COVID-19 crisis

By Dorothy Hinchcliff, Advisor Perspectives

Political scientist Ian Bremmer says there are silver linings in the “depression” brought on by the COVID-19 crisis. In fact, he said, the world may have needed this crisis to happen. He spoke recently at John Mauldin’s Virtual Strategic Investment Conference 2020.

Our resilience and ability to respond

Bremmer, president and founder of Eurasia Group, a global political risk research and consulting firm, said it’s very clear that the crisis will be a lot worse than the Great Recession in the scope of its impact and timeframe. “Until we get a vaccine, we’re not coming back to the new normal. And you know, when you think about what a depression is – it’s global, it’s greater in duration and larger in scale than a recession – this hits all those boxes for me,” he said.

A lot of people don’t want to call it a depression, Bremmer said, because they think back on the Great Depression of the 1930s and they say today’s environment doesn’t feel like that. “But, in part, that’s because 100 years ago, we had a lot less wealth. … Even in middle-income economies, the new middle class is today wealthier at an absolute level than the middle class in the U.S. at the time the Great Depression.

So our resilience, our ability to respond to that kind of shock and contraction today is far greater than it was. And that is a silver lining.”

Correction of structural issues

Another silver lining is that it takes a crisis of this magnitude to correct major structural issues that are standing in the way of world progress, he said. The 2008-09 Great Recession and 9-11 were not powerful enough to change them, he added.

“Eight years of Obama and three years of Trump and inequality in the U.S. is still growing. Anti-establishment sentiment, populism, is still growing in Europe and even in some of the middle-income democracies around the world because the crises that we had weren’t large enough to make us respond to them,” Bremmer said. “This time around, the crisis is a lot bigger, and we have the potential to actually respond to some of these broader structural issues.”


The possibility of change is more promising, he said, because the one group of winners in the crisis are the knowledge-economy people, the tech players. “We don’t get to keep the economy growing if it isn’t for the virtual digital economy; we don’t get to come out of the other side of this crisis,” he maintained.

He asked listeners to consider if a catastrophic cyberattack, rather than a pandemic, had brought on the same size economic crisis. “The stock-market returns would be very different. The companies that would do the best would be the brick and mortar, the real economy, while the virtual companies would be sucking wind right now,” he said. “I’d be vastly more pessimistic about our ability to emerge well from that kind of crisis, even though the scale of it economically were the same.

Because that would mean that the companies with the money and the returns would be those that were most oriented towards the 20th century and not towards the kind of innovation we need to deal with the transformations and the global challenges coming down the pike.”

Even though a lot of our institutions are structurally broken or eroded, the orientation and weighting of capital coming out of the COVID-19 crisis will be much more able to address and fix those problems, he said.

Political issues

Bremmer also described how the crisis will affect the world’s three superpowers: the U.S., China and Europe. In the sense of the crisis, China has an advantage of being a surveillance state that can make huge, strategic investments to help the country recover economically much faster than the U.S. and Europe. But the caveat is that as China’s economy recovers, it is going to be dominant with all of the weak and poor-performing economies of the world while at the same time being decoupled from the U.S. and Europe, he said.

Meanwhile, the United States is moving toward a cold war with China and the U.S. is bringing its allies along with it, especially on the technology front, Bremmer said. “No matter what you think about how badly we’re governed, what you think about how broken Congress is, how incompetent Trump is, how much you can’t stand the mainstream media, all that stuff. No matter what you think about that, we don’t get in the way of entrepreneurs.

We have by far the best tech companies and individual entrepreneurs in the world. … We produce those people. When we don’t produce them, when they come from other countries like Iran, they want to come to the United States. I don’t see that changing.”

And the U.S. will get stronger coming out of the pandemic because the tech companies are the big winners in this environment, Bremmer said. “Elizabeth Warren, six months ago, was saying she wants to break up the tech companies. She isn’t saying that coming out of this crisis, not when we are desperately relying on them to get us out of this, when they’re the ones that are performing, and when we’re fighting against the Chinese over tech supremacy,” he maintained.

