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COVID-19: the price of fragility

The problem the world is facing today (the COVID-19 pandemic) was predicted and repeatedly raised by N. Taleb – the author of the world-famous bestsellers Black Swan: under the sign of unpredictability and Antifragility.

13 years ago, in his book Black Swan, the thinker wrote about the threat of new viruses in the context of modern globalization.

Indeed, the COVID-19 pandemic can hardly be called a black swan, which N. Taleb himself admitted in an interview with Bloomberg. It was not possible to localize the threat and prevent its spread outside China. As expected, with free movement of people, the virus spread quickly and reached almost all countries of the world, notably shaking the world economy.Financial markets reacted to the pandemic. Governments began to cut rates (the US Federal Reserve lowered the refinancing rate twice, first to 0.5%, and then to 0.25%) in order to reduce the negative effect on economic activity and allocate government subsidies to entrepreneurs who started to suffer losses, and citizens who found themselves in a difficult situation.

The scale of the pandemic has also affected oil prices, rolling them back to 2002 prices. Large companies have been forced to temporarily suspend projects and send workers either on paid leave or to establish a remote working regime. In some countries, employees have been even asked to apply for unpaid leave.

States have introduced the state of emergency, restricting the movement of people or prohibiting it all together. The states recognized the coronavirus pandemic as a force majeure event by issuing appropriate certificates for the parties to the agreement, the implementation of which has become impossible.

After simple calculations, you can detect the geometric progression of the growth of infected. So, the number of infected people begins to increase from the second week, and from the fourth, as a rule, the scale of infection grows several dozen times (the conclusion is based on the study of statistical data from China, USA, Italy, Spain, France). It does not seem entirely appropriate to determine the peak or the moment when the virus goes into decline. China’s experience suggests that the decline in the number of infected people is directly correlated with measures taken by governments.

The coronavirus pandemic may not have become a black Swan, the author himself called it a White Swan, but it surely has taught us all good lessons, especially the governments. The world has already seen pandemics, seen their scale and consequences (for example, the Spanish flu pandemic, which killed 5% of the World’s population, and the Hong Kong flu, which killed 1 million people), but countries have not taken appropriate measures to prevent the disease. Neither the citizens themselves, nor the economies, nor the private sector, and most importantly, the health system, particularly in developing countries, were actually prepared for a disaster of this magnitude. Here is what Taleb said on that:

Not seeing an approaching tsunami or economic crisis is excusable; creating a fragile house or a fragile economic system is criminal.”

When the virus went beyond China, not all countries assessed the seriousness of the threat and took appropriate measures. Although it is hard to say that someone was ahead of the curve, but it can be concluded that China itself has grown stronger now. Unlike other countries, it passed the strength test by strengthening its health care system and making appropriate conclusions that we will still see through the laws and regulations they have adopted.

Indeed, having survived the epidemic, China has shown anti-fragility. The absence of coordinated, well-thought-out actions in many countries, i.e. security protocols (action plan in a special situation) played a role in case of many countries. This may seem ridiculous, but in the US, the Pentagon has developed a protocol even in the event of a zombie attack (CONOP-8888). But, despite the existence of such protocols, today the United States has surpassed by the number of infected, and yet the implementation of preventive measures is not observed.

The consequences of a pandemic will certainly affect the markets and businesses. Many projects may see cuts in budget, and the service market, including law firms and consulting companies, will have to review their pricing policy. Today, large law firms are cutting salaries for associates, staff, and some completely cancelling any payments to partners.

We should expect further growth of IT projects, expansion of delivery services, the introduction of online services to places where this did not exist before and, of course, the pharmaceutical sector will continue to grow. In addition, we can expect an increased interest in scientific projects, especially in biological ones. There is no denying that we should expect an increase in the production of medical equipment, especially taking into account the acute shortage of life-support devices around the world. The financial sector will not be left out either. We can imagine the consequences of the crisis, such as overdue payments on credit obligations, even after the end of the pandemic. Financial and credit organizations, including banks, will have to review their policies and become more flexible in the current conditions.

The labor market is particularly important. In connection with all the events, it is possible that the unemployment rate in some countries will increase in the meantime, as some sectors will decide on automation of their business processes, which, will cause even greater demand for IT specialists. Pharmacists and biologists will be affected similarly.

However, on a global scale it will be important what conclusions and lessons the governments draw and whether they can become anti-fragile, i.e. stronger after the crisis? Will it become post-traumatic disorder or post-traumatic growth? Questions that only time can answer.