>>程: 世界各地的观众，大家好。这是一场关于新冠疫情和经济衰退的对话。我是程蕾，很荣幸和大家一起参与讨论。今天，我们请到两位特别嘉宾 -– 身处意大利的诺奖得主迈克尔·斯宾塞和身处自杭州的陈龙教授，而我在北京。丘吉尔首相曾经说过： “永远不要浪费一场危机。”当前的形势不是传统意义上的战争，但全球都在以战斗的姿态应对。其他国家可以从中国和意大利学到什么经验？我们如何在疫情防控的同时防止经济衰退？迈克尔，意大利是欧洲的疫情中心，经济基础薄弱，政局不稳。那边现在怎么样？到目前为止，你觉得政府的防控措施是否到位？
>>陈: 他们和中国的区别没有那么大。很多事情都是一样的 –- 必须制定医疗支持方案，必须有足够产能，必须有必要的非医学方法，包括社交距离和隔离等等。利用技术来追踪病例，这是一大利好因素。做这些技术方案的公司会取得成功，尽管他们做的东西都类似。回到刚才的话题，我认为情况并没有那么糟糕。迈克尔刚才描述了意大利的现状，真的就像两个月前的中国。武汉封城后，基本上在两周内就稳定下来。我们最初感觉很凄凉，但别无他法，只能看接下来疫情会如何发展。我认为，疫情会从根本上改变人们的社会行为，这是一种长期影响。疫情已经大范围传播，我们面临疫情防控和防止经济衰退这两场战斗。如果要控制病毒，就得停止大部分经济活动。那将极大影响日常生活和商业。如果要刺激经济，就得考虑刺激措施是否影响疫情防控，不能走极端。在相当长的一段时间内，必须保持必要的平衡。恢复经济的同时，人们必须习惯于针对病毒的防控措施。既不能不管不顾地恢复经济活动，也不能完全裹足不前。这非常困难，意味着必须改变人们的社会行为。社交距离在某种程度上已经存在，我们居家生活的习惯正在发生变化，这些都是持续的变化。在其他许多方面，也会有变化。
>>迈克尔: 我不希望疫情引发金融危机，但它本身就是一场危机。我同意陈教授刚才说的，情理上没有选择的余地，理论上却有选择，那就是随便应对一下，顺其自然，让人们获得半免疫能力，继续生活。然而，那样做的代价太沉重，很多老人将提前离世，很多孕妇还没获得免疫力就撑不住了，甚至很多健康的人也会死去。大多数社会不能也不会接受这样的选择。如果大家认同这一点，那么就能理解为什么要封城、为什么要停止很多活动。如果在全球都这么做，经济受到的影响将非常明显。经济影响是不可避免的，即使没有在政府层面实施非常严格的限制措施。到处都有不负责任的行为，总有一些限制措施。大多数人都焦虑、害怕，担心朋友、家人和社会受到伤害，我们开始锻炼身体，增强免疫力。个人、企业或者企业领导者将作出一些举动，相当于增加社交距离。这些举动足够深入时，大家都面临相同的经济变化。我个人的观点是，这是不可避免的。主要的问题是，实施限制措施的同时，能不能避免太大的永久性伤害，以便将来快速恢复？相关经济政策的重点是确保不要做得太多，我举例说明。在大萧条时期，很多银行倒闭，无法放贷给需要资金的企业，整个系统分崩离析。我认为，经济学家们已经达成普遍共识 –- 如果大萧条时有熔断机制，很多银行和企业就不会破产，大萧条就不会有那么恶劣的影响。我不知道陈教授是否认同。在新冠疫情下，航空公司、餐馆、酒店、商店都停业，以防止病毒传播。假设我是拥有中端奢侈品牌的企业家，现在限售额完全归零，欲哭无泪。很多企业在整个欧洲甚至全球都有业务。我们需要尽我们所能，确保所有这些企业不倒闭。过去在那里工作的人可能无法工作，他们需要受到足够的保护，一旦疫情控制住，就可以快速复工。
>>陈: 在过去一周左右时间里，世界进入一场巨大的风暴之中。我们正迈向另一个阶段，必须重新评估众多因素，因为之前我们根本没有想到疫情会传播这么广。什么样的政策才是好政策？我们必须首先考虑问题的本质。正如前面提到的，问题的本质是必须全面减缓经济，这与之前的危机有着根本的不同。上一次金融危机是由房地产泡沫和不计后果的金融行为共同造成的。更早些时候，高科技泡沫造成美国经济衰退。但现在，我们面临的不是某一行业的泡沫，而是经济完全停滞，意大利好像被冰冻起来了。那样的话，问题就大了。我们面临两场战斗，其中一场就是疫情防控。我认为，疫情在四个方面影响经济。前两个方面是需求和供给。很明显，当人们没有收入时，消费行为和心理就会变化，看看中国一季度的情况就明白了。在全球范围内，消费和投资已经降到冰点。没有投资者，也没有消费者，只有躲避疫情的民众。这是需求侧的变化。在供应方面，企业没有业务，很多重要的供给中断。各行各业都受到巨大影响，陷入停滞。疫情从微观层面影响需求和供给，所有行业都遭殃。第三个方面是信心。在抗击疫情的过程中，消费者和投资者可能对经济失去信心，这取决于防控进展和经济影响程度。疫情会明显影响人们的心理。最后一个方面是资本市场。前三个方面的影响都体现在资本市场上。美国股市过去十天左右时间中熔断四次，这是史无前例的！总结一下事情的本质 -- 我们面临两场战斗。为遏制病毒传播，我们必须放慢经济发展速度。这从供给和需求两个方面影响着各行各业，人们的信心丧失殆尽，金融市场做出相应反应。可以说，两场战斗中我们背腹受敌。理解了问题的本质，我们再来考虑问题的严重程度。迈克尔刚刚已经提到大萧条。现在，经济学家最担心的就是经济陷入萧条。今天下午我刚刚查过，大萧条中最糟糕的一年，GDP降低12.5%。在最坏的情况下发生什么呢？我们不太确定。实际上，中国现在的状况相当不错，有效地遏制了病毒传播，正在恢复正常，特别是在投资和消费领域。从长远来看，这是好的迹象，一切困难都将过去。不过，重启经济是非常困难的。整个世界相互关联，第一季度是中国出现问题，第二季度轮到世界其他地方。欧洲和美国的问题将影响中国，因为我们紧密联系在一起。我认为当前的情况会持续很长时间。在接下来一个季度内，经济可能下滑10%，这不并不是无法想象的。看一下目前的数据就会明白，重启经济困难重重。
>>陈: 听了迈克尔刚才的回答，我想补充几句，因为我觉得这很重要。我们在这里谈到的情况被很多国家描述为战争，这是正确的心态。情况非常复杂，单一的政策是不够的，必须调动一切可调动的资源来解决问题。我们不能仅仅依靠货币政策，因为货币政策显然是不够的。美联储降息至零，很多人认为这一举措无效，因为市场下跌得太快了。在我看来，情况并非如此。事实上，他们正竭尽全力。他们做的很多事情都很像战时举措。为什么降息至零？因为需要增加贷款。你还记得在中国发生了什么吗？当经济停滞时，许多企业，尤其是小企业，需要资金支持，但他们没有办法获得资金。这正是货币政策应该解决的问题 -- 尽可能降低借贷成本。虽然这还不够，但好过什么都不做。同样，美联储也在努力稳定金融体系，比如购买大量商业票据。这实质上是为许多企业提供资金。如果他们想借钱，那么就努力提供流动性。这就回到迈克尔刚才说的。从长远来看，这仍然只是一场流行病，商业活动会恢复正常。想要尽快结束当前的危机，有哪些关键因素？首先是收入，必须确保人们能获得收入，尤其是穷人，他们需要生存。另外就是就业。大萧条时期，美国一年之内有一万多家银行倒闭。如果现在发生这样的事情，这场危机会拖得更久。因此，必须想办法让企业得以发展，必须提供流动性支持。我总结一下我刚才说的的关键因素 -- 收入、就业、企业生存和流动性。大多数国家都在针对这些因素推出相应举措，包括中国。消费几乎归零，严重影响经济发展。这种情况下，钱应该花在有利于未来可持续发展的事情上。因此，中国的投资计划非常重视技术基础设施。如果不得不花钱，这样花是非常合适的。短期内，中国会延续这样的投资。如何给普通人和企业 -- 尤其是小企业 -- 带来收入，让企业继续经营、创造就业？这非常重要，我们必须帮助企业生存，为他们提供流动性。这是任何国家目前面临的最大跳战。
>>迈克尔: 嗯，在不同层面都可以协调一致，这是一个好主意。在这场危机中，全球在经济方面的协作怎么样？如果要对此打分，我认为得分会很低，至少到现在为止没办法给高分。不过，也有例外 -- 科研界和医学界在全球范围内一直保持沟通，努力协作，争取作出更好的分析、拿出有效的解决方案。流行病学家、疫苗研发人员等等，所有人都齐心协力、共克时艰。我感觉他们有合作的习惯。通力合作，而非闭门造车，这是好事，他们现在正是这样做的。中国转危为安的同时，一直在努力帮助其他国家。我们派出由资深科学家和医生组成的代表团，到罗马和意大利其他地方分享经验，帮助意大利应对这场危机。因此，事情并不是十分糟糕。我们已经看到不少积极迹象，还应该看到更多。医学方面进展不少。经济方面呢？在现在这样的关键时刻，各国央行往往相互沟通。欧洲人清楚地意识到新冠疫情是重大的公共健康威胁，在中国造成巨大影响，现在已经波及全球。而他们的理想是人员自由流动的欧盟，但那仅仅存在于在非危机状态下。在这场危机中，欧盟如何管理内部边界？西班牙和意大利等南欧国家疫情严重，如何制定特别的应对方案并部署合适的国际支援机制？他们已经行动起来，但速度缓慢。当初疫情刚传播过来时，整个欧洲层面没有任何协作。各国都有自己的飞行限制，比如意大利停飞某些航线，到意大利只能从弗兰堡和伦敦转机。但仔细想一下，这样的限制其实没什么效果。
>>迈克尔：确实有上述趋势。细节方面可能还有待商榷，但欧元危机时所使用的应急资金可以用于当前这种情况。至少可以用于某些特定用途。同时，财政赤字相关的限制规则也被放宽了，以便各国能够更好地应对疫情。因此可能不是在纸上设计出来的全面成熟的项目，但确实有上述趋势。我认为批评的声音不是指责政策固执己见，而是有点为时已晚。我们需要的是各国之间守望相助，对吧？在欧洲和全球范围内，我们什么都短缺。各地情况稍有不同，很多地方缺口罩，呼吸机也是急需品。美国应该可以自己解决问题。有些地方的医护人员缺乏防护服，没法安全地护理新冠患者。因此这关系到国际合作。我认为中国可以加大马力，提高产量。如果在身处的世界中，合作是常态，那当然好办。可惜互相争斗才是这个世界的常态。大家都在给中国下订单 -- 全球都需要口罩，包括发展中国家。我们等下再详细说说发展中国家，它们的境况非常脆弱。
>>程: 太好了！非常感谢二位抽时间与大家分享你们的见解。今晚邀请到的是诺奖得主迈克尔 Spence，他来自意大利米兰，还有罗汉堂秘书长的陈龙教授，他来自中国杭州。我们已经讨论了这一大流行病，以及如何应对病毒和经济衰退的双重打击。答案是，不管是抗击疫情，还是提振经济，都需要全球戮力同心，竭尽全力。节目一开始的时候，我引用了丘吉尔的一句话。，访谈结束之际，我想引用丘吉尔的另一句话 -- 我们之所以可以在床上安睡，是因为勇敢的人在夜里守护我们不受伤害。而现在，我们之所以可以在床上安睡，是因为勇敢的医护人员正在前线抗击病毒。非常感谢所有这些人！感谢观众朋友们参与我们的直播。我是成蕾，来自北京，期待与你相约下期节目。非常感谢迈克尔和陈教授！
A Looming Gobal Recession? On the ground observations from Italy and China
Time: Mar 22, 2020 09:00 PM Beijing, Shanghai
This is being provided in a rough-draft format. Communication Access Realtime Translation (CART) is provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings
