A Timely Call for Action: Re-shaping the World after the Financial Crisis

mirowSix years after the outbreak of the global financial crisis, the economic, political and social consequences can still be felt in most parts of the world.

It is true that much has been done to mitigate the impact of what has started as a “subprime crisis” in the United States: the global banking system has been stabilized, the imminent collapse of the European Monetary Union has been prevented and the latest forecasts now signal for many parts of the world a return to higher growth. But the costs of the crisis are not to be underestimated: sovereign debts of most industrialized countries have reached dangerous levels, millions and millions of people, particularly in the young generation, have lost their jobs, the necessary, strong interventions of leading central banks with the aim to re-ignite commercial lending and spur growth have shown unintended, however, relevant repercussions in emerging countries.

It is, therefore, highly commendable that leading international experts have been asked by the Astana Forum to design a comprehensive Anti-Crisis-Plan, drawing the lessons from the recent past and paving the way to more sustainable and equitable growth. At the heart of the recommendations stand the plea for reforms of the international institutions, foremost of the International Monetary Fund (IMF) and the World Bank. And it is, indeed, obvious: whereas globalisation of products, industries and markets is progressing quickly, the set up of efficient and inclusive global governance institutions, capable of designing and implementing an adequate legal and regulatory framework, is lagging behind dramatically. And as long as emerging and developing countries are not fairly represented in international institutions and platforms, these will lack the legitimacy to act with the necessary authority.

At the same time, the authors of the Anti-Crisis-Plan underline convincingly the importance of fostering global trade – not at least by finally getting to grips with the Doha Round of the World Trade Organization – and forcefully call upon the U.S., China and Europe to address the respective sources of dangerous global imbalances.

It would, however, be illusive to solely rely on any quick progress in these areas. Vested interests and the complexity of global governance reforms will take their time toll. A “wait and see” attitude, exclusively looking for progress on an international scale, would be a dangerous waste of time.

Therefore, with all due consideration of the global character of key challenges like, for instance, climate change, each and every country should, sooner rather than later,  do its very best to reach progress in terms of what it can achieve within its own means. Any “World-Anti-Crisis-Plan” will only bear fruits if a healthy balance can be established between a cohesive set of initiatives on an international scale and good governance on a national level.

Whoever studies carefully success stories of countries that have reached, often within a generation, a comprehensive re-shuffling of their economies, be it Canada, Australia, Singapore, South Korea or Israel, will identify a set of good recipes to successfully embark on such an avenue. And much of it can easily be applied to a country like Kazakhstan.

To start with, the following can apply for commodity-rich countries:

– Reducing the dependence on natural resources through diversification and modernising the economy by constantly raising public as well as private investments into research and development.

– Fostering growth and export capacity of small and medium-sized companies.

– Cleansing, wherever necessary, commercial bank balance sheets and building up efficient complementary public financial institutions in order to secure a healthy credit activity.

– Designing joint public-private action plans to focus on complete value-chains of strategically important industries, for instance, in the field of agri-business where the ongoing growth of world population provides for an ever rising demand.

– Reducing waste of energy and resources of all kinds, including water, so as to create huge cost gains in the economy, spare money for households and contribute to mitigating the risks of climate change and other imminent dangerous environmental phenomena.

– Consequently investing into the skills and education of people as these represent the most precious resource of the developing global knowledge economy.

Finally, past and current crises teach us very clearly one particular lesson: that of the crucial importance of good governance and well functioning public institutions for steady growth and sustainable development. Where the rule of law is beyond doubt, foreign investors will feel comfortable to allocate scarce and therefore precious long term capital and to share valuable intellectual property. Talented people will find it rewarding to invest into start-ups and local entrepreneurs will feel encouraged to grow their companies. Where corruption and bribery are consistently fought, the business-climate will flourish. If and when at the same time reliable, efficient and fair tax systems and well designed pension systems are established, then public authorities will be provided with necessary means to invest into public goods like universities, schools or a state of the art infrastructure, and stable, deep local capital markets can be developed, offering sufficient equity for the private sector to grow.

To me, this is the key challenge of our times: relentlessly working on multi-lateral and international approaches that properly address the ever accelerating, irreversible globalisation, but, at the same time, understanding that only flourishing individual countries and successful nations will have the capacity and the political power to contribute to an improved global governance set-up and, by this, build a new and better world.

The author is the former President of the European Bank for Reconstruction and Development.

 

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