We are living through a time of rapid acceleration of solutions to both local and global problems. The gradual adoption of various economic theories purported to facilitate the functionality of economic dynamics have been witnessed through and through. In addition to this, technology advancement, flexible and accommodative frameworks and systems have cumulatively attributed to increasing efficiency to worthwhile projects, warranting significant economic development both from a local and global perspective. Previously, there has been much justification of local solutions to global problems and this has been evident in the pursuit of climate change efforts, affordable housing and public health. However, the opposite is equally paramount – global solutions to local problems. Our ability to reach unity in diversity will be the beauty and test of our civilization, is a quote by Mahatma Gandhi that echoes the need for global collaborative efforts in addressing local challenges. This end therefore begs the question: how exactly does this methodology intend to work?
Historically, there comes a time when the world is confronted with a common challenge. For instance, the aftermath of the Second World War resulted in high inflation, deteriorating fiscal environment for most if not all governments and utter collapse of global systems. Consequently, it would have been impossible for individual countries to implement or seek local solutions without the intervention of the wider global community. Hence, to speed up recovery efforts, global institutions notably the World Bank and the International Monetary Fund popularly known as the Bretton Woods institutions were established. In addition, the charter establishing the United Nations was also ratified in order to promote global peace and security and avoid universal conflict as earlier witnessed. Since then, the World has never experienced global conflict even though there were instances that nearly took countries to the brink of war. Recently, the world experienced another breathtaking moment. After years of relative peace and economic prosperity, the COVID-19 pandemic struck and stagnated the world for close to two years. This was another challenge that required countries to work together and find a solution and so individual country efforts would not have yielded much. Thankfully, vaccines were produced and distributed in record time and the world forged ahead.
As fate would have it, Russia’s invasion of Ukraine and subsequent sanctions placed on it by G7 countries has triggered another global problem. Countries around the world are battling inflation as costs of vital commodities continue rising. Countries from Northern to southern hemispheres are trying their level best to contain the prices of food and energy. Kenya’s inflation rate stands at 8.5%, the United Kingdom registered an average inflation rate of 7.9%, Turkey’s inflation rate currently stands at over 25% and Argentina’s inflation rate is an astounding 96%. To tackle this challenge, individual countries are retreating to their central banks to increase interest rates and this generates another problem in the credit market. In addition, developing countries such as Kenya who are net importers are experiencing currency depreciations which are generating additional challenges for National Treasuries. Therefore have we forgotten that the only way out of this phenomenon is by working together as we have normally done?
Undisputedly, macroeconomic shocks affecting developing countries are linked to these global triggers, occurring in the liberal, stronger economies of the world. The surprise cut of crude oil production by the Organization of the Petroleum Exporting Countries and other major oil producers like Russia, have significantly caused a shock in oil markets. Likewise, the slowing down of China’s economic activity has affected commodity prices and equity markets all around the world. Because of this, it is correspondingly verifiable that local solutions to local problems will not be sufficient unless coordinated global efforts are implemented.
What needs to be done? (Best practices)
To solve this downturn, economic reforms need to focus on longevity in improving efficiency and have broader execution. The IMF, World Bank and the United Nations need to develop a global consensus that countries can follow in response to local problems. The nature of these reforms should acknowledge that the effects, both positive and negative, direct and indirect, can be different for different economies, therefore they should be accommodative and relatable. For instance, reviewing the impact of placing sanctions on countries with influence on vital production value chains, could positively avoid market distortions hence, significantly manage inflation levels. Additionally, coordinated macroeconomic policies that encourage strong trade unions and foster efficiencies in state welfare could be an avenue for transformative reforms.
Spearheading research in expanding reserve currencies, cannot go unmentioned. This will momentously address balance of payment challenges and encourage higher export volumes. Multinational Policy frameworks are needed in analyzing and formulating strategies that would make this feasible. In the tension between the devouring want of independently getting things done and the simple need of collaborative efforts with the outside world, it is of utmost importance to note that the web of local challenges currently surrounding the world requires a unified approach that transcends geographical borders. After all, reform happens when you change government policy; a revolution happens when you change the mindset of a people and now the world needs a mindset revolution that actively promotes collaboration rather than individualism.