Time for 'Great Reset' of political and economic order

ARTICLE: 'We are living in an era of multiple crises: Covid-19; a crisis of economic disappointment; a crisis of democratic legitimacy; a crisis of the global commons; a crisis of international relations; and a crisis of global governance. We do not know how to deal with all of these. This is partly because it is hard to develop the needed ideas for reform. Yet it is far more because politics cannot deliver the necessary changes... If we wish to avoid a political breakdown, we should not seek to suppress markets, but we must surely temper their gales.' - 'Covid has exposed society's dysfunctions' by Martin Wolf.

Historically speaking, the world undergoes drastic change in the wake of major crises - intended or unintended. Old guard generally gives way to a new paradigm. While the last major jolt to world took place in the first half of the twentieth century - Spanish or influenza pandemic of 1918, two world wars, and in between the Great Depression - led to the collapse of colonialism, lesser protectionism, and a new global financial order.

Yet, even so, while on the surface these appeared as big changes, and in some ways they were, at least for the first few decades after the Bretton Woods, and in the shape of 'New Deal' policies and the Marshall Plan, with meaningful government presence and non-speculative investments, the underlying grip of collusion between oligarchs and politico-economic elites over resources, and influence over public policy, only perpetuated with time.

Hence, it was not long before the neoliberal agenda was launched in full glory in the early 1980s, which allowed capital income to increase quite unfettered through minimal government regulations in markets, which in turn favoured big savings of elites to multiply astronomically through extractive institutional design that was biased in favour of this elitist collusion, with governments bailing out the inefficiencies of big businesses and corporations through taxpayers' money. All the same in developing countries, if not more, given institutions were relatively quite weak to start with, and easier to have influence over by politico-economic elites.

Thus, overall the last major crisis did not lead to fundamental changes to really dent the ways, in which the world was being run by such collusion of elites. This allowed vested interests in both the public and private sectors to disregard the needs of sustainable, equitable growth of the most, and instead gain profit at the cost of overall social wellbeing. Hence, inequality since the 1980s went through the roof, at the back of neoliberal assault, but even more importantly state institutions were weakened whereby, for instance, making of coronavirus vaccine was kept on the back burner for almost two decades, while short-sighted investments were made by pharmaceutical companies to follow market signals, and produce body creams/lotions.

Similarly, climate change crisis was kept off the agenda of public policy, and together with populist election economics, and profit-maximization agenda of private corporations, meant that the world is now facing a fast-approaching existential threat in the shape of climate change crisis, which even became one of the main reasons behind unleashing of zoonotic-based crises from time to time during roughly the last two decades - SARS and MERS epidemics for instance - and then in the shape of the Covid-19 pandemic.

On the economic front, there is a large debt crisis looming, especially over the emerging and developing economies, and with limited fiscal space of these governments, and lukewarm bailout/moratorium support made available by bilateral, multilateral and private creditors, all putting pressures of the nature that may make the fiscal and current accounts unsustainable in the near term, and which overall put even more pressure in terms of debt sustainability situation, not to mention the devastating effects - already underway - in the shape of large scale unemployment, rising income inequality, and higher poverty levels.

On the political front, this in turn has allowed politics of xenophobia and hate-mongering to take prominence, an agenda pushed by political parties, which have otherwise remained on the fringes of political spectrum, and which rather than reforming the biases in globalization in favour of powerful vested interests, have vociferously pushed for protectionist policies that will further hurt jobs, and current accounts virtually everywhere, with most damaging consequences for developing countries, not to mention the possible dismantling of the otherwise quite successful economic model in the shape of export-led growth.

Hence, the current crisis calls for 'Great Reset' - dismantling the unjustified elite capture by doing away with Neoliberalism, and by moving towards a 'Green New Deal' for saving the world from climate crisis, future pandemics, and rising income inequality and poverty levels. The World Economic Forum (WEF) highlights the need for a 'Great Reset' in the following manner: "The Covid-19 crisis, and the political, economic and social disruptions it has caused, is fundamentally changing the traditional context for decision-making. The inconsistencies, inadequacies and contradictions of multiple systems - from health and financial to energy and education - are more exposed than ever amidst a global context of concern for lives, livelihoods and the planet. Leaders find themselves at a historic crossroads, managing short-term pressures against medium- and long-term uncertainties."

Having said that, what needs to be understood is that such a 'Reset' would require, as the most essential basis, to undo the neoliberal agenda. Here, governments will have to take the centre-stage. Public service will have to be drastically reformed. The role of institutions, organizations and markets will have to be re-oriented to enable them to become the custodian of the greater good of the most in economy, and not just a handful of elites and corporate interests. Only then can meaningful levels of democracy, accountability, transparency, and above all justice be reached. Moreover, all of this will have to be reformed in a multi-disciplinary way, and to meet multiple ends all at the same time - most importantly a unified policy focus will have to be placed on public health, economy, and environment.

Given the particular severity of the pandemic for emerging and developing countries, in all the ways indicated above and much more, these countries overall would require in the short-term a lot more support from creditor countries than they have received up till now. Among leading steps, in this regard, should include greater allocation of SDRs (Special Drawing Rights) and at minimal possible costs to developing countries, so that they can better manage their current accounts and debt obligations, especially those they owe to private creditors, which unlike the last debt crisis of early 1980s, have assumed a much greater proportion in the overall debt owed by the debtor countries.

In a recent discussion with World Bank group Vice President Ceyla Pazarbasioglu, Martin Wolf, Financial Times Chief Economics Commentator, highlighted this lukewarm response by the international community during this pandemic. According to Wolf, for example, "...a large new allocation of SDRs would have been very appropriate... those countries that received SDRs, which were surplus to requirement, should give them away, or lend them on very very generous terms to emerging and developing countries... about a trillion dollars or more that would [have] made a big difference to emerging and developing countries. I think in the short run these financial means were crucial, and a lot of that clearly had to come from the official sector. Unfortunately, we don't again have a sovereign debt restructuring mechanism. I think, if we had, we could have used this as an opportunity to impose a standstill across the board on debt service throughout the crisis, so there would have been a special circumstance for this".

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund)

He tweets@omerjaved7

Copyright Business Recorder, 2020