Wednesday18 March 2020 ★ FINANCIAL TIMES 11
Opinion
up capital could benefit from govern-
ment guarantees on the condition that
the proceeds really are expressly used
for funding responses to Covid-19.
Alternatively they could be rewarded
by the promise of extraordinary special
dividends, once the virus is dealt with
and revenues recover.
Some might say investing in govern-
ment bonds might achieve the same
end. But having the government buy,
rent or requisition private sector assets
risks spooking markets only further. It
also risks putting off private sector inno-
vation in the field. If cleverly and speed-
ily structured, such securities could do
their bit in convincing markets that the
collapse is only temporary, thus helping
to calm market panic.
And there is no need to stop with air-
lines. Capital transference can occur all
thatVirgin Atlanticboasts in Crawley.
Their new skills could be applied to
administering tests, managing the flow
of people and, most importantly, when
the time comes, towards servicing the
sick with food and drink.
Airline hangers, meanwhile, could
potentially house temporary hospital
structures positioned close to vital sup-
ply and logistic networks.
The sector has already approached
governments for bailout funds. But we
should be creative about the way we
structure them.
With a little initiative and ingenuity,
digital securities could be originated
very quickly to raise capital from inves-
tors for the purpose of funding the rede-
ployment of these suddenly freed-up
resources to where the government says
they are needed most.Investors offering
and used to following emergency proto-
cols. Indeed, if anyone knows how to
manage, reassure and prioritise among
large, unruly crowds it is cabin crew.
No one should of course be forced to
put themselves in danger. It is of the
utmost importance that any redeploy-
ment is voluntary and determined by
health. But, if and when such employees
agree to work under emergency terms,
they could be quickly retrained in air-
line training facilities, such as the ones
Surely there is a way to solve both prob-
lems at once.
Right now the market is signalling
that leisure capital — and all the under-
lying resources and infrastructure it
represents — is no longer required. But
rather than idling or destroying those
resources permanently via bankruptcy
or lay-offs, let’s redeploy them.
Airlines already employ a small army
of crisis-trained professionals in the
form of cabin crew. Globally the num-
bers run into the millions. In the UK, the
sectordirectly employs more than
90,000people. Cabin crew members,
because of the physical nature of their
jobs, tend to be relatively young and
healthy. They’re also used to working in
tough conditions andthrough the night.
Most importantly they’re already
trained to a very high first-aid standard
T
he global travel shutdown
has idled airline staff world-
wide, with tens of thou-
sands of people asked to
take leave or made redun-
dant. This extremely well trained
human capital could be frozen out of the
world economy for months.
At the same time, health systems
worldwide are braced for an onslaught
of sick people infected with coronavirus
and need additional resources to cope.
Let’s redeploy airline workers to help national health services
If anyone knows how
to manage and reassure
large, unruly crowds
it is cabin crew
across the economy. Cruise ships could
be repurposed into floating hospitals for
the mildlyaffected. Restaurants could
be repurposed for the provision of meals
on wheels services for the sick and quar-
antined. Uber drivers could be turned
into ambulance drivers.
China deployed authoritarianism to
meet the crisis head-on. Westerners
marvelled as they built hospitals in
record time, while simultaneously fail-
ing to understand the scale of the crisis
that was about to hit them.
Now we must find a way to achieve an
equally powerful outcome through
more liberal methods. Necessity is the
mother of invention. Let’s rise to the
challenge by finally putting financial
engineering to good use.
A
couple of years ago I was
walking through a small
town in rural China when a
young boy approached me
nervously. I expected him
to practice his English but instead he
demanded to know why I had burnt
down theSummer Palace in Beijing.
Drilled by his teachers on all aspects
of the atrocity carried out by British and
French troops in 1860, he bravely con-
fronted the first person he saw who
resembled those barbarian invaders.
Not long after that I was sitting at
a dinner party in Delhi when a slightly
inebriated gentleman demanded
all British at the table acknowledge
Winston Churchill as a far worse histor-
ical villain than Adolf Hitler.
Many in the west are barely aware
that the world’s two most populous
nations were founded in explicit opposi-
tion to western colonialism and imperi-
alism, particularly the British variety.
They are even less conscious of how
these narratives have become powerful
tools in the construction of sometimes
vituperative nationalism. It is thisthat
allowed the spokesman of the Chinese
foreign ministry toclaim last week—
and be believed by many in China — that
the coronavirus was brought to Wuhan
by the US military.
Today, China and India account for
almost a third of the global economy in
purchasing power terms. Demographics
and development levels almost guaran-
tee their economic and geopolitical
power will continue to grow. Without a
clear understanding of historical events
that have formed their world views, the
west will find it increasingly difficult to
deal with these nascent superpowers.
