Derailed economic system amidst Covid-19

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Rashid A Mughal

THE world is in a state of flux constantly and continuously changing and turning un-predictable and losing its equilibrium with every day passing. This scenario has emerged more profound and dominant since last four years or so. If one wants to analyze the reasons, there could be many but the most important and the one on top of the list is Trump’s policies since entering the White House in 2017. His hawkish approach, diplomacy devoid of traditional norms, scant care for bi-lateral and multi-lateral agreements, already signed, his known tilt towards far-white and selection of his aides, known to be tainted with various allegations and above all conducting his foreign policy in a partisan and rigid manner, have all contributed to global changes and the kind of world, we see today. Emboldened by its now role as the sole global superpower, America has come to adopt a harder stance on international policy issues under Trump. Let us look at the historical evolution of this role which poses some serious challenges to third world leaders.
While the Japanese and Europeans appear to show greater awareness of the needs and interests of the third world, the US has adopted a no-nonsense attitude toward the whole gamut of problems that Third World has been interested in. Indeed, how Uncle Sam treats such issues has been brought out in sharp relief by the manner in which the former President George Bush treated the Earth Summit in Rio de Janeiro in 1992 by flatly declaring that he would not sign the treaty that aims at saving up to million plant and animal species that otherwise might disappear in the next decade or so. There is a lot more to this frame of mind than merely donor fatigue or the temporary difficulties of certain right nation.
World’s main problem is the abysmal poverty of the masses and inequality of wealth. For that, the Third World needs development above everything else, including controlling pollution. When we grow slightly richer and can increase education among masses, the new awareness of environment will take care of the problem. Understandable as this attitude certainly is, let it be said that it is too narrowly conceived in a spirit of tit for tat. The Third World cannot afford to use its genuine poverty as an excuse to be wholly careless and pass the entire burden on to the rich. Let us insist on the rich doing their proportional bit in here and now. But we should be ready to do what is right now-past negligence by the West was the result of MNC’s rapaciousness-by helping our development efforts with the new knowledge and technology available and that too without failing to insist that competing Western industries spend the right amounts on development of poor and needy.
The global monetary system under Covid-19 has been hit very hard and economies of all countries are under tremendous pressure and going berserk, due to trade slow-down and un-employment. Poor and underdeveloped countries being the main victims due to lack of resources to offer financial support to its citizens. Over the period March-April 2020, trade trends closely followed those for industrial production. Forty-three out of 46 countries experienced a lower level of trade in goods. South Africa, India, Mexico, France and Italy are the five countries that suffered the highest reductions in trade volume over that period. Israel, China and Chile recorded an increase in trade. China further consolidated its path of rapid recovery, according to a UNIDO COVID-19 economic impact analysis. According to this analysis, the top 10 countries with the highest reductions in trade volume includes both high-income and upper middle-income economies, reinforcing the finding in a previous issue of the UNIDO COVID-19 economic impact analysis that COVID-19 has a severe impact on both industrialized and developing countries.
The economic crisis unleashed by the outbreak of COVID-19 is hurting economies, regardless of income level. The most recent data from UNIDO’s seasonally adjusted Index of Industrial Production (April 2020 vs December 2019) indicate that both lower- and upper middle-income countries have been significantly impacted by COVID-19. The pandemic’s short-term impact differs widely across countries. The impact of COVID-19 in terms of cumulative incidences in some countries per 100,000 population differed considerably across the countries surveyed. While Pakistan and Afghanistan reported over 80 cases per 100,000 population, Thailand, Cambodia and Viet Nam had fewer than five cases. These differences are also partially reflected in the share of firms that stated that more than half of their employees were unable to work during the survey period: firms in Afghanistan and Pakistan were affected more heavily than those in Thailand and Viet Nam. Over half of the employees of a very large share of firms in Malaysia and Mongolia were also unable to perform work, indicating that the actual number of COVID-19 infections was not the only factor at play. On average, more than one-third of the firms surveyed claimed that at least half of their workforce was unable to work.
Even before Covid-19 hit the entire world, the global economic system was derailed. In purely economic terms, the postwar world ended in the 1960s when the US went off the limited gold standard and devalued the dollar heavily. That was the end of the Bretton Woods (monetary) system. What exists now is a notional or non-system, sans discipline. An element of quasi discipline has been fortuitously found in the heavy indebtedness of America. Most of the big creditors are financial hostages to the health of US dollar and they have to keep it literally afloat at much cost to themselves. The other part of the system is provided by GATT; it is free trade based on mainly dollar values and commodity markets, being managed mainly by the US and Britain. Although it is facing serious problems, typified by the Uruguay Round’s difficulties, it has so far ensured a lot of relatively free trade to the best advantage of the OECD nations. The third world is prodigiously trying to produce maximally and making maximum exports to the West at heavy subsidies in order to buy ever dearer manufactures from the West while striving hard to throw open their economies for Western imports as well as investments.
— The writer is former DG (Emigration) and consultant ILO, IOM.