Globalisation lite: a plan to heal a fractured world of permacrises

Tight coupling in a global world is breaking and we need a looser macro-management philosophy that allows for decentralised adjustments to different stresses and strains

Andrew Sheng

Published: 7:30pm, 1 Dec 2023

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Are we in a state of permacrisis, defined as “an extended period of instability and insecurity, especially resulting from a series of catastrophic events”?

Former British prime minister Gordon Brown, fund manager Mohamed El-Erian and Nobel-winning economist Michael Spence think we are, judging by their new book, Permacrisis: A Plan to Fix a Fractured World.

These authors are practical and crises-hardened thought leaders who, between them, understand the toxic mix of politics, finance, economics and technology that plague us.

As British prime minister, Brown rallied world leaders at the G20 summit in 2009, amid the global financial crisis, to take collective action to reinflate the global economy. As adviser to Allianz Group, having formerly served as co-chief investment officer at Pimco, Mohamed understands financial markets and has been critical of recent global macroeconomic management.

As for Spence, after chairing the World Bank’s Commission on Growth and Development from 2006 to 2010, he has delved deeply into the study of cutting-edge technology, global supply chains and business trends.

Most books today spend more time on diagnosis – how we got into this mess – without articulating how we can get out of it. What this book tells us is that we cannot take the tailwind of growth and low inflation for granted.

The world is messy because of four major shifts – the rise of a multipolar world as emerging economies catch up, the digitisation of everything and the global spread of know-how, the energy transition, and the rapid scientific revolution in artificial intelligence, biomedical and life sciences that is transforming our lives.

The authors are critical of the global growth model, which has seen growing inequality, low productivity and an over-reliance on central bank policy. They argue that in an economically integrated, socially interconnected and geographically interdependent world, cooperating uncooperatively is a formula for disaster. This requires a shift towards what they call “well-managed globalisation lite”.

The past was demand-constrained, with huge supply coming from the emerging markets, today led by China, India, the Middle East, Africa and Latin America. Post-Covid, we face excess demand in a supply-constrained world.

Thus, the rise in interest rates fundamentally reflects the imbalance in demand, which must be restrained (through higher rates). In short, we will face higher rates for longer. We are facing not a demand-pull, but a deep structural cost-push inflation that central bankers have underestimated.

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Permacrises are a feature of modern macro-management because the conventional tools of monetary and fiscal policies are not equipped to contend with the issues of national security, demographic shifts, natural disasters and social discontent, which are far more intense, complex, volatile and costly than policymakers were used to.

It is not surprising that policymakers in advanced and emerging markets are throwing resources at emerging problems by increasing their fiscal deficits and debt, aided by looser monetary policy. But short-term fixes cannot address the deep structural fissures coming from multiple entangled fronts.

We no longer have a unipolar world order and there are as many dissidents to the neo-liberal philosophy as there are populists and neo-nationalists. Tight coupling in a global world is breaking, and we need a looser macro-management philosophy that allows for decentralised adjustments to different stresses and strains.

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In essence, the authors argue that we need a new multilateralism for a multipolar world – not the tight-knit G7-led model, but a looser multipolar cooperation moving towards global public goods. This calls for no less than a reformulation of international institutions – such as a reformed World Trade Organization, reimagined G20, nimbler United Nations, and recapitalised and refreshed Bretton Woods institutions (the World Bank and International Monetary Fund).

But why have the big powers not moved earlier towards such an eminently sensible model?

My view is that so far, the United States, as the world’s largest economy, is enjoying its economic, technological and financial leadership without having to pay too much in deep structural pain.

True, global growth since 2008 has been anaemic, but the rest of the world has muddled through with low (near-zero) interest rates and higher debt. It wasn’t until 2021 that interest rate increases started to break that old equilibrium. Deep reforms only come after suffering intolerable pain. With the two wars in Ukraine and Gaza, the US may have its hands full again fighting forever wars.

Yet while Europe struggles with a broken business model and China deals with deflation issues, the US has so far avoided recession. Hence, there is little domestic support for global cooperation in trade, finance, debt distress and investments.

The recent Biden-Xi talks have put a temporary hold on the worsening US-China relationship, but if the US slips into recession, my guess is that economics will triumph over toxic politics.

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The geopolitical reality is that no international cooperation can happen without the US – but also that this indispensable power cannot push through policies without the agreement of Europe or China, indeed, the Global South.

In that sense, permacrises are outbursts of pain, which will either become so large as to overwhelm everyone or lead to the hard-nosed realisation that in an interdependent world, we have to live and work with one another.

Brown, Mohamed and Spence should be commended for putting forth a pragmatic and constructive solution to permacrises. It is not the only option, and it is very likely we will still muddle through, but instead of blaming everyone else, this book offers a breath of clarity in a confused and dangerous world.

Andrew Sheng is a former central banker who writes on global issues from an Asian perspective