>> Cheng: Hello, to all of our viewers around the world. This is on the pandemic and the economic fall out. I’m Cheng and it’s an honor to talk about this discussion. Let me introduce my special guest. We have Nobel Prize winner Michael Spence joining us from Italy and from eastern China’s, professor of the, Chen Long, from Hangzhou, and me in Beijing in the region, so prime minister Winston Churchill once said, “Never let a good crisis go to waste”.
We’re not at physical war but we are fighting a global battle of profound dimensions. So what can the world learn from China and Italy’s disease control play book as they fight the spread of COVID-19 and how do we fight the double battle of recession.
Let me ask you Michael, because you’re in the epicenter of the European out break. You’re in the country with the weakness economic fundamentals and the most precarious politics. What’s it like over there? What do you make of the government’s efforts so far to prevent and control the pandemic?
>> Michael: We are, so just for your viewers, we are -- well, the data is quite bad here. We have well over 40 thousand confirmed infections and over 4 thousand deaths due to the virus. We’ll get into sort of more about data later on.
We are in a, well, kind of the fourth week or month long process of increasingly strict restrictions that probably are moving in the direction of what you have experienced in China.
I would say the government, you know, all the western governments including ours were late to start. We kind of watched China and sort of thought, well, that’s far away. Maybe there’s some problem at the borders and so on but we didn’t really understand that the virus was probably spreading invisibly underneath our feet so to speak. So everybody has a late start. Italy happens to be ahead of everybody else on these exponential curves that we’re used to but we’re not unusual in the late start.
Having said that, I think the government is doing, the government and other institutions are doing everything they can now. Not just restrictions but the medical system here in the north is really quite good but it’s simply overwhelmed. That’s again, a function of the late start. So that’s kind of the snapshot of what it’s like. We are locked down, nationwide. No schools, no -- not even walking very far from your house.
>> Cheng: You were talking about the tram lines just outside of your apartment with trams carrying one or two passengers.
>> Michael: So our transportation system is pretty good. People who work use the tram so they kept the trams running but when you look out the window during the day and watch these trams go by, it’s not uncommon to see them either empty or with two people or one or two people in them. At a considerable distance from each other, because they’re big trams. That’s just an indication.
So we’re in the feel of it when we look outside as the ghost city feel that you know, you would have experienced in China at the high point of the lock downs.
>> Cheng: Beijing thankfully is returning to some quasi normalcy. So Professor Chen as China is getting this in control and bracing the import of the infections, and what do you think Italy and the rest of the world can take away from the Chinese experience?
>> Professor Chen: It’s great to hear what Michael describes. It sounds very familiar because that was what happened in China. Can you hear me?
>> Cheng: I can hear you.
>> Professor Chen: We can say, as Winston church hill said, you never want to waste a good crisis but I feel like China’s lesson was somehow wasted. It amazed me how long it takes people to absorb information into their perception. So if you look back at what happened in China, so actually China has announced the complete closure and shut down of Wuhan back on the Jan. 22nd and 23rd which was precisely two months ago.
So it was already clear.
>> Chen: At that time, everyone thought it was heavy handed.
>> Professor Chen: At that time, it was clear to the Chinese, leaving it alone is not an option. It was the precisely, herd immunity that people were talking about last week, but two months ago, we already knew, it’s not an option, we don’t have a choice. So by that time, China decided that rather than taking China has a whole, it actually separates Wuhan and the rest of China. So it quickly conducted a complete lock down of normal activities in most of China and then within Wuhan. Actually, we decided to provide a lot of medical support including building two large scale hospitals within two weeks. That can take 2600 new patients.
Also, it boosted quickly, maneuvered the production powers across China to boost the production of the related medical supply by tenfold. It also started to send tens of thousands of medical experts and staff to Wuhan.