For the People’s Republic of China,
modern history officially begins with
the first opium war of 1840, when Brit-
ain defeated the Qing empire and gained
the colony of Hong Kong, thus launch-
ing a “century of humiliation” that only
ended with communist victory in 1949.
Virtually every schoolchild in China
and India can recite the treacherous
deeds of Lord Palmerston, who served
twice as prime minister and dominated
British foreign policy from 1830 to 1865.
Everyone in Japan knows about the
“black ships of American Commodore
Perry” that forcefully opened the coun-
try to trade in the 1850s.
But how many British or American
students have heard of Perry, the battle
of Plassey or the Boxer Rebellion? How
many could explain the differences
between the Bengal famine of 1770 and
the Bengal famine of 1943? That second
tragedy, which killed millions and was
exacerbated by British policy, is the rea-
son many Indians hate Churchill so
much. Indian historians quote the feted
wartime prime minister blaming the
famine on the “beastly people” of India
who had caused the food shortages
themselves by “breeding like rabbits”.
In Britain, America and most of
Europe it is exceedingly rare for people
to learn about colonial history unless
they specialise in it at university. For the
average British conservative, the
empire evokes vague feeling of nostal-
gia. For the average liberal, it conjures
up a fuzzy sense of guilt. The campaign
for Brexit, with its slogan, “take back
control”,was based on an amorphous
vision of a return to the times when Bri-
tannia ruled the waves. There were also
grand promises of free trade deals with
economic powerhouses in the Far East.
If the average Brit had even a cursory
understanding of colonial history they
would have understood how unrealistic
that is. With their creation myths built
on humiliation at the hands of perfidi-
ous Albion, it is very unlikely that China
or India will ever agree to a trade deal
with the UK on anything but the most
punitive terms.
It is surprising how few western diplo-
mats are aware of their own countries’
troubled legacies. In addition to includ-
ing colonial history in the curriculums
of western school systems, governments
should make intensive courses compul-
sory for foreign service officers. I am not
suggesting the UK and other former
colonial powers indulge in self-flagella-
tion or ask their citizens to apologise in
perpetuity. History is always more
nuanced than the narratives created by
nation states to serve political goals.
This complexity was summed up
by George Orwell in his short essay,
“Shooting an Elephant”, in which the
It is unlikely that China
or India will ever agree
to a deal on anything but
the most punitive terms
Colonial crimes will haunt Britain’s trade negotiations
Providing such relief will not create
moral hazard. Being helped through a
once-in-a-century pandemic will hardly
encourage egregious irresponsibility. If
businesses have borrowed too much,
they will still go bankrupt, in the end.
This plan is far better than loans and
loan guarantees, asproposedby the
German government. Businesses will
take up loans only to ensure their sur-
vival through the crisis, not necessarily
to pay their workers. Moreover, loans
will have to be repaid, creating a burden
when the pandemic ends. In this pro-
posed programme, however, payments
can be made conditional on keeping
workers. The programme will also end
naturally, with the pandemic itself. Gov-
ernments can then impose additional
taxes to recoup their outlays.
Maintaining incomes and minimising
with economic and health conse-
quences that governments must man-
age. Domestically, the bare minimum is
generous sick pay and unemployment
insurance, including to freelance work-
ers, for the period of the crisis. If this is
too difficult, governments can just send
everybody a cheque.
Yet even this will not be enough if the
costs of mass bankruptcy and a depres-
sion are to be avoided.Emmanuel Saez
and Gabriel Zucmanof Berkeley argue
that: “The most direct way to pro-
vide... insurance is to have the govern-
ment act as a buyer of last resort. If the
government fully replaces the demand
that evaporates, each business can keep
paying its workers and maintain its cap-
ital stock, as if it was operating... as
usual.”Anatole Kaletsky of Gavekalhas
recommended a similar response.
solvency. They cannot underpin house-
hold incomes or insure businesses
against this collapse in demand. As bor-
rowers and spenders of last resort, gov-
ernments can and must do so.
Long-term government debt is so
cheap that they need feel no fear of
doing so, either: Germany, Japan,
France and the UK are now able to bor-
row for 30 years at a nominal rate of less
than 1 per cent, Canada at 1.3 per cent
and the US at 1.4 per cent.
This, then, is a time-limited crisis,
the impact of the coronavirus is likely to
be severe and prolonged. At the very
least, policymakers must plan on that.
The pandemic has already squeezed
both supply and demand. Lockdowns
halt essential supplies and a wide range
of purchases, especially entertainment
and travel. The result will be a sharp fall
in activity in the first half of this year.
Above all, a depression threatens.
