Break-up of world economy into competing blocs poses huge risk to human society

TORONTO—The fragmentation of the world economy into competing blocs poses huge risks to the future well-being of human society. Fragmentation will mean a more divided world where essential solutions—on climate, financial crises or new pandemics—will be much harder to reach, and where the risks of conflict will be that much greater. These risks and dangers were clear for all to see at this year’s annual meetings of the International Monetary Fund and World Bank in Morocco last week. Yet our politicians across the political spectrum all seem keen advocates of fragmentation, a world divided between good guys and bad guys, democracies versus autocracies. This doesn’t make sense. Global well-being is not a sports league of winners and losers. Like the march to folly that led to a senseless First World War, with millions of deaths, the current division of nations into competing blocs is our own march to folly, creating a much more dangerous world, and one much less able to deal with the challenges that really matter for the planet’s billions of inhabitants. Rather than seeking to isolate, contain and weaken countries whose values and systems differ from ours, we have to accept that the Western-led system that emerged after the Second World War cannot be the basis for a stable and functioning global system in the years ahead. We need a new system, one that recognizes that the major powers from which we differ are nonetheless legitimate powers. We must design our institutions and norms in a way that makes peace and co-operation more possible and the risks to global breakdown—from pandemics and natural disasters to financial crises and climate catastrophe—less likely or more manageable. Earlier this year, N.K. Singh, a leading Indian economics expert, and Larry Summers, former U.S. secretary of the treasury, headed an expert panel that produced a report, The Triple Agenda, warning of the urgent need to act now. Its focus was on the need for a massive flow of funds into the multilateral development banks, including the World Bank, to put the world on a sustainable path. Additional spending of some US$3-trillion per year will be needed by 2030, of which US$1.8-trillion will be needed for climate action (a fourfold increase since 2019) and US$1.2-trillion for other sustainable development goals, including health and education. But instead, the world is being driven into a huge and costly new arms race, unproductive spending that will draw resources away from essential human needs. In Canada, there are daily calls for a huge boost in our defence spending, but hardly a whisper for more spending on ways that improve the human condition and life chances of the over 600 million people in the world living in abject poverty and lacking even the minimal basics of food, water, shelter and safety. As Singh and Summers wrote earlier this year, “the world is literally on fire this summer. Experts estimate that another COVID-level public health threat is likely to emerge in the next generation. Rising interest rates have left dozens of countries with unmanageable debt burdens. And for the first time in nearly half a century, the global economy is fracturing rather than coming together.” In a special study, the IMF showed how fragmentation just in commodity markets—energy, minerals and food—could cause wide swings in prices, threaten the poorest countries with major food security issues, and make the urgently needed clean energy transition both more expensive and with slower progress. “Taken together, the findings present yet another argument for multilateral co-operation on trade policies,” the IMF says. “At the very least, agreement on a ‘green corridor’ for critical minerals and a ‘food corridor’ would safeguard the global goals of averting climate change and food insecurity.” As it is, there is already significant fragmentation in food, energy and mineral commodity markets, contributing to surging inflation in 2022, food insecurity in low-income countries and slower global growth, with “more severe fragmentation of commodity trade” a “major risk.” Many nations, the IMF said, “are trying to reshore commodity supply chains for national security, geopolitical, or other reasons. Measures include those for critical minerals for clean energy technologies, semiconductors and defence (actions include the U.S. Inflation Reduction Act, the European Chips Act, and China’s export restrictions on gallium and germanium).” Canada is also a party to this fragmentation, banning, for example, almost all possibilities of China's financing of mining projects in Canada. “Should the world fragment into isolated blocs, the flows of other goods and services, finance, technology, and know-how would most likely also be disrupted, amplifying global economic costs,” the IMF said. "Fragmentation in agricultural commodity markets could raise food insecurity in low-income countries, with high social and humanitarian costs.” Likewise, the fracturing of mineral markets could make the clean energy transition more costly, and slow down progress towards net-zero emissions. For example, “demand for critical minerals is projected to rise several-fold in a net-zero emissions scenario,” but “fragmentation results in up to 30 per cent lower-than-needed investment in renewables and electric vehicles at the global level by 2030.” As the IMF says in its latest World Economic Outlook, “countries should avoid implementing policies that contravene World Trade Organization rules and distort international trade.” In addition, “countries should safeguard the flow of critical minerals needed for the climate transition, as well as that of agricultural commodities.” And “all countries should aim to limit geoeconomic fragmentation that prevents joint progress toward common goals and instead work toward restoring trust in rules-bade multilateral frameworks that enhance transparency and policy certainty and help foster a shred global prosperity.” If Canada wants to be useful in the world, we should be a champion for multilateralism, as we once were. Sadly, these days, we are among the loudest voices for fragmentation, friend-shoring and all the other simplistic impulses that have us on course for a much more dangerous and difficult world. Unless we change, the world need less—not more—Canada. David Crane can be reached at crane@interlog.com. The Hill Times

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Break-up of world economy into competing blocs poses huge risk to human society

If Canada wants to be useful in the world, we should be a champion for multilateralism, as we once were.

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