Globalization was like a bring-your-own-booze party that’s now halted – Swedish economist

SS: So you're saying that that model could only work applied to Sweden because Swedish people have a heightened sense of responsibility and social awareness and no other country would be able to sort of follow it? Because when I look at Germans, I mean, they're pretty much rule-bent, they do everything they're told to do. I don't see any German people breaking the rules.

KN: Yes, they do. But here you can do it with only a recommendation. You don't even need a law. You can actually recommend people to do things. You can propose people to do things and they will go with you. And as I said, the central word here is "trust", the fact that you trust the person that recommends you to do certain things and then you will go with that person since you trust the person or the authority. And here we know from research that Sweden together with maybe Japan, to a certain extent Korea have a situation where you have very high trust in the society. And that means that we are a little bit different when it comes to how we organise our companies, universities, as well as a pandemic, to fight a pandemic.

SS: So there's been so much press about the Swedish model and everyone's calling it a different thing. Someone says, it's “a risky model,” and other outlet says, it's “a bold policy,” “health gamble,” “an experiment.” And those are some of the words that I actually saw describing the Swedish way about the pandemic. Is the Swedish way a gamble? Is it a risk or is it a part of a big plan and the government knows exactly where it's going? ‘Cause if you're saying, “This is all based on personal responsibility and we, Swedes, are people who have a heightened sense of responsibility,” I mean, it still sounds like a gamble to me. Do you know what I mean?

KN: Yes, I see what you mean. Now, two things here. The first thing is this virus we know today will hit every country…

SS: It has hit.

KN: ... And it already is said to be in 184 of the 200 countries or something. It will hit every country. And in principle, it will also hit every person sooner or later since we don't have a vaccine. Now as an effect of that this is only a matter of choice, method, what kind of method you will use to keep the inflow to the healthcare system at a decent level in our respective countries — Finland, Germany, Sweden, Russia, everywhere. It's a matter of keeping the inflow to the healthcare system at the level such that it doesn't crash and explode. In some countries, you do it by locking the whole country down and control the inflow that way. In some countries, you do it with changing the legislation, police on the street and you keep inflow to the healthcare system at a certain level. Here, you don't have to call up the police or the military. People still follow the recommendations, which means the healthcare system has not crashed, which is the test, if you see what I mean. This is the ultimate test. Does the health care system stand by, sort out the problems? And the answer as of today or yesterday, I should say, because we got numbers yesterday, was yes, still standing, still working. People seem to follow the recommendations. Yes, we don't have to go further. The authorities here, Sophie, have also been very clear: if you do not follow the recommendations we will take one, two, three, four, five steps more, and then it will be more brutal.

SS: The approach that the government is having towards the people, is that “you should all be responsible for each other, and if one breaks the rules, then we are going to implement harsher measures and everyone else sort of goes down with you.” Is that the approach?

KN: You could call that a social punishment. And for a Swedish person, that's a very hard punishment to go like, “Ahah, so you don't follow the rules, then we have to change the whole procedure here, which means that we have to punish everybody,” if you see what I mean. And that's exactly where we are today. The government has announced, “You follow these recommendations, if you don't, we will be tougher.”

SS: So the Swedish open model is contrary to everything every country is doing and also contrary to what the WHO advises states to do. I'm just wondering how exactly did the Swedish government decide to go against the pressure of it all, of its neighbours? What made it insist its way? Because it's not easy. When everyone's saying, “We're in it together, we're going to battle together, we were all in lockdown.” And then all of a sudden Sweden is like, “Well, sorry, we're not doing that.” I think it's kind of cool. And if it's working out for you, then all the best. But it must have been very hard to go against this, you know, worldwide tide?

KN: Yes. But there are two answers to this. One you know, one answer is that this trust thing that you and I have been talking about. The other thing is that we have a model for governance in this country, which prescribes that a government is subject to follow the recommendations of its expert authorities and the minister cannot fire the head of that authority or intervene in any way or the other. So you are bound to follow the recommendations, the experts here. So the experts come with the firm recommendations to you as a prime minister. You will look at the recommendation, it's a scientific recommendation, and it's public and transparent. It would be very, very difficult for you to say, "I will go against my experts and propose a complete lockdown".

SS: So we'll be looking at some numbers and correct me if I'm wrong, I know your theory that you're comparing an economic system to a bicycle. It's like a bicycle which needs to keep rolling because if we stop we fall. And then in that way, it makes complete sense why Sweden is trying to do what it does. But at the same time, a record number of people have been fired - almost 37 thousand people according to Swedish TV. Are those the numbers we're talking about?

KN: Yes.

SS: Yeah. And since the Corona-crisis began things haven't been that great and the country's GDP is also expected to drop. So does that mean that despite all the measures, the economic fallout of the pandemic will be felt the same in Sweden as in Italy?

