In this project on ‘building back better’, we try to suggest ideas that might improve the structural performance of our economies, help societies develop peacefully, and enhance international policy delivery and governance, so that we might all enjoy more contented lives and be better prepared for the next crisis – presuming we can escape current challenges.
What is interesting and important about this era is that deeper issues seem not to have been dealt with from past crises, which means we need to address the legacies of those problems too in order to achieve sustainable post-COVID-19 economic recovery and development.
So not only do we have to find a way of getting beyond COVID-19 and somehow ending Russia’s war in Ukraine, but we also need to deal with the apparent failings of international capitalism in recent decades, and make sure it works better for more of the world’s citizens. Central to this project is the need to unleash private sector investment to fund action sufficient to tackle the toughest global challenges. Our policymakers and politicians also must be committed to the task. There is little point in coming up with clever-sounding initiatives if there is no political backing or intent to deliver.
We must do more to understand why, since the 2008–09 global financial crisis, recorded productivity in most advanced societies has slowed from its strong performance of the previous era. Generally weak private sector – and often, public sector – investment has been accompanied by low real wage increases. This is despite the fact that, until about a year ago, many international and domestic businesses were reporting strong profit growth while interest rates remained remarkably low – both variables that economic textbooks suggest should boost investment. Unless this conundrum can be fixed, it isn’t credible to talk about ‘building back better’.
Business CEOs often justify their firms’ lack of investment by claiming that it reflects future uncertainties and pressure from shareholders not to waste precious capital. Yet if this argument were a genuine impediment to investment, policymakers could surely take steps to reduce uncertainty around decision-making where it is relevant to markets and corporate planning, or consider legislation making it more attractive for business to invest in both current operations and future opportunities.
Alongside this, governments should identify areas where their own investment might make a powerful direct contribution to economic development and societal resilience – and signal to business the degree of their belief in particular sectors. Combating climate change and developing infectious disease vaccines and treatments are two clear areas where such an approach might seem valid. In other words, policymakers must identify where genuinely important risk-taking is being undertaken in the search for solutions to global problems, and provide the right incentives and rewards accordingly.
Another central issue that connects the themes explored throughout this research paper is the state of globalization – and with it, international governance and our current global organizations.
Let me offer some of my thoughts in this arena.
Is it truly fair to promote the G7 as a mechanism for equitable global governance when this grouping includes Italy and Canada but not countries such as Brazil? Similar arguments could of course be made about India and China, and no doubt about other countries.
My original BRICs paper, entitled Building Better Global Economic BRICs, published in November 2001, came after the experience of the 1997–98 Asian economic crisis and the Russian currency crisis in 1998. These two events coincided with the emergence of China and Russia as more prominent players on the global economic scene.
It wasn’t until 2008, and the global financial crisis, that an expanded version of my idea came into existence with the resurrection of the G20 and its new central role in global economics and finance. The BRIC nations – Brazil, Russia, India and China – joined other large emerging nations and a few other developed nations, in addition to G7 members, to transform the G20 into an influential forum for addressing the crisis. It was out of this initiative that the G7’s long-standing Financial Stability Forum was supplemented by a new body, the Financial Stability Board. This allowed for true regular analysis of systematic risks globally emanating from the financial sector to be monitored regularly, and the arrangement has seemingly worked well since. After these apparent initial successes, and even until late into the last decade, the G20 appeared to have superseded the G7 as the more effective platform – taking a more complicated but also more representative role in global governance.
As we all know, this was not to last. As the 2010s wore on, the G20 started to lose its collective purpose. A number of factors contributed to this decline. They included the change in China’s leadership and in perceptions of the direction of Chinese politics and policy, and of course the appearance in America of the Trump administration in early 2017. And then COVID-19 arrived on the scene. During the pandemic, the G20’s ability to function collectively was sorely tested – as indeed was the case with many other global institutions, including the World Health Organization and the World Trade Organization.
This is all unfortunate, as it leaves the world without effective, truly international governance. As similar as the G7 members might seem, they account for 50 per cent of global GDP at most and fewer than 1 billion people.
We clearly must do better, and in this regard my input into this review is to identify global issues for which meaningful agreement and effective international governance are essential if fruitful solutions are to be found. It would seem quite clear that global health challenges, climate change, global economic imbalances and systematic threats are all such issues, and that whatever the efforts of the G7 – or, for that matter, the BRICS nations alone – these formats are insufficient to drive progress. The larger G20 needs to work better.
This brings me to the topic of globalization, and the fashionable idea that we have supposedly reached ‘peak globalization’ – however that might be defined. While economics is often considered the ‘dismal’ social science, it is reasonably scientific to argue that global trade benefits everyone, so long as national policymakers make sure the domestic fruits of trade are shared among their citizens. In this regard, many leaders seem to be unaware or have forgotten that since the early 1990s, until the COVID-19 crisis, hundreds of millions of people had been taken out of poverty by global trade and capital flows. Indeed, in the first two decades of the 21st century, the global economy grew at annual average rates of 3.9 per cent and 3.7 per cent respectively, faster than in the previous two decades when growth averaged around 3.3 per cent.
The problem is that, during this period of plenty, the ‘winners’ from globalization were a minority in many countries. They were often already the highest income earners and the wealthiest, while the ‘losers’ were displaced or challenged by the shifting of traditional industries to emerging nations. But the solution is not to retreat from open markets and prevent developing countries from leveraging trade to enable their citizens to join the global middle classes. Rather, it should be to help retrain workers and those most challenged by structural economic changes. In this, domestic policymakers must use fiscal policy to help reskill the workforce and boost productivity in their own countries.
Ultimately, we can and must build back better. We need to adopt stronger and clearer goals, motivate business with a sense of what I term ‘profit with purpose’, and recognize that we can only solve global problems through cooperation between those of different political and philosophical persuasions.