The Ends and the Means of Development

The problem In a recent article in the journal Foreign Affairs Nobel-laurate William Nordhaus argues that although there is broad recognition that climate change is the most important environmental challenge facing the world today, governments have continued to tackle the problem with a deeply flawed architecture that relies on uncoordinated, voluntary arrangements which encourage free-riding in international climate change agreements such as the Kyoto Protocol and the 2015 Paris accord. With a perverse incentive structure embedded in such treaties “the global effort to curb climate change is sure to fail.” Since the national targets agreed in the Paris accord are inconsistent with a two-degree temperature target and because studies have shown that annual global emissions would need to drop by about 3 percent between now and 2030 to limit warming to the two-degree limit, there is growing recognition that without major mitigation of greenhouse gas (GHG) emissions global temperat

An important question COVID-19 has shown, particularly in the emerging markets and developing world, a whole range of vulnerabilities in the economies of these countries. Public health systems have come under enormous strains, reflecting many decades of neglect. Budgets have been stretched, with very few countries having the fiscal space needed to respond to the crisis in a vigorous way, without imperiling the long-term health of public finances and/or without turning for immediate help from the international financial institutions. We have known for a long time that fiscal policies in the great majority of countries in the world have exhibited a “deficit bias,” that is, a tendency, regardless of the business cycle or whether the economy in question is in a phase of expansion or downturn, to register a budget deficit. Looking at the data for 191 countries over the 41-year period 1980–2020, countries have run deficits 75 percent of the years (with many advanced economies registerin

One question which COVID-19 has brought to the fore is whether global pandemics are random events, beyond anyone’s control, part and parcel of living in a hyperconnected, nonlinear world. Or do they, in fact, reflect failures of governance, manifesting multiple weaknesses in our economic, social, political and environmental systems, which put our future at risk? And, if the latter, what can we do to mitigate them in the future, given the huge costs?  Where do we stand? The economic impact of COVID-19 is beyond what most of us have seen in our lifetimes. We thought of the global financial crisis in 2008–09 as having been the most disruptive wealth-destroying event of the past 80 years; but global GDP in 2009 actually contracted by “only” 0.1 percent. There were, of course, sharp regional variations, with the advanced economies being the most affected—see table below—but already by 2010, every region of the world was in a robust phase of recovery. GDP growth rates in 2020, ho

What have we done so far and what are some of the early lessons? Some thoughts on these two vital questions follow. The crisis now The COVID-19 crisis is the largest shock to the global economy since the 2008–09 global financial crisis, maybe since the Great Depression of the early 1930s. To avoid overwhelming their health care systems, governments have sought to slow down the spread of the virus by implementing various suppression policies. They have made the case that social distancing measures are central to these efforts, as shown by the recent experience of Korea, Singapore and Taiwan, where various combinations of lockdowns, testing and contact tracing appear to have slowed down the rate of infections. The shocks to the economy have been multiple and mutually reinforcing. Business closures, travel bans and other transportation disruptions have undermined consumer spending and business confidence and could lead to a sharp increase in bankruptcies. Dismissals, layoffs,