Just as one generation gives way to the next, global challenges are replaced by a new cohort. The COVID-19 pandemic, unique in a century, and the risk that other dangerous new viruses could emerge at any time, is far from the only example.
Extreme weather events resulting from climate change are having catastrophic consequences. Information technology and data are sometimes used maliciously or for cyber warfare. Even rising food prices and rising world hunger can be attributed to the lack of diffusion of open source technologies.
We seem to live in a state of permanent danger. Crises are no longer isolated tail risk events that affect a few. They are much more prevalent, multidimensional, and interdependent, and because they transcend national borders, they have the potential to affect everyone simultaneously.
Furthermore, they involve so many externalities that both markets and national governments have insufficient incentives to deal with them.
Solutions to these problems depend on the availability of global public goods, but the current international system is unable to provide a sufficient supply. We need large, coordinated investments in pandemic preparedness and response, for example, or in reducing greenhouse gas (GHG) emissions (a global public bad), because no single country’s actions will solve current crises, let alone prevent new ones.
It is imperative to rethink the way multilateralism works. The postwar international financial architecture was designed to support national governments so that they could provide national public goods. The priority now is to think about the new institutions required to provide public goods that transcend national borders.
The overlapping nature of the current crises makes an even stronger case for a new framework. An increased frequency of extreme weather events, such as floods and droughts, increases the risk of infectious and waterborne diseases. Rising average temperatures and altered rainfall patterns are reducing the potential yield of staple crops (by six percent in the case of maize, for example) that are crucial for food security, an essential component of Good health. In 2010-19, the proportion of the global land area that experienced extreme drought in any month reached 22%, up from 13% in 1950-99.
Previous emergencies, such as the global financial crisis of 2008-09 (which was actually a developed world phenomenon) or the Asian and Latin American financial crisis of the late 1990s, were essentially economic in nature, resulting from excessive accumulation of financial risks.
Solutions lay in the hands of central bankers and finance ministers. They included new financial regulations and fiscal and monetary policies to restore lost employment and production.
Today’s crises, by contrast, are interdependent and truly global in scope, with potentially far greater impact. What is distinctive is that the solutions no longer depend exclusively on the competence of the national economic authorities. Addressing them effectively requires leadership and action among governments around the world.
An example of this approach is the proposed Global Council on Health Threats. The early detection of pandemic threats and the development of herd immunity against known pathogens is a classic case of a non-rival and non-excludable global public good.
But taxpayers in individual countries lack the incentives to provide goods whose benefits are enjoyed globally. Furthermore, we cannot expect official development assistance (ODA) or philanthropy to get the job done. The numbers just don’t add up.
ODA totaled $180 billion last year, with private donors adding a few billion more. But global public goods require trillions of dollars. Furthermore, aid budgets are too cyclical and priorities change. But what seems urgent and politically attractive does not always coincide with what is important, which should be the focus of global public goods.
That is why we need to introduce a new multilateral system. Ideally, its main elements should reflect the tools used to provide national public goods: taxes, incentives, and accountability.
Since global public goods require significant and stable financing, we must focus on building global fiscal capacity, financed universally on the basis of ability to pay. Of course, leadership is also required at the national level to ensure an adequate intergovernmental and intersectoral response.
Providing taxpayers and governments with the right incentives to act will not be easy. But most governments take regular Article IV consultations of the International Monetary Fund (IMF) very seriously; including an assessment of how they are addressing climate and pandemic risks would be a good start. Also, credit rating agencies should expand the methodologies they use to assess risks to governments and businesses.
The world is not prepared to face the new generation of crises. Instead of just focusing on shortcomings in one particular area when a crisis hits, we need to understand why we are systematically bad at producing the global public goods that all these new crises require.
Unless we address this issue, specific gaps will continue to emerge. If another pandemic threat were to emerge tomorrow, for example, we would be no better prepared than for COVID-19.
The current climate, health and food crises should trigger the global collaboration needed to tackle such threats. If they don’t, it’s fair to ask what would.