The last few years haven’t seemed very promising for the world, to put it mildly.
Besides the obvious tumult of the Covid-19 pandemic, there’s the ever-present threat of climate change and the recent upheaval of the Ukraine crisis.
This has led Senior Minister Tharman Shanmugaratnam to describe the multiple global challenges coming all at once with a succinct phrase: a “perfect long storm”.
Read on to find out the “5 fragilities” combining to create this situation and how the world can survive.
Last Wednesday (9 Mar), Minister Tharman gave a speech at the Investment Management Association of Singapore (IMAS)-Bloomberg Investment Conference.
He said the world had entered an “era of profound uncertainty and fragility”.
This was because it’s facing not just a single menace but an unprecedented combination of “risks and fragilities”.
He added that the likes of this haven’t been seen in the last 75 years.
The minister also outlined 5 fragilities that have conflated to produce what he called a “perfect long storm”.
To many people, Russia’s invasion of Ukraine was shocking as it was a “rupture” in the rules that held the globe together in a form of stability—even though this system wasn’t comfortable to all.
In particular, the principle of sovereignty and territorial integrity of nations was defied.
While the world is still learning from the conflict, the prospect of a good ending is slim, according to experts—it’s only a question of how bad the outcomes will be.
While Ukraine is going to be the worst hit, Russia will also be “diminished” economically, politically and reputationally.
Besides the sanctions placed on the country by others, including Singapore, investors and younger Russians are also leaving.
Thus, the outlook isn’t good for “an economy that was already weak for some time”.
This leads to inflation risk for the rest of the world, especially developing countries.
The macroeconomic risk is now heightened and higher-for-longer inflation is now a near uncertainty, along with slower growth.
That also means many parts of the world run a real risk of stagflation – when the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.
This time, the shock isn’t limited to oil prices but other commodities like food, industrial metals, and fertilisers.
Supply chains, which had already been disrupted by the pandemic, are further affected by the Ukraine crisis and sanctions.
Calling it an “unprecedented situation”, Minister Tharman said it’s not that inflation in itself at 5-6% is the biggest problem.
It is the social and political implications, the implications for the political capital that is required for nations to address the larger challenges.
One of these larger challenges is climate change, which cannot be tackled without ensuring energy security.
The Ukraine war has given rise to that way of thinking, as even before the crisis, domestic coal production had to go up due to global growing energy demand and in order to avoid a sharp rise in energy prices.
As such, the minister offered an unpalatable fact,
In the short term, to prevent the lights from going out in Europe and to preserve social stability, new sources of oil, gas and coal are going to be necessary.
In order to deal with the longer-term challenge of climate change, we must “redouble our efforts” to move to cleaner energy and sustainability – even as the use of oil, gas and coal increases.
To do this, we need clear carbon tax and carbon pricing frameworks, among other fiscal and regulatory ones.
Even as preparation for climate change enters the mainstream, we also have to do the same for the bugbear of the last 2 years – the Covid-19 pandemic.
Though the Omicron wave seems to be abating, Minister Tharman warned that,
Omicron will not be the last variant in the current pandemic. And Covid-19 is not the last pandemic we’re going to see.
In fact, he predicts “recurring pandemics” due to factors like global warming, deforestation, and the overall increase in human incursions into the natural world.
While no one knows when the next one will come, they’re happening more frequently and could even be more severe than Covid-19.
Thus, a massive collective effort is needed globally and within societies to fight it.
Every country should recognise that its in their interests to help the rest of the world be better prepared for the next pandemic.
Climate change and pandemics will greatly affect the poorest and most vulnerable countries.
That leads to inequality in growth and well-being worldwide and less inclusivity.
It will be more difficult for developing countries to converge with the advanced world, rolling back the gains they’ve made over the last few decades.
The prospect of renewed divergence is a challenge as it may result in forced mass migration, and loss of growth opportunities in the developing world.
After listing out these 5 fragilities, Minister Tharman offered some ways the world could respond to the challenges.
He said global stability is “like oxygen for the international economic system” and must be preserved.
To do that, there’s a need for “new international rules of the game”, as well as more effective systems of deterrence.
The world has already moved past the time of unquestioned United States (US) dominance to the era of multilateralism – but we must avoid having many systems competing with each other.
A “new US-China understanding” is of foremost importance here, and the Ukraine war should provoke the US into “fresh thinking” as to whether China is really its top security threat.
We also need a new era of investment—in energy, climate and pandemic security, and investing in the developing world, Minister Tharman said.
This requires scaled up collaboration between the public and private sectors.
So governments must figure out how to spend on “global commons”, while not skimping on other spending, such as defence.
In fact, the governments, corporate leaders and investors of today have to make investing in sustainability, inclusivity and health security commonplace.
In conclusion, Minister Tharman sounded a note of optimism: We are not in a hopeless situation.
The Ukraine crisis has energised people to support a global order that protects national sovereignty and territorial integrity.
It has also energised countries and corporate entities to stand up for this open and stable international order, as they recognise that long-term security is worth paying for.
The “perfect long storm” ultimately describes not just a confluence of one-off factors – it’s more like many structural shifts that will be around for some time.
Thus, as global citizens, we need to be prepared to respond to the long-term changes ahead.
The world will never be the same again, and whether mankind survives will depend on us and us alone.
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Featured image adapted from Prime Minister’s Office.
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