'I'm shocked by the vulnerability of the global economy'
In an interview with Erasmus Magazine, Frank van Oort, Professor of Urban and Regional Economics at Erasmus School of Economics discusses the economic impact of the coronavirus. What happens to the economy when public life comes to a complete halt? Will the corona virus lead the Netherlands into a deep recession? We look at a few highlights of the interview.
How do you look at the current events from an economic point of view?
‘In my life nothing like this has ever happened. This could be the beginning of a system shock. We live in an extremely globalised world. There are many positive aspects to this, especially that many products are available at low prices. But it also means that a crisis like this results in a global crisis, especially because people travel more and therefore infect each other more quickly. Economically, it is interesting to see the downside of the long, extremely intertwined value chains that have emerged in recent decades.’
What does it mean for the Dutch economy that public life has come to a temporary halt?
‘The closure of restaurants, schools and childcare facilities leads directly and indirectly to a major decline in production and consumption. It is a huge blow to the tourism and cultural sector. The Netherlands is a real service country. And you may be able to do some of those services from home, but if you have one or more children, that will become a lot more difficult. Furthermore, a large proportion of the services is dependent on another sector, such as the industrial sector. Fewer cars sold or produced means fewer car insurances. And less chemical industry in the port of Rotterdam means fewer financial services in the city centre.’
How do you feel about the resilience of the global economy?
‘These past few days, I can't get the idea out of my head that we've been putting everything on edge. Such a complex international production chain works if everything goes well, but only one thing has to go wrong, or things collapse like a house of cards. I'm shocked by that vulnerability.’
For the economic recovery of the Netherlands, does it matter that our country is a service country?
‘I'm inclined to say yes. We are flexible and in many cases you can do your work from home. But in personal services (care, education, retail, security), where half of the population works, face-to-face contact with people is an essential part of the job. In a service economy, you can fall deeply, but you can also recover quickly. Moreover, fixed costs are low compared to an economy in which a lot is still produced, such as Germany.’
What are your expectations for Rotterdam?
‘At the beginning of March, just before the coronavirus hit the Netherlands in all its intensity, Rotterdam published the annual economic survey, to which I contributed together with a number of colleagues. This analysis shows that the city has grown considerably in recent years in the field of business services. What's more, there is something elusive that makes this city extra attractive. In recent years, Rotterdam has been doing better than one might expect based on the current sectors. The energy transition means that the city is slowly having to say goodbye to some of the economic activities that traditionally took place here. There is something in this city - the culture, the atmosphere, the hospitality industry - that attracts new people and businesses. I am conducting my own research into the impact of the cultural sector. A healthy cultural sector results in jobs throughout the region. This is a sector that has value for the city, both now and in the future.’