KN: You know, I used to compare it... I have to excuse myself first for comparing such a serious thing as a disease to some kind of sport. This is like a horse race or it's like a marathon. There are 200 horses - countries - or 200 participants in this marathon. And the question is, which technique plays out to save most lives and companies? Because it's a matter of saving both, as much as you can of your economy and its many lives as possible. We will know that in two or three years time. When we compare today it's difficult because we didn't start the race at the same time, if you see what I mean. The virus came to Italy before it came to Sweden. The virus came to Korea way before it came to the Nordic countries or to Russia, which means that it's too early to compare. What you can see here, I have two mother countries, you can say, I'm half-Finnish, half-Swedish, and when you look at the Finnish experience so far, they lock the country down, as you know. They have very few infected, the low number of infected people, very few deaths in relation to the population, but they also declared yesterday, this means that we will have to continue with restrictions and very firm restrictions until November, October, November, maybe even December, because the number of infected people will continue over time, for a longer period of time. Here in Sweden, my other home country, the number of infected people today is high, the deaths somewhat higher than in Finland. But it also means that the infection will play out faster here.

SS: Kjell, you mentioned your other motherland, Finland, and you're saying there are strict social measures and lockdown until November or December. So the strict social distancing measures, they're also taking a toll on people's minds as well. And it's not just the wallets. I feel like I don't even know at some point which one would be a bigger problem, like a psychological problem or economical problem. How long can people actually take it? Because we're all social animals. I feel like we're at the brink where everyone's just gonna burst out.

KN: I think you are exactly right there. We are, of course, at the brink in many countries today. When you lock a country down, you also lock people's lives down. And at the end of the day, this has an impact on our health, too. This we know. We also know that high unemployment rates, if we come up to 15, 20 percent of unemployment in countries, that will have an impact on health, too. So it's a matter of balancing things here. If you go too harsh with the lockdown measures, there will be health implications on the other side. If you are too soft on the virus and on the pandemic, of course, then you risk crashing the healthcare system, which will have a lot of impact on the health of the population. So you balance things here. I think it makes sense that we do it in a somewhat different way because people, culture, our history are different. And that means that the French, the German, the Swedish, the Russian way will be a little bit different in terms of nuances because of our respective country's history and experiences.

SS: So you also say that the economy is to a large extent driven by hope.

KN: Yes.

SS: Hope drives investments, our consumption. But to be quite honest, I was thinking about that, and I mostly dream about the day when I get out of my home, back to work, and I dream of the simplest things, like having a coffee on the terrace, hugging a friend, you know, like taking a walk. And I'm certainly not thinking about investments or consumption, and I'm thinking that may be on hold for a while for me, and there are a lot of people around me who think the same way. So where does in this situation of a post-pandemic hope as a driver of the economy come in? Because I don't hope for investments and consumption. I just hope for the simplest things I never thought I'd hope for.

KN: You put it very well there, and I think we will follow precisely that cycle that it will start with very small things that we are hoping for - to see our friends, to have a coffee together, take a walk together on a summer day, maybe even a glass of wine if we're lucky. Investments, buying a house in France or something like that - not. And that means that we will start up the economy probably rather slowly after this pandemic. The pandemic seems to be a little bit longer than we expected from the beginning. And that means that it will take a little bit longer to start up the economy. Look at tourism, for example, or the global airline industry. The planes are all on the ground around the world today, most of them at least. To start this up we are looking at several years, two, three, in some cases, maybe even more.

SS: Also, when I look at the world today, I see borders being back up and that's understandable. And travel bans. Supply chains are paralysed. And even before the pandemic globalisation was sort of not in the high gear. But will this corona-crisis kill it completely? What do you think?

KN: Not completely. Number one: this globalisation phenomenon basically started in its modern form with China opening its doors to the West and the Soviet Union collapsing some years later in the beginning of the 90s, and then the world opened like an oyster and you could basically use the whole world as a playground. And by that I mean that you could buy components from China, you could buy oil or other components from Russia, you could ship it to Holland, package it and distribute it in Europe. These were fantastic 30-35 years where we were using the competitive advantages of our respective country. It was like a bring-your-own-booze kind of party globally - everybody brought their own thing to the table. This has come to a halt, absolutely. However, we will create regional supply chains. We won't go back to national, we'll go back to regional. That means that we'll be a Nordic, Northern European, European, Asia-European, but not necessarily a global for the foreseeable future.

SS: Because I'm still having a hard time imagining what it would be like. The world economy right now is so interconnected and dependent on the flow of people and services and goods become localised. So I still don't understand. Because when you're saying it's going to go from global to regional, I assume it's going to take also some time. What do we do in between? What happens in between?

