The word of the year

Mahmoud Mohieldin
Tuesday 3 Jan 2023

What word best sums up the experience of the past year, asks Mahmoud Mohieldin

 

In the manner of the Oscars, I hereby present to you the word of the year: “permacrisis”. The term was recently coined to express the state of turmoil and unease that prevailed last year. In the opinion of the lexicographers at the UK publishers Collins, this word most succinctly “sums up just how truly awful 2022 has been for so many people.”  

The word is used to lead an end-of-the-year article in the UK magazine The Economist discussing three shocks that are continuing this year: the war in Ukraine, the energy crisis, and global inflation, especially of food and fuel. The UK Spectator magazine has also included the term in the title of an editorial in its international edition called “How to survive the ‘permacrisis’” that descended on the world two years after the Covid-19 pandemic first struck. 

As 2021 drew to a close, people looked forward to a year that would bring some much-needed relief. Economists drew comparisons between the 2020s and the 1920s when the world was recovering from World War I and the Spanish flu epidemic that killed around 50 million people between 1918 and 1920. At the time the global population stood at around two billion. The figure is enormous next to the toll from Covid-19, which has killed 6.7 million people out of a global population of eight billion.

The worst type of crisis is one that hits suddenly in multiple and interrelated ways and that hits harder after people have indulged in a moment of optimism. Thus, 2022 opened with a brief period of forecasts of economic growth and other types of recovery from the repercussions of Covid-19 and its variants. 

But late February brought a land war of the sort that Europe has not seen since World War II. Meanwhile, the economic policies of the industrialised nations and the US in particular precipitated spiralling inflation at the domestic and global levels thanks to the printing of money and distribution of cash handouts during the two years of the pandemic. 

As life began to return to normal, these countries’ central banks were too slow and timorous in countering inflation caused by surplus liquidity and supply-chain blockages hampering international trade. Inflation soon soared to levels unseen for 40 years. 

Then, in an attempt to compensate for the mistake, the US Federal Reserve and other central banks stepped in with an unprecedentedly rapid succession of interest-rate hikes. Within a few weeks, the world’s financial markets lost gains that had taken them years to accumulate, investment costs soared, real-estate prices fell in the industrialised nations, alarm spread that the developing nations might default on loans that due to increasing exchange rates and dwindling hard-currency reserves had become too costly to service, and waves of stagflation of varying degrees swept the planet. 

In an article with the headline “Sleepwalking into a Global Trade War”, the eminent US economist Anne Krueger observed that “the world is embroiled in a megacrisis comprising the Covid-19 pandemic, Russia’s war in Ukraine, high inflation, recession fears, and rising debt distress across emerging markets and the developing countries.” 

She then cautioned, drawing on her expertise in the economics of international trade, that “the last thing we need is an additional source of economic harm. But that’s what we may get, in the form of another destructive trade war.” 

This looming event will be caused by the US, which continues to follow the protectionist trade measures inherited from the former Trump administration. To these, moreover, the Biden administration has added measures such as the Inflation Reduction Act (IRA) and the CHIPS and Science Act that were introduced this year. Their purpose is to support domestic industry in the US but, as Krueger warns, they “will inflict so much damage on major trading partners and allies that they will almost certainly have to retaliate. The US will then find itself in a trade war not only with China but also with its own allies.” 

Such a trade war will be detrimental to some components used in manufacturing and the competitiveness of final products. Ultimately, the consumer will end up being hurt the most.

As much as Trump and Biden are at odds with each other, their trade policies have much in common. They tend towards protectionist measures that offer short-term populist gains but that will eventually boomerang with dire consequences once the public realises the toll in terms of the loss of resources, the rising costs of production, which are ultimately borne by the taxpayer, and the declining competitiveness of US products. 

Nevertheless, populist policies always find eager takers, and when caught out for their mistakes and failures they will deflect criticism with smoothly worded arguments about the loftiness of the policies’ aims. Ultimately, however, the economic arena has no room for idle claims and polemics. Those who chase illusions or break economic laws cannot win in the end. 

