Digital Zeitgeist – The Age Of Globalisation Has Given Way To The Age Of Insecurity
Kristina Georgieva is one of life’s optimists, so it’s no wonder that the International Monetary Fund’s managing director found reasons to smile during last week’s meeting of finance ministers and central bank governors in Washington.
Every six months, the IMF and the World Bank, the two Bretton Woods agencies, convene, and since October, there have been fewer concerns of a severe recession. The world economy has demonstrated remarkable resilience, as Georgieva pointed out. Because of lower energy costs, the forecast for inflation is now more favourable. The IMF director said that the gathering took a “can-do” attitude.
That could be stretching it. Sure, the situation is better than it may have been, but it doesn’t really mean anything. The global economy is really slowing down, becoming more fragmented, and becoming more susceptible to new waves of financial crises. There is a very real chance of a serious debt catastrophe. IMF is aware of everything. In fact, it made several references to this last week. The planet is in a terrible state in the spring of 2023.
It is obvious that the age of increasing integration is finished. The most blatant illustration of the aim to re-onshore industry is Joe Biden’s package of green incentives, the Inflation Reduction Act. Another was the G7 declaration from last week, which publicly discussed the need to create safe supply chains among like-minded states.
The globe is on the verge of a new cold war, as Georgieva herself acknowledged, as the US and many other industrialised nations want to lessen their dependency on China. More important than cost right now is making sure that supply won’t be interrupted. In his capacity as chancellor, George Osborne attempted to develop stronger commercial and financial ties with Beijing because he believed it to be in Britain’s best interests. The current chancellor, Jeremy Hunt, holds a more hawkish perspective.
But fragmentation is only one of the problems finance ministers and central bankers will find themselves grappling with over the coming months and years.
The short-term problems are glaringly obvious. Will central banks in the west overdo the interest-rate pain they are administering and send their economies into recession? Will the determination to bring inflation back down result in more banks going bust? Is there a contradiction between the twin objectives of central banks: price stability and financial stability?
The immediate issues are quite clear. Will Western central banks exaggerate the agony they are inflicting on their economy by raising interest rates? Will the will to lower inflation lead to the failure of more banks? Are price stability and financial stability, the twin goals of central banks, in conflict with one another?
However, central banks disagree. They think that since SVB and Credit Suisse were anomalies, there is little reason to worry that taking anti-inflation measures will have a significant negative impact on the financial system. The chances of a harsh landing are therefore substantially greater than currently thought.
Additionally, two longer-term issues emerged last week. The first is the sharp fall in trend growth rates—the pace at which countries may develop over an extended period of time while maintaining inflation targets—which has been emphasised by both the IMF and the World Bank.
The chief economist of the World Bank, Indermit Gill, claims that because of the emphasis on immediate events, the fact that the global trend of growth has been reduced from 3% to 2% has not received enough attention. Fewer resources are available to fight poverty and address the climate catastrophe as a result of slower growth.
This leads naturally into the second topic that was discussed in Washington this week: the increasing disparity between the wealthy North and the impoverished South, as well as the resulting resentment. It is obvious that many individuals in wealthy nations are having a difficult time since rising inflation is now reducing living standards, but the situation is considerably worse in the developing world.
Developing nations are facing “another lost decade, with soaring debt levels and higher servicing costs while international support remains insufficient,” according to a statement made last week by UNCTAD, the UN’s trade and development agency. Although there wasn’t much indication of significant activity in Washington last week, that is still true.
As one developed-country minister put it: “Poor countries are furious. They are asking why, if the US can save a bank in three days, Zambia has waited three years to get debt relief.”
The message from the previous week is that the age of globalisation is over. In contrast, it is the era of uncertainty, unpredictability, inequity, and delusion.
Nevertheless, some activists were encouraged that not much happened in Washington last week. According to them, the conditions are ripe for large-scale action: civil society mobilisation, poor nations reaching breaking point, and rich countries becoming aware of the issue.
Without a doubt, it’s crunch time. The Bridgetown Initiative of Barbados’ Prime Minister Mia Mottley is an example of an ambitious development funding plan that Western nations may support, or they can wait for the inevitable train wreck. According to Mottley’s special adviser Avinash Persaud, it is gratifying that so many wealthy nations, including Britain, supported the Bridgetown Initiative last week.
That’s good news because the Marshall Plan, which helped rebuild Europe after World War II in the 1940s, may be able to achieve the same results for developing nations in the 2020s as the Bridgetown Initiative. This might yet prove to be the era of intervention rather than the age of impotence if wealthy nations put their words into action.
online sources: theguardian.com, imf.org, worldbank.org