• 30 April 2020

    The New Economy

    By Katsiaryna Serada – Research Fellow & Policy Analyst at Tondo The pandemic COVID 19 has questioned the foundations of our global economy, demonstrated the weaknesses of our current economic model in facing real and potential global challenges, revealed the excessive and risky dependency on the global value chains and a single largest supplier. The COVID 19 demonstrated that the largest supply of the essential medical items, almost three-quarters of blood thinners imported by Italy, 60% of antibiotic components imported by Japan and 40% imported by Germany, Italy, and France, and largest amount of the medical masks come from China. (Javorcik, 2020)  Before the COVID-19 crisis, China produced around 20 million masks per day. By early March 2020 the production increased to 120 million per day, including through deploying idle productive capacity and repurposing other sectors such as automotive and electronics. Despite deploying additional productive capacity both in China and worldwide, the global spike in demand for medical and other supplies   during the COVID 19 crisis far exceeded both material stocks and available capacity to produce. The global value chains were hit in several dimensions – demand, international transportation networks, productive capacity — and were not able to respond the global health crisis. The governments of the exporting countries have addressed the increasing shortage or scarcity (risk of scarcity) in the domestic markets by imposing the numerous export restrictions on medical and other items. More than 70 economies, including the US, China and the EU, have introduced export restrictions to allocate domestic supplies to national healthcare systems and citizens first (Hoekman, Fiorini, 2020). Therefore, the COVID 19 crisis has explicitly demonstrated that the price mechanism and the markets have failed to accomplish social optimum and efficiently provide and allocate the resources. The crisis has explicitly demonstrated that the resources...
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