Covid vaccine crisis could be the last straw for post-war economic consensus

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TThe proper functioning of any interconnected economic system depends on trust. And a global system that was designed by advanced economies requires a significant level of buy-in from developing countries. Both become even more important as developing economies, led by China, gain systemic importance.

As the world tries to recover from the massive economic shock caused by Covid-19, mismanagement of the global vaccine rollout has weakened confidence in the international system that emerged after World War II. Combined with memories of the 2008 global financial crisis, which originated in advanced economies, today’s failures reinforce suspicions among some countries that the international order may no longer be fit for purpose. The West, in particular, must take these concerns seriously. With no other multilateral system to replace the current one, the only alternative is a scenario of global fragmentation and growing economic, social and political tensions.

Although the UK has been ahead of most other countries in vaccinating its population, its fight to contain infections associated with India’s new B.1.617.2 variant serves as a timely reminder that no one is safe until everyone is. As former Prime Minister Gordon Brown notes, while “nearly half of American and British citizens have now received at least one” dose of a Covid-19 vaccine, that figure drops to 11% in India. In sub-Saharan Africa, barely 1% of the population received a single dose.

While country-specific problems have contributed to poorly managed and inefficient vaccine deployment in some developing economies, the real problem has been insufficient supplies. As the United Nations pointed out in March, only “10 rich countries … have nearly 80% of all vaccines against Covid-19”. This has enabled them to begin immunizing even the most vulnerable segments of their population – including children as young as 12 – while billions of people in the developing world remain utterly unprotected. The International Monetary Fund estimates that countries with large vaccine stocks could give 1 billion doses in 2021 without calling into question their national immunization priorities.

Additionally, several advanced economies have racked up huge vaccine surpluses as they plan a series of booster shots in the fall. And the insufficient funding of Covax, the installation of the international community to ensure equitable global access to vaccines, further underscores their reluctance to help the rest of the world. But it is not only a moral and ethical failure, it is also a practical failure. According to IMF research, an additional $ 50 billion (£ 35 billion) in funding for global immunization efforts would produce $ 9 billion in economic benefits.

The more the global vaccine rollout stumbles, the greater the long-term damage to an already stressed international system. Designed nearly 80 years ago, this system centers on advanced economies that have historically provided essential “public goods”, such as a stable international reserve currency (the US dollar) and significant funding for multilateral institutions. In return for these contributions, advanced economies have enjoyed enormous privileges, including a de facto veto over global governance, monetary lordship, and reduced daily financing costs (serving as a destination for the savings of others. ).

Yet while the post-war international system grants advanced economies disproportionate influence in world affairs, its credibility and basic functioning ultimately depend on the responsible conduct of its stewards. The 2008 financial crisis hinted that they had not done so, and the rich world’s prolonged and excessive reliance on a policy mix that was too dependent on monetary policy has since compounded the damage to their credibility.

In this context, the unbalanced, unfair and ineffective deployment of vaccines could be a serious blow to the long-term viability of the system. It would certainly suit China. With its growing economic power and global reach, it has eagerly challenged the legitimacy and lure of the West-dominated order, which it describes as unreliable and dependent on asymmetric relations with developing countries.

But because you can’t substitute something for nothing, the result has been the slow but consistent evolution of a sort of hybrid system. The post-war system remains in place, but its dominance is gradually eroded by the proliferation of arrangements that bypass its core. Examples include new multilateral institutions (such as the Asian Infrastructure Investment Bank and the New Development Bank), new regional plans (notably the China Belt and Road Initiative) and new agreements. bilateral trade and investment.

As a result of these developments, the overall functioning of the world economy has been weakened, with important consequences for all. And the longer vaccination delays in many parts of the developing world, the more the vaccinated countries will feel compelled to adopt a bunker mindset. As the international system becomes fragmented, the less stable it will become, reducing the prospects for the kind of synchronized global growth needed to improve the performance of each country. Moreover, as confidence in the system continues to erode, advanced economies will face additional national security challenges.

Trust is a precious commodity: it is difficult to establish, easily eroded and extremely difficult to regain. Although far from perfect, the current international order is better than all the alternatives and remains eminently reformable. Advanced economies must not compromise it by dragging their feet in the global immunization effort.

Mohamed El-Erian is the chief economic adviser of Allianz. He was chairman of Barack Obama’s World Development Council and former deputy director of the IMF.

© Project Syndicate


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