UN High-level Panel on Multilateralism in Crisis
15 July 2020
The pandemic has exposed the fault lines and fractures in current institutional frameworks. It highlights the interdependence implicit in the SDGs but is a sharp indictment of the weakness in global efforts to achieve the SDGs over the past five years. We are heading into a “Greater Recession”, and some of us must wonder whether it will also take a decade of suffering plus a possible war to repair the economy? If so, society and the environment will be damaged beyond repair.
Multilateralism is in crisis, but this crisis must be a catalyst for a better world. Economic resilience will not be achieved by closing borders, but rather by diversifying origin and destination markets. The space for South-South value-chains are an opportunity, and for diversification and upgrading in developing economies. But for the multilateral system to play a role in this, it must empower the weak and vulnerable.
We need to adjust our institutions to recognize the interdependence exposed by the pandemic. For example, it shows how environmental protection is clearly an essential aspect of improving and maintaining human health. Halting deforestation and wildlife trafficking reduce potential vectors for the crossover of dangerous novel viruses from wildlife to humans. Environmental measures within trade are also closely related to health concerns. 13% of all environmental measures notified to the WTO are SPS measures, being the second most common type.
We need to shift our economic focus from “just in time” efficiencies to “just in case” preparedness. We need to reorganize the model of international production implicit in the old export-led growth model’s approach to globalization – this means making supply chains shorter to reduce the wasteful and superfluous. Production chains will need to adapt and re-configure under green and circular economy principles. The future of production will be more locally produced, more sanitary and sustainability requirements, more teleworking, more demand by digital means, less packaging, etc.
COVID-19 is accelerating a transformation in international production and multilateral cooperation needs to adapt. The new industrial revolution, the policy shift towards more economic nationalism, and sustainability trends will all have far-reaching consequences for the configuration of international production in the decade to 2030. We observe a trend towards shorter value chains, higher concentration of value added and declining international investment in physical productive assets. That will bring challenges for developing countries. For decades, their development and industrialization strategies have depended on attracting FDI, increasing participation and value capture in GVCs, and gradual technological upgrading in international production networks.
The expected transformation of international production, despite its inherent challenges, also brings opportunities for development, such as promoting resilience-seeking investment, building regional value chains and entering new markets through digital platforms. In this new context, a degree of rebalancing towards growth based on domestic and regional demand, and promoting investment in infrastructure, domestic services, the green economy and the blue economy is necessary.
For private sector, it will be crucial to shift from a focus on export-oriented efficiency-seeking investment in narrowly specialized GVC segments, to an “export-plus-plus” focus, which entails investments in production for regional markets as well as in a broader industrial base. COVID-19 is pre-sagging a shift from cost-based competition for single-location investors to competition for diversified investments based on flexibility and resilience. We also predict a transition from large-scale industrial investors with “Big infrastructure” to making room for small-scale manufacturing facilities and services with “Lean infrastructure”.
