By Sarah Whitebloom
Emotion and fear of COVID-19, rather than fundamentals, is fuelling stock market turbulence, according to Will Hutton, principal of Hertford College, Oxford and one of Britain’s leading political-economy commentators.
But, says Will Hutton, although the markets could be in for a ‘turbulent’ six months, the coronavirus outbreak could have much long-lasting impacts on the real economy, business and the financial world. In the immediate future he says: ‘The public health emergency is undoubtedly going to affect growth in the second and third quarters. There will be more sickening falls before the market reaction is over....There will be more lurches downwards.’
The best-selling author says there are significant potential impacts beyond the stock market: ‘We can’t just go back to the status quo ante after all this, particularly if there are significant numbers of deaths in the UK and beyond. It won’t be possible.’
I think the world will change, just as the debate has changed. Suddenly we have become aware...our lives have been affected. In the last three or four days, there has been a sudden realisation [that we are going to be personally affected]. And we have to pull together.
With little end in sight, Will Hutton says: ‘Markets are going to be turbulent over the next six months...The markets are panicking. There is a lot of emotion – and some of the losses may have malign cascade effects on the rest of the financial system, whose impact is hard to predict. But some shares are beginning to look cheap, if any type of normality returns, and there will be some benefits in this [for potential investors].’
However in the longer term, Will Hutton says: ‘I think the world will change, just as the debate has changed. Suddenly we have become aware...our lives have been affected. In the last three or four days, there has been a sudden realisation [that we are going to be personally affected]. And we have to pull together.’
Will Hutton says: ‘We need to emphasise the global public good, rather than pull up the drawbridge. It may work in the short term but it won’t save people.’
There needs to be a mind-set change. It’s no good an elite living virus-free behind locked gates, if the people who work for them are struck down by the virus....We need to get a grip on these things.
He says that ‘we need stronger global institutions for the global public good’; institutions such as the WHO and the World Bank. Only such institutions, he believes, can take on a crisis of international proportions, which is only heightened by a populist blame culture that has depicted the virus as a ‘foreign illness for short-term political gain’.
Will Hutton emphasises: ‘There needs to be a mind-set change. It’s no good an elite living virus-free behind locked gates, if the people who work for them are struck down by the virus....We need to get a grip on these things.’
For example, if there is to be safe international airline travel there will have to be some form of internationally validated system of testing of passengers – by the WHO – to ensure the plane is healthy. And to assure people in the destination country that incomers are not going to spread disease. So, while the crisis may inspire demand for more powerful supra-national institutions, Will Hutton maintains, it will also make businesses think again about ‘free-wheeling globalisation’.
One of the long term impacts could be on the way companies organise themselves, so they are not so globally dependent.
He says: ‘One of the long term impacts could be on the way companies organise themselves, so they are not so globally dependent.’
According to Will Hutton, COVID-19 has exposed the dangers of economic populism, globalisation and isolationism. He also says: ‘One key lesson is that health is not only about having the best drugs or clever surgeons, it’s also about the collective good....America going into this pandemic with 27 million people who do not have insurance and millions more in the gig economy. An economic structure like this makes them vulnerable.’
He believes the impact of the crisis will force change at ballot boxes around the world for politicians who have been exposed and found wanting: ‘Some politicians [those who have not taken adequate measures] are going to pay a heavy price for this.’
He adds: ‘We have learned it is essential to direct resources to the hot spots and work together – at home and internationally. The virus doesn’t respect borders of any sort....It has emphasised our inter-dependency.’
Amid the bleak concern, however, Will Hutton has warm words for last week’s Budget from the Chancellor, Rishi Sunak: ‘The state is back, Keynes is back, government taking responsibility is back.'