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Opinion - UNU-WIDER on the 'Triple Crisis'

The world is going through a 'Triple Crisis'. The impact of the financial crisis has been deep, its effects are far from over, and recent signs of recovery remain tentative, at best. At the same time, over one billion people face hunger, and any recovery in the global economy will once again push up food prices, leading to another spike that will hit the poor hard. If global economic growth does recover, then emissions of greenhouse gases will accelerate once again, while land that previously grew food is now being turned over to biofuel crops, adding to the pressure on global food prices.

These crises interact, they demand coordinated solutions, and they potentially threaten peace and stability. Hence our use of the term: the Triple Crisis.

Climate change is on everyone’s minds in the aftermath of COP-15. Such negotiations have necessarily focused on global effects and targets. But we also need a better understanding of climate change’s effects at the regional and country levels. Working with the natural sciences to integrate the very best climate change research with our understanding of the economies and societies of poor countries is essential if we are to provide better guidance to strategies and investments for sustainable growth and poverty reduction.

No region is untouched by climate change, but the impacts will work their way through economies and societies in different ways. Sub-Saharan Africa is very vulnerable given the poverty of the region, weaknesses in the capacities of some states (with climate change potentially exacerbating conflict), and, in many cases, a continuing reliance on aid. The Middle East and North Africa face a growing shortage of water. South Asia has large coastal cities that are at risk from sea-level rise. Therefore effective responses require research that is well tuned to the circumstances of individual countries and regions.

We need to overhaul food policy not just in response to the dangers that climate change poses, but also to meet rising demand for food as over half the world’s population is now urbanized. Responses have tended to be national and unilateral rather than multilateral, as surplus food-producing countries attempt to protect their own populations by means of export bans, thereby reducing supplies on the global market for food-deficit nations. We need to overhaul the global food architecture to better help the most vulnerable people, and build more social protection to protect the poorest from food price spikes, climate change, and recession. The current financial crisis will certainly not be the last.

The drop in world GDP and trade of the last two years has been exceptional. Recovery depends upon the effectiveness of the present Keynesian measures. The advanced economies are at their borrowing limits, and China’s growth remains fundamentally export-driven, the huge stimulus to the domestic economy notwithstanding. While the emerging economies have done better than initially expected, the smaller and poorer economies are highly vulnerable to the current global economic turbulence.

To meet the triple crisis, the poorer world needs resources. Some may be found internally by improving domestic tax systems and, in resource-rich countries, managing the flows of revenues from energy and minerals in a more effective (and transparent) manner. But external resources, including both official and private capital flows, are critically needed - especially for the poorest and most vulnerable countries. The financial crisis has, however, curbed private capital flows and put aid budgets under significant pressure.

This is at a time when aid effectiveness is again under attack, despite the evidence from research that aid generally has a positive impact on economic growth on average. Many Southern governments have also seen their tax revenues decline as their economy and trade contract. The resources available to meet the triple crisis have, in spite of soaring needs, not risen – they have fallen. Tighter aid budgets will demand sharper priorities to raise the effectiveness of aid while the climate and food crises will demand new modalities of financing and assistance that are yet to be developed.

Recovery must not be 'business as usual'. The financial crisis has dramatically revealed the inherent imperfections of markets and has damaged the real economy in ways that would have been considered inconceivable just a year ago. We should not go back to a financial system that poses such risks to prosperity and social stability. Yet, how we achieve effective regulation of the global financial system remains a challenge yet to be addressed. Similarly, if policy responses to the financial crisis and the building up of public debt involve deep cuts in investment, employment and social protection, there is a danger that the impact of the crises on human wellbeing will be reinforced.

UNU-WIDER is giving priority to the Triple Crisis agenda. We do not underestimate how demanding this agenda is. We do not know yet know how the triple crisis will unfold. Each crisis is complex in its own right, the crises interact in ways that require innovative thinking, and policymakers face considerable uncertainty and very hard choices that can be reduced, but certainly not eliminated, by cutting-edge research.

Finn Tarp

March, 2010

Published in Development Today, the independent journal on Nordic and multilateral aid, published fortnightly since 1991. Based in Norway.