A tale of tailed events — the harsh reality of our economic construct
By: Mohit Jain
Tags: Opinion, Globalization, Global Goals, Comparative Advantage, Food Security

The pandemic brings into realizing how important it is for nations to be sustainable when it comes to food and essential basic resources and how fragile the food trade and security policies of the international organizations really are. The increasing frequency of fat-tailed events demands of us to be food secure. It is increasingly mistaken what being food secure really means — improving production nationally but also very importantly improving access by eliminating supply chain bottlenecks as well.

Why is there an ever-increasing need for food security against the globalized world that we are right now?

Is our over-reliance on the economic theory of comparative advantage justifiable?

Comparative advantage says that countries should focus on specializing by allocating their scarce resources to produce goods and services for which they have a comparative cost advantage. And in essence, the economic policies that we’ve adopted over the past couple of decades have been for a globalized world. We’ve uncritically followed David Ricardo’s ideas of comparative advantage heavily depending on free and reliable trade between countries.

History shows that our globalized world isn’t very globalized at the very siting of a crisis. It has made the supply of some essential goods (medicines and food) very vulnerable to an unexpected crisis like COVID-19. In finance, a crisis like this would be called tail risk, something that has a very low probability to occur. From SARS/MERS virus to the 2008 recession to the Australian and Brazilian fires to the COVID-19 crisis, it is a common understanding that these tail risk events are much more likely to happen in the future, and with it comes a heavy impact on the world’s economy. The biggest hurdle that we commonly observe is that we need the world to be the most globalized when facing a crisis yet we tend to become exactly the opposite by introducing export restrictions and bans which makes sense on a national level. COVID-19 and its likes in itself is a fundamental challenge to a globalized world.

When the FAO, WHO, and WTO issued a joint statement on March 31st warning of possible export restrictions, there is little that we could now do to prepare. Flash forward it two weeks and we have major exporters of medicines and grains across the world calling export restrictions and bans. Coupled with consumer stockpiling, food shortages worldwide are imminent and we know that the global distribution of any medical reforms and vaccines to the virus is not feasible in a short term scenario. World Food Programme head David Beasley says that over 30 million people could die of hunger in the coming months if appropriate measures aren’t taken by the UN to mitigate food shortage problems.

Martin Wolf says that today is the tragedy of two failing superpowers. During a global crisis is where we need the superpowers, the US and China to coordinate extensively to orchestrate an economic policy response.

China’s suppression of the news of the virus caused a delay of three weeks in the global response and Trump administration’s view of the crisis has been so much rosier than that of its own medical advisors and its ineffective mitigation measures thereafter have left the United States with a heavy death toll as well as incapacitated in its position to act and function as a global leader.

The Singaporean diplomat, Kishore Mahbubani writes in his book ‘Has China Won?’, “America is behaving like the then Soviet Union, and China is behaving like America”. The US has become this inflexible, systemically challenged superpower, while China seems to be the new adaptable, pragmatic and strategically smart rival. He argues that the geopolitical contest between America and China is both inevitable and avoidable which is going to be a heavy challenge to this globalized world.

At the beginning of the pandemic, when the virus was more or less limited to China and its adjoining nations, the focus was more on how the world would be impacted by manufacturing and supply chain distributions, a slowdown on global GDP, among others. It was only later that concerns over food security and concerns about food-insecure nations were given priority.

The drastic failure of the WHO and other international organizations to actually predict the scale of this crisis as well as the failure of the globalized world to effectively tackle this issue leads us to our next question.

Do we need a new economical design post-pandemic which relies more on sustainability and self-sufficiency?

In 2007 and into the first half of 2008, global food prices increased sharply stirring social unrest and riots in both developing and developed economies, from Bangladesh to Brazil to Mexico to numerous African nations.

The vulture and the little girl; taken by Kevin Carter, a Pulitzer winning photographer.

The rising grain prices today is very much analogous to the 2008 crisis, a surge in grain prices makes it difficult for net food-importing developing countries, small island nations (lowered tourism revenue); a major chunk of African nations already struggling with a food crisis, to procure grain imports. An inkling of impending food riots is already visible in South Africa last week.

When the dust from the COVID-19 crisis settles, we’ll need a new set of designs so that we’re better prepared for the next crisis. An idea for what comes next is that we need a system that makes nations self-sufficient when it comes to key essential resources like food and healthcare. The capacity we need is a vastly enhanced system of public health which not only supports production at a national level but improves access and delivery as well.

Currently, China is a major exporter of key medicines such as antibiotics to the world, with a level of infrastructure that is capable of handling such tailed events. In a very small duration of time, it was able to construct over 16 medical facilities, scale-up, and also become a global supplier of medical supplies. Yet, it’s rife with the west and its recent actions towards the COVID-19 crisis point towards its unreliable global policies.

Nations like Singapore and the Netherlands are working on improving healthcare sustainability by using applications and AI to segregate and deliver medical supplies. Singapore is encouraging local means of food production through urban farming and hydroponics and aims to reach 30% of its food requirements by 2030.

To better handle crises in the future, nations need to ramp up their food production practices starting at a communal level to deal with the uncertainty that comes with a crisis. It is also imperative for all nations to focus and remove bottlenecks in supply chain management using the latest technology since food logistics is a major concern in many nations. What’s more important for global food security is the expansion of food production in developing countries. Even with the availability of food and food aid, the lack of supply chains makes it difficult for the food to reach the public at reasonable costs.

Public stockholding programs like that of the WTO are in place for governments to stockpile and distribute when in time of need but such programs and crisis policies of international organizations aren’t stringently followed and cannot be entirely relied upon as can be seen in the status quo and trade protectionism will always come into play as national priorities supersede those of international ones. Article 12 of the WTO Agreement on Agriculture is effectively ignored by almost all WTO member states. But, it is idealistic to believe that nations can become completely secure, and global cooperation is still going to play a very important role. It is high time to realize that these fat-tailed crises in itself is a challenge to the globalized world and it is pandemics like these that bring into light how fragile the current economic system is. Leaders need to change their over-reliance on vulnerable supply chains in favor of more resilient, self-sufficient means of delivering food and health outcomes for their nations.