Unorthodox policies for unorthodox times - from 2018 to 2025
IGC’s Director of Research reflects on his blog series from 2018, on how the world and the policy priorities have changed today, and how human capital, productivity growth, and institutions remain as important as ever.
A severing of global trade. An all-powerful technology on the horizon. The drums of war. A world on fire. That is how Francesco Caselli and I characterised the state of the world at the end of 2018.
Given enough time, a Cassandra, much like a broken clock, is often proven right. Without laying claim to any Delphic insight, many of the risks we highlighted have materialised or evolved in the years since.
At the time, we felt this confluence of trends — trade disruption, conflict, climate change, and automation — called into question some of the ‘perceived wisdoms’ of development policy.
Integration into global manufacturing value chains, once the gold standard for growth, might be less suitable in an unstable, automated world. A more extreme climate, combined with heightened local and regional tensions, meant that the historical risk of catastrophes like widespread famine was back on the central agenda.
These risks did not portend an upheaval in development thinking but rather called for tweaks along the margins. Agriculture and services need to stand alongside manufacturing as core pillars for good, productive jobs. The costs of being shut out of global markets are lower, making it probably fine to run a larger foreign-financed deficit if it meant more productive investments at home.
Much of what we speculated in 2018 holds true today, with some notable omissions.
The unravelling of the global order has, if anything, intensified. Tariffs are no longer taboo. Geopolitical giants tussle over swathes of the economy, subsidising and protecting industries on national security grounds. These trends cement the concern that it is no longer so simple for a small low- and middle-income country to embed itself in global value chains. For a fortunate few, this creates opportunities — for instance, solar panel manufacturing in Vietnam or Malaysia — but for many, this simply means the closing of doors.
The ever-widening effects of climate change continue to make themselves known. Cyclone Idai, which hit Mozambique, Zimbabwe, and Malawi in 2019, collected the harrowing accolade of being the second deadliest storm ever in the Southern Hemisphere. Cyclone Amphan, the costliest cyclone on record in the northern Indian Ocean, caused over USD 15 billion in damages in 2020. Devastating floods in Pakistan in October 2022 caused USD 40 billion in damage. The science was clear in 2018 and remains just as stark. Despite these events, the progress in stemming further climate change has left much to be desired. Tremendous innovation in clean energy, among other technologies, gives hope that the growth in temperatures can eventually be curtailed. What remains clear, however, is that these risks remain serious and are only worsening. A recent study estimates the global economic cost of climate change to be six times higher than previously thought, with a 1-degree Celsius increase resulting in a 12% decline in GDP.
Far more than we anticipated, conflict has tightened its grip on societies across the world, both directly and indirectly. Ukraine, Sudan, Ethiopia, Gaza, Myanmar, Yemen, Afghanistan, Syria, Mali, DRC: the list, sadly, does not end here. Conflicts like these have long tails that adversely affect the economic lives of ordinary people far into the future. For instance, GDP per capita is 18% lower, on average, after four years of civil war. “Don’t get invaded” is as daft as development advice gets, but it carries a tragic relevance for today.
We made two major omissions: one excusable, the other less so. A global pandemic was on few people’s immediate radars. COVID-19 highlighted both the importance and perils of globalisation. A connected world is perilous because it creates a highway for contagious diseases to spread. The shock to global supply chains from lockdowns made clear just how much we gain from trading and exchanging with each other. The pandemic also forced governments to invest in improving the capacity of their public health services, including last-mile delivery. The hope is that these investments, such as Sierra Leone’s successful last-mile vaccination drive, can lead to lasting benefits for other public health issues.
Our glaring omission was the rise of artificial intelligence. The seminal paper on generative pre-trained transformers (GPTs) was released a year prior to our article series; we did not anticipate the explosion of progress that followed. How AI manifests in low- and middle-income countries remains an open question. New technologies can raise productivity and create new classes of jobs, generating large returns for those with the skills or opportunities to harness them. They also create losers. AI might enable budding entrepreneurs in emerging markets to engage in skilled services but could also displace many. This new dynamic needs to be central to the agenda of any concerned government.
The sudden drop of a few feet seems relatively meaningless when you are cruising at 40,000 feet. The turbulence inside the plane, however, can be dreadful. The optimistic spin is that we may, at best, be experiencing turbulence. For now, seat belts are required. Extending this metaphor’s already excessive runway, what ultimately matters is whether the engines are functioning well and whether good pilots are onboard. The fundamental drivers of economic growth — human capital, productivity growth, and institutions — remain as important as ever, even more so during unorthodox times.
To learn more, listen to the VoxDevTalk by Tim Dobermann and Francesco Caselli, review their blog series from 2018, and listen to insights by our economists on IGC's work and policy priorities for today.