Vijay Kumar Gaba

Continuing from yesterday (See Preparing for chaos)

I believe that severity of any geopolitical event, financial crisis, economic event, natural calamity, industrial disaster, technological evolution, pandemic, etc. must be assessed in terms of its impact on the human lives. Any event that severely impacts the asset prices but its impact on human lives is limited to a small segment of people does not qualify to be a called a global crisis in my view.

I put the financial crisis of 2008-09 in this category. The impact of that crisis was largely limited to financial markets and investors. It had almost no implications for the human life per se. It actually impacted more populated developing economies positively as the unprecedented amount of liquidity manufactured in developed markets found its way to emerging market assets enhancing the wealth effect in there.

Similarly, the events like 9/11 attacks in New York city, 26/11 attacks in Mumbai city, Nuclear accidents in Chernobyl & Fukushima, Tsunami in southern India, massive earthquake in Nepal, numerous cyclones in USA etc all were massive events, especially in terms of their economic impact - but their impact on human lives was mostly limited. These events therefore do not qualify to be global crisis, and usually do not have transformative impact on the global order - markets, businesses, protocols, systems, geopolitics etc.

The events like two World Wars, the great depression of 1930s, outbreak of Spanish Flu etc on the other hand have material impact on human lives world over leading to material changes in the global order.

In my view, the outbreak of COVID-19 pandemic qualifies to be a global crisis that will have transformative impact on the global order. Treating this event as a usual socio-economic event would be a grave mistake, in my view.

I believe that the world will be a materially different place in five year from now. However, notwithstanding the technological advances and development of advanced forecasting techniques, it may not be accurately predict the contours of the global order in 2025. The learnings from great depression may only inform us that changes will be dramatic. However, these may not guide us about the nature and direction of the changes, because the present circumstances are very different from 1930s. For example-

• The war expenditure and reconstruction activities post WWII helped to a great extent in bringing the economies back on the path of growth. The destruction in present case would only be in asset prices and moral of the people. The world is struggling with excess capacities in most areas, including the basic needs of food, energy, and housing.

• The great depression occurred when the benefits of industrial revolution were still accruing. In post WWII numerous new inventions were made to make substantial productivity gains. The benefits of the scientific and technology advances were afforded to a larger proportion of the society. The growth in that sense was democratic and egalitarian. In past 20yrs, the focus of scientific research and technology development is mostly on increasing the speed of execution and reducing the size of products. The growth is aimed at widening the already wide disparities.

• The economics in 1930s was mostly physical. People, money, material, information etc all travelled physically from one place to the other. Presently, the world is totally dematerialized.

Notwithstanding the unpredictability of the situation, investors are obliged to foresee the future and orient their portfolios to align with the emerging scenarios.

...to continue