The pandemic, war in Ukraine, the threat to food security and the resurgence of global poverty. Heatwaves, droughts and other extreme weather events. These are not random shocks. Nor are they a perfect storm in the conventional sense, a one-off conjuncture of bad events. We face instead a confluence of lasting structural insecurities - geopolitical, economic and existential - each reinforcing the other. We have entered a perfect long storm.
We cannot wish away these insecurities. We can only restore optimism by recognising the gravity and collective nature of the threats we face and organising ourselves more effectively to address them.
First, the risk of escalating geopolitical conflict is greater than it has been in over three decades. The system of global rules and norms aimed at preserving peace and the territorial integrity of nation states was always fragile. But the unprovoked invasion of Ukraine is not just another rupture in the system. Its ramifications could be catastrophic.
Second, we face the prospect of stagflation, with higher inflation and stalled growth for a period of time. The chances of advanced countries' central banks taming inflation while achieving a soft landing in economic growth are slim. When the history of the decade is written, however, inflation in the advanced countries is unlikely to be viewed as its most serious problem - certainly not compared with the implications of distress in the developing world or a weakened international order. But prolonged elevated inflation will erode the political capital needed to respond to our larger challenges, domestic and global, including the climate crisis. Notably, an escalating cost of living will demoralise populations that are now much older than they were in the 1970s, when the advanced countries saw their last episode of high inflation. It can set the world back in ways that economic models cannot predict.
Third, the existential commons are deteriorating at an accelerating pace. Climate change, shrinking biodiversity, water scarcity, our polluted oceans and a dangerously congested outer space, and the spread of infectious diseases will pose growing threats to life and livelihoods everywhere. We must address these threats in parallel, because the science is clear on how they reinforce each other.
The unpalatable short-term reality is that the world will have to rely more on fossil fuels, including even coal, to ensure energy security and prevent sharply higher energy prices. But it also means we must redouble efforts now to achieve the long-term transition to a low-carbon energy future. We need clear policy frameworks - including effective and predictable carbon pricing and fossil fuel subsidy phase-outs, and direct assistance to vulnerable groups - to achieve this critical transition while preserving energy security.
Fourth, we must confront the risk of growing divergences, within and especially across countries. Higher prices of basic foods, livestock feed, fertiliser and energy are taking the biggest toll on poorer countries, which are already the hardest hit by extreme weather events - and especially on the poorest in their populations. Their governments have little fiscal capacity to offset these shocks. More than half of them are already in or near debt distress. Faced with these immediate constraints, we risk continued neglect of education and healthcare improvements, with dangerous longer-term and global consequences.
There is now a real prospect of rollback of the hard-earned economic and social gains that many of these developing countries made in the last two decades. It will risk permanent scarring of the young, further disempowerment of women, civil wars and conflicts between neighbouring states.
We must address these threats, not on the basis of scenarios that reflect our hopes, but through a realistic appraisal of what could plausibly go wrong. Covid-19 and the Ukraine war were not black swan events. The full scale of these tragedies may not have been foreseen, but the risks had been blinking visibly on the radar for some time.
We must bring preparedness for threats, known or unknown, into the mainstream of public policy and collective thinking, just as regulators learnt from the global financial crisis and sought to fortify financial buffers in advance of the next crisis.
Investing in global public goods
We have to invest at significantly higher levels, over a sustained period, in the public goods needed to address the world's most pressing problems. We must make up for many years of underinvestment in a wide range of critical areas - from clean water and trained teachers in developing countries to upgrades of an ageing logistics infrastructure in some of the most advanced countries. But we also have the opportunity now to spur a new wave of innovations to tackle the challenges of the global commons, from low-carbon construction materials, to hydrogen electrolysers, to combination vaccines aimed at protecting simultaneously against a range of pathogens.
To fund these investments we must embark on public-private collaboration on a scale never before adopted. We must reorient public finance towards mobilising private investment to meet the needs of the global commons. The world will need to invest an estimated US$100 trillion (S$139 trillion) to US$150 trillion over the next 30 years to achieve net-zero carbon emissions. That may sound daunting. But the US$3 trillion to US$5 trillion annual cost is not a large percentage of the world's US$100 trillion capital markets, which grow by about that amount each year.