Indeed, this is what has led US economist Brad DeLong to discuss, in his recently published book Slouching Towards Utopia: An Economic History of the Twentieth Century, the effective end of the period of the domination of the global economy by the US and its allies by dint of their economic pre-eminence from 1879 to 2010 shortly after the global financial crisis of 2008. 

Some people might argue that the crises mentioned above do not cover all the major troubles in the world today, and they would be correct to do so. The list does not include the local and environmental problems that affect people directly and which could also be ranked as crises and perils. Some of these problems, moreover, might afflict many different countries. So, what might go on a more comprehensive list that would enable us to begin to grapple with the current “permacrisis”? 

The European insurance company AXA in collaboration with the Eurasia Group has produced a report that is relatively accurate in its assessment of current and looming threats. The AXA Future Risks Report relies on surveys of experts and members of the public around the world. The authors of the latest report surveyed around 4,500 risk experts from 58 countries. AXA also partnered with the IPSOS market research company to survey nearly 20,000 individuals making up a representative sample from 15 countries. 

The report ranked the top 10 risks as follows: climate change; geopolitical instability; cybersecurity risks; energy risks; pandemics and infectious diseases; social tensions and movements; natural resources and biodiversity risks; financial stability risks; macro-economic risks; and monetary and fiscal policy risks.

Climate change has topped AXA’s list of risks since 2018, with the exception of the pandemic year of 2020. In their 2021 report, the top five risks were: climate change; cybersecurity risks; pandemics and infectious diseases; geopolitical instability; and social discontent and local conflicts.

Clearly, it was the war in Ukraine and its fallout that shifted “geopolitical security” up to second place and “energy risks” up to fourth place in this year’s list of risks. 

Of course, there is also some regional variance in the rankings, and at the country level we should take or leave such reports depending on local circumstances and priorities. Even if the authors seem confident in the accuracy of their findings and forecasts, we live in a rapidly fluctuating world in which data and information abounds, fact-checking is rare, knowledge is monopolised, and the wise usage of knowledge is practically non-existent. 

Still, the fact that we do not benefit from all of it is no reason to discard it. In a world beset by multiple and rapidly changing crises and in which policy-making and running institutions is akin to a process of never-ending crisis management, we need to rely on a multiplicity of sources, not only to avert risks but also to identify possibilities for benefiting from crises to reform, develop, and gain a lead in this new world. After all, crises are passages from old to new realities. 

This is why I am amazed by those in the developing world who fear the demise of the current international order that is controlled by the rich nations and from which our developing nations have benefitted only from the crumbs that come our way through trade, some direct investments, remittances from nationals working abroad, and the occasional grant or gift. 

This international order is now nearing its end. In fact, some observers believe it has already died, but that its death certificate has not been issued yet. A new order is coalescing, though its shape and rules are still unclear. Until such time that the new economic and political arrangements and processes are in place and in full effect, affairs will proceed in accordance with the rules and conventions of the existing international order that will eventually be consigned to the annals of history like its predecessors. 

Meanwhile, I hope that the new order will be more equitable and more efficient than the last one. More importantly, I hope that our countries will have the place in it that they deserve. That can only be assured by investing in our most important resources and most valuable assets, namely human beings. This was the secret to the economic miracles of China and other countries in East and Southeast Asia, which are well on their way to becoming the global economic centre of gravity today. 

One of the sources of the current state of anxiety in the world today may be that it is hard to say how long the transition from the old to the new order will take and how calm or stormy the transition will be. Certainly, there will be losses and gains at stake, losers and winners, and shifting alliances and enmities. 

In a forthcoming article we can explore ways to prepare for the challenges that lie ahead and the ways to maximise opportunities to get ahead in the race of nations despite the complications that arise from the state of “permacrisis” that is so obvious today. 


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

* A version of this article appears in print in the 5 January, 2023 edition of Al-Ahram Weekly

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