KN: We will do a little bit of both, which means that we will have our foot in the global world with supply chains that go all the way to Pakistan or Vietnam or Argentina or somewhere else in the world, global supply chains, but we will gradually build a local or a regional backup. So for a time, we will have both. If we see it over a longer period of time, like 20 or 25 years, we will be back to globalisation. If we look at the long history of human beings, there is one and only one direction we go in - bigger institutions and more internationalisations. But there are blips in the curve because of war, because of pandemics, because of things that happen. But long-term-wise, 15, 20 years later, we will be back.

SS: So, this regionalisation that you talk about, you've talked about this even before the pandemic, - do you feel like it's just going to fast-forward because of the pandemic? Like, it could have taken place over the course of 5 or 10 years and now it has taken course overnight because of the pandemic?

KN: Exactly right. And I think what the pandemic do to the economic system is that it speeds up certain structural changes. We've been talking about Internet shopping for 20 years and it still has been very slow in certain industries. Now it's happening. We have been talking about building up local suppliers over many, many years, that it's necessary to have also local suppliers. Now it's happening. So, it in a way speeds things up that we have been talking about.

SS: So, I have maybe a bit of a philosophical question for you, because when I look at crises, major crises that took place, like 1929 or 2008, it sort of happened overnight.  Рeople woke up one day and found that they'd lost all their savings or the money was no good anymore, it got devaluated, whatever. This time it's very different. I mean, this situation evolved gradually, we don't know when it's going to end, but we all know that it's going to and we all know that we're going to have a crisis on our hands. So, I was thinking, because the beginning of this crisis and because this whole thing is so unconventional, could the outcome also be unconventional? I mean, do you think we are in for a long recession like 5 to 10 years, like in 2008? Or do you think maybe because the form of the crisis is so unconventional, the solution to it also could be nothing like before?

KN: Extreme incident requires an extreme response, and this is rather extreme. And it starts not with a financial mishap or something wrong with the financial machinery. It starts with you and me being locked down in an apartment somewhere, which means that we can't buy our coffee, we can't do our shopping. So, the crisis, the impact of this crisis on the economic system basically comes from the buying end, it's the buyers that are not there, to some extent it's the suppliers that can deliver, but it's not a banking crisis. It's not the dollar or a currency that is collapsing. Nothing. It's a virus that stops the machinery, the consumption, and that has a lot of impact down the chain of the economic system. Yes, it will be different this time. The governments in our respective country, we can think of the government as an insurance company. I used to think seriously of governments and the public sector as a big insurance company, and now it's time for the insurance company to pay up. And that's what they are doing in our respective countries in a somewhat different way because we are different. But the insurance companies are now paying and they are paying for the damages. That means that we can start up much faster than without an insurance policy, but it will still require 2, in some industries 3 years before we are back. I'm talking about the airline industry, hotels, travelling. It will take some time.

SS: So, what's your estimate? What's it like 3 to 5 years, 2 to 3 years till we're back to normal?

KN: 2 to 3 years before we are back. And then 5 years before we are full speed ahead and to be back to the level of globalisation that we see today, probably be more like 10-15 years.

SS: Just last question, because I've noticed this pandemic is a paradox in a way, because it has put the world on hold, but on the other hand, just like the regionalisation process, it has fast-forwarded so many processes. For instance, processes that were supposed to die and were dragging - they're all dead overnight. And the processes that were supposed to start, you know, they're there, they're not like a distant future anymore. That's our reality. I'm talking about how jobs have changed, how the job market is changing, the businesses. I'm sure that newspapers are gone forever, for instance. And online businesses are here forever at this point, you know. And I'm not even sure if a lot of people will go back to work because they figure they can work from home. So, I'm trying to figure out, for a human nature, is it a good thing that the transformation happened so quickly? Or do we need more time for it?

KN: I think in times of pandemic, in times of big crises, things boil down to who we, human beings, are. And one thing we, human beings, are on average is that we are an energy-saving type of animals. We are lazy. We don't do things until we are forced to do them. We should be lazy. Evolution has created us that way. We shouldn't run around and spend energy left and right. We should save energy. But that also means that on average, people are lazy. They don't want to change their habits. You and me, we don't want to change our habits, neither in our private lives nor professionally, if we can postpone it a little bit until next year or the year after that. What we see now is an external shock, a little virus that forces us to change. We don't like to do Internet shopping now we have to do it. You like to have a newspaper, Financial Times paper, pink, nice paper. Now you don't get it. You're forced to read it on the web. So, the lazy persons we are, are now forced into new habits, and that's why I think this is a little bit different than the financial crisis.

SS: Thank you so much from this wonderful insight on whatever is happening with us and the nearest future, I hope we'll get to talk in better times where we have more merry news to discuss. But it's always a pleasure talking to you. Good luck with everything. And stay safe.

KN: Stay safe. Thank you very much.