- Date: Monday, 31 August, 2020
- Language: English
- Host: Research Institute of Economy, Trade and Industry (RIETI)
WATANABE Tetsuya (Vice President, RIETI)
I would now like to introduce Professor Jorgenson from Harvard and Professor Baldwin from the Graduate Institute Geneva. Professor Yano, our chairman, also joins us. Professor Morikawa, our president and chief research officer, will moderate the discussion.
COVID-19 is presenting enormous challenges to our economies. Uncertainties include (1) the best way out of the slowdown; (2) heightened geopolitical tensions; (3) risks in the recovery of the Chinese and US economies and fragmentation of technologies; (4), the backlash against both globalization and global institutions; and (5) the ability to ensure sustainable global economies in the face of climate change threats and reducing carbon output.
The role of government and international institutions and the relevance of policy communities are being tested. We must integrate expertise in different fields and formulate appropriate policies, explore new global governance for post COVID-19, and determine how to cooperate globally to combine knowledge and expertise from around the world to respond to global challenges.
"Social and Natural Factors in the COVID-19 Pandemic: Social learning, political leadership and population concentration"
YANO Makoto (Chairman, RIETI)
Thinking about the COVID-19 pandemic at a very early stage, I think both natural and social factors were present, but the importance of social factors was underappreciated. That's what I would like to address today.
Natural, political, and social factors driving the pandemic's spread
The epidemiologic development of pandemics has long been known. They accelerate at the very beginning and from the middle they start decelerating as the population establishes herd immunity.In addition to this natural factor, information or misinformation from political leaders is very important. In this case, early on, we had unfortunate misinformation from the medical profession. A famous medical regulator, for example, said on March 19 that there was no reason to wear a mask. Early misinformation has had a long-lasting negative impact and I think it has disrupted self-protection efforts. Let me use Florida as an example.
The Florida case
In Florida, there are many factors such as population, number of cities, per capita income, education levels, housing prices, and so on. My study showed that the population was the dominant factor in the pandemic's spread.
I also looked at political factors. The number of core Trump supporters had a strong positive influence on the case numbers in Florida. Also, including the number of Trump supporters and population as variables, population densities actually had a negative effect on the per capita cases, which is counter-intuitive. I hypothesized that people who live in more crowded areas realize that they are more likely to catch the virus and thus take more self-protection efforts, and my studies supported this theory.
In summary, the social learning effect was strong enough to reduce the per capita cases in areas with small populations, but was more than eliminated by political and natural factors in large cities like Miami.
The slow spread in Japan
As you know, in Japan the spread is not as bad as in the US or in Europe. My findings in Florida suggest that the early warning given by the government helped a lot.
Schools were suspended in early March, and this set the tone for Japanese society to be more careful. Also, Japanese people are accustomed to using masks because of the high percentage of people with cedar pollen allergies. These factors may have helped slow the spread at the beginning. I cannot prove it yet, though it would be consistent with what we found in Florida.
"Economics of the Coronavirus"
Dale JORGENSON (Samuel W. Morris University Professor, Harvard University)
The coronavirus has caused a substantial amount of disruption of economic activity. Fiscal and financial sector countermeasures in several countries have helped forestall the worst near-term losses, but economies are struggling to control infection rates and lockdowns and social distancing are taking a toll on economic activity. Consumption growth has been downgraded for most economies.
World Economic Outlook projections
The World Economic Outlook is a regular report by the International Monetary Fund. A special edition in June 2020 was published to capture the changes that have taken place. The outlook has already dimmed substantially in two months, since the last projections in April. World economic output is now projected to fall 4.9% in 2020. That is a very sizable downturn.
Growth in the US in 2020 is projected to be -8%, with a recovery of 4.5% in 2021. In Japan, the 2020 projection is -5.8%, with a 2.4% rebound. Compared to April, projections have been reduced for 2020 and increased slightly for 2021.
