About 17 years ago, a global financial crisis (GFC) engulfed the global markets. The impact of the crisis on financial markets was mitigated in a couple of years by collective efforts of the governments and central bankers. However, the social, geo political and economic impacts of the crisis largely remain unmitigated even today.
The "Reset" button pressed by the crisis resulted in widening of socio-economic divide across the world. The geopolitical tensions have intensified materially with rise in nationalism, protectionism and parochialism. This has not adversely impacted global trade. The rising unemployment in Europe and most commodity dependent economies in Asia, Africa and Latin America, declining growth in China, substantial cut in developmental aid to least developed nations due to fiscal pressures, has caused widespread rise in human suffering.
The COVID-19 pandemic further accelerated the "Reset" process, paving the way for the emergence of a new global order.
To put things in a right perspective, it is pertinent to note the changes in world order that have taken place since the advent of the 20th century.
In 1917, the Russian revolution successfully dismantled the Tsarist autocracy and laid the foundation of the USSR. In the following decades, many smaller independent European states became subservient to a mighty Russian socialist army, and together formed one pole in the emerging bi-polar world, forever shrouded by the specter of cold war.
In the same year, USA decided to shed its long-held policy of isolationism, and joined the War as an associate of the Allies - a development that tilted the scale in favor of the Allies, bringing the War to an end in 1918. In the following decades, the USA evolved into a formidable military and economic power that led the NATO allies to become the second pole in the emerging bi-polar world.
It took three decades for the new order to consolidate. The imperialist global order that existed in preceding centuries began to dismantle. Many colonies of European empires gained freedom. The British Empire that was built in three centuries and covered almost one fourth of the world population and area before the War, was completely dismantled in the following three decades.
The new order was characterized by the UN, NATO, WARSAW, Mao, Israel, NAM, Bretton Woods, World Bank, Cold War, energy cartel (OPEC), WEF, et. al. The globalization that was a norm prior to the first War was completely overpowered by the forces of nationalism and protectionism. This world order lasted till the German Wall fell and the USSR disintegrated in early 1990s; unleashing a new wave of globalization. In this world order, ‘market’ and ‘multilateralism’ was the dominant theme.
For two decades, since early 1990s, the global narrative was driven by global trade (WTO), Internet, digitalization, dematerialization, Europe integration into a single market, China's entry into mainstream global trade (through WTO), free flow of capital, G-20, BRICS, numerous FTAs, global war on Islamic fundamentalism, energy security, climate control, until the global financial crisis pressed the reset button and Covid-19 pandemic added further impetus to the process and brough us on the threshold of a yet new global order.
The imperatives of the new world include—
· Necessity to exit the accommodative monetary and fiscal policies originally adopted to mitigate the impact of GFC, which have become completely unsustainable after further loosening to mitigate the impact of Covid-19 pandemic.
· Need to find an alternative to the USD, which continues to be the only global currency despite material weakness in the underlying fundamentals.
· An urgent need to correct the imbalances that have creeped into global trade in the past three decades, due to aggressive growth agenda pursued by China & OPEC, technology developments in the US, persistent low yields in EU and Japan, and economic sanction on Russia, etc.
· Weakening of old trade and geopolitical blocks weakening and emergence of new trade and geopolitical alliances, especially Russia, China and Iran nexus.
· China is accelerating the drive to assume global leadership through mega initiatives like One Belt One Road (OBOR) and China Pakistan Economic Corridor (CPEC) and enlarging BRICS.
· Weakening of the European Union due to the exit of the UK.
· The US withdrawing from conflict zones like Afghanistan, Iraq, Libya refusing to engage in Syria, and ignoring genocide in Palestine, signaling a paradigm shift in its policy towards globalization and, free trade.
· Worsening of the refugee crisis in the western Europe.
· India’s effort to emerge as an alternative manufacturing hub to China, for the developed countries seeking to derisk their supply chains.
· Growing irrelevance of the multilateral institutions like the UN, OECD, IMF etc.
It may be little early to speculate on the likely contours of the emerging new world order. However, I do believe that the new world may not be excessively localized, nationalist and/or protectionist. Nonetheless, it is entirely possible that several new trade and geopolitical blocks get form, and define the contours of the new world order.
….more on this tomorrow.
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