Bad policies brewed a ‘Perfect Storm’

Thalif DEEN

When the Cold War ended following the collapse of the Berlin Wall in 1989 and the subsequent dismantling of the Soviet Union, there was widespread political euphoria about de-militarisation, global peace, a decline in military spending and economic prosperity.

But this was never to be as evidenced by a rash of political and socio-economic problems, including rising hunger and poverty worldwide, domestic insurgencies, the spread of HIV/AIDS, and more recently, wars in Iraq and Afghanistan.

The United Nations says these have been compounded by new global threats, including food riots, volatile capital markets, a credit crunch, unstable currencies, plummeting house prices and the devastating impact of climate change.

“In rich and poor countries alike, economic security is under threat,” says U.N. Secretary-General Ban Ki-moon, in the latest “World Economic and Social Survey 2008”, released here, to coincide with a month-long meeting of the Economic and Social Council (ECOSOC), which ends July 25.

And this threat, he says, ironically prevails 60 years after the Universal Declaration of Human Rights affirmed that everyone should have access to a standard of living adequate for their health and well-being.

Climate change and damage to economic livelihoods caused by natural disasters whether droughts in Australia or floods in Bangladesh “are stark warnings of the consequences of complacency.” Ban says rising food prices have triggered serious political unrest in a number of countries about 30, at last count and led to renewed support for putting food security back in the international agenda.

“The recent financial turmoil in the world economy still threatens a sharp growth slowdown which will endanger livelihoods in rich and poor countries alike,” he warns.

Jomo Kwame Sundaram, assistant secretary-general for economic development, told reporters last week that rising commodity prices, financial liberalisation, globalisation and the high cost of self-insurance for countries following the 1997-1998 financial crisis, made up “the perfect storm”, at the macro-economic level, as far as the current food crisis was concerned.

The situation was further aggravated, he said, because of climate-related disasters such as hurricanes, typhoons and floods, as well as non-climate-related disasters such as earthquakes, civil wars and other domestic insurgencies.

Addressing the ECOSOC meeting last week, the current president of that Council, Leo Merores, said: “In the wake of rising prices for food and fuel, the deepening credit crisis, persisting global imbalances, and the declining growth of the world economy, we are facing serious threats to our efforts to lift people out of poverty.”

He said that rising food and fuel prices, in particular, are also leading to social unrest and instability.

“If we do not take urgent collective action, then we may face turmoil in these countries,” he warned.

Meanwhile, the U.N. survey says recent optimism that the corner was being turned on poverty thanks to faster growth in emerging markets and even some very poor economies “is turning to anxiety”.

This is due to downshifts in the global economy, price hikes and weaknesses in formal-sector employment.

“Left to their own devices, markets are not delivering the desired levels of economic security,” the survey says.

As a result, the report calls for “steps to narrow the pendulum swings of economic cycles, reduce dependence on debt and finance instruments for economic growth, tailor macroeconomic policies to development priorities and inject new life into multilateralism.”

As an example of “misconceived policies”, it cites the case of agriculture, where pressure on developing economies to open trade and finance markets preceded the means to build productive farms and rural infrastructure.

“This lack of capacity has now become a destabilising factor in a bedrock feature of personal and social security the ability of a country to feed its citizens.”

The survey calls for overhauling the Bretton Woods system of multilateral financial institutions like the World Bank and International Monetary Fund, including more effective compensatory mechanisms to deal with external shocks, support for counter-cyclical macroeconomic measures and stronger global financial regulation, and inclusive policy coordination.

It urges revisiting the Marshall Plan in view of a more effective aid architecture that takes national ownership seriously and supports local priorities and capacities.

The survey also advises recreating the “New Deal” a wide-ranging package of economic and social development programmes introduced by U.S. President Franklin D. Roosevelt in the 1930s on a global scale, noting that the World Bank has called for a new deal for agriculture, trade liberalisation for farm products, as well as greater investment in agriculture.

But like the policy response to the Great Depression of the 20th century, the survey says that action is needed to curb abuses in market power, and to better share the burden of shocks.

- Inter Press Service (IPS)