Growth rates for emerging markets are projected to be -3% for 2020 with a rebound of 5.9% in 2021. China is expected to have slight positive growth in 2020, but India's outlook has been downgraded since April, and it will experience negative growth in 2020.
World trade is projected to decline by 11.9% in 2020 and then rebound by 8%. For the emerging market and developing economies, the figures a decline of 9.4% for 2020 and a recovery of 9.4% in 2021.
Implications of the slowdown
Regarding the implications, I would like to discuss two alternative scenarios that circumscribe the level of uncertainty associated with these projections.
In the first scenario, there will be a 2nd global outbreak of the coronavirus in early 2021. In the second scenario, we will experience a faster-than-expected recovery from lockdown measures implemented during the first half of 2020, due to greater confidence and efficient post-lockdown policy measures.
The decrease in activity from the first scenario is probably similar for the advanced and emerging market economies in the short run. Under the second scenario, global output improves relative to the baseline by about 0.5% in 2020.
We are looking at a very uncertain outlook for the world economy, depending on the scenario. We can conclude that this is a situation of enormous uncertainty that requires the attention of policymakers everywhere.
"Covid, Globotics, Development, and the Future of Work"
Richard BALDWIN (Professor of International Economics, Graduate Institute, Geneva)
I would like to provide a more provocative and conjectural presentation to stimulate thinking about what might happen in the long run with COVID.
Globalization and automation of office work
The basic idea of globotics is that digital technology is advancing very rapidly, and is launching rapid changes in globalization and automation that are affecting white-collar and professional jobs, not just manufacturing jobs. This is happening in simple, medium, and high-level office tasks. Office work is being globalized as it is undertaken by "telemigrants," or globally outsourced office workers, and many service roles are being replaced through automation by "white-collar robots" or AI. The substitution of office workers will accelerate as the digital technology gets better, but local workers cannot be replaced entirely.
Effects of COVID on office globalization and automation
COVID will further accelerate these globotics trends. I want to focus on four driving shocks:
(1) Firings due to the COVID disruptions will lead to the replacement of some workers by software automation or offshoring.
(2) Digital transformation has accelerated as many workers and firms have learned to work remotely, in essence opening the door to telemigration.
(3) Social distancing makes office space effectively more expensive than before.
(4) Corporate debt has hit incredible levels, which will make cost-cutting urgent.
In emerging markets, factories will become jobless and offices globalized. As robots cost the same anywhere, it will not be worthwhile offshoring manufacturing to low-wage countries. But similar technology is making it easier to participate in offices virtually.
Comparing India and China, growth in India was based more on services, whereas in China it was manufacturing. As automation makes manufacturing jobless, a lot more development models will look like India's and less like China's.
A future of services-led development
I conjecture that the emerging market miracle will continue, but with India-style, service-led development, not manufacturing-led development. Manufacturing-led development is difficult and very agglomeration intense. Services are easier to develop and provide than manufacturing. This will give continents like South America and Africa more of an edge than before.
Future policy and backlash
Thus, we need to think about cities, services, and training, not factories, capital goods and technology. Governments need a different mindset when they are trying to develop the export of services, rather than manufactured goods.
As a final down note, it is worth pointing out that many people in advanced economies work in services, and we may find a backlash against telemigrants, globalization, and office automation.
I will start the discussion with Mr. Yano. How can we select or make good political leaders? Also, how can we improve social capital?
The process used to elect leaders has to be very democratic, and you need proper processes to ensure the good behavior of leaders. Also, the media has to monitor and report how political leaders act and provide correct information. Social capital is important because it ensures the proper behavior of the government, political leaders, and media.
Eventually, people will figure out that competency in leadership is really important, but as economists, we cannot influence that. I have been impressed by the amount of data-based policy analysis on COVID-19. With the real-time data we have now, people can figure out what is going on.
Dale W. JORGENSON
I think what we need to focus on is the change in technology, in terms of drug development around the world as a response to the coronavirus. Will these developments mature and change the nature of the coronavirus threat before the end of this year? I think that is likely.
