Journal number 2 ∘ Ramaz Abesadze ∘
Globalization and the economic problems of the pandemic

DOI:  10.36172/EKONOMISTI.2020.XVI.02.ABESADZE

Annotation

In the current year,the world was engulfed in a pandemic of corona virus. Countries were forced to introduce anti-virus bans, which led the national economies and the world’s global economy to a rather deep recession. The article examines the economic problems of the pandemic in the context of globalization. The article reveals the nature of the pandemic shock on the contemporary economy and the possibilities for overcoming of this issue.

Keywords: pandemic, coronavirus pandemic, pandemic shock of the economy, recession of the economy, innovative development. 

Introduction 

The mankind remembers  a number of pandemic that led to tremendous losses for human society, both in terms of human casualties and huge economic losses. It has always been the case that there was no vaccine against the virus or no cure for the disease. We are dealing with the same situation today. In December 2019, a new coronavirus epidemic began in the Chinese city of Ukhan, which spread quite rapidly around the world and it was declared a pandemic. Due to the lack of appropriate vaccines and medicines, the governments of the countries by the advice of health care workers, unlike previous pandemics, have been forced to introduce strict restrictions to save human life and health:. Specifically, international flights were banned; domestic transport was restricted; other areas of human activity (manufacturing, trade, art, sports, etc.) were severely decreased; state of emergency and a quarantine have been declarated etc. Ultimately, many economic and humanitarian problems have arisen that have taken on a global character. Continuation of this situation for a long time would lead to the collapse of both the national and global economies. Therefore, governments have implemented anti-crisis programs and, together with epidemiologists, have developed conditions for coexistence with the virus. 

Peculiarities of the pandemic shock of the economy 

The economic problems of the pandemic arise by the government's ban for the safety of humans during the massive spread of infectious disease around the world. Restrictions on economic activity lead to a restriction of market mechanisms, a partial or complete cessation of the operation of enterprises, which is followed by an economic downturn, deteriorating the well-being and comfort of a large part of society. A pandemic is a negative natural phenomenon and can be compared to global natural disasters. The impact of a pandemic on the economy can be calld the economic pandemic shock. The pandemic does not directly affect the economy. Its negative impact on the economy will stop as soon as it does not affect human health and life. Therefore, the complete removal of a pandemic economic shock depends on the nature of the virus (whether the epidemic will subside on its own) or on medicine (whether the vaccine will be invented or whether the drug will work against the virus). It can be said that today's economy is a hostage of medicine, but doctors are not to blame for that, because it takes time to study a new coronavirus, find a drug or a vaccine [Papava V., 2020]. On the contrary, it is on the basis of the recommendations of doctors that it is possible to reduce the negative consequences of the pandemic, to save people's lives and health.

The peculiarity of today's pandemic shock is that the negative economic consequences are caused by the large-scale restrictions adopted by the government in almost all areas of economic activity. During economic shocks, the focus is on identifying the causes and eliminating them. The cause of the pandemic shock is known and managed by governments. The government can increase or decrease the effect of shock by increasing and decreasing prohibitions or implementing anti-crisis programs. This shock is caused not by results of the crisis in any area of the economy, but by its systemic nature, since, due to the bans, more or less all sectors of the economy suffer. The losses to the economy are huge, as the scale of today's economy is huge and international economic relations are very close. Today, there is a global economic recession: rising unemployment, bankruptcies of small and medium-sized businesses, the collapse of the tourism and aviation sectors, a catastrophic drop in oil prices, a record drop in the stock market, and so on.

Of course, the management of pandemic shock is different from the economic one. Its removal does not depend on the economic measures undertaken by the government, but on the timing, extent and aggressiveness of the spread of the virus. Also, for example, if during the financial crisis, first of all, large banks were to be saved, today, mainly, micro, small and medium-sized enterprises are to be saved: Small shops, hotels, restaurants, fast food, beauty salons, ateliers, bars, cafes, travel companies and more.  Almost self-employed, creative and many other representatives of different spheres remained without income. During a pandemic, the importance and scale of areas of the economy that are directly related to human life and health (food supply, medicine, pharmacy system, freight transportation, online shopping, online learning, remote service, etc.) is growing. The pandemic showed how important it is to develop both the medical system and agriculture, the first, as a sphere of life and health, and the second, as a field of food security.

