On the brink of disaster
Short-sighted policies are increasing the likelihood of cold wars turning hot at the cost of future generations and even our planet
Over the past decade, global economic prospects have been damaged by the fall of world trade, investment and migration, coupled with the suffering of more than 100 million globally displaced people. That is a prologue to an untenable future.
The post-war wave of globalisation benefited mainly advanced economies. It was only after 1980 that some large developing countries, particularly China, broke into world markets for manufactured goods and services while also attracting foreign capital.
This era of globalisation was eclipsed with the global recession in 2008. As cooperation within the Group of 20 subsequently dimmed, so did global growth prospects.
Between 2008 and 2016, global imbalances steadily worsened as a result of growing trade discrimination. It was only in 2017 that there were some signs of trade recovery. Yet, that opportunity was missed with the US trade wars followed by the Covid19 pandemic, the consequent global depression and cold wars.
Global economic integration is often measured by world trade, investment and migration. The net effect of the past decade is plunging trade and investment, slowing migration and an explosion of global displacement.
In particular, the fleeting gains of the US-China trade truce were derailed by the global pandemic that caused trade in both goods and services to contract sharply. Subsequent gains have been limited by new waves of Covid-19 variants and the worsening international economic landscape.
Last year, the World Trade Organization expected global merchandise trade volume to grow by 10.8 per cent, followed by a 4.7 per cent rise in 2022. But these projections were unlikely to materialise even before the Ukrainian crisis.
Progress since the 2008 financial crisis has been largely reversed. Trade as a percentage of world gross domestic product has fallen back to the level it was more than 15 years ago. Geopolitics derailed the potential for global economic recovery well before the pandemic through protectionism and proxy wars, compounded by the sanctions on Russia.
The hoped-for rebound after the 2008 financial crisis proved to be a pipe dream amid tariff wars and the pandemic. Highincome economies play a critical role in world inward investment flows. Yet, even before the Ukrainian crisis, world investment had plunged to a level not seen since the 1990s.
In 2020, global foreign direct investment flows fell to around US$800 billion. That is below the low point of the 2008 crisis and half of what world investment was in 2007. Decades of progress have been reversed in just a few years. In the process, the poorest economies have been hurt the most.
The number of international migrants has climbed to about 281 million as of 2020. Yet, global migration has been slowing, particularly in advanced economies. Because of the pandemic, the stock of international migrants has increased by only 2 million, a quarter fewer than expected by mid-2020.
While the absolute number of international migrants has more than tripled in the past half a century, their relative share stayed below 2 per cent until 2010 and is now 3.6 per cent of the global population, a third of what it was a century ago.
As migration flows decelerate or get blocked, the number of globally displaced people has exploded. That has been compounded by the wars following the September 11 attacks and external interventions since the Arab spring, which some in the West initially saw as the prelude to democratisation in the Middle East.
As a net effect, the number of displaced people has more than doubled in the past decade. The Ukraine crisis alone is projected to displace up to 7 million internally with a further 5 million displaced abroad.
Despite mobility restrictions because of the pandemic, the total figure of displaced people exceeded 92 million at the end of 2021 and recently soared to more than 100 million. In other words, the number of the globally displaced is higher than it was after two world wars, the Holocaust and the twin nuclear bombings of Japan in 1945.
If that is the outcome of “peacetime conditions”, one shudders to think of the effect of wartime conditions in the early 21st century. In the past half a decade, the cost of missed opportunities amounts to trillions of dollars. Given continuing policy mistakes, worse looms.
Growth scenarios that still seemed likely in early 2022 will not materialise because the projections were made in late 2021.
At that point, there was still a truce in the US-China trade war, the war in Ukraine had yet to erupt, sanctions against Russia – the world’s 11th-largest economy, the second-largest natural gas producer and the third-largest oil producer – had yet to be applied and the US Federal Reserve had not started its series of aggressive interest rate increases and quantitative tightening, which will cause lost years in the West and lost decades in the Global South.
As long as current policies remain in place in the West, sanctions will undermine growth, destabilise the Russian economy and penalise the fragile euro area. The Global South will pay much of the bill in economic costs and human lives.
The longer this stagnation prevails, the greater the likelihood that the current cold wars will turn into hot wars at the cost of future generations and even our planet. That’s something that none of us might want but is rather the net effect of short-sighted policies.
The net effect of the past decade is plunging trade and investment, slowing migration and an explosion of global displacement
Dr Dan Steinbock is an internationally recognised strategist of the multipolar world and the founder of Difference Group. The commentary is based on a section of a report published recently in the yearbook of the Austrian National Bank and the Austrian Federal Economic Chamber