Outside of the Hubei area, it’s different. So we took a lot of other measures, so within a couple of weeks, we can see that China’s situation has been stabilized and be you can see the new identified cases coming down. So within two weeks of that shutdown, it already becomes clear that certain combination of extensive testing, case isolation, compact tracing, social distancing, personal house conducts can effectively control the spread of virus.
Now, so this whole thing, and that is also exactly the experience that many east Asian countries experienced. So they all have certain degrees of success. So it has already become very clear to China and eastern Asia but somehow this was not-, it’sw really under started. It was not taken.
>> Chen: It’s different.
>> Professor Chen: They think it’s foreign, it’s not happening to us but in the back end of that, it’s really paying a heavy price for this. Now, it becomes a pandemic. It becomes rampant in United States and Europe. What’s worse is, it’s not just threatening people’s lives and health. It has completely changed the global economic trajectory, that’s true the way of all of the forecast out of the window.
So when we come back to China, we thought we’re going to control this and as a very small case, it was spread to the rest of the world. Unfortunately, it’s happening right now. This is very bad result and that’s the lesson right now.
>> Cheng: Michael, do you want to comment on this? The reasons that other developed countries wasted this opportunity?
>> Michael: You know, I think people will study this for a long period of time and it’s a really important question about whether we can. First of all, I think we move more slowly in the west. China is famous for mobilizing resources once it gets the hang of it and there’s a real challenge, whether it’s congestion and lack of capacity in ports and other things and for those who have the privilege of being around know this.
We’re just not able to do that. So we here in Italy, for example, and we’re not unique, have a serious shortage of the ventilating machines so we’re having to make really difficult choices meaning the doctors and the medical staff about who is going to be saved and who is not.
But I don’t think that -- we are trying to build an additional medical facility in the old fair here, old fairgrounds here. So I don’t want to suggest that everyone has fallen asleep but I just don’t think we have the capacity to mobilize fast enough. That’s point one.
The second point which I think is, you know, important is that, it has to do with what an economist would call unobserved variables. So basically what you have is a situation in which the reported data tells you the number of confirmed cases. If you have limited testing capabilities, that number can be pretty low. It’s a whole lot lower at least in the early stages than the number of cases there are because there’s a delay. For them to show up, and even then, some of them don’t show up until they actually -- well, not only infected a whole lot of people. Someone actually reports them to a doctor.
Some of these cases are asymptomatic. So this delay which I think of is on the order of two weeks before things show up in the data, I think gave people the kind of very very misleading and unfortunate impression that this was a terrible problem in Asia, specifically in China, but then hadn’t really become a serious problem here until all of the sudden it was. And by here, I’m not speaking only of Italy. We’re on different trajectory. Italy is ahead and Spain is not far behind. You can see the curves coming.
And America is clearly on the upswing as well in spite of the recently imposed provisions.
>> Cheng: So professor Chen, we talked about the developed countries that have been called unprepared. What about developing nations that have weak national health systems. How shall they prepare? What are the best policies there?
>> Chen: Yes, that’s a great follow up on the message we have learned. The message is that we have wasted the crisis in China to understand this. Now we’re paying the heavy price. This is not the end of it. We’re really in the middle of this.
If we don’t learn from this, a much bigger price we have to pay. So I think critically right now we need leadership and coordination. So a big part of this as we mentioned earlier is that a lot of people think it’s not my problem but really, now we have learned that virus knows no boundary. So the only boundary, the border that matters is the community and the virus. So we have to coordinate.
So a big problem is that they think it’s not their problem. So the thing to know right now is the key is to share the information and knowledge. To prepare ahead. Use the right approach. Act in a coordinated way, not separate.
Right now, China has kind of the successfully controlled. Now, almost all of the cases come from abroad. We’re not separate. We can never be separate. So that is at different trajectories as you mentioned. Now, many other countries, it’s not quite happening yet but if you don’t pay -- so another thing we have learned is it’s dynamic.
The earlier you are prepared, medical preparedness, the habits, all of lessons we have learned from China from other countries, then it’s much easier to control.
Now, if you let it out of hand, then even in the very advanced countries, wealthy countries will have a lot of problems. So think about the countries with poor medical support, with a huge large population, if they get the pandemic, that will become a much bigger disaster. So I think for the rest of the world, for Europe and Africa, a lot of the places, I think we really have to get going and we have to help each other. The countries who are already ahead of the curve, they have to turn around to share the information, to help them with the expertise. The so called expert lessons so we really have to inform each other. Otherwise, we’re connecting in both the battle against the virus and the battle against the recessions which we’ll talk about a bit later.
>> Cheng: Michael, I’m sure you are observing how different countries have approached this pandemic. Which countries or regions would you say have done really well?
>> Michael: It’s pretty clear, so far, that the subset of Asian countries that have done well. So China which -- well, I think from outside, looks like it got a bit out of hand and missed some opportunities early on and then got on it very quickly. Hong Kong which is right next door, you know, that part of China, has had a slightly different approach but looks like it’s been extremely effective in holding down both the number of cases and the deaths.
Again, another part of China, Taiwan looks like it’s done pretty well. Singapore, you know, kind of got hit pretty hard at the start and with a lot of imported cases but then they kind of flattened out the curve to use the term of art these days, pretty quickly.
I don’t think there’s anything yet that looks even approximately as effective anywhere else. Having said that, we just don’t know. These legs really matter.
So we went into a full lock down here about a week ago. So I’m sure there’s people who are discouraged that we’re not seeing an immediate drop in the infection rate and the number of deaths but there wasn’t any chance of that. What we’re seeing in the data that flows out every day is the result of the less regulated and less careful and all that, regime that we were under before.
It’s not that we did nothing, but we closed schools and Universities and life went on and that’s clearly not enough. So the answer to your question is so far, a set of Asian countries have done the best job. And we speculate that they were better prepared. They had knowledgeable people. They had equipment and supplies. And when they didn’t, then as in China, they moved quickly. Probably China helped a lot because of the normous capacity. They had frequent experience. Kind of the SARS epidemic. I don’t, think for example, I don’t think we’re good at tracking. Like, taking a case and tracking the exposures and working it through.
We’re very heavily dependent on social distancing because I don’t think we have the capacity right now to do that much more detailed kind of network like tracking of people that might have been infected.
>> Cheng: Professor Chen, do you want to talk about the impact of the lifestyles and the social structures of the spread of the pandemic? What we’re seeing in Japan, for example. People have the habit of wearing masks and I think socially, they’re more isolated versus the very communal and graygrouous Italians.
>> Professor Chen: I think one nice thing is people think China is different. A lot of times people think China is different but actually, if we think about in retrospective, the old approach that people are taking are not. It’s a combination. So essentially you just have to -- it cannot be left alone. It takes so long for people to figure that out.
>> Cheng: So everyone tries to reinvent the wheel.
>> Chen: They’re not that different. Otherwise, you cannot leave that alone. You have to have the -- build your mecca support, your capacity. You have to have all of those non medical approaches like the social distancing which is the case, isolation, et cetera.
If you have good use of technology that can trace the cases, it’s like the live house, that would be a big factor. But somehow those companies will work. I think it’s kind of similar.
Then to follow up, I think it’s not as bad. I think coming to Michael’s point, it’s really like it was China two months ago, essentially to think this way. We learned that after Wuhan was shut down, essentially within two weeks we could see it was stabilized. At that time, initially it was -- it felt bleak. So I think, let’s see what will happen. There’s a lot of successful cases. But coming back to what you said. I think it will really fundamentally change people’s social behavior for quite a while. The reason is that this time, there’s actually two battles. You can call this a pandemic. So you see, if you want to control the virus, you really want to shut down pretty much all of the activities.
But then that will hurt people and the business tremendously. So if you want to stimulate the economy, then you really want to stimulate everything, the economics get going but then the problem is that you cannot go either extreme. So that means it’s going to be balanced for quite a while. People have to be used to have some kind of preventive measures against the virus while they’re trying to recover from the economy.
