Confronting a perfect long storm

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Confronting a perfect long storm

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• Authors: THARMAN SHANMUGARATNAM
• Published: June 2, 2022

Overview

• The world faces a "perfect long storm": a confluence of lasting structural insecurities—geopolitical, economic, and existential—each reinforcing the other.
• Recent shocks include the pandemic, the war in Ukraine, threats to food security, rising global poverty, heatwaves, droughts, and other extreme weather events.
• These are not random or one-off shocks; they require collective, sustained policy responses.

Major risks and dynamics

• Geopolitical risk
  • The risk of escalating geopolitical conflict is greater than it has been in over three decades.
  • The unprovoked invasion of Ukraine has ramifications that could be catastrophic and extend beyond prior ruptures in the system of global rules and norms.
• Economic risk: stagflation and its consequences
  • Prospect of stagflation: higher inflation and stalled growth for a period of time.
  • Advanced economies’ central banks face unprecedented complexity; chances of taming inflation while achieving a soft landing are getting slimmer.
  • The war in Ukraine has disrupted energy, food, and other commodity markets, complicating policy trade-offs.
  • Prolonged high inflation will erode political capital needed to address larger challenges, including the climate crisis.
• Existential commons deteriorating
  • Climate change, shrinking biodiversity, water scarcity, polluted oceans, congested outer space, and spread of infectious diseases are accelerating threats to life and livelihoods.
  • Recurring pandemics are "already baked into the system"; scientists warn the next pandemic could come at any time and be even more lethal.
  • Short-term reliance on fossil fuels, including even coal, may be necessary for energy security, but long-term transition to low-carbon energy remains essential.
  • Required policies include predictable schedules for carbon pricing and fossil fuel subsidy phase-outs, and direct assistance to vulnerable groups.
• Divergence within and across countries
  • Higher prices for basic foods, livestock feed, fertilizer, and energy hit poorer countries hardest; more than half are already in or near debt distress.
  • Risk of rollback of gains in education and healthcare, with long-term global consequences.
  • Before COVID-19, more than half of children in low- and middle-income countries had not achieved basic literacy by age 10; the figure is now estimated to be as high as 70 percent.
  • Girls have suffered large learning losses; many have not returned to school, and millions have been pushed into early marriage.
  • Potential outcomes include permanent scarring of the young, further disempowerment of women, civil wars, and conflicts between neighboring states.

Financing global public goods

• Need for sustained, much higher investment across a wide range of public goods: clean water, trained teachers, upgraded logistics infrastructure, and innovations addressing the global commons.
• Investment scale and private sector mobilization
  • Estimated investment needed to achieve net zero carbon emissions: $100 to $150 trillion over the next 30 years.
  • Annualized, that implies $3 to $5 trillion per year.
  • World capital markets total cited as $100 trillion and grow by about $3 to $5 trillion each year.
• Public-private collaboration
  • Public sector alone cannot meet financing needs; require unprecedented public-private collaboration and risk-sharing frameworks.
  • Policies and standards must scale deployment of proven clean energy technologies and incentivize large-scale infrastructure (e.g., smart transmission and distribution grids) to achieve significant cuts in emissions by 2030.
  • Almost half the technologies needed to reach net zero by mid-century are still being prototyped; governments must "put skin in the game" to leverage private R&D and promote demonstration projects.
  • Social returns to protecting the global commons typically far exceed private returns, justifying public sector risk-sharing (example: immunizing the world’s population six months earlier would save trillions of dollars and countless lives).

Making multilateralism work

• Reorient and redeploy existing multilateral institutions rather than building entirely new ones; move with urgency to network cooperation and pooled resources.
• New thinking on the global commons
  • Money spent strengthening the global commons should be seen as an investment that benefits nations both rich and poor many times over.
  • The G20 High Level Independent Panel on financing pandemic security shows additional international investment to plug major gaps in preparedness is affordable and would avoid costs several hundred times larger if not acted upon.
• Updating Bretton Woods institutions
  • The IMF and World Bank, set up almost 80 years ago, must be repurposed for a more interconnected era where financial crises are often global and deterioration of the global commons is an economic challenge.
  • Proposed roles:
  • IMF: mandate to manage a stronger, more effective global financial safety net; empowered to make larger and swifter interventions.
  • World Bank: place global commons at the core of its mandate along with poverty alleviation; act as a multiplier of development finance; pivot toward mobilizing private capital using risk guarantees and credit-enhancement tools rather than direct lending alone.
  • Joint operations and convergence around core standards (e.g., debt sustainability and procurement) are needed to overcome fragmented efforts and increase development impact.
• Safeguarding the digital commons
  • Build infrastructure and policy frameworks to close the digital divide and digital literacy gaps.
  • Establish guardrails to make the internet safe for democracy; counter industrial-scale disinformation and systematic efforts to spread distrust.
  • Address cyberattacks and their impact on international peace and security by implementing norms for responsible state behavior in cyberspace in a sustained manner.

Geopolitical strategy and avoiding polarization

• Need fresh strategic understanding between major nations, especially the United States and China, as the world shifts irreversibly toward multipolarity.
  • Focus on overarching common interests: climate and pandemic security, peace, and avoidance of global financial crises.
  • Require geostrategic skill and domestic strategies to create good jobs and broad-based opportunities to rebuild political foundations for economic openness.
• Update rules to ensure fair competition and resilient supply chains without retreating from an open, integrated order that supports innovation, growth, and long-term security.
  • Economic interdependence among major powers, except for sectors impinging on national security, reduces the likelihood of conflict compared with a world of decoupled markets, technologies, payment systems, or data.
• Overriding priority: accommodate a multipolar world without becoming more polarized; a polarized, fragmented world will weaken all nations and impede shared interests in a safe, sustainable, and prosperous world inclusive and equitable for all.

Confronting a Perfect Long Storm, Tharman Shanmugaratnam, F&D Magazine, June 2022.

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