UNDP in one of its recent reports has highlighted that most people, in fact a majority, feels insecure in the current evolving dimensions of the world. This needs to be viewed as significant as security in terms of life's absolute necessities - air, water, food and shelter - ranks as an important tier in our needs pyramid. The report has also suggested that this was not the case in the years leading up to the COVID-19 pandemic when people on average were living healthier, more prosperous and better lives than ever.
Such insecurity appears to be present in all dimensions -- both among the poor as well as the affluent -- not only in the comparatively poorer countries but also in wealthy developed countries. Such an emerging scenario is affecting not only wellbeing but also human development. It is interrupting education and life plans, disrupting livelihoods and stirring political division over masks and vaccines. UNDP in this context has also noted that even with the distribution of vaccines and the partial economic recovery that began in 2021, the crisis has been marked by a drop in life expectancy of about one and a half years.
However, analysts feel that such human suffering is unequal in terms of presence. It is most spread among the poor, rather than the rich. The African Sahel region has been given as an example. According to the World Food Programme (WFP) Africa's Sahel region is facing a 'horrendous food crisis.' The UN emergency food relief chief has warned that the number of people on the brink of starvation has "increased almost tenfold" over the past three years and "displacement by nearly 400 per cent." The vast Sahel, which runs nearly the breadth of the African continent, south of the Sahara Desert, is experiencing some of its "driest conditions" in years. Apparently, "in just three years, the number of people facing starvation has skyrocketed from 3.6 to 10.5 million, in the Sahelian nations of Burkina Faso, Chad, Mali, Mauritania and Niger." There has also been insecurity within this COVID induced situation because of dramatic food cost increases and other compounding factors. As a consequence many families have allegedly been chased from their homes by extremist groups, starved by drought and plunged into despair by COVID's economic ripple effects.
The UNDP special report on unsafe and insecurity has also warned that in tandem with this has emerged a growing mistrust in each other and in the institutions which are, in theory, designed to protect such people in distress.
It's a deadly dance and no-one is immune from its consequences, UNDP has warned. In this context it has also been underlined by them that "despite global wealth being higher than ever before, a majority of people are feeling apprehensive about the future and this feeling has likely been exacerbated by the pandemic." In this regard it has also been pointed out by Achim Steiner, UNDP Administrator that "in our quest for unbridled economic growth, we continue to destroy our natural world while inequalities are widening both within and between countries."
The UNDP and some other institutions have also pointed out that in different formats conflicts involving the state are-raging in 37 countries-the highest since the end of World War II." According to the UNDP report, violence is becoming normalised in many places, and the number of people forcibly displaced due to conflict or disaster has risen over the past decade, reaching more than 80 million in 2020. Interestingly, it has also been added that "about 1.2 billion people live in areas affected by conflict-almost half of them in countries not considered to be fragile."
In this regard, mention has also been made that old inequalities and new realities have juxtaposed to create a new generation of inequalities. These include the ability to flourish in a modern economy, and access to now-necessary technology such as broadband internet. This has its own denotation as technology is a two-edged sword-bringing vast opportunities and potentially catastrophic risks, according to the UNDP report.
There appears to be two sides to this coin according to some analysts. They have noted that while digitalisation can connect communities, encourage new skills and education, and promote human security, social media is also, at times, spreading misinformation and fueling polarisation. It may be recalled here that in 2017, an estimated 95 per cent of companies in Africa were rated on or below the cyber security 'poverty line', unable to protect themselves from malicious attacks, the report adds. The report indicates that "the damage of cybercrime was estimated to cost about US Dollar 6 trillion in 2021, a 600 per cent increase since the beginning of the pandemic in 2020."
It has consequently been mentioned that COVID-19 has exposed major long-term economic vulnerabilities. This malaise - including declining productivity growth - is being traced to the greater influence of finance on the real economy. Unfortunately, it also appears that the deep-seated causes of the current resurgence of inflation, inequalities and contractionary tendencies are not being addressed.
Similarly, the World Bank has noted that growth pertaining to productivity has been reducing in major economies since the early 1970s. This is having its own osmotic effect. It has also been pointed out that the world labour productivity growth has slowed from its 2007 peak of 2.8 per cent to a post-GFC nadir of 1.4 per cent in 2016, remaining under 2.0 per cent in 2017-2018. This slowdown appears to have affected over two-thirds of advanced, emerging markets and developing economies.
Such slowdown according to analyst Robert Gordon has mainly resulted from slower technical innovation, organisational improvements and labour skill growth over the past decade, particularly in industrial nations. For the World Bank, reduced investment and TFP growth deceleration have been roughly equally responsible for the productivity slowdown. Slowing working age population growth and limited education progress have also contributed. This dynamic has led the United Nations to comment that "as firms around the globe have become more reluctant to invest, productivity growth has continued to decelerate". It has also blamed the slowdown on reduced investments in machinery, technology, etc. Slower transitions to more diverse and complex production have also delayed progress. Some supply shocks due to 'natural causes' - of which 70 per cent were climate change related - have also hurt productivity growth.
We have to understand that more sustainable and inclusive growth policies can help increase productivity. However blind faith in 'market solutions' since the 1980s has worsened resource misallocations, sectoral imbalances and job-skill mismatches. Economists have noted that one-sided demand stimuli - through more deficit spending or monetary expansion, without complementary supply-side measures - have only made limited impact. It needs to be also remembered that supply-side measures to enhance growth need appropriate regulatory reforms, not wholesale deregulation. This is important because deregulation has often strengthened product market oligopolies while labour's bargaining strength has generally declined.
There are also some negative externalities that are affecting markets, some of which are failing the environment and undermining sustainability. Inadequate investments in renewable energy and sustainable agriculture are also resulting in food and energy shortages, which exacerbate inflationary pressures. Financialisation, tax cuts and deregulation have also encouraged speculative activities, share buybacks and other portfolio purchases. While this is going on as much needed productive investments, especially in infrastructure, technology and innovation remain underfunded. National problems have consequently been worsened by failure to improve multilateral economic governance.
We need to remember that in the domain of financialisation declining productivity growth has partly been due to international finance's creeping dominance over the real economy over the last few decades. Economic analysts believe that with banking becoming more internationalised and concentrated, traditional financial intermediation by commercial banks has been undermined by market allocation and through the combining of both commercial and investment banking services.
United States, Canadian and European economists have observed that it is this evolving scenario of financialisation that appears to have not only subverted to a degree economic motives but also markets and institutions. This is subsequently adversely affecting progress, balanced development and long-term productivity growth in the following ways:
(a) corporate decision-making and firm behaviour are increasingly influenced by short-term financial market indicators, e.g., share market prices, rather than medium- and long-term prospects;
(b) non-financial corporations increasingly profit from financial, rather than productive activities; (c) non-traditional' financial activities (e.g., stock market investments) of commercial banks have increased their exposure to external risks; (d) the distinction between short-term speculation and patient long-term investment has become blurred; and (e) executive and even managerial remuneration has been increasingly linked to short-term profitability, as measured by share prices, not longer-term considerations.
Consequently, in different fora, social and economic strategists linked with international organisations have observed that such steps as mentioned above are adversely affecting real investments and innovation, due to finance pursuing short-term returns. Thus, financialisation within such formats is negatively affecting investment, technology adoption and skill upgrading, with adverse consequences for productivity and decent jobs.
This persuades one to believe that caution is required to be followed within our economic horizon, particularly at a time when the world is going through a fragile period due to different external factors and fractures.
Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.