Saturday, November 22, 2014

A World Adrift

NEW YORK – The annual spring meetings of the International Monetary Fund and the World Bank have provided a window onto two fundamental trends driving global politics and the world economy. Geopolitics is moving decisively away from a world dominated by Europe and the United States to one with many regional powers but no global leader. And a new era of economic instability is at hand, owing as much to physical limits to growth as to financial turmoil.

Europe’s economic crisis dominated this year’s IMF/World Bank meetings. The Fund is seeking to create an emergency rescue mechanism in case the weak European economies need another financial bailout, and has turned to major emerging economies – Brazil, China, India, the Gulf oil exporters, and others – to help provide the necessary resources. Their answer is clear: yes, but only in exchange for more power and votes at the IMF. As Europe wants an international financial backstop, it will have to agree. 

Of course, the emerging economies’ demand for more power is a well-known story. In 2010, when the IMF last increased its financial resources, the emerging economies agreed to the deal only if their voting share within the IMF was increased by around 6%, with Europe losing around 4%. Now emerging markets are demanding an even greater share of power.

The underlying reason is not difficult to see. According to the IMF’s own data, the European Union’s current members accounted for 31% of the world economy in 1980 (measured by each country’s GDP, adjusted for purchasing power). By 2011, the EU share slid to 20%, and the Fund projects that it will decline further, to 17%, by 2017.

This decline reflects Europe’s slow growth in terms of both population and output per person. On the other side of the ledger, the global GDP share of the Asian developing countries, including China and India, has soared, from around 8% in 1980 to 25% in 2011, and is expected to reach 31% by 2017.

The US, characteristically these days, insists that it will not join any new IMF bailout fund. The US Congress has increasingly embraced isolationist economic policies, especially regarding financial help for others. This, too, reflects the long-term wane of US power. The US share of global GDP, around 25% in 1980, declined to 19% in 2011, and is expected to slip to 18% in 2017, by which point the IMF expects that China will have overtaken the US economy in absolute size (adjusted for purchasing power).

But the shift of global power is more complicated than the decline of the North Atlantic (EU and US) and the rise of the emerging economies, especially the BRICS (Brazil, Russia, India, China, and South Africa). We are also shifting from a unipolar world, led mainly by the US, to a truly multipolar world, in which the US, the EU, the BRICS, and smaller powers (such as Nigeria and Turkey) carry regional weight but are reticent to assume global leadership, especially its financial burdens. The issue is not just that there are five or six major powers now; it is also that all of them want a free ride at the others’ expense.

The shift to such a multipolar world has the advantage that no single country or small bloc can dominate the others. Each region can end up with room for maneuver and some space to find its own path. Yet a multipolar world also carries great risks, notably that major global challenges will go unmet, because no single country or region is able or willing to coordinate a global response, or even to participate in one.

The US has shifted rapidly from global leadership to that kind of free riding, seeming to bypass the stage of global cooperation. Thus, the US currently excuses itself from global cooperation on climate change, IMF financial-bailout packages, global development-assistance targets, and other aspects of international collaboration in the provision of global public goods.

The weaknesses of global policy cooperation are especially worrisome in view of the gravity of the challenges that must be met. Of course, the ongoing global financial turmoil comes to mind immediately, but other challenges are even more significant.

Indeed, the IMF/World Bank meetings also grappled with a second fundamental change in the world economy: high and volatile primary commodity prices are now a major threat to global economic stability and growth.

Since around 2005, the prices of most major commodities have soared. Prices for oil, coal, copper, gold, wheat, maize, iron ore, and many other commodities have doubled, tripled, or risen even more. Fuels, food grains, and minerals have all been affected.  Some have attributed the rise to bubbles in commodities prices, owing to low interest rates and easy access to credit for commodity speculation. Yet the most compelling explanation is almost certainly more fundamental.

Growing world demand for primary commodities, especially in China, is pushing hard against the physical supplies of global resources. Yes, more oil or copper can be produced, but only at much higher marginal production costs.

But the problem goes beyond supply constraints. Global economic growth is also causing a burgeoning environmental crisis. Food prices are high today partly because food-growing regions around the world are experiencing the adverse effects of human-induced climate change (such as more droughts and extreme storms), and of water scarcity caused by excessive use of freshwater from rivers and aquifers.

In short, the global economy is experiencing a sustainability crisis, in which resource constraints and environmental pressures are causing large price shocks and ecological instability. Economic development rapidly needs to become sustainable development, by adopting technologies and lifestyles that reduce the dangerous pressures on the Earth’s ecosystems. This, too, will require a level of global cooperation that remains nowhere to be seen.