Many households and businesses are
likely torun out of money soon. Even in
wealthy countries, a large proportion of
the population has next to no cash
reserves. The private sector — above all
the non-financial corporate sector — has
also gorged itself on indebtedness.
So consumer demand will weaken
even more. Businesses will go bankrupt.
People will refuse to sell to businesses
deemed likely to go bankrupt, unless
they can offer payment in advance.
Doubt about the health of the financial
system will re-emerge. There is a risk of
a collapse in demand and economic
activity that goes far beyond the direct
impact of the health emergency.
It will also be particularly hard to con-
tain the spread of disease in countries
with limited social insurance and weak
social control. This will affect the US
above all: many sick people will refuse
to go to hospital and will also be forced
to work. Social insurance is efficient.
As lenders of last resort, the central
banks must ensure liquidity by keeping
the cost of borrowing low and financing
credit supply, both directly and indi-
rectly. But central banks cannot deliver
T
he pandemic was not unex-
pected. But reality always
differs from expectations.
This is not just a threat to
health. It may also be a big-
ger economic threat than the financial
crisis of 2008-09. Dealing with it will
require strong and intelligent leader-
ship. Central banks havemade a good
start. The onus now falls on govern-
ments. No event better demonstrates
why a quality administrative state, led
by people able to differentiate experts
from charlatans, is so vital to the public.
A central question is how deep and
long the health emergency will be. One
hope is that locking down countries (as
inSpain)or parts of countries (as in
China) will eliminate the virus. Yet,
even if this proved to be true in some
places, it will clearly not be true every-
where. An oppositeextremeis that up to
80 per cent of the world’s population
could be infected. At a possible mortal-
ity rate of 1 per cent, that could mean
60mextra deaths, equivalent to the sec-
ond world war. This calamity would
probably also take time: the Spanish flu
of 1918 camein three waves,over a year.
Yet it is more likely that this ends up in
the middle: the death rate will be lower,
but the disease will also not disappear.
If so, the world might not return to
pre-crisis behaviour until well into
- Younger people might behave
normally, sooner. But older ones will
not. Moreover, even if a few countries do
eliminate the disease, quarantines will
be maintained against others. In sum,
The virus is
an economic
emergency too
The bare minimum is
generous sick pay and
unemployment insurance,
including to freelancers
Central banks throw almost everything
at the crisis
Central bank policy rates ( )
-
..
US (Fed funds target rate)
Eurozone (ECB deposit rate)
Eurozone (ECB repo rate)
UK (BoE Bank rate)
Japan
(BoJ target rate)
Source: RefinitivExcept for Italy, long-term borrowing costs
have plummeted
-year government bond yields( )
-
Jan Oct Apr Oct Jan
US Japan Germany
France Italy UK
Source: RefinitivGlobal non-financial corporate debt
has soared
Non-financial corporate debt as a of GDP
World (over world GDP)
Mature markets (over mature-market GDP)
Emerging Makets (over emerging-market GDP)
Source: Institute for International Financeprotagonist, a white colonial policeman
in Burma, muses on the brutality of
imperialism: “With one part of my mind
I thought of the British Raj as an
unbreakable tyranny... with another
part I thought that the greatest joy in the
world would be to drive a bayonet into a
Buddhist priest’s guts.”
Only when armed with historical facts
and an understanding of this nuance
can western diplomats, scholars and
businesspeople develop the empathy
needed to navigate the minefield of his-
torical grievance in former colonies.
That understanding would also allow
them to push back on some of the more
corrosive nationalist ideas in places like
China and India.
In some cases this would be a service
to people in those countries. The narr-
ative of victimhood that blames all cur-
rent problems on historic colonialism
too often allows bad leaders to exoner-
ate themselves for their misrule today.
the long-term costs of collapsing busi-
nesses are essential. In addition, within
the eurozone it will be essential to help
governments whose ability to borrow is
limited. Globally, vulnerable emerging
countries will also need help managing
the health and economic crises. It will be
vital, too, to roll back the zero-sum
nationalism of today’s policies, which
will make it difficult to rebuild a co-op-
erative and healthy global order.
This too shall pass. But it will not do so
tomorrow. The pandemic risks creating
a depression.Salus rei publicae suprema
lex(the safety of the republic is the
supreme law). In war, governments
spend freely. Now, too, they must mobi-
lise their resources to prevent a disaster.
Think big. Act now. Together.
ASIA
Jamil
Anderlini
BUSINESS
Izabella
Kaminska
Martin Wolf Economics
This is first in a series of articles by leading
writers and policymakers on how to
ease a devastating global slowdown
MARCH 18 2020 Section:Features Time: 17/3/2020-18:33 User:dana.prince Page Name:COMMENT USA, Part,Page,Edition:USA, 11 , 1