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Yaroslav Lissovolik

Chief Managing Director of Sberbank, Head of analytical Department of global markets Sberbank Investment Research, RIAC Member

After several unprecedented global downturns in a little more than a decade, amid the reigning global crisis and the spectre of a second wave of the pandemic delivering renewed blows to global markets, is it at all conceivable to imagine a world where there is no place for such crises? It almost seems as if now crises are seen as an inevitable and perhaps even a progressive result of the free operation of market forces. Some theories go so far as to postulate the expediency of a crisis as a transformation force or “creative destruction” in economic development. Others view crisis periods as the climax of the operation of competitive forces and “natural selection” that is meant to separate winners from losers. Notwithstanding such theories the ultimate purpose of economic theory and the aspirations of economic agents will be increasingly directed at crisis prevention and raising the resilience of the global economic system to renewed shocks.

After several unprecedented global downturns in a little more than a decade, amid the reigning global crisis and the spectre of a second wave of the pandemic delivering renewed blows to global markets, is it at all conceivable to imagine a world where there is no place for such crises? It almost seems as if now crises are seen as an inevitable and perhaps even a progressive result of the free operation of market forces. Some theories go so far as to postulate the expediency of a crisis as a transformation force or “creative destruction” in economic development. Others view crisis periods as the climax of the operation of competitive forces and “natural selection” that is meant to separate winners from losers. Notwithstanding such theories the ultimate purpose of economic theory and the aspirations of economic agents will be increasingly directed at crisis prevention and raising the resilience of the global economic system to renewed shocks.

The first thing to understand about the concept of “the world without a crisis” is that in a globalized economy there needs to be a critical mass of international cooperation – in fact the current crisis is first and foremost a crisis of multilateralism and international cooperation. Even in current conditions of increased separation across countries there is no such things as perfect immunity of a country’s economy to external shocks – the scale of immunity of national economy as well as the global economy as a whole is dependent on the scale of international cooperation.

Another important dimension is the time-frame that is prioritized in the investment and strategic decisions of the global economy – the current crisis clearly shows that the time-horizons with respect to both consumer demand and supply need to shift to longer term needs and contingency supplies. Also, the high concentration of economic activity in a limited group of countries creates risks of unbalanced and crisis-prone development – there needs to be paradigm, in which a growing circle of countries could partake and benefit from the growth impulses in the largest economies of the world. This in turn could be achieved through further development of regional institutions as well as platforms that allow for greater cooperation among regional integration blocks (as per the Regional 20 concept advanced by the Valdai club in the T20 discussions in 2019).

In a “world without a crisis” paradigm the economic decisions of regulators and the state have to be at least one step ahead of the markets and economic agents in gauging emerging vulnerabilities and possible anti-crisis measures. There needs to be constant monitoring of the existing reserves and funds to cover possible outflows and liabilities both at the national and the global level. Greater emphasis needs to be placed on forward-looking indicators and reliable estimates of trends derived from big data and AI algorithms – these “real time” sources of data will serve to alleviate the imperfections and lags inherent in the traditional statistical monitoring.

A more resilient global economy will also need stronger regional and global institutions, less political confrontation and more advanced technologies of crisis prevention. In some respects, avoiding crises may have become easier with time as the array economic policy tools has greatly expanded over the course of the past decades, with the current crisis also leading policy-makers to discover new instruments. On the other hand, avoiding crises has also become more challenging in an interdependent world, where any sizeable decline in one part of the world may quickly reverberate across the globe. The channels of the propagation of crises have also expanded as trade channels have been augmented by financial markets and financial sector linkages across countries.

The track-record of individual countries does show extended periods of economic growth without a recession, with the longest such streak being exhibited by Australia. Thanks in large part to economic policies that favoured greater openness and integration of the national economy into global markets, Australia experienced a period of more than 28 years of consecutive growth since the beginning of the 1990s. This winning record, however, appears to have come to a close this year due to the coronavirus downturn. Equally impressive were the consecutive growth records performed by Poland, Ireland, South Korea (1979-1997, 1998-2016). Across the developing nations China stands out as the largest economy of the Global South that has not experienced a full-blown recession since 1976.

In the end, the dire frequency of crisis events since the 2007-2008 episode is likely to lead not only to a further exploration of novel anti-crisis policy tools, but may result in a reconsideration of the level of tolerance to further crisis events. This in turn is likely to lead to greater prioritization of measures directed at crisis prevention, as well as other areas such as accumulating sufficient reserves and buffers at the national, regional and global levels. Building a “world without crises” may well appear to be too utopian a dream in the current macabre context, but this may be the ever elusive goal that brings us closer to a global society whose focus is on the future of the human needs and not the past roots of discord.

Source: Valdai. Discussion club

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