There is no lack of private and market finance. But channelling it to meet the needs of the commons requires a proactive public sector and well-designed frameworks for risk-sharing with the private sector. Policies and standards to rapidly scale up the deployment of clean energy technologies that are already proven, and to incentivise large-scale infrastructural investments such as in smart transmission and distribution grids, will be critical to achieving significant cuts in emissions by 2030. However, almost half the technologies needed to reach net zero by mid-century are still being prototyped. Governments must put skin in the game to leverage private-sector R&D, and promote demonstration projects, to accelerate the development of these technologies and bring them to market. Besides getting to net zero on time, they should aim to spur major new industries and job opportunities.
Making multilateralism work
However, we cannot address the challenges of this new era of profound fragility without a more effective multilateralism. It does not require a root and branch reconstruction of multilateralism or building entirely new institutions. But we have to move with urgency to reorient existing institutions for a new era, devise new mechanisms for networked cooperation among the multilaterals and other institutions including non-state players, and pool resources in ways that can meet both collective interests and nations' self-interests more effectively.
First, we need new thinking on the global commons. We must view money spent on strengthening them not as aid to the rest of the world but as an investment that benefits nations both rich and poor many times over. For example, the additional international investment required to plug major global gaps in pandemic preparedness will not only be affordable but will enable us to avoid costs that would be several hundred times larger if we fail to act together to prevent another pandemic. The longstanding aversion to collective investment in pandemic preparedness reflects political myopia and financial imprudence, that we must overcome urgently.
Updating Bretton Woods
Second, we must repurpose the Bretton Woods institutions. The International Monetary Fund (IMF) and World Bank were set up almost 80 years ago to help with problems faced by countries individually, at a time when financial markets were mostly small and not interconnected. Their missions must be brought up to date for an era where financial crises are often global in nature, and where the deterioration of the global commons will pose an increasing challenge to all countries, most especially in the developing world.
The IMF and World Bank must be better resourced and empowered by their shareholders to make swifter and effective interventions in this new global era. The IMF must be given the mandate to manage a stronger and more effective global financial safety net, more akin to how the leading central banks inject stability at home when a crisis hits. The global commons must be placed at the core of the World Bank's mandate, together with poverty alleviation. It must also play a much bolder role as a multiplier of development finance. It must pivot more boldly towards catalysing private capital, using risk guarantees and other credit-enhancement tools rather than direct lending on its own balance sheet.
Third, we have to safeguard the digital commons. The positive agenda is clear. We must build the infrastructure and policy frameworks needed to close the global digital divide and close digital literacy gaps in every society. But we must also address the growing challenge of cyber attacks and their impact on international security, and build guard rails to make the Internet safe for democracy. We do not yet have global rules or norms to counter the industrial-scale disinformation already seen and systematic efforts to spread distrust. The European Union's new Digital Services Act, aimed at forcing online platforms to remove misinformation and hate, is a major step forward. Similar approaches are being taken in nations like the United Kingdom, Singapore and Australia.
Avoiding a polarised world
Fourth, a more effective multilateral system will require fresh strategic understanding between major nations, most importantly between the United States and China, as the world shifts irreversibly towards multipolarity. This new understanding must be shaped by their overarching common interests - in climate and pandemic security, peace and the avoidance of global financial crises.
It will require considerable geostrategic skill, as well as more active strategies to create good jobs and broad-based opportunities at home, so as to rebuild the domestic political foundations for economic openness.
We must update the rules of the game to ensure fair competition and resilient supply chains, without retreating from an open and integrated order that is vital to each nation's rate of innovation and growth and long-term security. Covid-19 and the Ukraine war have accelerated the move by businesses towards more diversified global supply chains, but global sourcing remains as important today as it was before the pandemic. Trade between the US and China remains hugely beneficial to both.
We can be under no illusions that an integrated global order, with its deep economic interconnections between nations, will on its own assure us of peace. But economic interdependence between the major powers, save for sectors impinging on national security, will make conflict far less likely than in a world of increasingly decoupled markets, technologies, payment systems or data.
We must take the long view. Our overriding priority must be to accommodate a multipolar world without becoming more polarised. A more polarised and fragmented world will ultimately weaken all nations, including the largest, and make it difficult if not impossible to meet the interests that all of humanity shares: in a safe, sustainable and prosperous world, inclusive of all.
- Singapore's Senior Minister Tharman Shanmugaratnam is a member of the United Nations Secretary-General's High-Level Advisory Board on Effective Multilateralism and co-chairs the recently launched Global Commission on the Economics of Water.
- This article was adapted from a commentary first published in the June 2022 edition of the IMF's Finance & Development journal.