You cannot go either way so that’s the hard part of this. That also means you have to change our social behavior. The social distancing is here in some way-, and it’s also changing how we, in our house habits, you know, all of those kinds of stuff. It’s going to be there for quite a while, I think. That’s just one example. It’s going to affect in many other ways.
>> Cheng: That’s why we’re doing this live streaming from three different places rather than one studio. Let me talk about the next part of today’s discussion which is the double battle of pandemic and recession. As we flatten the curve, it’s going to lead to a steeper recession curve.
Would you say Michael that the economic losses from this crisis are going to be greater than any other financial crisis?
>> Michael: Well, I hope this doesn’t turn into a financial crisis but it is certainly a crisis. Let me tell you sort of my view on that. I think, first of all, I agree with Chen that we in sense, don’t have a choice. In theory, there’s a choice, which is don’t do too much and let the virus run its course and then you’re semi-immuned and get on with life.
I just think the human cost of that, the number of grandparents we would lose, from health conditions to pregnant women is just a choice that most societies can’t and won’t take. So if you accept that for a moment, then I think you do have to shut a whole lot of stuff down. And to be perfectly honest, if you do that, you’re going to have a-, and it’s very sufficiently broad base globally then you’re going to have a very very deep drop.
So I think that’s inevitable. I think it’s even inevitable even if you don’t have very stringent restrictions imposed on the governmental level because to be perfectly honest, while there’s irresponsible behavior everywhere, we see it here and some of the restrictions we have is to shut down.
The truth is, most of the majority, are anxious and scared and worried about our friends and family and society in general and we’re going to start exercising we, as people, we as companies or we as leaders of companies are going to start making choices that amount to social distancing and when that gets deep enough, you’re going to get the same effect economically.
So I think, my personal view is, that’s inevitable and the main issue is, can you do this in such a way that it doesn’t produce a lot of large permanent damage so you can recover quickly.
The focus of the economic policy of this is to make sure that you don’t do too much. Let me give you an example long ago.
In the great depression, banks failed and then they couldn’t lend to businesses that needed a little bit of money to keep going so they failed and then the whole thing fell apart.
I think there’s fairly general agreement among economists, I don’t know if Chen Long will agree with me, that circuit breakers that would have prevented the massive bank failures and the massive bankruptcy would have significantly, not eliminated but reduced the magnitude of the great depression effect.
Similarly, in this case, airlines, restaurants, hotels, you know, lots of shops where people might get infected, they are all shut down. I am an entrepreneur, a mid level luxury brand tell me, the sales are zero, flat out zero.
They operate all over Europe and even globally. So the trick is, to do the best job we can in making sure all of those businesses don’t fail and the people that used to work there, may not be able to work, they are protected enough, so when we don’t have the virus problem, we can snap back.
>> Cheng: So professor Chen, the principles seem to be timely, targeted, and temporary. We’re seeing tax holding, we’re seeing giving right out money, we’re seeing, just a number of things being rolled out. What do you think would be most effective in, for example, Italy’s case which has very weak economic fundamentals. You know, how should the EU support Italy?
>> Professor Chen: It has just become clear in the last week or so that the world is getting into a huge storm right now. We’re getting in another stage so we have to reevaluate, something that we didn’t even imagine that much is happening right now.
Now, for us to evaluate what are the good policies, we have to first think about the nature of this problem. So as was mentioned earlier, right now, the nature of the problem is you have to have a comprehensive slow down of the economy. At least, that is fundamentally different from previous crisis.
If you think of a financial crisis, it was driven by the housing bubble combined with the reckless financial system. Now, in the previous recession in the United States, it was driven by a high-tech problem but now, it’s not just a bubble or a sector. We’re talking about a complete shutdown of the whole economy. Exactly! It’s put Italy into a freezing area. Let us start somehow. That way, it becomes very problematic. So these are our two battles. One are the barriers pandemic itself. Then it creates and effects the economy in my view in four ways, in four channels.
The first two channels are the demand and supply. Obviously when people do not have, it will change the consumers because they don’t have income. Then they don’t have the mentality. So you see what happened in China in the first quarter. The world consumption and investment have disappeared. No investors, no consumers. Just every citizens who are trying to escape, you know. So that’s the -- it changed the demand side. There’s no consumption to talk about. And that’s very limited investment appetite and on the supply side, companies because they have no business. They have critical -- so that, this time because the whole thing is completely shut down, it affects every walk of life.
It affects the supply and demand from the micro level. It’s not just one sector. So those are two channels.
The third channel is the confidence. People’s confidence will shut in a battle against pandemic. It depends on how much progress or lack of that. How much chaos it created in the battle against pandemic. It will penetrated into the people’s heart so the consumers, investors, they will lose their confidence and so that’s the third channel.
The last channel is the financial channel, the capital market. So all three channels will show up in the capital market as we have observed in the United States in the past ten days or so, we have experienced the breaks which is -- exactly! It was unprecedented in the whole history. So let’s summarize the nature of this whole thing. We’re battling two things. In order to control the virus, we have to slow down. That effects every walk of life from supply and demand. It shuts people’s confidence. It’s reflected in the financial market. And it reinforces each other. So that’s the picture, the big picture we are facing here.
Now, with that nature, let’s think about the magnitude of this thing. Just now, Michael just already talked about is the great depression. Now, it was the worse case that economists tend to think. If we think about the great depression, the worst year, I just checked this afternoon, the GDP growth was negative 12.5 percent. That was the worst year.
So what is going to happen this time in the worst scenario? We are not quite sure. If you look at it, actually, China is very reasonably good shape right now because effectively controlling the virus. It’s trying to get back to normal but even if you think about China, we are still getting back to normal of the consumption, of the investment sector. So we’re in relatively good shape. I think in a long run it is good and we’ll get over this. So you can imagine now. It’s very hard to switch on the economy when you start this. Now, it’s also the whole world is so interconnected. So the first quarter is China. Now, that will effect the rest of the world. Now, the second quarter is starting from the rest of the world, Europe and the United States is going to affect China because we’re so interconnected.
So I think with this thing, it will be prolonged and it’s not that hard to imagine that within a quarter or so, we’ll have a ten percent decrease. That could happen because it’s very hard to switch on if you look at the numbers. So we can look at the situation.
>> Cheng: Michael, I just want to talk quickly about the limitations of monetary policy. What we’re seeing from the U.S. fed is unprecedented and look at how the market responded. So even before the pandemic, there is such limited effect for global central banks to act.
Take us through that.
>> Michael: So in the west, the markets are relying on central banks ever since the great financial crisis because they have been busy, essentially lowering the discount rate and elevating the price of risk assets. This wasn’t an accident. They did it on purpose.
Monetary policy has been given credit by most people for being a pretty effective counter measure along with others. In the early stages and there’s more controversy whether it reached the limit of its usefulness or the benefits exceeded the cost somewhere in the ten years since.
I think what you saw this time, that while monetary policy may be an important component of the response that Chen Long was just describing, it’s certainly not sufficient. It wasn’t sufficient before and in this case, it’s really not sufficient because you can’t stop the van from going away and when people are told to stay at home. So I think what you saw is sort of, the thing I think cements the argument is that the fed lowered interest rates essentially to zero, promised to start buying longer dated debt assets, and then both stocks and bonds went down.
Normally when there’s a flight to safety, the flight to safety isn’t in safer bonds. This time it was into cash. Basically people said, I give up. Now, I have a lot of people asking me now, is this going to just produce a mammoth crash and I think the answer is, we have already lost 30 percent in the Dow Jones so most markets have taken a pretty big hit.
Does it mean the whole thing has lost? I don’t really think so. The fundamentals of this, however difficult the transitions are, Cheng, is that we’re going to recover and those entities that are traded are going to be back in business, maybe with a little bit of help from governments in the cases of things like airlines so that’s my take.
Monetary policy is not going to get the job done. Probably in the short run, nothing will get the job done if you mean stock, this steep decline that both you and Chen Long have referred to. If you mean get the job done, meaning protect people and companies and whatnot so we can go back to business, then I think, then you have a real policy agenda.