The IMF/World Bank meetings remind us of an overarching truth: our highly interconnected and crowded world has become a highly complicated vessel. If we are to move forward, we must start pulling in the same direction, even without a single captain at the helm.

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    1. CommentedNirmalan Dhas

      What you are describing is the gradual collapse of the hierarchical pyramid and its supersession by the network at global level. The problem is with perceiving what is happening and being able to enter and live within that perception in order to consciously guide this process of collapse which is a part of the transformation of our global civilization into a sustainable one.

      Only a very small minority is able to enter and live within this perspective - which shows the world as an eternal, dynamic and stochastic process rather than as a collection of created objects, subjected to immutable laws in a deterministic and finite context - and it is only the individuals who make up this small minority who are the only ones capable of guiding this process. Of course they cannot do it alone and they therefore have to strategically manipulate the majority into doing what must be done.

      This is why it looks to me as though there is a new kind of being emerging from within the Human Species through the evolutionary process; a being that can perceive what has happened and what is happening and can see the need to live in a different way in a different relation to the ‘outside’ or the ‘environment’ and that this outside is part and parcel of the inside as well, and which is able to live within this perception of the world as a process rather than a collection of things.

      I have of course considered the possibility that the minority who are able to perceive a dynamic and interconnected world are able to do so because of what they have learned and experienced. If this is the case then this minority should be able to teach and train the majority to perceive the world as a dynamic and holistic system. This has not happened so far.

      Though I have tried for many years using many methods I cannot claim to have successfully trained even a single person in how to perceive the world as such a dynamic system to the extent where such a person is able to enter and live within this perception of the world – what one may describe this ‘perceptual paradigm’. Many have learned the concept and the words and can expound eloquently on the world as a dynamic system. A few of them can enter and stay within this perceptual paradigm for a few hours or days. So far none of them have been able to live in this perceptual paradigm consistently.

      While there is room to test this hypothesis further by training a batch of a few hundred persons under controlled conditions…until such is done I shall have to continue to work with the possibility and likelihood that the small minority who are able to perceive the world as a dynamic process does in fact constitute a new species emerging from within humanity.

      Their identification and the facilitation of their work is therefore all that can be done for the time being. The Sustainable Development Solutions Network for the emergence of which you have created the necessary possibility and the responsibility for the achievement of which you have assumed is a mechanism that may prove to be a suitable interface through which this minority can engage the majority towards the task of rendering human civilization sustainable.

      Taken together with the initiation of the Global Masters of development Practice, the creation of a context that facilitates the generation of a Global Network that can function as a Strategic Guidance System for the formulation and initiation of responses to the crises - caused by the high levels of autonomy coupled with low levels of consciousness evolved within the human species – and the guidance of life’s evolution through and beyond human bring and its universal spread, is a remarkable achievement for one individual.

      Your work is deeply appreciated and will be developed and built on in as many ways and at as many levels as becomes possible.

    2. CommentedJosué Machaca

      J. D. Sachs invade cinco puntos importantes: (1) el mecanismo de rescate que intenta crear el FMI con ayuda de los países en ascenso, (2) analiza el pasado, el presente y el futuro de la repartición del PBI mundial donde China desplazará a EE. UU. en 2017, (3) la traslación de un mundo unipolar a otro multipolar y las ventajas y consecuencias perjudiciales que estas traen, (4) analiza las tres causas del elevado precio de los bienes esenciales y por último (5) las acciones que debemos tomar como parte del mundo. Pero un hecho que aquí me extraña es: ¿existe un límite de producción que nos de mayor bienestar a nivel macro como lo que ocurre en microeconomía con la restricción presupuestaria? El hecho que los países produzcan desmedidamente y, como advierte Sachs, estos velen por su propio beneficio y no el mundial, puede traer consecuencias graves que no podrían compensarse con el desarrollo tecnológico.

    3. CommentedJonathan Lam

      A tectonic earth afloat
      Pangaea began to rift; convection within the Earth's mantle pushes the plates.
      I bow to the orderly roles; it shears sovereignties apart.
      Gravity is pulling the older, colder,
      and thus heavier ocean floor with more force than the newer ceiling, lighter seafloor.
      Lehman brothers, AIG heated to boil; like volcanoes erupt when it reaches the ceiling.
      Bankruptcy, sovereignty debt blanket quantitative easing with high rise commodities;
      The worst of time and the best of time, Dickens said; and ninety nine protests.
      Divergent boundaries, where new crust is formed, thus BRICS and technology run amok;
      Convergent boundaries where crust is consumed, thus EU shrinks.
      Collisional boundaries, where principle of capitalism and socialism emerge as land masses collide with monetarism;
      Transform boundaries, where two plates slide against each other where innovation edges with competitions to growth.
      World Bank and IMF blows, ashes fly above and fall beyond to nurture the soil.
      Tectonic split apart; but boundaries create their world a whole by nature, it floats in its universe;
      In futile soil, life revives, economy lives within its new orderly world.

