I can’t remember any year in recent memory that has seemed so chaotic and out-of-control, save the 2008 Financial Crisis and the break-out of Covid in 2020. Not that we’ve had any similarly major earth-shattering event or disaster this year, thank goodness. But there are plenty of smaller crises and fires all over the world, many of which threaten to engulf many countries. Entire continents even. Not that we didn’t have such years before. Somehow, we just had better leaders then, people who could be trusted to step in and defuse the crises.
Now, we have leaders who start wars, who pick fights with countries at the drop of a hat, who threaten to derail economic growth and destroy any idea of peace. From raising tariffs and starting trade wars, to cracking down on immigration, to attacking elite universities and academic and research institutions, America the world’s pre-eminent power is showing the world how it’s done. Not just creating and aggravating conflicts between countries, but in pitting the citizens of one’s own country against the state. It is self-destructing, in other words.
And instead of trying to end the two wars in Ukraine and in Gaza, a new one between Israel and Iran has begun with the US also likely to be a part of it because it is all about Iran’s nuclear programme. As expected, this is having repercussions around the world. Because we still happen to be a connected and globalized world. Decisions made in the US immediately affect every other country it does business with or trades with. In the unprecedented uncertainty that this US administration has unleashed, it is becoming increasingly difficult for investors to deploy their capital and for businesses to plan their growth for the years ahead.
In the midst of this, both wars could now be entering a new phase of conflict according to some international experts. The international community is mostly silent, watching from the sidelines. Too busy with trying to cope with the economic chaos that has been created by the US, most countries’ leaders are focused on domestic economic policies and on trade.
The latter does involve several countries and one would think that if the large trading nations/blocs manage to get trade-related matters on an even keel, it would take a huge source of conflict off the international agenda. In this context, we have to find ways to seek common ground and agree on continuing to do business and trade with each other. Coalitions of the willing that Olivier Blanchard and Jean Pisani-Ferry wrote about not too long ago makes immense sense, even if we all know that such coalitions are extremely difficult and time-consuming to form and also to coordinate. This, especially in an environment that is wracked by conflict, disagreements and distrust. Which is why the world has been gravitating towards friend-shoring, when ideally doing business and trade ought not to be influenced or guided by ideological matters.
More recently, BCG has written about cooperation in a fragmented world. They are of the view that agreement and cooperation could be found through smaller groups of countries. Perhaps they mean that these are easier to form, coordinate and more practical. I would rather focus on the long-term outcome and the effectiveness of such coalitions or groups on large global issues, than merely look for convenience, ease and practicality. And to this extent, I would prefer to look at the world in terms of small and large countries in the economic sense. Despite all the interconnectedness of the global economy, the world is still very much seen as large economic powers vs small economies, or advanced vs developing, etc. I wrote recently on my blog that smaller countries should look to join larger trading blocs or groupings of countries, in order to grow their economies.
We know that smaller countries gain from joining larger economic and trade blocs or regional groupings, because it gives them economic and political heft, a voice at the table and helps them grow. We know this from the European Union project, and even as I write this, Bulgaria is going to be the newest member country of the Eurozone. Of course, this raises the question of how large and how fast should the EU and Eurozone expand, but this is a debate and discussion for another day. That said, I think that the EU signing trade agreements with Mercosur and with Mexico are also steps in the right direction as they look to boost trade and economic ties with developing countries in Latin America.
Unfortunately, smaller groupings of countries tend to be dominated by rich, industrialised nations, such as the G-7 that have plenty in common and share interests. Or they tend to be groups formed with very specific goals in mind such as the BRICS which aim to raise the cooperation and profile of leading emerging economies, or the QUAD which brings together countries that are defence allies to try and contain China in the East China Sea and in the Pacific region. In fact, BRICS is no longer a small group, as it has been accepting new member countries and will soon struggle to articulate a common agenda or vision. And then, there is AUKUS, which is also a defence and security alliance of sorts.
Speaking of which, BRICS countries will soon be meeting at a summit next month, of which as yet the media has reported nothing so far. There is also a G-7 meeting in Canada, to which India’s Prime Minister, Narendra Modi received a late invitation. India is a founding member of BRICS, and we increasingly participate in various other groups such as the SCO and QUAD. In terms of trade, we opted to stay out of the RCEP, which I think is a pity and we should look to join it sometime in the near future, especially if we are keen to integrate with global supply chains in electronic components and engineering goods. We are not a member of ASEAN, and hardly trade with it, despite signing an FTA with it around 2010-11.
Amid all these various groupings of countries seeking economic cooperation and trade, the G-20 seems to me to be the only group that represents developed and developing nations, the Global North and South as well as East and West. Equally important, they together represent around 85 % of world GDP, more than 75% of world trade and two-thirds of the world’s population. It is primarily an economic grouping which is what the world ought to be focused on right now. I haven’t read anything in the media recently on how the G-20 discussions are going with South Africa leading the group this year.
I think that the G-20 is the right forum for discussing critical economic measures such as the minimum alternate corporate tax that was meant to be levied on global MNCs to solve the problem of tax evasion. Then, on matters of climate change as well, I don’t think there is a more important group of countries that need to cooperate, invest and transfer technology to each other. In this context, I think that EU’s carbon tariff system, or CBAM, ought to be tweaked and applied to traded merchandise between G20 countries as a way of countries coming together to share the burden of decarbonization, as I have been writing on my blog. The G20 would be the right forum for discussing this and the idea of a domestic carbon tax, which I think would be far more effective than an emissions trading system.
Finally, when we look at the world economy today, with the need for developed and developing nations to grow together, we cannot ignore the harsh political realities of the ascendancy of the far-right, especially in the Global North. This, along with the realization that western democracies have to increase their defence spending, has implications for developing countries in the Global South. It is not just America that has cut international aid assistance to poorer, developing countries and to UN agencies; Britain is also doing the same with the UK Chancellor announcing recently that increasing Britain’s defence spending will mean cutting back on international aid.
These are also countries, among many others, that are cutting back on immigration. It strikes me that their political leaders haven’t fully grasped the fact that the best way to stem immigration is to help poorer developing countries grow faster and better. Instead, they wish to cut aid assistance as well as immigration at the same time. In a globalized world, just as capital travels to where it finds better returns, people too migrate to where they can find better economic prospects, or freedom from poverty and political repression. In the future, migration due to climate change is likely to increase dramatically and will add to the millions seeking refuge.
If the rich world governments cannot help such countries and people improve their lives at home, what is their fate? Should multilateral institutions be the only ones to take up the responsibility, and when you consider that they themselves are funded by the rich developed world, could this funding too be axed in future? Will multilateral development banks have to increasingly turn to private capital, making the recommendations of Larry Summers and NK Singh on how to attract private capital, a matter of urgent necessity? These are some of the most urgent issues facing the global economy today, and the G-20 group of countries seems to be the only forum for discussing such matters.
I hope the G-20 discussions in South Africa this year and those to come in the years ahead make good progress, as the future of the world depends on this.
The animated owl gif that forms the featured image and title of the Owleye column is by animatedimages.org and I am thankful to them.
Peripatetic Perch 