March 2020

The Country Ranking Trends are at the end of the article so that the global pandemic can be covered first.

Pandemic Impacting Humanity

  • The coronavirus continues to spread across the globe with the United States, and in particular New York City, becoming a focus of concern. Meanwhile, in China’s Hubei province where the outbreak started the drastic lockdown measures implemented over the past two months appear to have contained the virus’s spread and some of the measures have begun to be loosened. The situation in Europe varies from place to place with the most hard-hit areas foreshadowing what may happen in places such as New York City. Italy and Spain have some of the biggest challenges as both medical systems are overwhelmed with patients. Germany, on the other hand, has had a lower mortality rate, a result that has been attributed to their early success at testing which allowed them to track and contain infection clusters. Virtually every part of the globe is under some type of restrictions and alarm is growing about outbreaks taking place in poorer countries with weak public health care systems. India has so far had relatively few confirmed cases, but Indian leaders have gone ahead and instituted a three-week lockdown to prevent the disease gaining a foothold in one of the most densely populated areas of the planet.
  • Implications: Proactiveness in testing and social distancing have been the effective practices in addressing the pandemic. Where testing was slow and done in low volumes, the virus spread and grew. Countrywide social distancing is a blunt instrument that is required when the scale and location of infections are unknown. Some authoritarian governments demonstrated an effective approach of forced quarantines, though such coercive actions are inconsistent with open society. To date, the power of capitalism has not yet demonstrated the ingenuity and scale production that has been demonstrated in prior global challenges.

Can the United States Overcome Early Challenges to be the “Arsenal of Medicine”?

  • Beyond the human and medical tragedies, the economic consequences are severe. The first economic reports since the onset of the global pandemic indicate that there have been staggering job losses. Over 3 million Americans applied for unemployment benefits in a single week, vastly eclipsing the previous record of close to 700,000 claims back in 1982. In response, the Federal Reserve has slashed interest rates and instituted emergency lending programs that were first seen following the 2008 financial crisis. Congress also passed an economic rescue package valued around 2 trillion dollars. Among the items included are enhanced unemployment benefits, direct payments to individuals, forgivable loans to small businesses, support for large industries such as Boeing, aid to states, and various tax benefits plus a delay in the tax-return filing deadline from April to July. In addition, a separate $4 trillion is being made available for loans and/or equity investments in distressed businesses. The hope is that the steps will be a bridge over the economic dislocation caused by the mandated shutdowns and that the economy will therefore be in a better position to bounce back once the coronavirus storm has passed. However, given the unprecedented nature of the current crisis there is still uncertainty whether additional measures will be needed soon.
  • Implications: With one of the most open societies in the world, the U.S. has experienced challenges in achieving social distancing. When combined with lagging tests, the upcoming wave of serious cases may be large, though the lack of knowledge on the number of cases undermines confidence in any projection. In the past, the U.S. was the “arsenal of democracy”. Can this country become the “arsenal of medicine”?

A Game of Chicken Played in Oil

  • OPEC, the Organization of the Petroleum Exporting Countries, met earlier this month with Russia attending as well. The coalition is known as OPEC+. They discussed production cuts to address slowing global oil demand due to the coronavirus pandemic. OPEC+ has cooperated in the past to restrict crude output in order to counteract the increased supply brought on-line by American shale producers. In the face of the pandemic, Saudi Arabia wanted to cut production further to keep prices stable, cuts that would have brought world oil production into line with estimates from the International Energy Agency. Russia rejected making additional cuts, fearing a ceding of market share and seeing an opportunity to drive higher-cost American shale producers out of the market. Saudi Arabia said it would not bear the burden of balancing the market on its own, and they then initiated a brutal price war that has seen prices falling to 20-year lows. As oil profits fall, and with it the government spending that many oil producers rely on to placate their populations, the question is which producer will blink first. On March 27th Russia may have blinked as the country requested a reconvening of OPEC+ to discuss production cuts.
  • Implications: Countries with large oil reserves tend to have weak governance. Oil production tends to be controlled by the government as opposed to companies, thus making cartels easier to maintain. The revolution in shale technology, mostly in America, has shaken OPEC+. The brutal price war will cause hardship, likely along with some defaults or bankruptcies, among the American shale producers. On the bright side, consumers of petroleum products will experience much lower fossil fuel prices.

Can the Pandemic Change Israeli Politics?

  • Israel’s third general election in less than a year again produced no clear winner, though anti-Netanyahu forces did win a slim majority in the Parliament. Benny Gantz and his Blue and White alliance have been given the first chance at forming a government after he was recommended for the task by a majority of lawmakers. However, the opposition to Netanyahu is deeply divided on other issues and they have not yet been able to form a government. Meanwhile, Netanyahu announced an agreement to form an emergency unity government to deal with the coronavirus pandemic. The purported agreement would have a rotation as prime minister between Benjamin Netanyahu and Benny Gantz. Netanyahu would go first and Gantz would replace him after a year and a half. Gantz is said to be conditioning the move on the enacting of a law to ensure that the rotation takes place on a set date. As of this writing, no agreement has been signed, and it does not appear that Netanyahu’s opponents have agreed to the plan. Gantz still has about three weeks left to form a government. The alternative would be an unpopular fourth election.
  • Implications: Israel has one of the lowest Magni Country Governance Scores among the countries of the developed world. This unity coalition will have issues other than reform to pursue, hence Israel’s score likely will remain unchanged.

Country Ranking Trends

  • Magni completed a review of how countries handle insolvency. Insolvency laws, regulations, and processes shed light on the strength or weakness of corporate governance. Chile, China, and India received small upgrades, while Turkey received a small downgrade.