>> Cheng: Professor Chen, what about China’s new investment plan in things like neo structures, 5G, internet of things, AI, is that going to work like the 4 trillion Yuan stimulus back in the GNC?
>> Chen: Let me follow up on Michael’s response first because I think it’s crucial. So the situation we’re trying to describe here, and I think one more as we talk, many countries started to use the word war to describe what is going on. I think that’s the right mentality. Because it’s so -- this time, the situation is so complicated. So not a single policy will be sufficient. And you have to maneuver all of the resources you can possibly do to deal with this. And so in that way, we cannot just. So obviously monetary policy is not enough.
I think a lot of people think the U.S., the fed interest rates to 0 percent, say, oh, because the market went down that fast, it’s not effective. I don’t think that’s the case.
Actually, they are doing whatever necessarily possible to do. You can see a lot of the things they’re doing is pretty much like they do in the wartime. For example, why do you cut interest rate to zero percent? Because you really want them to borrow, do you remember what happened in China? When the economy shut down, a lot of the businesses, especially small business, they would need financing support. There’s no way to get it. It’s very hard to do that. So that’s exactly what the monetary policy should be. Lower the cost of borrowing if possible. That’s not enough. It’s much more than doing nothing. So that’s how you do this. So also, the fed is trying a lot to stabilize the financial infrastructure. For example, buying a lot of the commercial papers. So that’s essentially trying to provide the financial resources for a lot of companies if they want to borrow money so trying to supply liquidity.
This goes back to what Michael said. In a long run this is still just a pandemic. So the business will come back to normal so if you do not want to prolong this, what is crucial? There’s several key words. What is the income? So you have to supply people with income, especially the poor people. Help them survive and have some kind of money.
The other word is employment. If people lose their jobs, like in the great depression, within a year, United States, it has more than 10,000 banks shut down and that’s going to really prolong the crisis so you have to keep the businesses going. You have to provide the liquidity support.
So income, employment, survival of the business and the liquidity are the key words. That’s how you can see across most of the countries are doing very similar things. Now, China is kind of the -- already been doing a lot of the similar approach. In the meantime, because you don’t have the consumers, somebody has to spend. So if you want to spend, you would like to spend on things that help can support a sustainable future. That’s why China has investment programs that is trying to update our technological infrastructure.
That’s good when you think about it if you have to spend money but I think in the short run, I still believe that’s still the case in China. How to give people income. The average people, and the business, especially the small business to let the business continue and to support the employment, to support the survival of business and liquidity. That’s still the biggest challenge in any of the countries including China.
>> Cheng: Yes, that is definitely theweakness spots for corporate default. Michael, what do you think of these calls for coordinated action, for example, among G20 as oppose to just everyone making their isolated efforts?
>> Michael: Well, it comes at various levels. I think the coordination is really a good idea. I would say if you were giving the global economy a grade on coordination in this context, it would be relatively low at least up until now but there’s exceptions. I think, and I’m kind of proud of this, that the scientific community, that scientific and medical community globally is talking to each other and working collaboratively really hard to sort of produce solutions, analysis and so on. Everybody from epidemiologist to people who are developing, trying to develop vaccines and so on.
So I think they have a habit of collaborating, you know, with each other and ignoring borders and that’s a good thing and they’re still doing it. China as they turned the corner, has been trying very hard to help out other places. We had a delegation of very senior Chinese scientists and doctors come to Rome and Italy to share their experience and help Italy respond to this crisis.
So I think we don’t want to paint a bleak picture of this. I think the short summary is, all of that is a good thing and we should see more of it. That’s on the medical side. On the economic side, you can say much the same things, right? Central banks tend to be reasonably good at talking to each other when it matters and I imagine they’re doing it again. Europe has always got this problem. This was a situation in which, when it became clear that it was an issue, a health problem of major proportions in China, what you would have expected in an ideal world is the European union which has completely free movement of people in non crisis conditions would have said, okay, we better think about A, how we are going to deal with the borders and B, how are we going to handle differential impacts if they come in the south and Spain and Italy, you know, are we going to deploy the cross border mechanisms we have for helping out or not.
That’s starting to happen now but it’s really slow. And the coordinated, you know, approach to this new Coronavirus at the start, just simply didn’t occur at the European level.
Every country had their own flying restrictions. I’ll give an example. Italy stopped certain kinds of flights they deemed dangerous and everybody else flew into Fran fort, and London and then flew in Italy. When you think about it, it’s ineffective.
>> Cheng: Chen, you said the need for bringing out the big guns for fiscal stimulus and monetary. How is this going to be paid for? We’re already sitting on 235 trillion dollars of global debt.
>> Chen: Big numbers. Let me follow up with Michael. Why is this so hard to coordinate? This is really testing our collective wisdom is that, in order to fight those two battles, they have to switch off and on all the time. So it’s very hard to decide where to switch on and what’s the balance. So that’s the hard part. Now, come back to your hard question and it’s very hard to answer this question but I think at wartime, you really want to survive. No matter how the government wants to spend it, it’s really everybody’s money.
I agree that it already has a relatively high debt, the problems across many countries but I think there’s a consensus here. We don’t want -- if we don’t want to prolong this, if we don’t want to draft a potential recession which is probably already happening right now, into a depression, then we have to let the businesses survive. Let people to continue. That probably is the most urgent. That’s all the demand.
So otherwise, on top of that let’s worry about how to spend money prudently. That’s why you see a lot of the strange approach right now. Some countries announce that, well, we are going to guarantee your wage. You’re going to have a lot of insurance, this or that. We’re going to provide you cash. All of those measures are very war time like measures. I agree, there’s an issue of the long term burdens but I think this is what you necessarily have to do.
Let me add one last point here. I think Michael briefly mentioned this. So last fall, actually, there’s no -- we have a lot of challenge. But last fall, there’s no major component of the financial infrastructure that was effected that much. So based on that, we will think, it doesn’t look like a financial crisis. We hope not. We’re trying to get through the short end.
>> Cheng: Okay, Michael, I have been reading all of these articles. Some say that the EU can issue a pandemic bond, emerging markets with high foreign debt can get emergency funding from institutions like the IMF. What do you think?
>> Michael: They’re moving in that direction. You can quibble about the details but they have emergencies funds that were used in the Euro crisis that they have appeared to decided to make available in this context at least for certain purposes. They’ve relaxed the rules that restrict fiscal deficits so that countries can respond to this.
So you know, it may be not a full blown kind of program of the type that you can design on paper, but they’re definitely moving in that direction. I think the criticism would be that they’re not being stubborn about it anymore, but that we’re a little late. And we do need people -- we just need countries to help each other, all right?
Within Europe and across the globe, we have shortages of everything. Depending on where you are. Face masks in various places, ventilators are the obvious kinds of examples. In the United States, we ought to handle this on its own, there are places where they don’t have the proper attire for the medical people to operate safely in taking care of the Coronavirus patients. So it isn’t just international corporation but I think China can ramp up production. If we had a world in which we were used to cooperating with each other, rather than one where we’re used to fighting with each other, we would say, that’s great. Everybody give China a lot of QDs-- there would be several million masks going out in the global economy including the developing countries which we want to come back to because they’re really vulnerable right now.
>> Cheng: So if we see all of this economic pain, do you think it’s going to lead to this knee jerk reaction of protectionism? We’re hearing in the U.S. saying they need to strengthen their domestic production of medical supplies and so on. Are we going to see countries turning more inward?
>> Michael: Chen Long and I both talk about that. This may be excessively optimistic and hopeful. I hope this experience leads us over time to reverse course and start to move back toward a much more cooperative approach because we have been saying it but this is just such a clear example. We face common challenges. Stability, sustainability, you know, pandemics and other things that clearly have a global character to them unless you just, I mean, fragment the global economy so much it’s unrecognizable. So my hope is, bottom line, my hope is that this will be a stimulus to move in the direction of increased cooperation at least in areas where it really matters.
>> Cheng: Chen, would you comment on this?
