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Cooperation Needed for Coherent Recovery

Jun 02, 2022
  • Yu Xiang

    Senior Fellow, China Construction Bank Research Institute

The COVID-19 pandemic has entered its third year, and judging from its variations and spread, and with the declining toxicity to human life and health and progress in the containment, mankind is stepping out of the worst hardships in the economy and society. So it’s a good time to reflect on the lessons and look beyond to the post-pandemic era.

Before the outbreak of COVID-19, some countries had the mindset of “nation first,” a populist and protectionist approach that took globalization to a low ebb. At the time when lives are being lost, the COVID-19 pandemic reminds us that cooperation is the right way for the world to deal with common challenges.

The pandemic highlights four major problems in the development of human societies: 

First, the content of the “security” concept has become narrower. With the end of the Cold War, peace and development became the theme of the times. The concept of security for nation-states has shifted from hot war or nuclear war to economic fields, especially focusing on the trade balance and domestic employment, which to some extent has become the primary goals of governments. 

However, today’s security involves more. Instability and uncertainty for mankind are more challenging than before. Besides economic security, it is necessary to take other issues into account.

Second, the gap between the rich and poor in society has widened. The disparity worsened after the 2008 financial crisis, and the COVID-19 pandemic further exacerbated the problem. In its 2021 Year in Review released in December, the World Bank noted that people of all income groups suffered losses during the COVID-19 pandemic, but the poorest 40 percent suffered the sharpest decline. Income decline led to an increase of about 100 million people living in extreme poverty, while the decline in the incomes of the richest group began to reverse. The reason for this difference is that the rich group had more capital gain than payroll, which compensate them for the loss of income over COVID-19, while the poor did not.

On the other hand, after the outbreak of COVID-19, the rich had better access to medical resources, while the poor did not because of their disadvantageous financial situation. Because of the COVID-19 pandemic, their financial difficulties worsened and the income disparity widened. In low-income countries, fewer than 10 percent of people have received at least one dose of a vaccine, while about 80 percent in high-income countries have been vaccinated. If we let things go this way, the widening income disparity will inevitably promote political divergence, social polarization and vulnerability.

Third, the differentiation of countries has expanded. Because of different endowments and other factors, the levels of development vary from country to country. Although the differentiation of development can generate market opportunities, narrowing the gap and achieving common development remain lofty goals for mankind. Economic globalization is conducive to driving the common development of all countries and narrowing the development gap between countries.

The world economy's recovery in 2021 was strong, but the unbalanced recovery between countries is, unfortunately, more prominent. Developed countries, such as the United States, are vaccinated faster, and their economic recovery has taken the lead. Developing countries face problems such as vaccine shortages, fiscal balance-of-payments pressure and limited macroeconomic policy room.

World Bank Group President David Malpass warned that the per capita income of developed economies will increase by 5 percent in 2021, while that of low-income countries will grow by only 0.5 percent. The different recovery pace has led to a widening gap between developed and emerging economies, which had begun to narrow before the pandemic.

Worse still, this differentiation of development will exacerbate confrontations between and within countries. After World War II, with the deepening of globalization, the economies of various countries were more connected, which significantly reduced the frequency and intensity of hard confrontation, such as war, military conflict, violence and social instability.

Conflicts between countries or regions mostly adopt soft methods, such as economic sanctions, export controls and judicial litigation to deal with disputes. However, protectionist policies represented by “America first” have disrupted the globalization process, and the COVID-19 pandemic pushed the pause button on globalization.

Fourth, the vulnerability of global supply chains is exposed. Globalization improves production efficiency, but the desperate pursuit of production efficiency leads to feeble supply chains. The COVID-19 pandemic has further exposed the vulnerability of supply chains, making most countries realize the importance of supply chain security. In the future, the building of global supply chains will pursue a multi-objective balance of profit and security, efficiency and resilience and localization and globalization, rather than profits and efficiency only.

The key to properly addressing the above challenges is to strengthen global cooperation, which in turn will transform the individual endeavor for a better future from “I” to “we,” the collective endeavor.

The most effective way to address challenges is to implement a broader and deeper opening-up to the world, which means more opening of doors than closing of them. It means more cooperation than isolation and more reciprocity than monopoly.  Recommendations are as follows:

First of all, the boundaries of governmental functions should be clear. A government should draw a clear boundary not only for the players in a market but also for itself. A government should devote itself to enhancing internal and external policy coordination, promoting globalization and global cooperation. Let the market mechanism play a basic role in the allocation of resources. It has been proved that protectionism does not increase the well-being of a country’s own people.

Second, promote cooperation to eliminate differentiation in recovery. A realistic way is to jointly repair the industrial chain. The COVID-19 pandemic exposed the vulnerability of industrial chains, and countries began to realize the importance of repairing them. However, the formation and development of global industrial chain supply chains is the result of the interaction between market rules and enterprise choices over a long period of time. Uniting all efforts is the only way to repair a damaged supply chain as soon as possible.

Third, strengthening cooperation to prevent and reduce economic, financial and social risks. Risks are easily contagious and so we need to guard against them jointly. The risk of political polarization and social polarization will not dwindle by itself. Former U.S. secretary of state Henry Kissinger wrote in the Wall Street Journal in April 2020 that the COVID-19 pandemic will change the world order forever. Changes in power contrast and interactions between major countries will continue this year. And black swan and gray rhino events intertwine and resonate. This will characterize the international environment in the coming period. Faced with this situation, we need to strengthen cooperation and deal with the risks brought about by uncertainty and instability.

We can enhance global cooperation to deal with climate change, which has become another Sword of Damocles hanging over human society. Strengthening cooperation, developing more financial products and attracting money to the green and low-carbon market is the way out.

Fourth, we need to strengthen cooperation to gather the intellectual power to achieve sustainable human development. Because of the COVID-19 pandemic, almost all countries are paying more attention to the development of science and technology. Technological progress and applications are accelerating. Scientific and technical innovation are not only promoting the emergence of new industries but also deeply penetrating traditional industries and profoundly changing the traditional development model. 

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