Permacrisis — A Plan To Fix A Fractured World

I finished reading my most recent book titled Permacrisis, authored by Gordon Brown, Mohamad A. El-Erian, and Michael Spence. The book was recommended by Mimi Brooks, who did a review of it here. This was a very impactful book written by three of the most internationally respected and experienced thinkers of our time. As described by the Amazon abstract, the book focused on a cascade of crises: sputtering growth, surging inflation, poor policy responses, an escalating climate emergency, worsening inequality, increasing nationalism and a decline in global co-operation. While they do a great job of identifying the challenges, they also prescribe solutions. Given their experience base, we should pay very close attention to both sides of this story. I have added the book to my library and provide a brief summary below.

The world is undergoing a profound transformation marked by multifaceted economic, social, and technological shifts, altering the familiar landscape of the past three decades. This book delves into key messages regarding the challenges and opportunities presented by these changes, emphasizing the importance of understanding evolving dynamics.

EMERGING ECONOMIES AND AFRICAN POTENTIAL:

African countries, with a median age of 19.7, boast a large and youthful population. Despite substantial potential, these economies are not fully integrated globally beyond natural resources and agriculture. The African Union’s space strategy highlights the continent’s growth potential, aiming to utilize “space-based solutions” for a prosperous future.

LABOR AND ECONOMIC SHIFTS:

Labor-intensive manufacturing, a traditional source of comparative advantage for developing countries, faces challenges from digital substitutes, robotics, and automation. Africa, with a fertility rate twice the global average, must prepare for a population larger than China and India.

Today, most people in emerging economies are at middle-income levels. It’s not surprising that with this surge in wealth has come a decline in the labor pool. In turn, the long period of deflationary forces associated with what at times appeared to be an inexhaustible supply of low-cost productive labor is coming to an end.

Gordon Brown, Mohamad A. El-Erian, and Michael Spence — Permacrisis

GLOBAL ECONOMIC TRANSITIONS:

The last three decades, characterized by rapid growth, global stability, and a unipolar world, are considered abnormal. Shifts from a unipolar to a multipolar world, hyper-globalization to managed globalization-lite, and neoliberalism to neonationalism are underway.

We must now rethink the balance between supply-side and demand-led economics and understand that investment and high levels of innovation command as much importance as the pursuit of low inflation and open competition. Economic policy must now be assessed on a trinity of objectives — economic growth, social justice, and sustainability.

Gordon Brown, Mohamad A. El-Erian, and Michael Spence — Permacrisis

POST-PANDEMIC SUPPLY CONSTRAINTS AND INFLATION:

The pandemic shifted the world from demand-constrained to supply-constrained growth, resulting in inflationary pressures. The era of deflationary tailwinds from introducing unused productive capacity is fading.

HEADWINDS AND CHALLENGES:

Ageing populations, rising debt ratios, labor market shifts, and geopolitical tensions pose challenges to global economic stability. Increased industrial concentration, declining productivity, and partial deglobalization contribute to a more complex global order. In the United States alone, the Bureau of Labor Statistics estimates that since 2005, $10.9 trillion in lost output in the non-farm business sector has occurred due to the labor productivity slowdown — a loss of $95,000 in output per worker.

OPPORTUNITIES AND SOLUTIONS:

The digitization of everything, energy transition, scientific revolution, and redefined growth metrics offer avenues for positive change. Collaboration, public investment, innovation, and a focus on sustainability and social justice are crucial in navigating these transformative times.

We are living through the greatest geopolitical seismic shift in a lifetime — new great power competition, protectionism, and populist nationalism. Any successful attempt to create a more co-operative global order will, by definition, depend on collaboration, and yet governance is trending in the direction of becoming fully uncooperative in a world where every country’s independence is constrained by its interdependence.

Gordon Brown, Mohamad A. El-Erian, and Michael Spence — Permacrisis

POTENTIAL RISKS:

The risk of fragmentation into economic blocs based on ideologies and political systems is highlighted. Rising nationalism and protectionism, coupled with frequent and violent shocks, pose threats to global cooperation.

CALL FOR ACTION:

The book stresses the need for a new revolution, similar to the Green Revolution, focusing on global cooperation, knowledge-sharing, and positive-sum thinking. Urgent actions are required to address global challenges, and the risk of a fractured economic landscape must be mitigated through collaborative efforts. In conclusion, the world is at a crossroads, navigating through unprecedented changes that demand collective and innovative solutions for sustainable, inclusive, and secure global development.

Originally published at http://frankdiana.net on December 5, 2023.