>> Chen: I think this will be a big test on the trust that we have built in past corporations. There was a famous Noble Prize winner. He has a famous boundary of the firm. He basically is saying that, a lot of times, why don’t we do everything within a firm because it’s not efficient, right? So you can do something within and leave the market to do something else, to do the collaboration. But actually, behind this system mechanism is a certain level of trust.
What is happening is that as the crisis time, people realize that the trust is kind of vulnerable. So sometimes it can be shut down. For example, supply chain. You’re going to have a cost component. One hundred components can be separately produced in many countries and suddenly you find if you are losing a couple, you cannot put things together.
Other companies are finding they have critical, medical component, supplies that are not produced domestically and people start to worry about it. So for national security reasons, and supply for business reasons and there’s this pressure to shorten the supply chain to have more things that are self-made.
So there’s certain means for the strategical focus on domestic importance but on the other hand, we also realize as medical points out, we are so integrated right now. In both battles, the battle against the pandemic and the battle against the economic recession. Exactly! We need to work together. Think about what is happening in China and then for the rest of the world.
The rest of the world will also effect China. We’re not separable. China cannot separate the virus. We have to work together. So this is possible. This comes critically down to the right feature and leadership. Can we coordinate with each other? I guess we have to in the end. So we hope we can have a smaller cost for that. But I think it’s possible and we realize that we just have to rely on each other.
So in the end, probably, we still need to make that trust and that way, we’re still in the integrated world but it’s dynamic. It depends on how we act in those two battles, yes.
>> Cheng: Okay, let’s talk about the U.S. stock market reaction. One thing we don’t want, you know, is to see a market crash. So do you think that the recent turmoil that we have seen is an over reaction? Do we see further downsize? I was speaking to an expert, she said we’re half way there and is the U.S. rescue package enough to stop it from crushing further? Michael?
>> Michael: No. I guess this is in the category of one just doesn’t know P. I have heard that there’s a lot of -- well, first of all, there’s a lot of investors with a lot of cash out there. At some point, they’re going to decide these prices are pretty reasonable in a way they simply just weren’t; a month and a half ago, whenever it was when we hit the high point in most of these indexes and they’re going to start buying.
There’s going to be people like Warren Buffet and a whole lot of others, and maybe sector specific, they might be more reluctant to dive into airlines depending on what the government does or oil and gas which has idiosyncratic efforts in its own and so on.
The bottom line is what I tell me friends and relatives as well as anyone else who is interested, I don’t think this is a thing without a floor. Unless you think this is catastrophic as oppose to a tremendous hit for which you have a recovery of unknown duration, I guess is the way I would say it. So I don’t know where the floor is.
I have heard speculation there’s people out there who think when the Dow Jones industrial average gets to 18 thousand, they should flip the switch and be in buying mode. Whether it’s correct or not, and Howard is right, it has to go down. That’s above my pay grade.
>> Cheng: Professor Chen, do you agree that it’s not a catastrophe and it’s not going to change life as we know it, so there will be a floor?
>> Professor Chen: I think if you look at it historically, the recessions, it’s very normal for the stock market in the United States to drop by 10 to 30 percent. The back part right now is there’s a lot of uncertainty because we don’t know what is going to happen. We don’t see the precise flow and that’s a problem. So they don’t know how-, to what scale the economy will be shut down and for how long. So that is very hard.
So the stock market, the investors tend to be very agitated. So they are greedy but then escape it very fast. They could come back. The problem right now is the trajectory is not very clear. It’s very hard for them to know what is going to happen next. So I think, and that -- as that turbulence, it’s going to last for a while in the next several weeks until it becomes clear.
So I think that is very bad period but I agree with this. Fundamentally, this is like a very long holiday being shut down but there’s no parts that are necessarily will be permanently damaged. So that trajectory, how we react to this, how coordinated becomes crucial.
>> Cheng: Michael, as we face this major health crisis, do you think we are seeing this failure in market based models? We’re seeing people hording. We’re seeing people profit from short positions. Do we need more investments in public goods like healthcare, like family care? Even public sector involvement in pharmaceutical development?
>> Michael: I think we’re going to make changes in this respect. It varies a whole lot from one place to the next. So in Europe here, one of the strengths is the Social Security systems and service services are pretty well developed. I just said a moment ago, they are also under pressure. That would be true anywhere as well.
I think in places where they’re less well developed, like in the West, in UK and the United States, there is going to be a real interest in expanding in a number of dimensions. Preparedness for sure, programs. If we’re going to work remotely, child care is a big deal. You might have to close down for a little while and put up with all of the things that go along with inconvenience and that kind of a thing.
But I do think, you know, when we come up, maybe it’s just wishful thinking but I think we’ll come out of this on what is a revised sense of a sensible batch of economic and social infrastructure to have and it will flop into other things. Chen mentioned it. I think other countries, the non cooperative version of this is a little bit more deglobalization. So we have digital technology pushing us along and then we had a trade war and then just about the time we ended chapter one of the trade war, we had a pandemic. You know, it’s hard to convince yourself that there won’t be some level of rethinking of the extent of interdependence at least in some sectors and dimensions.
That’s where I am. But I think, going back to the way we were, I think it’s very unlikely.
>> Cheng: Professor Chen, do you think this change will happen in the U.S. where we will still have 27 million without health insurance?
>> Chen: I agree with Michael. There needs to be a better balance between-, we need better leadership. So if it’s only left to the market, sometimes it’s very hard to achieve that. So I think in the future, we probably need to think better about what is the best structure of the governance? Probably some balance between government and market base approach.
>> Cheng: So in terms of recovery, when and how? And how do economies be prepared for that phase?
>> Michael: We can both take a shot at this. This is going to sound harsh because it basically amounts to framing the question by giving up on the health side. So supposedly we fail, to limit the extent of the infections with the pandemic. I’m not an epidemiologist but I would imagine it would run at a fairly high speed through the world and it would produce enormous amount of human damage, deaths, and whatnot. But it wouldn’t last forever, right?
So even if we fail, it seems to me by the end of the year, probably, this calendar year, we will have run through the lion’s share for it, the big part of the global economy .
That’s not my hope for the outcome, not necessarily the most likely outcome but it does put a limit on the magnitude and the duration. Then how fast we recover after that are things that both Chen and I and you have been talking about for the last hour or so. We can either let a lot of damage that is semipermanent occur or prevent it from happening in multiple dimensions and if we do a good job of that, then I think we hit, even if it’s global.
So China tourists stopped coming, a big hit all over the place because they’re really important and there’s a lot of them and they have a lot of money now.
And then China recovers and we go. People stop traveling and spending and buying stuff and China’s export gets hits in a way we didn’t anticipate. Even if you take into account all of those things, I think we probably are talking about, a year, of pretty normal experiences both in human and economic terms and then I would imagine, it would be moving backwards some new normal with the adjustments we talked about.
>> Cheng: Does that time frame sound reasonable to you professor Chen?
>> Chen: It’s very hard to nail down the precise time frame. What has become clear right now is this pandemic thing has become, is going to have a huge economic impact so it has to become clear, if you look at Europe and the United States, so I think the key is how do you balance those two battles because they have exactly the opposite needs.
One wants a lot of activity. One has to restrict activity and also, the world is interconnected so that means it won’t go away very quickly. How do you have limited activity and yet at the same time, you are going to have the economic prosperity?
So that is going to test a lot of our wisdom and in the best narrow recovery is a couple of quarters or only one quarter. It’s very hard to see. I think we’re going to learn a lot more on two things. One is how fast is it spreading being the rest of the world as of China in Europe and the United States and then also, the rest of the world. That’s the first battle. We’re going to have learned this in the next several weeks.
Second is, even if you kind of control it because it’s not going away quickly. Look at China. So even if it’s under control, how fast can your next consumer invest to continue? How many businesses are still there?
So both battles will learn that much more in the next several weeks and there’s more official statistics coming out, right? I think it can last for several quarters. I’m hoping it’s not worse and become the depression type but it could last several quarters. It could last much shorter. Maybe in the end of the summer, we can become much more optimistic, we’ll see.