Professor Jorgenson, you stated that currently the short- and medium-term world economic performance is highly uncertain. Of the baseline, pessimistic, and optimistic growth forecasts from the IMF, which do you think most likely?
Dale W. JORGENSON
I am an optimist as far as the development of technology is concerned. I think that an effective drug for COVID-19 is likely to be ready soon. The world economy has been greatly depressed, and that could continue, or it could rebound quickly.
How can we mitigate the negative impact of COVID-19 on long-term economic growth? And could you please give advice to the next prime minister of Japan?
Dale W. JORGENSON
My advice to the next prime minister is that Japan is experiencing a slowdown that is associated with the developments of technology that we have been discussing. It is important to follow these developments and understand exactly what the implications are for growth. I think Japanese growth will revive, subject to the unusual demographics of Japan.
Professor Baldwin, you mentioned a backlash against globotics or telemigration. What do you think the impact might be of globotics on inequality in advanced countries?
COVID has made education a real problem, as young people miss one or two years of education. Well-off people can insulate their children, but others cannot. The result is a widening achievement gap.
Also, COVID has made it clear that governments are responsible for mass firings of people, and they have to provide retraining and income support. It is easier in the service sector as skills tend to be more fungible and it is possible to redeploy people.
So, basically, watch out for education and help with retraining. Those would be my two recommendations.
It is true that COVID and technological progress will make the world more integrated. At the same time, both contribute to fragmentation.
Such issues can only be tackled by good leadership, together with deep thinking towards producing a more coherent society. I think we should look into how we can bring the world together in advancing these goals.
Dale, Harvard University is physically closed and classes are conducted online. How do you evaluate such practice from the viewpoint of quality of education?
Dale W. JORGENSON
This is a situation reflecting the way in which the coronavirus has been handled to date. Once this comes under better control, there will be a lot less concern. As I said, I am an optimist about the technological developments and the coronavirus outcome.
Now for questions from our RIETI fellows. This is from Dr. Willem Thorbecke for Richard. He asks, what countries have a comparative advantage in producing white-collar robots?
India is advancing this quite a lot. In the West, the big platforms include Blue Prism, a British company, and many American companies are advancing this. And we see it in the responsiveness of our software, including Microsoft Office, etc., which now provides recommendations on grammar or style, or translates texts immediately. So, a lot of this automation is from big software companies and big tech companies. After that, it really depends upon the country, with the US ahead in finance and the UK in the medical field.
Another question to Richard is from Yuki Hashimoto, a researcher in labor economics. Is Japan's strict labor regulation on the dismissal of regular employees likely to be an obstacle to globotics? More generally, what do you think good labor market policy looks like in the era of globotics?
There are two elements. Some labor-market regulation makes offshoring impossible. Other regulation makes uploading data to the cloud infeasible. In the Swiss banking sector, which has very strict bank secrecy laws, offshoring of the labor and access to the data are both impossible, for example.
The second part is that a great deal of labor-market regulation is based on traditional jobs and employer-employee relationships. As we go to the gig economy, labor becomes less regulated, and therefore a lot of the offshored and outsourced work is already escaping labor market regulations.
Finally, some brief final remarks.
Dale W. JORGENSON
I think that the development and the implementation of technologies that will deal with the coronavirus is key.
We have seen behavioral economics and incentives combined with epidemiological models to get more realistic models of how the disease is influenced by policy. That is a new field of economics. Perhaps models in which you integrate behavior should be different for different countries.
If Joe Biden wins the US presidency, there will be very exciting times in trade, with opportunities to remove trade barriers and renegotiate entry of America into TPP.
I think the current state of the world, with so many people dying and sick, is really sad. At the same time, I feel this presents a huge challenge and opportunity for us to overcome this challenge. So, in essence, the final thing I would like to say is that we need to be courageous and bold in taking on this challenge.