Although the economic downturn was caused by the pandemic, negative economic processes (unemployment, rising poverty, inflation, depreciation of the currency, reduction of national human capital, savings, domestic and foreign investment, remittances, from abroad etc.) have already taken shape, which extends to the entire economy and it is possible that the pandemic shock will turn into a deep economic crisis, overcoming which will be associated with many difficulties even after the removal of the pandemic. Complicating matters is the fact that the shock is global.

Under the current pandemic, the government has to find the golden mean between human health, his life and economic decline, but the first is the most important. Human health and life as the highest value, of course, should be given priority, but extreme deviations on both sides will cause severe damage to both people and the economy.

For example, if the government neglects people’s safety and self-reliance processes, the number of patients and deaths will increase catastrophically, which will also have a catastrophic impact on the economy due to declining national human capital and large-scale treatment costs. If the government severely restricts economic activity, the economic system collapses, unemployment rises, incomes fall, hunger begins, the social environment becomes tense, and mortality can increase, not to mention the deterioration of welfare. Therefore, the government is forced to make some concessions ko both human security and the economy, and thus get the best results from escaping the pandemic.

Economic fluctuations are relatively balanced during today's pandemic, as government restrictions reduce both aggregate demand and aggregate supply. The first is due to job losses, the increase in human needs and the reduction of purchases by firms, and the second is due to the suspension or shortening of production. The government is also helping both customers and suppliers, thereby reducing the negative impact of pandemic shocks. It can be said that the government is achieving macroeconomic equilibrium, but not macroeconomic stabilization. Macroeconomic stabilization will occur after the pandemic is extinguished or its action is largely limited (detection of a vaccine or drug or use of antiviral drugs). 

Globalization and pandemic 

Globalization has many advantages, but it also has its downsides. For example, a negative process in any country can spread rapidly around the world. Today, for sure, there is a worldwide spread of the epidemic generated in China The losses of people are so great, and the threat is so dangerous that it is declared a pandemic

A pandemic is a global problem. But, it is not directly the result of globalization.It accelerates the spread of infection, but the pandemic is, moreover, a feature of the infection itself. It spread around the world even when not only the level of globalization but also the level of international economic relations was negligible. This is evidenced by a number of examples For example, “the Plague, ”“the Black Death”, “the Cholera”, “the Spanish Flu”, and other pandemics that have resulted in great human casualties and deep economic crises [Павлова А.2020]:. Experience of previous pandemics shows,that pandemics are followed by sustained periods—over multiple decades—with depressed investment opportunities, possibly due to excess capital per unit of surviving labor [Òscar Jordà…, 2020].  With the deepening of globalization, the negative consequences of pandemics are diminishing as a result of the development of medicine. This is evidenced by "Swine Flu", "Atypical" and "Bird Flu” pandemics.

Even in today’s pandemic, the scale of human disease and casualties is still small (although even the loss of one person is a tragedy), although coronavirus spreads more rapidly, and if urgent action had not been taken, human casualties could have been greater.  It is also noteworthy that coronavirus is relatively less aggressive. Also, advances in medicine and the level of development of health care systems in the world provide much more opportunities for the treatment of patients than in the past (especially during the plague, cholera and AIDS).

Despite the rich experience of pandemics, the world is still faced with the  Coronavirus pandemic unprepared not from the point of view of medicine, but from the point of view of the global fight against it. The world, with its $ 85 trillion GDP, has not been able to find the funds it needs to overcome the threat of biological disaster [Chitanava N. 2020].  The most catastrophic biological catastrophes, peace with 85 trillion VVPs, did not meet our unavoidable means. This is due to the fact that the level of globalization of the economy is ahead of the level of political globalization. In the case of political readiness, the level of economic globalization today allows the world to act instantly during such infections. Destroying it in the center of the common forces or severely limiting the scale and scale of its spread will not allow the epidemic to develop into a pandemic. In the case of political readiness, the level of economic globalization today allows the world to act instantly during such infections, using common forces to destroy it in the very center of origin, or strictly limit its scope, and not allow the epidemic to escalate into a pandemic. The current situation shows that some countries were in the role of spectators or acted independently. But, it is impossible to eliminate a pandemic without uniting forces. If the source of the infection remains in any country, there is a risk of it spreading to other countries. Today's self-isolation of countries has given rise to certain anti-globalist views, but it is necessary to do the opposite. It is necessary to create an international organization with the participation of all countries (together with the World Health Organization), which, respond quickly to epidemics. Will take appropriate measures worldwide and prevent its spread to other countries. An appropriate fund should be provided to ensure this. The world must be prepared to defend itself against new infections.

