is a ridiculous thing to do. But that is because, unfortunately, we have very poor leadership in the United States, which is creating so many problems inside the country and internationally.
SS: Well, I was gonna say when this pandemic hit, it was so good to see how everyone consolidated and, you know, countries, yes, they were first and foremost taking care of themselves and their nations, but they started exchanging data and they started exchanging the goods that were needed and the masks and the medication. And the doctors were arriving from China to there and from Russia to there, and from America to here. And it was just so good to see that the world came together to combat this pandemic. And then not long has passed and like you've said, we started finger-pointing and doing “you're to blame, so you’ve got to answer to that”. When you say we need to come together to come out of this recession, this economic recession, do you think it's possible? Because to me, where it looks like this was just a temporary come together, and now the world may be even more fragmented than before?
JS: Well, there's definitely forces of fragmentation that are, in my view, quite dangerous, and there are needs for cooperation that are more urgent. If you look at places that are doing badly in containing the epidemic, they tend to be the places also with the kind of strong populist nationalism, that are against cooperation in other areas as well - look at the United States or Brazil, or other places where the leadership is already highly nationalistic, really against multilateral cooperation, but not even making sense to keep its own citizens safe. We should be looking for cooperative approaches. We were not doing so even before COVID. It's not the US approach, at least of the Trump administration which wants division rather than cooperation. That's why Trump pulled out of the Paris Climate Agreement. Trump pulled out of the Iran nuclear agreement, Trump pulled out of the World Health Organization and Trump has launched a Cold War against China, because his whole strategy is “divide”. And this is not a strategy that is really what we need for solving any of the major problems in the world today.
SS: Professor, you're saying, we need cooperation to get out of this crisis, let's say things are ideal, and we will cooperate. We still can go back to how things were, it's still going to be the new normal. And you mentioned the climate change. And a lot of people were like, you know, this pandemic, actually showed that what climate and the planet needed is two months of sitting at home and we can see the Himalayan mountains that we weren't able to see for 30 years and we see deer in streets of Paris and etc. So just recently, I spoke to this amazing environmentalist Philippe Cousteau, maybe you know him…
JS: Yes.
SS: And so he believes that the Corona-crisis is given us a headstart to build a cleaner economy of the future - something that we've been pushing away because it wasn't needed right now. He said, because we need to start from zero anyways, this is like the perfect timing to start the new type of model, new type of economy. That's a beautiful way to put it. But I want to know, is it possible to reframe the whole economy just like that, solely on the way of pandemic?
JS: Well, it's clear that we needed a new approach even before the pandemic. That's why we reached two global agreements in 2015, one on the Sustainable Development Goals and the second on the Paris Climate Agreement. These are very important, new directions for a world to be safer on climate, on pollution, on destruction of nature. It says, we need a sustainable approach for the world. The problem was and remains that this requires the transition from a fossil fuel-based world to a renewable energy world. And the fossil fuel-based countries, - Russia is one of them, the United States is another, Mexico is another, Saudi Arabia is another, Australia is another, - were resisting the move from fossil fuels to sustainable energy because they said, “Hey, we've got fossil fuel resources, this is our livelihood!” So yes, COVID-19 has led to a dramatic drop of oil use, oil prices plummeted. There's a glut in the markets. It was only when Russia and Saudi Arabia cut the supplies that the price has gone up a bit. But the real issue is a more fundamental issue. The real issue is whether the fossil fuel producing countries will work constructively to develop renewable energy as the alternative because if the fossil fuel producing countries, the Gulf countries, the United States, Canada, Australia, Russia, and so forth, continue to promote fossil fuels, we don't make the transformation. So I believe we should make the transformation. It's really important for public safety. It's important for a safe planet. I think every country could prosper in a low carbon economy. But there are a lot of strong interests that don't want that transformation.
SS: A lot of people have been coming to the conclusion that this new model of economy that we're going to see ahead of us is going to be much more digital-based, e-commerce-oriented, and things, businesses, fields that were starting to be born and were supposed to pick up in 10-20 years were born overnight, and things that were supposed to die off in 10-20 years, also died off in one night. So in a way, this pandemic was like, an accelerator for both the things that need to be kick-started and things that need to be actually left behind forever. But I don't see anything wrong with this sort of digital-based, e-commerce-based economy, do you? What's wrong with it? I kind of like it, actually.