The caveat for the U.S. though, Bremmer said, is that a lot of Americans are getting displaced, and the disruption will be expedited because technological advancements will happen a lot faster because of the pandemic. “I’m not just talking about jobs that are easily automated in manufacturing and food processing, though that’s clearly happening,” he explained. “I’m also talking about knowledge economy workers on the low rungs, where big data and deep learning when well-applied can actually get a lot of those people out of the equation.

Companies that are going to be stretched thin and need to ensure that they can run are going to remove a lot of those folks. So that’s the problem in the U.S. – you have a larger number of folks that say the social contract does not work. It’s rigged against me and my family and my local community.”

Europe, on the other hand, does not have the right kind of entrepreneurs or the ability to strategically invest, but it is a superpower when it comes to regulation, Bremmer said. But Europe’s ability to set rules around technology will likely take a backseat to getting out of this depression, Bremmer said, plus weaker economies in Europe will align with the Chinese and set aside regulatory mandates. Forced migration and refugee issues will become bigger problems in Europe, he believes. The result? Europe’s power will weaken, he said.

“All of that implies to me that we’re going to see not the end of globalization, but much more fragmentation. This becomes particularly important when you think about the United States,” Bremmer said.

Complicating the picture in the U.S. is the upcoming U.S. presidential election. The U.S. death toll from the pandemic will be over 100,000 and that won’t be good for President Trump, Bremmer said. “Trump can blame Obama, he can blame blue-state governors, but fundamentally he needs something bigger than that, and that’s China. Blaming China really helps, and especially because China is responsible.”

Bremmer explained he does not believe that the virus came from a lab in China, as U.S. Secretary of State Mike Pompeo has claimed. But Bremmer does believe the virus started in China and that the country’s government obscured the initial outbreak, when it began spreading human to human.

Bremmer thinks Trump will put more tariffs on Chinese goods, although the president understands those tariff are going to hurt his supporters. “I think the Chinese are going to hit the Americans hard in response to that and I don’t just mean in reciprocal tariffs.

I mean making American companies unwelcome, going after Apple, for example. Saying that American Chinese students should no longer study in the United States,” he said. “I think we’re heading in that direction. It doesn’t mean a cold war no holds barred across the board, but it does mean the relationship between the two countries is going to get a hell of a lot more dangerous. You’ve got the worst economic crisis of our lifetime and a backdrop of no geopolitical coordination. And you have the two largest economies in the world, not only not coordinating but increasingly beating the hell out of each other.”

Still, the United States and China will eventually come out of the pandemic’s economic crisis better than most other countries. Some poorer countries will emerge relatively better, too. “Most crises around the world always hit the poorest countries the worst, but in the case of Sub-Saharan Africa, they’re going to have a hell of a lot of cases; they’ve got virtually no health care to speak of and most of these countries, they’re doing no testing. … But the average age in many of these economies is under 20, which means everyone gets it. They don’t die. In fact, most of them don’t even get sick, don’t even show symptoms. … and most of these countries aren’t connected to the global supply chain – there’s a lot of agriculture, a lot of local economies, a lot of informal economies – so they don’t shut down.”

Change in geopolitical order for the better

Bremmer’s final point was that the crisis might change the geopolitical order for the better. World institutions and their members were established based on which countries won World War II. Today China is by far the U.S.’s most important economic and technological threat, yet the most important security alliance in the world, NATO, is focused on conventional and nuclear weapons threats, Bremmer said. “I’m not saying NATO is going away. I’m just saying it’s functionally becoming irrelevant,” he explained. “We have all of these institutions that have been around for a long time, that no longer reflect the geopolitical balance of the world today, not even close.”

The pandemic will be very painful emotionally and take a long time to recover from, but the death toll won’t be as large as it has been in many other world crises. “This may be a Goldilocks crisis: not too hot, not too cold, not for the next three years, but for 10 for 20,” he said.


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