Tinsel into gold?

Mahmoud Mohieldin
Monday 20 May 2024

A roadmap to economic disaster is unfolding in the world today, hastening the demise of what remains of the post-World War II economic system, writes Mahmoud Mohieldin


There is an old Arabic saying that people often cite when making a point that they believe speaks for itself. It goes something like “can you straighten the shadow of a crooked frame or make tinsel into gold?”

Among the wonders of many of the publications we read today about the state of the global economy is the great fanfare with which they trumpet what they regard as signs of resilience and robustness, while homing in on certain indicators of the state of some of the developed economies.

Unfortunately, the statistics, charts, and graphs in these publications cannot conceal the weakness of the global economy and the obsolescence of its system and sagging institutions.

The latest edition of the UK magazine the Economist, whose main theme is “the New Economic Order,” observes that the global economy appears to be recovering despite successive shocks. The US economy is growing despite its raging trade war with China, it says, and the German economic machine, the backbone of the European economy, has avoided the repercussions of losing cheap Russian gas after the outbreak of the war in Ukraine.

The current war in the Middle East has not triggered an oil shock, and the related turmoil in the Red Sea region has wrought only minor damage to global trade, as expressed in its relation to global production.

However, the magazine continues, a closer inspection reveals the fragility of the world economy. The system that has been running it since World War II has deteriorated and is now verging on collapse. It warns that many factors could push the world over the brink into anarchy, not least the arrogance of those powers that are so adamant about being in the right that war becomes the inevitable means to resolve conflicts.

In a dialogue hosted last week by the Arab Fund for Economic and Social Development in Kuwait for the Arab Coordination Group and the Development Assistance Committee of the Organisation for Economic Cooperation and Development, I delivered a speech on the role of international finance in remedying the crisis of derailed development.

I warned of the repercussions of the widening gap between the developing economies and the high-income countries combined with the drop in net financial flows to the developing countries, the growing obstacles to international trade, the decline in foreign direct investment (FDI) as a share of GDP, and new restrictions on technological cooperation.

I also spoke of the detrimental impacts of recently adopted industrial policies in the developed countries, some of which violate World Trade Organisation (WTO) rules and principles that some economic powers now regard as inconvenient.

For example, some of their policies for transitioning to a green economy and reducing carbon emissions conceal or result in protectionist measures that impede trade and harm the investments of the developing nations.

As a result, the green development projects of the countries of the Global South find themselves caught in a vice. On the one side, they are being hit with the EU’s so-called Carbon Border Adjustment Mechanism (CBAM), which will impose a “carbon fee” on iron, steel, aluminium, fertilisers, and cement imports. The UK has exacted a similar tax on the same sectors, adding ceramic products to it, while the US is currently considering a similar mechanism for its imports.

On the other side, the developing nations face the new industrial policies of the developed ones. In the US, these take the form of three acts adopted in 2021 and 2022 to promote investment in infrastructure, chips, semiconductors, and the green transition. According to US investment bank JPMorgan, implementing these acts entails a mixture of government spending and restrictions on trade and investment. It said that Japan, the EU, and South Korea have adopted similar laws.

The Economist article mentioned above reminds us once again of the lessons of similar circumstances, since these culminated in the full-blown international conflict of World War I. That war caused massive destruction and wiped out many of the gains of a golden era of globalisation along with millions of innocent lives. It then paved the way for another and even more horrifying and destructive war.

In On Progress: Disruption and Pathways (2022), I drew attention to the similarities between the current state of the world, with its deficit in trust and surplus of crises, and the period before World War I, the latter being a war that no one wanted and no one anticipated and yet that broke out anyway.

Some 70 million soldiers were mobilised in World War I. Nine million of them died, seven million civilians were killed, and tens of millions of people sustained lasting disabilities or injuries that caused them pain or hardship until they died.

The “Great War” also led to subsequent massacres as well as epidemics that killed many millions more. Its resolution laid the groundwork for World War II, which wrought even more widespread destruction and many times more deaths. But that first war, and also the second as a result, could have been prevented or at least nipped in the bud, had the world leaders of the time agreed to resolve their disputes peacefully.

Wars like World War I take place because the politicians that start them imagine they can win them, even though inevitably they end with immense losses all round, as US historian Barbara Tuchman has observed in her Pulitzer Prize-winning history of World War I entitled The Guns of August.

Today, reckless folly is wreaking havoc on the global economy. Tit-for-tat punishments and protectionist measures are undermining the rules and conventions of international trade and investment, leaving more vulnerable economies reeling beneath huge debt burdens and without recourse to effective settlement or restructuring mechanisms.

The international financial institutions have been neglected and are therefore unable to raise the necessary capital to carry out their work to support development. Years have been wasted on cosmetic initiatives and on reforms that lack the substance needed to improve the institutions’ governance, increase their efficacy, or render them fairer and more representative of their member states.

Whether launched in the name of efficiency towards achieving better development banks or drawing up a “evolution roadmap,” such initiatives have been time-consuming, and lacking in binding provisions for capital increases at specific intervals. What I see unfolding in the world today is “an evolution roadmap to irrelevance,” hastening the demise of what remains of the post-World War II economic system.


This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.

* A version of this article appears in print in the 16 May, 2024 edition of Al-Ahram Weekly

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