JS: Well, I think you describe what's happening extremely well, this was an incredible accelerant. And I've spoken with so many businesses that have said, “You know, we realized we could be 60% online or 70% online, we didn't know it before.” I spoke with a senior UN agency official who said that there had been a lot of resistance to working online until suddenly, they see, oh, this works fine. There's not a problem. We can do this. So I think we are going to see a long-term change coming from this short-term crisis. It's pretty much across the economy. It's definitely in my sector of education. After all, the universities went online in a week. I've been teaching online for a long time, but it was sometimes felt maybe it wasn't the best etiquette. Shouldn't you be in the classroom? But the truth is, you can do a lot of very interesting flexible things online, bringing in speakers from all over the world, engaging in new ways of pedagogy, which I personally like, actually, I think it adds content and depth and richness. So if you think about it, it's e-offices, it's e-commerce, it's e-governance. It should be voting and registrations and licensing services all online. Why stand in line in a government office when it can be done so conveniently online! It's e-payments, it's e-financing, it’s e-education, it’s e-health, with telemedicine, not for everything, but for quite a lot of what needs to be done. So I'm in agreement with you, I like it because it could reduce wear and tear on us. It's not all or nothing. An office is a good thing once a week, maybe twice a week, to see colleagues and to socialise and to have that advantage. But every day in an office for work that one can do online really doesn't make sense. Commuting is no fun for a lot of people. Why spend an hour each day going to and from an office with all of the physical resources, the carbon emissions and so forth that that entails when you don't need to do so? So I believe we could move to a world of more leisure, that's cleaner, that is less wear and tear on the earth and on our bodies. But there's one important point also that I think needs to be mentioned: the way that this could work is either everybody gets some benefit from less commuting time, more leisure time, saving money and so forth, or we all end up basically working for just the big tech companies. You know, the biggest gainer of this epidemic has been Jeffrey Bezos.
SS: I was just going to tell you that all those tech giants just became 15% richer, while 60 million people, you know, are going to be living below poverty line after this is over. So talk to me about that aspect. So we have the good aspect that this could work out for us if we all agree that we can do this tech-based, e-commerce-based economy as long as we don't end up all working for tech giants. But what about that huge gap that has become even huger now, where we see billionaires getting richer people are losing jobs and are going to be leaving under poverty line, 60 million people, after this pandemic and what we see basically is the disappearance of the middle class. How is that going to play out?
JS: Obviously, it won't play out well, if it isn't addressed through public policy. Mr. Bezos today is with net worth of 150 billion dollars, one person, and this is a 35 billion dollar increase since the start of the year. He's been a huge gainer. Mark Zuckerberg - 10 billion dollars on Facebook, his personal net worth, I'm not talking about the company, obviously. So this is ridiculous. You know, when you think that Amazon basically pays no taxes, it paid no tax at all for several years, then it paid a tiny amount in 2019. We can't go on this way. What kind of society where one individual has 150 billion dollars of net worth and then so many people suffering just to stay alive. So we need a system of taxation. We need a system of meeting basic needs of healthcare, education and so forth. That costs money and that requires redistribution of income from the mega-rich to the rest of society. And we need to ensure that people who have jobs, have decent jobs. A lot of people have gotten sick in Amazon warehouses this spring. That's not right. A lot of people have gotten sick in doing the basic things to keep our society going during the pandemic. And they're the most marginalized, poorest people. And in the United States, they don't even have healthcare much of the time, because our society's unbelievably unfair. It's just money, owned and operated. And so these are things that are absolutely now on the agenda. And if they weren't on the agenda before, they are on the agenda because there are protests all over America, about the racial injustice but also about the economic injustice. So I don't think that it's going to stick this kind of inequality, but it needs now to be channelled into actual policies to make the new kind of economy fair that everybody has the benefits of education, healthcare, basic social services that no one should have 150 billion dollars. I don't care how clever you are in inventing, how clever in enterprise, most of that should be taxed away because we don't function well in a society with such extraordinary income and wealth inequality.
SS: And finally, just to wrap up, do you feel like the government's general role in dealing with the pandemic economic fallout should be increased? Like, should there be more state interference in the times of emergency like this, for instance, another New Deal, or should... What is the best? Or the best course is to just let the market sort of sort itself out in a natural way?
JS: All good societies are mixed societies where there's a strong role of government, including regulation, income redistribution and providing social services, a market which allows for entrepreneurship and flexibility, and a civil society. These are the hallmarks of a good society. They are a middle way between extremes, between the extreme of all state ownership and central planning, between the extreme of just power and markets without any kind of social justice. And so it's an old idea in philosophy and Western philosophy and Eastern philosophy, - choose the middle path. And that I think is the right strategy economically as well. In the United States, we are a money-driven society, we're a money-driven political system where the money pays for the campaigns, the big wealth, and this does not lead to social fairness, inclusion or a proper role of the state. The New Deal that we had under Franklin Roosevelt, who I regard as our greatest president, was a middle path. It had government and it had business working, sometimes in conflict and sometimes cooperatively. And that is, in my view, the right approach. What we don't have right now, by the way more than anything, is we don't have thinking going on in government. And without rationality, we're getting terrible, terrible outcomes. And so I'm trying to think hard about how to put thinking back into our political system.
SS: Professor, thank you so much for this interview for this wonderful insight and great discussion. And I really hope we get to talk one more time, when the times are better and when things really start to pick up.
JS: I'm looking forward to that.
SS: Thanks so much. Take care of yourself.
JS: Good. Thank you. Take care.