      May the Buddha bless you?

    4. Portrait of Gregor Schubert

      CommentedGregor Schubert

      Dear Mr. Sachs, dear fellow commenters,

      you seem to suggest that the world is in dire need for strong direction (as the title of the column suggest) and that only concerted action, even if it is costly can avert the catastrophes that can clearly be seen on the horizon and bring about the sustainable economy that eludes us.

      However, I think this leaves unconsidered the "World's" and especially most governments' dismal record in terms of foreseeing and preventing major revolutions of a politica, economic or technological nature.

      As some of the most significant sustainability changes in the world over the last couple of decades, I would cite the collapse of the Soviet union with its complete disregard for the environment, the transition of hundreds of millions of Chinese to a modest livelihod which means that they can better withstand natural disasters and the fact that there are much less wars going on now than a hundred years ago - because anything that conserves human life should be just as important as changes that might lead to more human lifes being sustainably conserved in the future.

      Were any of these changes anticipated or directed by strong international actors? Or did they come about in "a world adrift"? In the end, it seems that impoverishing ourselves now for sutainability might (and I emphasize the might, as I honestly don't know) just mean that we will be surprised again by fundamental shifts in the world as we know it.

      Perhaps the better response to an increased perception of global risk would be to assume that we don't know from what direction fate will hit us and instead try to make our livelihoods and polities more resilient to the changes ahead: one way to do so, in my opinion, is to strive for greater wealth and more open political systems, especially with regard to immigration. Unfortunately people still too rarely push for open borders although they might do more good than more international conferences by "captains" of this alleged "world adrift"...

    5. CommentedJohn Brian Shannon

      The problem with this ship is the same problem the Titanic had before disaster struck.

      More correctly, the Titanic rammed right into disaster on account of human error -- traveling too fast for the conditions, with uncharted obstacles moving through it's projected course.

      Flying blind at night, might be an apt description, or, "beyond here - there be dragons" might be most appropriate.

      Because we've not been here before. We don't have a real plan and can't really agree on the problems ahead - let alone come to agreement on plans to avoid future problems.

      For now, we are cruising along enjoying our ride, supremely confident in our ability to overcome any unforeseen obstacles that may arise, because of our powerful militaries, our powerful economic systems and our civilized society.

      Brandy, anyone?

    6. CommentedZsolt Hermann

      Thank you for this thorough and very precise review of our present situation.
      It is worthwhile repeating the summary of the article:
      "...In short, the global economy is experiencing a sustainability crisis, in which resource constraints and environmental pressures are causing large price shocks and ecological instability. Economic development rapidly needs to become sustainable development, by adopting technologies and lifestyles that reduce the dangerous pressures on the Earth’s ecosystems. This, too, will require a level of global cooperation that remains nowhere to be seen.
      CommentsThe IMF/World Bank meetings remind us of an overarching truth: our highly interconnected and crowded world has become a highly complicated vessel. If we are to move forward, we must start pulling in the same direction, even without a single captain at the helm..."
      In this global, integral, interdependent system, within a closed finite environment we can only succeed with a true, practically working supra-national governing system based on mutual responsibility, taking each and every element into consideration for any planning or decision, with a return to necessity and resource based economy with equal distribution.
      This can only be achieved with a global education program suitable for any culture and any social layer making people understand that in this intermingled system I can only succeed, prosper, have a future, if the whole system is healthy and functions optimally.
      Only based on such transparent and factual knowledge will people willingly join the new system.

    7. CommentedA. T.

      A large system can be either effectively directed by a single, powerful leader, or it can acquire an emergent direction as a result of a very large number of (similarly empowered) individual choices (the 'invisible hand' of the free market, for instance).

      What it can never stand is a handful of squabbling princelings, too powerful to let mass preferences bubble bottom up, but not powerful enough to control one another.

      In other words, the world is in serious trouble.

    8. CommentedTaha Sabih

      The interdependence on each other will eventually lead countries to unite together to counter issues of concern. This is because every country will be inherently relying on the productivity of others, and issues like climate change or famine in an area will cause a domino effect, eventually reaching them as well. This would make sure that every nation plays its part for the well-being of other.