It is far from certain whether the post-pandemic recovery will be a lasting one that results in more sustainable and equitable economies. The temptation to try to return to the recent past is strong, and so are the vested interests favoring such a course.

But many now recognize that what the economist Branko Milanovic calls “liberal meritocratic capitalism” must change significantly in order to meet systemic challenges: not only climate change, but also increasing inequalities of income, wealth, well-being, and power—particularly in the United States. Extreme inequality and low intergenerational mobility pose an existential threat to market capitalism, and the recent mass protests in U.S. cities against systemic racism have heightened the sense of urgency.

As Harvard’s Dani Rodrik has noted, governments can target inequality at three stages of the economic process. Pre-production policies can influence endowments such as education, health, and wealth. Production-stage interventions can affect the creation and composition of jobs, the direction of technological change, and the bargaining power of capital and labor. And post-production policies such as taxes and transfers can redistribute the returns from labor and capital.

Although policymakers have usually addressed inequality largely through ex post redistribution, many now realize that capitalism’s survival will require a paradigm shift.

True, governments could rely more on production-stage policies, which call for greater public-private collaboration to ensure that firms internalize the negative externalities of their employment, investment, and innovation decisions. Such measures may include industrial and innovation policies to foster the development of technologies that complement rather than substitute labor. In addition, labor regulations, minimum wages, and co-determination can improve workers’ bargaining power, while place-based and trade policies can help to optimize conditions for creating good jobs.

Government policies cannot alter a person’s race, gender, family, or birthplace. But measures to equalize inherited wealth could largely—though not entirely—counteract inherited inequality of opportunity.

But although such interventions could surely improve the status quo greatly, they would still fail to address the most obviously unjust source of inequality: luck at birth.

Research by Harvard’s Raj Chetty and others shows that in the U.S., the type of household a person is born into—including its race, family structure, and geographic location, as well as their parents’ wealth, income, and education—strongly determines the kind of life they will have, and even their life expectancy. Inherited inequality of opportunity precedes people’s participation in markets, and compounds over lifetimes.

As a society, we should regard wide inherited inequalities as intolerable. The political philosopher John Rawls put it best: Would any reasonable person choose to live in a society that allowed for such inequality if they didn’t know who they had been born as? Behind this “veil of ignorance,” everyone would presumably choose a social contract that provided a level playing field.

Government policies cannot alter a person’s race, gender, family, or birthplace. But measures to equalize inherited wealth could largely—though not entirely—counteract inherited inequality of opportunity.

For example, Ohio State University’s Darrick Hamilton and Duke University’s Sandy Darity have suggested that the U.S. federal government endow every newborn with a trust fund seeded in inverse proportion to household wealth. These “baby bonds” would grow passively, compound, and become redeemable at age 18. Given the intersectional nature of racial and class inequality, such a scheme could largely eliminate the inherited racial wealth gap in the U.S. at a moderate immediate cost—albeit over many years.

This is by no means the only proposal of its kind. In 2015, Anthony Atkinson of the London School of Economics called for steep inheritance taxes to fund a capital endowment, or minimum inheritance, payable to all citizens when they reached adulthood—an idea also endorsed by Milanovic.

Other suggestions reflect Mariana Mazzucato’s observation that the state is often the investor of both first and last resort. For example, Yanis Varoufakis has advocated a universal basic dividend financed by the income stream from society’s investments in private firms’ capital.

Similarly, the prominent hedge-fund manager Ray Dalio and Columbia University’s Joseph Stiglitz recently suggested pooling taxpayers’ ownership shares in companies bailed out during the COVID-19 crisis into a sovereign wealth fund that would periodically distribute dividends to all citizens. And Rodrik has proposed establishing debt-financed public venture-capital funds that would acquire equity stakes in key sectors and technologies, and distribute the profits in the form of a social innovation dividend.

There is clearly a strong case for giving citizens a capital endowment that reflects both their inalienable dignity and society’s return on its public investments. But societies will have to make choices regarding the vesting of such an endowment, as well as its scale, progressivity, funding, and usage restrictions.

Baby bonds, for example, would require far fewer up-front resources than a capital grant to young adults, but would take much longer to shift the distribution of wealth. In addition, most proposals would prohibit the immediate redemption of an endowment, and limit its use to purposes such as education and housing. Means-testing would reduce the fiscal cost of such a policy, but would entail administrative, social, political, and incentive costs. Striking an appropriate balance among these criteria will require trade-offs between costs and benefits.

A universal capital endowment would help to mitigate the patently unfair consequences of luck at birth. But to effect real change, it would have to be large enough to reduce existing wealth gaps substantially and deconcentrate capital ownership and political power. Such a program would require large up-front wealth redistribution, which seems politically hard to achieve even under the best-case recovery scenarios. But, as Stiglitz has warned, a less ambitious policy may end up entrenching a performative “people’s capitalism” that perpetuates wealth concentration while duping the public into supporting policies that favor capital.

A recovery strategy that aims to distribute income, wealth, and power more equitably must use all possible tools. A universal capital endowment for young adults could be an essential part of such a plan, if combined with strong equity-enhancing policies at the other stages of production. There are no silver bullets in the struggle to achieve a more just society, but granting citizens equitable access to the opportunities afforded by capital ownership would be a transformative step.

       

With the COVID-19 catastrophe having laid bare the vulnerabilities inherent in a hyper-connected, just-in-time global economy, a retreat from globalization increasingly seems inevitable. To some extent, this may be desirable. But achieving positive outcomes will depend on deep, inclusive, and effective multilateralism.

