Existential threats and Neoliberalism—I

The climate change crisis is fast-unfolding, and unlike what was thought at the time of the ‘Paris Agreement’ on climate in 2015, according to which the world has up till 2045 to ideally stop the global annual average temperature from reaching 1.5C, in recent years that time is being estimated to be reached much earlier ,the ‘Intergovernmental Panel on Climate Change’ (IPCC) expects that it will likely happen by 2031, while European Earth Agency estimates that this is expected to happen a little later by 2034.

Therefore, the window of opportunity to curtail global warming below this dreaded threshold is fast closing. Failure to meet this global warming target is not an option, given in case the threshold is crossed – a scenario that unfortunately is becoming all the more likely given continued low level of multilateral spirit, and policy at both the domestic and international levels not meaningfully moving away from Neoliberalism, and the associated over-board practice of austerity policy – it is expected that climate change will create irreversible changes to environment as we currently know, making in turn life on earth all the more harsh in terms of frequency, and intensity of climate change induced catastrophes, not to mention difficulties in everyday life from lesser agriculture output to likely greater climate change related migration.

In addition, as already being witnessed, especially in the shape of outbreak of Covid pandemic, not only zoonotic diseases are increasing, but they are happening at a faster pace, while lack of policy response due to the assault of Neoliberalism for many decades now has continued to diminish government’s capacity to both properly contain the spread of these diseases, and also to provide adequate response to such outbreaks at the level of public health management. This, in turn, has increased the likelihood of the ‘Pandemicene’ phenomenon, whereby probability of more pandemics has increased.

Climate change, along with the associated ‘Pandemicene’ phenomenon being global concerns, and that too of an existential extent, requires a global response. Such response first of all requires serious introspection by policymakers of the significant misgivings of extractive institutional design favouring the rich at the cost of the poor within countries, and of increasing the gap between the rich, advanced countries, and in general the developing global South, and the choice of entrenching Neoliberalism to strengthen this extractive design by collusive politico-economic elites, weakening, in turn, economic resilience, especially of the public sector, and enhancing inequality.

In fact, similar introspection was made on the misgivings of the ‘Gilded Age’ after the ‘Great Depression’ of the 1930s in the shape of the Franklin Delano Roosevelt’s ‘New Deal’ policies. In the ‘Gilded Age’ policies to make the rich richer, and the poor poorer through creating policies that extracted from the most, and benefited the few – the tiny club of elites.

Going back even further in time, whereby during the colonial times, under the garb of ‘sound economics’ extraction of resources took place from colonies to the colonizers, on one hand, while the other practice of ‘comparative advantage’ and much less protectionist policy mindset in the colonies – than in countries that colonized – meant subjecting the colonies to a status quo of producing low value-added products, and raw materials as exports to colonizers, while colonies purchased higher value-added products as imports from them.

Hence, recourse to Neoliberalism or similar policies by vested interest groups, whether in the shape of colonizers, or rich, advanced countries, or elites, especially in developing countries with overall weak institutional and governance setup, has on one hand increased the wealth and political influence of such groups over public policy; that is both within and across countries.

On the other hand, one of the ways used by these elites to perpetuate elite capture has been to support ‘Chiago boys’ in policy echelons, along with International Monetary Fund (IMF) programmes and overall policy also having a neoliberal mindset –meaning thereby that pushing for greater liberalization of markets, including capital markets on one hand, and continuing with over-board practice of austerity policy, an aspect related to the overall neoliberal mindset – in turn, have increased income inequality, and resulted in over-sacrifice of economic growth. Last but not the least, neoliberal policies have diminished economic resilience over the decades, including the resilience of public health sector; an important sector indeed, given the rising likelihood of ‘Pandemicene’ phenomenon.