>> Cheng: Now, on to the opportunities brought by this pandemic, I want to talk about expanding digital technologies role. We have seen it in China. Fintech platforms offering credits to SMEs, robot cleaner, delivery by drones, tracking work and all of that.
Do you think this is a massive game changer, for example, for digital technology, professor Chen?
>> Professor Chen: Let me talk briefly about what has happened in the past several months. So you can see this is the first pandemic. Well, China’s experience is that the business technology is kind of, will unite us together. We’ll share all of the pains and wisdom to get the internet and narrow things down.
So collectively, this kind of reminds me of the concept about market. It’s talking about, the essential part of the market is information. This is very diffuse information. We’ll put together a graph of what is precise. A lot of times that reminds me of this. The fake information, you know, this or that. It’s really annoying! In the end, somehow, everybody will learn how to deal with it. It’s an information market but in the end, this time it’s from a micro level, everyone has to collaborate. They have to have certain understanding. How do we teach each other? This is the first time it happened, sort of with the internet. So that’s the first thing. Connectivity is changes how we deal with this battle.
The second part is the smart decision. Big data. It has helped us a lot tremendously. In the content tracking, identifying the life house situation and I think going ahead, when you want to balance the two battles, you want to know the progress of how much is the virus under control? How is the business recoveries? How is the business hurting for individuals? For the individuals, who is hurt most? Do you really need to have data? You really need to have the information.
So this is the battle of information. So that, I think, it’s already happening in China a lot and it will continue. Now, another part is that you see everybody suddenly realized. You see in China, in the past like 10 some years, people are debating about, how do we embrace technology? A lot of times we think about the business model will not change. It’s just a tool. Technology is just a tool.
Other people think, wow, it’s not just a tool but it’s going to change the business model so they debate with each other. This time, there’s no debate anymore. It’s not about who is in charge or essential. It’s what really separates companies. Their confidence is how much technology has become a core competence of your business model as a tool and as your business model because you can see that there’s not so much in a shut down of an economy.
It’s really like a game changer. It forces the consumers to change the habits. You have to -- the traditional habits are shut down. They have to find new outlets. A lot of businesses were forced overnight to go online, to combine offline and online.
So that is a game changer of the mind set of the habit of the users and also for the business and also about the coordination for the company itself and all of the supply chains so that action is there the big game changer.
Going ahead, I believe that to battle, to win those two battles from the government point of view, from the coordination of everybody including governments, companies and every citizens, this technology is going to be the part that makes them whole so I do think it’s a game changer.
>> Cheng: Michael, do you see the other things happening in other countries where there’s probably more resistance towards digital technology and less embracing of these tools?
>> Michael: I do. I would say based on what Chen was talking about. China is very important because the digital infrastructure, mobile payment, Fin tech and all of that is more highly developed there than anywhere. The knowledge and sophistication and penetration. Data is crucial and society has to make choices on how they’re going to use it. If they decide they’re just not going to use it, then they’re not going to do very well for sure.
My view of this is that, to try to divide the impact, specifically in the digital area especially.
First of all, conduct the following thought experiment. Suppose we have this pandemic spreading globally and no digital technology at all, anywhere, not just in China. So no remote working, right?
>> Cheng: No information sharing.
>> Michael: Yeah, no information sharing, no schooling, as long as you have closed the schools. My view of that is, you couldn’t shut down the economy. You can’t lock down an economy that doesn’t have the digital infrastructure which is just a way of thinking about how important it has become to us. And a slightly more sophisticated behavior level. I think that we, basically, digital technology has the capabilities that need to be exploited and opportunities for adding, you know, dimensions to well being and life that are important. How fast can we get there is determined by inertia.
Organizations and people don’t change instantly. So a lot of my thinking about what the pandemic is going to be is to sort of overcome the inertia. There’s lots of organizations that I know that will say, we will never work remotely until they had to, right? When you have to, you discover things about it. You may not like them all but at least you find out, there’s information again. You find out stuff that you didn’t find out before because you just decided not to do it. I’ll resist giving you examples but I will say, kids are like this all of the time, right?
Do you want it try this new vegetable? Absolutely not, right? And then they try it and sometimes they like it and sometimes they don’t. Dr. Seus’s book is about this, Green Eggs and Ham. Everybody loves that book. A fair amount of what we’re seeing is essentially an acceleration of change that might have occurred at a much slower pace otherwise.
>> Cheng: As things move online, do you think that’s going to widen the digital gap? You know, further disadvantage those without access to internet?
>> Michael: Yes, it will. It will also increase the urgency as a priority in places where there is this gap to kind of close it and close it quickly. I think the good news is that with a reasonable amount of international cooperation, and cross border investment, you actually can close that gap.
I mean, it’s not so expensive that it’s unthinkable to do it. With the mobile internet, cost and digital coming and every cost coming down, I think we can close those gaps but they’re still there, within countries and internationally.
>> Cheng: Professor Chen?
>> Professor Chen: On this part, I’m going to talk a little bit differently. I don’t think -- it is true that if you do not have access to internet, it could be a problem but on the other hand, I think that digital technology is very different from the previous tech revolutions.
The previous technology revolutions are more like the trickle down approach. So if you think about, it’s the most wealthy countries, they harness technology and gradually expand.
If you think about the steam engine, the steamship, after it was invented, it took about 160 years to reach Indonesia, like the Asian countries. If you think about electricity, after the invention, it took about 60 years to reach Kenya in Africa.
Think about digital technology. The majority of the people in the emerging markets, actually, they now have a cell phone. Even in Africa, they actually have success. So we learned this in China. The most active users of using, for example, Alipay, wechat, it’s not the wealthiest people, it’s the average Joe like us.
There’s a good reason for that. The nature of the digital technology is to reduce the cost of information. It’s so cheap that everybody can own a phone. Everybody becomes information producer. They can produce information, exchange information, collectively make decisions.
So this time, the majority of people, a lot of people are in. I’m not worried. It’s not a top down approach, this is more like a button up. -- belly up, it’s a belly for people. I agree, we have to take care of people who have no access to technology, we have to help them speed up that process.
Otherwise, in any cases it is different from the previous technology diffusion.
>> Cheng: Michael, I want to talk about the social and governess aspect. We have seen a lack of global coordination on this pandemic. Do you think global governance is going to improve as a result of this shock?
Do you think people will change? They will want bigger and wiser government?
>> Michael: It’s very hard to know. I mean, we have a pattern of rising nationalism, at least in the west. Rising nationalism, traditional parties, polarization and fragmentation within society so it’s really hard to make a brave prediction and say that will kind of fade away.
>> Cheng: You’re being optimistic so far.
>> Michael: But on this one, I’m a little less confident. America, did an about FAGS with the current administration, nobody know what is will happen in November but I think, the United States is still a big enough country that it changes direction in collaboration with the other major players like China, like the leadership and the EU. We could see a rather noticeable shift in the way in which we interact with each other to the better in my view.
I don’t think being whiskful about being it and hoping it will come back is realistic. There’s too many things driving us apart. There’s digital technology’s role and national security and there’s differential internet regulation depending on, fundamentally depending on different societal values. Those are not going away.
I think President Xi is right. We have to find a way to live with each other, but live be each other with our differences and not hope they go away. I just agree on that.
So we’re not going back to something we’re very familiar with but I think we can, there’s a reasonable chance. I’m not sure I bet my kids’s savings on this but there’s a reasonable chance that we’re some where near a low point in terms of effect of international cooperation.
>> Cheng: Professor Chen, would you bet your kid’s saving on this prediction?
>> Chen: Even before this crisis, before this, we were at very turbulent time. The world is facing a rebalancing of its orders because of the emerging markets are coming up and there’s a lot of challenge. There’s a lot of inequality issues.
Technology is giving us a lot of opportunities. In the mean time, it also disturbs a lot of things so there’s a lot of different factors, elements that are really driving us in different directions. It causes for a more proactive government, doing something to fix the problems. It also calls for more coordination. So really, all of those things are very hard to predict but in any case, we do not have a choice. We have to find a new order and a new balance.
