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Friday, 06 August 2021

Keys to the post-coronavirus economy

The global economy needs to take effective measures against emerging obstacles in order to achieve growth in the post-pandemic world

Mahmoud Mohieldin , Tuesday 18 May 2021
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The Covid-19 has dealt a deafening blow to every indicator of life and sustainable development worldwide. The pandemic has infected 163 million people, of whom 3.4 million have died. The UK Economist magazine has said that according to a statistical model it has developed using 121 indicators to cover gaps in the available numbers, the real death figure is at least three times that which has been announced, driving the magazine to put this figure on its latest cover with the headline “Ten Million Reasons to Vaccinate the World”.

In a world where numbers can lose their meaning, it is difficult to make decisions to protect the general population, and myth and rumor can prevail over science and facts. There is no doubt about the impact of the vaccine, and there is no way forward but to urgently expand its availability.

Six crucial months were wasted in debates and quarrels over the need to temporarily exempt the vaccine from restrictions on intellectual property rights, with India and South Africa, supported by dozens of developing countries, submitting a request to this effect to the World Trade Organisation (WTO) in October 2020. The demand was rejected by the developed countries led by the former US administration.

Understanding the need behind this request required a change in the US presidency and the deaths or falling sick of tens of millions of people because of the virus. Eventually, the vaccines were granted temporary exemptions from intellectual property rights in accordance with regulations that allow their production and availability in developing countries. 

While several developed countries will reach the required level of immunity from the epidemic at about 70 per cent of their citizens being vaccinated during the coming weeks and months, the developing countries are far from achieving this percentage. This will be the case for many years to come if the vaccines continue to be available at such low rates. There are also fears that voting on the exemptions at the WTO may not take place before next December.

Yet, it is imperative to quickly open doors that have been closed due to monopolies, complicated procedures in international bureaucracies and flimsy arguments about the lack of the technological capabilities in the developing countries and the need for agreements guaranteeing the transfer of knowledge and methods of production. Until there is progress on this path, the COVAX vaccine facility, supervised by the World Health Organisation (WHO), should be boosted by providing the necessary funding to cover the resource deficit that prevents it from being effective. Even more important than funding is the redistribution of vaccine surpluses that exceed by 10-fold the actual needs of citizens in some developed countries.

These urgent measures are not only generous gestures for those who appreciate human virtue, but they also contribute to achieving personal interests and self-protection. If the virus spreads uncontrollably in poorer and less-developed countries, as scientists and experts at the WHO have warned, there will be a marked increase in mutations, threatening the immunity given by the vaccine. 

The connections between the economies of the developed countries through global supply chains make it imperative that they do not withhold the vaccine from the sources of their raw materials, their food, their primary and manufactured goods, and the markets in which they sell their products. Doing so would only impede the economic recovery that they aspire to and threaten their growth, investment, and job opportunities and raise the prices of products and components, thus possibly increasing inflation rates.

The coronavirus crisis has wasted in less than one year the achievements that have been made in many. The number of people suffering from extreme poverty has increased for the first time since 1998 by more than 120 million. The percentage of students suffering from learning poverty has increased by 10 per cent in one academic year. The number of people suffering from hunger has doubled to reach 265 million.

Unemployment has been exacerbated because of the pandemic, with 255 million workers losing their livelihoods in the formal labour market and twice as many in the informal sector in the developing countries. These are all factors that have led to the blocking of economic channels and the depletion of resources, resulting in a recession that has been unprecedented since the Great Depression of the previous century.

The economy will not automatically continue to achieve its internationally estimated growth rate of six per cent this year, despite the well-known variation between countries in achieving it. For the economy to grow, it needs effective keys and tight measures to be taken against emerging obstacles, including:

- Preventing the increasing accumulation of sovereign debt and corporate and household sector loans from turning into a global crisis by granting exemptions on the debts of countries that are in trouble, restructuring their debt, and setting up a balanced global structure to address debt problems and manage them within the framework of sustainable development financing.

- Addressing restrictions on the freedom of trade and investment and preventing the kind of unjustified protectionist measures that dragged the world into trade wars before the coronavirus crisis, while preparing to shift the centre of economic gravity to the east.

- Ensuring early compatibility with the requirements of digital transformation and its effects on the production, employment, education and healthcare sectors, as well as its potential innovations in the form of official digital currencies issued by countries through central banks and the limitation of the harmful repercussions of highly volatile, high-risk, encrypted financial assets.

- Preparing to develop the labour market to recover from the tens of millions of dollars lost as a result of unemployment owing to the pandemic and the need to adapt to partial closures and hybrid working systems.

- Following up on developments in consumer prices, especially after they saw a rise in the advanced economies with global influence. The US consumer price index has risen by 4.2 per cent in a test of a new “reaction function” of the US central bank, the Federal Reserve, and the extent of the flexibility of its monetary policy, especially interest rates, whether such increases are transitory or persistent and their effects on inflation expectations. Uncertainty may sometimes have a greater impact on the behaviour of consumers and investors than the objective foundations of inflation.

- Prioritising the benefits of the state’s direct economic role in pushing forward the mechanisms of recovery out of recession without competing with private investment or distorting the rules of competition. It is important to identify the areas in which private investment and employment could be positively impacted and sectors that require long-term public investment, such as research, development, support for the technological base and vital products, and partnering with the private sector to reduce dependence on loans. This is in addition to the necessity of securing real resources to finance public investment through budgetary reforms.

- Reviewing the development financing system by formulating the overall state budget and its priorities to achieve the UN Sustainable Development Goals, scrutinising the rules for international cooperation in the areas of taxation, the prevention of tax evasion and the application of rules that prevent the continuation of illicit financial flows that annually exceed the combined value of foreign aid and investment in some developing countries.

These are the tools and measures that should be shaped together in order to identify the economic policies necessary for achieving growth. In order to be formulated wisely, they need a new approach to develop the methods on which the economic models used by national and international institutions are based with a view to analysing the performance of the economy and pinpointing its priorities. These models had earlier suffered from rigid ideologies and biases, and the world has got over them as fast as it has changed with the pandemic. 

The anticipated economic recovery should go hand-in-hand with a recovery in economics as a discipline and the models on which decision-makers depend and which affect the general public. This can only be achieved by relying on data, evidence and facts, analysing them scientifically and making use of them by adopting a kind of “principled pragmatism” that does not deviate from achieving development goals. 

This should be coupled with flexibility in choosing the most appropriate and effective means to attain these goals. The means will necessarily change according to the different times and places concerned and the prevailing political economy.

*An Arabic version of this article appeared on Wednesday in Asharq Al-Awsat.

*A version of this article appears in print in the 20 May, 2021 edition of Al-Ahram Weekly

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