A famous question was asked by British monarch Queen Elizabeth II: “Why did no-one see it coming?”
This was not her question on the coronavirus pandemic, but her inquiry at the London School of Economics back in November 2008 on the credit crunch set off by the global financial crisis, which the British queen described as “awful”.
Her crisp question highlighted the failure of a legion of bankers, politicians and economists to anticipate the last great recession.
But this Covid-19 shock is far worse than the financial crisis. IMF MD Kristalina Georgieva said last week: “This is a crisis like no other. Never in the history of the IMF [founded in 1945] have we witnessed the world economy coming to a standstill.”
This time, here and across the world, the coronavirus and its writing of the latest page of disaster economics is apocalyptic in many ways, and the economy right now takes a very back seat to health and mortality, though of course there is a direct linkage between them and the weapons and ammunition to fight back on all fronts.
The queen (age 93) is sequestered with her husband, Prince Philip, 98, at Windsor Castle, since nonagenarians are the most at-risk age demographic, though she recorded a message from there at the weekend.
But her question on the last crash is worth exploring as we grapple with the unfathomable crisis spurred by the global spread of the microscopic organism, SARS-CoV-2, which has unleashed havoc upon the world.
There were of course many virologists, futurists and policymakers who saw the likely course and consequence of a respiratory virus. Even novelists. I was recently sent extracts from an old thriller written by Dean Koontz back in 1981. Entitled The Eyes of Darkness, it presciently predicted that “In around 2020 a severe pneumonia-like illness will spread throughout the globe, attacking the lungs … and resisting all known treatments.” However, the genesis for his yarn was the weaponising of a micro-organism in a laboratory. This clearly marks it as fiction, save for the name he gave it: “Wuhan-400”, since it was, in his book of 39 years ago, developed in Wuhan, China.
Far more recently, in real-world US, a scenario code-named “Crimson Contagion” was run by the department of health & human services. The results appeared in a report dated October 2019 and suggested the outbreak of a respiratory disease in China that would quickly spread around the world by air travellers “who ran high fevers”. It anticipated that 110-million Americans would become ill, 7.7-million would need clinical care and 586,000 would die.
According to The New York Times, the draft report was marked “not to be disclosed”. And given how it laid bare the “underfunded, underprepared and uncoordinated federal government response”, clearly it was not intended to be acted upon. At least not five months ago.
Another early spotter of the economic calamity to befall the world and markets everywhere was an outlier hedge fund manager in San Francisco, Chris Hansen of Valiant Capital Market. His team worked out the risks early and shorted firms they considered most at risk of the slowdown, such as cruise lines, travel agencies and airlines. By the end of March, Valiant had surged 36%, in contrast to the 19.6% drop in the S&P 500 and 21.3% decline in the MSCI World Index.
But the fund is an exception. Most follow the herd, if not for immunity’s sake then for the same reason that few countries took early, precautionary measures to stop the viral spread.
History suggests that we rarely make in-time decisions to avert catastrophe. In The Wall Street Journal, Gerard Baker reminds readers that in the 1930s Britain and France failed to head off the threat posed by Nazi Germany; and in the summer before 9/11 the White House was warned of an impending attack by Al-Qaeda and failed to head it off.
Here at home, locked down and with a very fragile economy and currency in intensive care, there is an extraordinary disconnect between our apparent pre-emptive public health measures to stop the pandemic in its tracks and our lethargic non-reaction to the economic crisis, which interdicts our ability to fight back against the virus. And to rebuild the economy after the plague passes.
It was profoundly ironic that at midnight on the first day of the lockdown on March 27, Moody’s Investors Service announced its downgrade of SA’s sovereign bonds to junk status. President Cyril Ramaphosa took decisive action on the health front, even in the face of imperfect information (will a more virulent strain of coronavirus emerge here in winter, for example?). He was seized with urgency.
And he acted with dispatch. It is true that aspects of government action bear the hallmark of ANC politics: caving into the taxi industry; contempt for middle-class suburbanites; intemperate policing; and political warfare against the Western Cape. But, overall, the government has won high marks.
Yet Ramaphosa and the same government had spent three years since the Fitch Ratings and S&P Global Ratings downgrades to junk status in April 2017 simply doing nothing to avert economic meltdown.
In fact, they actually aggravated the possibility of our final exit from economic normalcy with vastly unaffordable and credit-ruinous gestures. These ranged from incapacitating the state generally to padding public servants’ salaries by an estimated 40% above inflation wage hikes for the past dozen years and the fee-free university giveaway, at a cost of R172.2bn by 2022. We have been warned by the World Bank that this latter gesture is doubly disastrous: it is fiscally unsustainable and is unlikely to supply more skills to the economy. The missteps on the Eskom and energy fronts are as long as they are depressing.
The failure on the economic front, until Ramaphosa gave a hint of reform in his address last Monday, also meant the government simply ignored its most important inside counsel. Before he was exiled to social media purdah in Tzaneen, finance minister Tito Mboweni tweeted in January: “If you cannot effect deep structural reforms, then game over! Stay as you are and you are downgraded to junk status! The consequences are dire.”
He at least saw the coming storm, even before the viral hurricane settled among us. Now hobbled and disarmed fiscally in the most important fight for our lives, we need to act. Junk the policies and practices and charlatans who have pushed us over the fiscal cliff. Redemption is sometimes late, but is always a far better option than perdition.
Leon, a former leader of the opposition, now chairs Resolve Communications.
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