Opinion – Martin Wolf: Twelve Propositions on the State of the World

How do we understand the world? The time I spent in Davos last week crystallized my answers in the form of 12 propositions.

Proposition one: the world is threatened “by the sword, by famine, and by pestilence,” as Ezekiel warned: first Covid, then the Ukrainian War, and then famine, because exports of food, fertilizer and energy have stopped. It reminds us of our vulnerability to unpredictable – unfortunately, not unimaginable – shocks.

Proposition two: “It’s politics, stupid.” James Carville, Bill Clinton’s campaign strategist, said it’s “the economy, stupid.” The primacy of economics can no longer be assumed. Ours is an age of culture wars, identity politics, nationalism and geopolitical rivalry. It is also, as a result, an era of division, both within and between countries.

Proposition three: technology continues its transformative march. The Covid shock has brought two welcome surprises: the ability to do much of our normal lives online; and the ability to develop and produce effective vaccines with incredible speed, while failing to provide them equitably. The world is also divided in this way.

Proposition four: Political divisions between high-income democracies on the one hand and Russia and China on the other are now deep. Before Russia’s invasion of Ukraine, the survival of a comprehensive concept of “one world” seemed at least conceivable, albeit difficult. But wars are transformative. China’s offer to Russia of a “no-holds-barred” partnership may have been decisive in Putin’s decision to risk invasion. His war is an attack on major Western interests and values. It has united the United States and Europe for now. It must be decisive for Europe’s attitude towards China: a power that supports such an attack cannot be a reliable partner. The march towards totalitarianism in the two autocracies is also likely to widen the global divide.

Proposition Five: Despite China’s rise, the West, defined as high-income democracies, is extremely powerful. According to the IMF, these countries will still account for 42% of global production in purchasing power parity and 57% at market prices in 2022, against 19% for China, in both. They also issue all significant reserve currencies. China holds more than $3 trillion in foreign currency reserves, while the US has almost none. The country can print them instead. The ability of the US and its allies to freeze a large proportion of Russia’s currency reserves shows what that power means. However, Western power is not just economic. It is also military. How would Russia’s vaunted military have fared against NATO’s?

Proposition six: but the West is also deeply divided, within and between countries. Many of its politicians were enthusiastic supporters of Putin: Marine Le Pen was one of them. In Europe, Viktor Orbán is the most vocal survivor of this troupe. In the US, xenophobic authoritarianism – “orbanism” – remains a set of right-wing leadership ideas. Donald Trump’s attack on the fundamental characteristic of democracy – the transfer of power through fair voting – is also very much alive. Many of these people see Putin’s nationalist autocracy as a model. If they return to power, Western unity will collapse.

Proposition seven: In the long term, Asia is likely to become the world’s dominant economic region. The emerging countries of East, Southeast and South Asia contain half of the world’s population, against 16% of all high-income countries combined. According to the IMF, the average real product per capita of these Asian economies will jump from 9% of that of high-income countries in 2000 to 23% in 2022, mainly, but not only, because of China. This increase is likely to continue.

Proposition eight: high-income democracies will have to improve their political game if they are to convince emerging and developing countries to ally with them against China and Russia. Few countries like these autocracies. But the West has lost a lot of support with its failed wars and inadequate aid, particularly during Covid. Most emerging and developing countries will strive to maintain good relations with both sides.

Proposition nine: Global cooperation remains essential. As deep as the rifts become, we share this planet. We still need to avoid cataclysmic wars, economic collapse and, above all, the destruction of the environment. None of this is likely without at least a minimal level of cooperation. However, is this likely? Not.

Proposition ten: Rumors of the death of globalization are exaggerated. Americans tend to think their perspective is the global norm. Often it is not, as in this. Most countries know that extensive trade is not a luxury but a necessity. Without it, they would be miserably impoverished. The most likely prospect is that commerce will become less American, less Western, and less dominated by manufactures. Trade in services is likely to explode, however, driven by cross-border online interaction and artificial intelligence.

Proposition eleven: given the immense political and organizational challenges, humanity’s chances of avoiding harmful climate change are slim. Emissions dropped in 2020 because of Covid. But the curve remains inflexible.

Proposition twelve: Inflation has been unleashed in a way not seen in four decades. It is an open question whether central banks will maintain their credibility. High inflation and falling real incomes are a politically harmful combination. There will be revolt.

We in the West have to manage profound change and lethal conflict at a time of division and disillusionment. Our leaders must rise to the occasion. Will they do it? We can only hope so.