Moreover, unlike what the self-serving elites, especially the political elites, make us believe, one of the main reasons for the significant level of conflict, and the rising level of inequality is practice of neoliberal policy. Such widespread propaganda of the elites both directly as political rhetoric, and internalizing it in domestic-, and multilateral institutions has not allowed moving away from Neoliberalism, and with-it over-board practice of austerity policy mindset, which is instead of practicing austerity policy, moving towards a more balanced application of aggregate demand-, and supply-side policies to tackle macroeconomic issues, especially inflation. This, in turn, has resulted in lack of focus in both generating, and efficiently applying – in terms of productive, and allocative efficiency – finance that enables reaching adequate level of climate, and ‘Pandemicene’ phenomenon-related spending, in addition to meeting targets of sustainable development goals (SDGs).

In addition to firstly, finance being diverted from diminishing level of conflict, secondly, lesser economic growth sacrifice achieved from needed level of reined in practice of austerity policy and thirdly, lesser monetary and fiscal austerity enhancing investment by public and private sector, reducing expenditure on interest payments and diminishing costs related to reduced cost-push-, and imported inflation, together allowing greater availability of finance.

What is needed is greater provision of climate finance, especially in terms of larger allocation of special drawing rights (SDRs) by IMF both as greater allocation of climate change related annual allocations, improvement in the allocation criterion of SDRs away from the usual quota-based system to needs-based system, and provision of finance under facilities as Resilience and Sustainability Facility (RSF) as grant, with releases based on recipient countries successfully meeting climate change and ‘Pandemicene’ related programme conditionalities.

Another important determinant for enhancing economic resilience is moving towards much improved mechanism of sovereign debt architecture.

Currently, a number of developing countries are highly debt distressed, especially at the back of making stimulus spending during the pandemic, suffering from high import costs at the back of high global inflation, negatively impacting, in turn, export receipts and paying significant amounts of interest payments due to (wrong) over-board practice of austerity policies to rein-in inflation through squeezing aggregate demand – in turn, negatively impacting growth, and revenue receipts – which otherwise had a significant aggregate supply footprint.

Some of those developing countries, like Pakistan, are also highly climate change vulnerable and, for instance, this South Asian country in 2022 suffered catastrophic flooding that not only took around 2000 lives, but also caused economic loss to the tune of reportedly US$54 billion.

Hence, given developing countries have minimal carbon footprint and therefore should be provided debt relief to allow them to better deal with climate change challenge, in the making of which they have very little role to play, as pointed out by a January 2024 Project Syndicate (PS) article ‘Developing countries need debt relief to act on climate change’ as ’Developing economies have faced a series of external shocks in recent years, including the COVID-19 pandemic, war-related disruptions of food and energy supply chains, and an uptick in global inflation.

Moreover, their access to capital markets has been curtailed, preventing them from rolling over maturing loans, as they would do in normal times. As a result, countries have been forced to channel a large share of their tax and export revenues to service their debt, avoiding default at the cost of priorities like infrastructure investment, social-welfare programs, and climate action. …Multilateral development banks can provide an essential lifeline, but their capacity would have to be strengthened – and quickly. …But it is not only a matter of financial capacity.

MDBs have so far been inconsistent, at best, when it comes to supporting countries struggling to repay their debts. …If nothing is done to help countries facing liquidity crises, the world will risk a wave of destabilizing debt defaults, and progress on the green transition will be severely undermined, with catastrophic implications for the entire world.’

Similarly, global sovereign debt restructuring mechanism needs to be improved upon. In April 2024, a PS published article ‘The urgency of sovereign-debt restructuring’ called for an improvement in the institutional framework, especially with the rise in lending from China, and private lending during the last one-and-a-half decades or so by developing countries.

The article pointed out, for instance: ’Over-indebted developing countries will never get the relief they need if the international community does not push the issue at the center of its agenda.

Debt restructuring should be a top policy priority at this year’s G20 summit in Rio de Janeiro and the Fourth International Conference on Financing for Development, which will be held in Spain in 2025.’

It is a shame that almost a year has passed since this article came out, which was by no means a lone voice, but in fact there has been a wave of similar calls being made, especially in the wake of the pandemic, when this problem became all the more pronounced due to recession-causing pandemic, fast unfolding climate change crisis, and fast rising level of interest payments, with most burden felt by developing countries.

(To be continued)

Copyright Business Recorder, 2025