29 Jul 2020

Reopening of the National and Global Economies: The Lessons Learned

“The way in which the Western economies, in particular, have relied on debt, has got to stop. We have to rely much more on equity and risk-sharing going forward,” an expert, addressing an E-Symposium organized by TRENDS Research & Advisory, said on Tuesday. Dr. William R. White, Former Deputy Governor at the Bank of Canada, said that the governments and central banks have got to start following more symmetrical monetary and fiscal policies.

Dr. White said that a sustainable economy needs a sustainable financial system. “Monetary policy has done more to create financial instability than stability. We cannot always ease; we have to tighten when the opportunity is there to do so,” he said, adding that the world needs to look at debt reduction options and “needs a wholesale embrace of Islamic finance.”

Prominent economists addressed the E-Symposium – Re-opening of the National and Global Economies: The Lessons Learned – which was live-streamed on the TRENDS YouTube channel.

According to Dr. White, since the late 1980s, the monetary policy has become a weapon of choice whenever there has been a downturn. “The upshot has been the constant ratcheting down of interest rates and, at the same time, because the lower interest rates are designed to encourage people to spend more, increases the debt,” he said.

Dr. White also said that the global economy needs more powerful super-national organizations and greater reliance on local stuff. “Global institutions set the vision, and the local institutions make that vision happen. But if governments and institutions decide this is business as usual, then I think we are going to have major problems,” he said.

Addressing the E-Symposium, Simon Lacey, a Senior Lecturer in International Trade at the University of Adelaide, Australia, focused on the threat of anti-globalization and moves against economic openness, based on current trends. Lacey said that the Covid-19 crisis had been an unprecedented moment of reckoning, and we may not see a return to normalcy anytime soon.

“This brings us to an even higher level of uncertainty when it comes to global economic interconnectedness and globalization,” he said. According to Lacey, we may see some radical changes, the likes of which have not been palatable before.

“The long-term impact on the labor market has demonstrated that governments have a significant role in cushioning the shocks.” He also said adding that the ongoing crisis will most likely result in greater economic resilience.

Dr. Richard Woodward, an Associate Professor in International Business at Coventry University, UK, circled around the anti-globalist movements, and their repercussions for the global economic order. He said that globalization has new champions, and is here to stay even though it has slowed down over the past 10 years.

“The share of world trade in the global GDP has not been back to its pre-2008 peak. What has been worrying for economic experts is that some of the key aspects of globalization that had kept it alive in the pre-2008 period have subsequently weakened,” he said.

Acknowledging that Covid-19 has exposed the vulnerabilities of interconnected economies, Dr. Woodward emphasized that modern globalization is different from any of its previously manifested historical versions. “Globalization is embedded in the everyday fabric of our lives and provides the basis of many companies and business models,” Dr. Woodward said.

Dr. Sandrine Kergroach, Deputy Head at the OECD Center for Entrepreneurship, SMEs, Regions, and Cities (CFE), France, highlighted the importance of globalization for SMEs in the post-pandemic recovery period.

Calling SMEs the backbone of economies and a great source of innovation, resilience and economic cohesion, she said that, in OECD countries, SMEs contribute with 2 out of 3 jobs in the market, and almost 50 percent of the GDP.

“Unfortunately, SMEs face size-related barriers in doing business which may compound into lower productivity and lower overall wages wherein SMEs, on average, pay their employees 20 percent less than large companies,” Dr. Kergroach said. She also emphasized that SMEs indirectly engage in international trade, especially in terms of value-added exports.

Highlighting the requirements for re-opening national economies, Zhenhai Cui, a Researcher at Chong Yang Institute for Financial Studies at Renmin University of China, said that, since 2016, China has been working on what its government calls a “new normal economy.” “In recent years, there has been a significant improvement in the coordination between regulatory and monetary policies, resulting in a variety of collective regulations,” he said.

Dr. Manal Shehabi, an OIES-KFAS Supernumerary Fellow at the Oxford Institute for Energy Studies, UK, concluded the E-Symposium discussing the uneven paths of re-opening global economies, including a comparative approach to insights from advanced and developing countries. She said that uneven paths to re-opening the economies are an important aspect of the post-pandemic recovery, which must be seen as a balancing act.

“The determinants of the different pathways of economic recovery hide behind the uneven pick-up in economic activity as economies and markets open worldwide,” said Dr. Shehabi.

This was the 3rd symposium held as part of the TRENDS Global Economic E-Forum series. TRENDS Research Assistant, Sultan Al-Rubaei, moderated the session.

Click here for event proceedings

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