There is speculation that globalization will decline after the coronavirus pandemic. Countries will choose protectionist policies, self-sufficiency policies, which we consider impossible, as this will reduce the ability to solve global problems (the problem of human life and health, poverty alleviation, war and peace, depletion of natural resources, food security, climate change, ecology, exploration space and oceans, etc.), the reduction of the economy in all countries, the reduction of income and, as a result, the cost of research, innovation and, ultimately, the slowdown in economic development worldwide. As for export growth and the development of Importsubstituting sektors, it is still on the agenda today.

The process of globalization is an objective reality, and it will certainly continue, but it is necessary to make adjustments to it. It is necessary to strengthen health care, to develop and introduce new forms of its organization. Special attention should also be paid to the issue of the exchange rate, the international regulation of the exchange rate should be carried out, as it is almost impossible for a single country to maintain a stable exchange rate due to the international, in many cases subjective and spontaneous  factors. The exchange rate reflects the international price of goods and services, but it is determined not only by goods (as it happens inside the country), but also by foreign exchange markets, therefore it is influenced by speculative actions, financial bubbles, dumping, uneconomic government interventions and others whose actions are not based on legal activities. However, each such negative process can turn into a tragedy for a particular country. 

Two scenarios for the development of events 

Under modern pandemics, two scenarios are expected to develop events - short-term and long-term.

In the case of the first scenario, the epidemic itself will subside all over the world or a vaccine and a cure for the disease will be invented. In the first case, it will be possible to restore the economy in a short time, as public and private savings, jobs and human capital will be largely maintained. In the second scenario, it will be necessary to strengthen economic activity in a pandemic. Otherwise, both public and private savings will end, jobs and a significant part of human capital will be destroyed, povertu and hinger vill set in. In this case, the state will need to address the attracted local and foreign funds to restore jobs. The state and the private sector should bear the costs of preventing infection of people, mainly through the use of appropriate technical means (equipment, automation, robotics, distance learning and activities, transport for workers, disinfection of jobs, etc.), just as it happens to eliminate negative external effects (environmentally friendly technologies) . State budget expenditures for the treatment of the sick will also increase. hopefully, events will not unfold in this scenario.

The role of the state is activated during a pandemic. That the main levers for maintaining both human security and economic activity pass es in his hands. Without the state, it will be impossible to fight agaiunst the pandemic and eliminate its consequences in any area of the economy and public life. 

In such extreme conditions, the existence of state property seems to be more effective. For example, in the conditions of state ownership, health care measures will be implemented more operatively and without interruptions, employees of the state enterprise will not be left unpaid, jobs will be maintained, they will be able to prepare for the continuation of economic activities in pandemics, etc. This may be taken into account in the future in terms of increasing the share of state ownership, but the nationalization of existing enterprises is unacceptable, because market mechanisms will be disrupted and social tension will arise.

In connection with the Coronavirus pandemic and its economic consequences, we must distinguish between measures to combat the pandemic and the post-epidemic period [Mekvabishvili E. 3020]. The long-lasting pandemic shock gradually resembles a purely economic crisis, and after the end of the pandemic it is possible to use tools to overcome the crisis, such as during the Great Depression, the economic downturn caused by World War II and the collapse of the Soviet Union, and the 2009-2010 global financial crisis, hich includes a combination of fiscal, monetary, institutional, and other instruments that stimulate production, reduce unemployment, and ultimately achieve macroeconomic stabilization. To get out of the short-term economic pandemic shock, much less time and cost will be required, and in many cases the private sector will largely recover the pre-pandemic situation on its own, although active state assistance will be required, especially to those areas that suffered huge losses.

