Towards the Great Storm? Covid-19 and climate change’s impacts on global economy

Andrea Muratore

Covid-19 pandemic has been a game-changer for global economy and has accelerated many key dynamics that are affecting its development. How will the system recover from the pandemic? How will the effect of Covid-19 merge with the other important question of our times, the environmental emergence? Are we marching towards a Great Storm that will affect our economic systems? We are discussing those issues with a leading scholar in the field of global economy and economic history, Professor Adam Tooze. Currently Tooze, aged 54, is Professor at Columbia University and Director of the European Institute. He has also been the Director of the International Security Studies who succeeded Paul Kennedy. One of his most famous works is Crashed: How a Decade of Financial Crises Changed the World, a description of geopolitical, financial and economical consequences of the 2008 Great Recessions. In September he has published his most recent book, Shutdown: How Covid Shook the World’s Economy.

Professor Tooze, how the virus impacted on the global economic system in 2020? Was it a great surprise?

In some senses the effects of the pandemic have been a development, an effect of economic dynamics that happened in the last half century. It appeared as an exogenous shock in 2020, as something new, but it impacted on a global context that was in a very tense situation. The economic and geopolitical dynamics that I described in Crashed were already on the stage in years 2019-2020, characterized by strong tensions. In the US, for example, the financial instability that led to the 2008 crisis was still present in 2019; tensions between China and United States have become explicit and they were affecting global politics, trade and the American administration’s agenda. On the causal nexus between politics, economics and geopolitics that I tried to sketch up in Crashed, so, the virus impacted as a general shock on global dynamics.

And what elements of novelty were exposed by the virus?

It has made clear the problem of the instability of the global financial system; it exposed the problem of governance in global economy; it made clear the problems of the political constitution of the United States. The virus was clearly not the cause of all those problem, but reasoning in a complex way we can clearly state that it contributed to the acceleration of those crises,  and it also contributed to the escalation of tensions between United States and China.

This was made clear by Trump presidential campaign in 2020…

Yes, in the mind of the Trump’s people it was a clear, consequential nexus between the outbreak of the virus, the internal fight against the pandemic, Washington’s confrontation with Beijing and even the internal political confrontation with the Left. From the debate about wearing face masks to the consequences of Black Lives Matter, in the minds of the more radical supporters of Trump and in the mind of Republicans like Ted Cruz the crisis was considered as unique, as a way through which the traditional American way of living could be subverted. And this leads us to think that another consequence of the pandemic has been the extreme polarization among political wings in Washington politics.

This polarization can be read as a consequence of the fragility of the American system you have mentioned before. How projects enacted by President Biden’s administration in order to enforce social cohesion e reinforce the American economy could contribute to change the situation?

I am very pessimistic about that. I think that Democrats have tried to figure out a strategy in order to change the bases of United States’ development, in a way that is similar to Ursula von der Leyen’s Commision strategy to enforce a transformation in European economy through the Green New Deal and sustainable policies, in a similar centrist recognitizion of the need of face the problems that the more radical part of the political spectrum diagnoses. The way in which the political system in the US works leads to make more complicated to translated this centrist diagnosis in working politics. Democrats have strong internal divisions, and in some issues the Republicans are strongly entrenched.

Can the compromise on the infrastructure bill recently enacted work as a driver for a new bipartisan consensus among the centre of America’s leading parties?

The bill you refer to is tiny in relation to the scale of the problems the American economy has to solve and it’s only a fraction of the impact that, for example, Next Generation EU will have on Italy in relation to GDP. And while event Next Generation EU will hardly pose an end to Italy’s economic problem, Biden’s infrastructure plan is only a tiny step. So, the impasse remains also because the Democrats legislate in a very tiny majority that makes hard to do actions that could resolve the climate crisis or America’s social problems.

A strong gridlock that blocks political actions…

Yes. The diagnoses of the problems often don’t lead to concrete actions that could solve those problems. If you want to understand the current political crisis in the United States, you can also consider that the political support to strategies leading to transition both in the energy and in the technological sector that have proved to generate a consensus in European capitalist system (think for example to the actions of Italian and Spanish utilities) is hard to find in the United States. The auto industry is moving towards electric vehicles, but the great question is to understand how this way of thinking can pass to other sectors. US needs that political parties do not pose an obstacle to this process.

As you said before, the climate crisis is a leading question in contemporary political debates. Even in time of pandemic, we have seen how the problems created by the virus can merge with environmental troubles. It’s possible to expect a “Great Storm” created by the union of the pandemic crisis with the environmental emergence?

The pandemic and the climate crisis could converge locally to produce perfect storms, as problems emerged during California’s huge fires have demonstrate clearly. The fires’ outbreak happened in a period where the COVID-19 pandemic has depleted the ranks of inmate fire crews that are a key component of the state’s efforts to battle out-of-control wildfires due to lockdowns imposed to many prisons in California. The interesting thing we may point out is the fact that on the horizon of the next ten or twenty years the main challenge of climate change will be regional rather than global, or at least macroregional.

Where those threats will concentrate?

The huge problem is that environmental problems will concentrate in the poorest regions of the world, from India to Middle East, from Caribbean to the poorest regions of the United States. From devastating typhoons from prolonged droughts, from energy shocks to wildfires, those problems can appear in very different way.

And what could be the economic consequences of those problems?

It’s hard to think that dynamics of this kind could generate an economic crisis comparable to the 2020’s one. This would probably emerged by the sum of many regional or macroregional shocks only in most extreme scenarios, such as a wave of accelerating global warming. Now the climate crisis is concentrated locally and it regards mostly developing areas of the world, while the unique feature of COVID-19 pandemic has been the fact that it hit hardly the three leading areas of global economy, China, Europe and the United States, in successions in the space of few months. This is very difficult to imagine on the climate side, while a “perfect storm” is something that could happen globally in the more distant future. We can also imagine a Fukushima-stlye accident and global shock in energy markets succeeded by a political shift spreading globally, but this would be mediated by political and institutional decisions. We are some way very distant, in the end, from a 2020-like trigger on the climate side. However we may not forgot that regional and macroregional sectors are strongly interrelated at the global level, so for example a massive wave of migration caused by climate and demographical problems in Sahel can create political consequences at the EU level.