>> Cheng: What about respect for the healthcare workers? I think through this, everyone is becoming, like, an epidemiologist expert. I think we’re finding out how important it is to respect science and also to have these practitioners who put their lives, you know, on the line for us. Do you think that’s something that is going to accelerate investments in public health and lead to more respect and so on, Michael?
>> Michael: I do. Well, first of all, I think when this is over, we’ll probably have, I hope, we have a very big fuss made about the healthcare workers, doctors, nurses, and so on and celebrate them as heros.
The courage, determination, working when they’re dead tired, working with the most difficult circumstances. I hope that happens everywhere. Secondly, I think we’ll have a heightened appreciation, broadly in various populations of the importance of what you might call this kind of infrastructure. This kind of, you know, you need that.
Let me do by example. I was very struck by a talk that Bill Gates gave after the Ebola epidemic. He basically said, you don’t want to get caught flat footed. You need systems. You need the people who are trained. You need the scientists who need access to the senior policy makers and trust so they can provide the advice that only they are capable of providing to guide policy choices and so on and many other dimensions. It doesn’t matter the details but you know, we have that in some areas.
We have had it in the nuclear era for a long time but we don’t have it globally in health and specifically with respect to epidemics that don’t respect borders to use Cheng Long’s terms and we need it.
As far as I can tell, he gave the speech and no one did anything about it except some of the Asian countries that had the experience and knew they needed this kind of capability if you want to put it that way.
So that would be another dimension in which I think you’re suggesting correctly that we are likely to take this more seriously than we have in the past.
>> Cheng: Professor Chen, comment on this?
>> Professor Chen: Yes, we will definitely respect and love healthcare much more. I think most of Chinese nowadays are actually watching the videos of the healthcare workers just leaving Wuhan back to normal and a lot of people are shedding tears because they are really the heros.
In China, especially in China, healthcare workers, even doctors are not well paid. So I think they deserve much more. They are so crucial. So I think there will be much more investment. Especially when China is getting life health is much more important. This will speed that up. So that means this becomes a huge future industry, you know. So I think it’s good for the healthcare workers. They should be respected. That’s the future.
Another thing we have learned is that we have to respect science even more. We have learned that you cannot make arbitrary decisions. You cannot hide things. You have to let the experts make the decisions. We have to design better systems to deal with unpredictable disasters. That happens at the country level, as well as the business level so I think we’ll respect science, let it to help us make smarter decisions.
>> Cheng: And on social and lifestyle aspects Michael, do you think we’ll see more parks, less malls? Do you think people will consume less and save more for crisis like this? Do you think people will be less communal and more distrustful of strangers?
>> Michael: So on this one, it’s just very hard to know. You wouldn’t want to make very precise forecast.
>> Cheng: I’m just throwing some out there.
>> Michael: And I know, it’s good. I think we will change in some respects. You know, we’ll understand that there’s risks that we kind of under estimated before. On the other hand, you know, we all live in countries that have pronounced distinctive features of lifestyle.
A friend of mine who is an entrepreneur here, whose sales are zero, asked me, are people going to behave in a completely different way? Do we have to re-understand our customers?
My answer to that is no. They don’t just sell in Italy but let’s take Italy as the case. Italy is a very social place. Not uniquely but very social.
>> Cheng: Yes, that’s why people love to go there!
>> Michael: Yes. Are we all of the sudden going to change? We may change a little bit but I think it’s very unlikely that, you know, the fundamental characteristics of the culture, family orientation, you know, very social, lots of gatherings in various contexts is going to go away.
So I’m kind of, in this dimension, while it’s not a perfect snap back, I’m the kind of mean reversion kind of fellow in thinking about how it’s going to go.
There are specific dimensions in which we are going to change. The way that companies operate will be influenced significantly by their experience with operating remotely because they will have a sense of challenges and new possibilities.
We’ll certainly appreciate the importance of the digital infrastructure and be careful of that and leverage it and all kinds of things. I guess I’m -- I wouldn’t want to over state it. I think we’ll still be Chinese and Americans and Italians, mostly when we get through this.
>> Cheng: Professor Chen?
>> Professor Chen: Yes, I think it’s a good question. If you think about what happened in the last two months or so. Chinese people, have they become more isolates, they don’t trust each other? Actually, they experienced this whole thing. I wouldn’t say so. We see a lot of touching moments. We see we can be united to solve problems so I don’t think the trust level is going down. That’s an interesting conclusion.
So the battle itself is not to make us think that, that’s good news. We do have to change our habits. We have to have some kind of safety approach. The health habits, this or that. And also, forced to how we connect with each other. We have to switch more to online, this or that, to coordinate.
Those things will change. I think the level of trust that our affection to each other is not changing. Somehow, I think it’s still there, maybe even stronger.
>> Cheng: Back to China’s role in fighting the pandemic. China now having contained its own spread is donating a lot of supplies to other countries and sharing expertise. So what do you think of China’s role in this battle and what implications does this pandemic have for the Belt and Road initiative? Michael, do you want to go first?
>> Michael: Okay. You know, I think -- stepping back, I think for a long time China has since it has become big, powerful, and relatively wealthy, has had the intention of being an important positive force in especially in the developing world and especially in the part of it that is fallen behind.
I don’t think that’s changed. I think the pandemic gives it another opportunity, gives the country another opportunity, and the leadership another opportunity to pursue that in an area that really matters to people and that will, you know, whatever you think of the old motivation.
It will certainly enhance China’s reputation. I also think, with the developing countries, that China’s willingness to help in the context of this, especially as it escalates and becomes more serious, is going to be an important influence on how people think about this. So we were on a glide path of thinking about, you know, increasing strategic rivalries and that sort of a thing and kind of the break down in the old order and I think those forces are, to some extent still present but I think this is a new factor known. Now, I don’t have a view of whether this will have an especially important impact in the Belt and Road initiative or the new Silk roads. I kind of think about it more broadly.
>> Cheng: Okay, and professor Chen?
>> Chen: I think it’s China’s responsibility because we are here. We experienced this whole thing. We kind of are ahead of the curve so it is really our responsibility to not let lesson be wasted again. We have to be much more proactive. We have to share the information. Tell us what other people want to learn. We have to supply the medical support, everything, we have learned to help other countries.
This is our responsibility. That is my first point. Second, what China does, I think it will have very important implications for the globalization. If China can play a leadership role to his share and help the world and to show the world that it is possible and this is the only way we coordinate or help each other, helping other people is just helping yourself.
We are together to solve the problem, then to build the trust system through the battle, then that will really help how people perceive the globalization. If a lot of people left, have the feeling that now, we are left with no help, you know? We cannot count on the rest of the world, we just have to depend on ourself, the world would be much more disintegrated. So I think what China has is a responsibility and it’s also in its interest in every way to help the world. Especially, also, for the emerging markets. For the rest of Asia, for Africa, for those countries who do not have a good medical system and very populated. So we know this already. We have learned enough lessons from China, from other countries. We should really help them more.
>> Cheng: And the BRI?
>> Chen: I think it’s a result. Not just by design. It should help all of the countries. If you do good things, it will come back to you.
>> Cheng: Great! Thank you so much for your time and insights today. We have Noble winner Michael Spence, joining us from Italy and also, from eastern China, professor Chen Long who is at the academy. So we have talked about this wide ranging pandemic and how we can fight this double battle of virus and the recession and the answer is, a global coordinated effort in terms of both of the virus and of the economic response to do whatever it takes.
So I’m going to -- I opened today’s discussion with a Churchill’s quote and I’m going to end one. We sleep soundly in our beds because rough men stand readily in the night to violence for those who do us harm. We sleep soundly because of the brave and healthcare workers who are fighting the virus. So big thank you to all of these people! Thank you for joining us for this live stream. I’m Cheng Ling in Beijing and I hope to see you at the next discussion. Thank you so much Michael and professor Chen!
>> Thank you!
>> Thank you!