It should be noted that Georgia has taken appropriate measures in time against the spread of the virus. As a result, the spread of infection was slowed down and a much lower level of human casualties was achieved than in other countries, maintaining a certain level of living conditions and economic activity necessary for the functioning of the country.  At the expense of mobilizing international aid and the state budget, it is possible to provide assistance to both the population and businesses. Based on the experience already gained (for example, a high chance of curing the disease, reducing the scale of the epidemic, developing habits to protect the population from the virus, social distancing, online activities, etc.), it is necessary to remove strict restrictions to avoid economic collapse and exacerbation of social tensions. It is good that this process has already started in Georgia. Before a vaccine or drug can be detected, a country must be able to live in a pandemic. Not only the internal problems but also the situation in other countries should be taken into account so that the infection does not spread again. Before a vaccine or medicine can be detected, a country must be able to live in a pandemic. It is necessary to take into account not only internal problems, but also the situation in other countries so that the infection does not spread again

In the future, both in the world and in Georgia, based on the experience of the coronavirus pandemic, the focus should be on the development of medicine, biotechnology and healthcare systems, rural economy, digital economy and artificial intellect. Online training, online shopping, and distance learning should be widely introduced, which, in addition to human safety, will lead to significant savings in resources and time savings.

At the present stage, improving the well-being of people is becoming increasingly dependent on progressive qualitative changes in the economy (economic development). Thus, in the future, the general direction of Georgia should be the innovative development of the economy. The country’s innovation system must be able to generate or import innovations. First of all, the import of innovations should be given priority, and then the implementation of innovations based on their own research (if we want to increase the competitiveness of the country). Priority in this process should be given to science, otherwise the process of economic development will be grounded and the result will not be achieved. Priority in this process should be given to science, otherwise the process of economic development will stay baseless and the result will not be achieved. 

For formation innovative economy in Georgia, it is necessary:

It is positive that the current government recognizes the need to build an innovative economy and takes some steps in this direction, for example: has been adopted a law on innovation; has been established the Georgian Agency for Innovation and Technology at the Ministry of Economy and Sustainable Development; was established the Research and Innovation Council; Georgia is the first country in the South Caucasus where Fablabs appeared; The first technology park was opened; Innovations are being introduced into the economy and so on.

The decision of the Georgian government to increase funding for education (where science is considered) is very important. It is also important to build an international institute in Kutaisi that will meet the modern requirements of science, technology and education.

It is through the implementation of innovation that the united action of humanity can solve the vital global problems that exist in the world today, including the global problem called the pandemi          

Reference 

1. Abesadze R. 2019. Problems of economic development and economic growth in Georgiaю “Ekonomisti”, № 3
2. Chitanava N. We must be able to take thoughtful steps. 2020 http://iverioni.com.ge/16752-nodar- tcithanava-gansacdelma- gaazrebuli-nabijebis- gadadgma-unda-shegvadzlebinos.html
3. Mekvabishvili E. 3020. Interview with the newspaper "Tbilisi University" http://newspaper.tsu.ge/ge/ news/view/KSIWclIG fbclid=IwAR0I0aLHMRwweTmuw0xJU2OJ9Aq_kVPl7c8g8H1KmfNlA5d2CXfgtwI5whc
4. Papava V., Charaia V.2020. The economic crisis and some challenges to the Georgian economy https://www.gfsis.org/ge/publications/opinion-papers
5. Òscar Jordà, Davis Sanjay R. Singh, Davis Alan M. Taylor. 2020 Longer-Run Economic Consequences of Pandemics. Òscar Jordà Federal Reserve Bank of San Francisco University of California, University of California, University of California, Davis NBER and CEPR March 2020 Working Paper 2020-09 M https://www.frbsf.org/economic- research/files/wp2020-09.pdf
6. Павлова А. 2020. Коронавирус в компании чумы: какие еще пандемии ходили по Земле. https://baltnews.lt/mir_novosti_/20200314/1019809811/ Koronavirus-v-kompanii-chumy-kakie-esche-pandemii          khodili-po-Zemle.html

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