One of the most powerful drivers of support for deglobalization is the vulnerability of production models that rely on long and complex global supply chains, which have sacrificed robustness and resilience at the altar of short-term efficiency and cost reduction. With many companies and industries dependent on faraway suppliers—and lacking any alternatives—no part of such value chains can function unless all parts do. And as the COVID-19 crisis has shown, one never knows when parts will stop functioning.

This is especially true with regard to China, a global supply-chain hub. The country is central to the manufacture of a wide range of common consumer products, including mobile phones, computers, and household goods. Moreover, it is the world’s largest supplier of active pharmaceutical ingredients, so a crisis affecting production there can disrupt medical supplies worldwide.

It should not be surprising, then, that China’s COVID-19 lockdown immediately affected global production. Fortunately, China seems to have brought the coronavirus under control, and economic activity in the country is returning to normal, so the disruption has been limited. But there is no guarantee that the next disruption will not be more severe or last longer.

Reducing the distances over which goods are transported would advance the world’s emissions-reduction goals. But at what cost?

Such a disruption could come in the form of another public health crisis or a natural disaster. But it may also be a political decision—what the political scientists Henry Farrell and Abraham L. Newman call “weaponized interdependence.”

This was a source of apprehension even before the pandemic, when the United States cited national security concerns to block Chinese telecommunications giant Huawei from its markets and restrict its access to U.S. technologies and suppliers. Many governments are also intensifying scrutiny of foreign investments, lowering the thresholds beyond which restrictions are triggered, increasing the number of sectors deemed strategic, and working to repatriate production in these areas.

Many climate activists also call for more local production. Global shipping emitted 796 million tons of carbon dioxide in 2012, accounting for about 2.2 percent of total anthropogenic CO2 emissions for that year, according to the International Maritime Organization. Reducing the distances over which goods are transported would advance the world’s emissions-reduction goals. But at what cost?

Efforts to prevent “carbon leakage”—when companies shift production away from countries that have implemented strong emissions-reduction measures (such as carbon prices, cap-and-trade mechanisms, or strict regulations)—would also imply some deglobalization. Already, some advocate carbon border taxes to discourage this phenomenon—an approach that would strengthen the incentive for local production.

All of this suggests that some degree of deglobalization, with an emphasis on robustness and sustainability, may be both inevitable and desirable. But this process carries serious risks, from skyrocketing production costs to geopolitical conflict.

To be sure, some increase in production costs will be unavoidable, as countries try to diversify their supply chains and build more redundancy into them. And it may not be too difficult for very large economies to cover the costs of diversifying their production. But small and medium-size economies would find the costs prohibitive. Countries attempting to stockpile supplies of vital goods would also run into cost constraints.

Climate concerns and carbon border taxes could compound the problem, by spurring cycles of retaliation and intensifying strain on international trade. Likewise, reducing trade and foreign investment in the name of national security may actually increase political tensions and, by spurring a cycle of reprisals, place economies on a downward spiral.

The emergence of two large and diversified blocs centered around the U.S. and China could reduce some of the economic costs of deglobalization. But it would also undermine the agency of most countries (which would be forced to choose a side), further politicize the global economy, and erode the legitimacy of the international order. Moreover, by entrenching a volatile long-term rivalry, it would pose a grave threat to peace. The addition of a third bloc, comprising the European Union and other cooperation-oriented economies, would not do much to offset these disadvantages.

A better approach would be based on effective forms of multilateral and global cooperation. To ensure adequate pandemic preparedness, for example, the world should develop a more ambitious shared early-warning system and agree to stockpile medical equipment in regional centers, overseen by the World Health Organization, with established cost-sharing policies and flexible deployment plans. Similarly, protocols and financing for rapid vaccine development and production capacity should be agreed (and continually updated). This would place the world on a stronger footing to manage a large-scale disease outbreak than an every-country-for-itself approach.

In the national security domain, countries should work together to develop what are essentially “arms-control treaties” for cyberspace, data governance, artificial intelligence, and bio-engineering. Such agreements should prevent a dangerous race to weaponize new technologies, while encouraging innovation that boosts human well-being and security.

On climate change, far more ambitious policies are needed to achieve the global target—enshrined in the 2015 Paris climate agreement—of net-zero emissions by 2050. Declarations of intent and peer pressure will not be enough. Carbon border taxes, as part of an internationally agreed framework that includes financial support to less-developed countries, could accelerate progress considerably, without the negative effects of ad hoc measures.

“COVID-19 is the last nail in the coffin of globalization,” Carmen Reinhart, the World Bank’s incoming chief economist, recently declared with concern. But some deglobalization does not have to spell economic disaster. With effective, renewed global cooperation, the costs can be limited, and the benefits—robustness, security, and sustainability—can be maximized. Building a new multilateralism won’t be easy; it may even appear impossible, not least because of U.S. President Donald Trump’s disregard for cooperation. But a new U.S. administration will eventually emerge. In any case, given the risks of the alternatives, not trying is not an option.

       

The COVID-19 pandemic has brought economic and social activity around the world to a near standstill. As a result, carbon dioxide emissions have declined sharply, and the skies above some large cities are clean and clear for the first time in decades.

But “degrowth” is not a sustainable strategy for averting environmental disaster. Humanity should protect itself from climate change not by reducing economic activity, but rather by making it more resilient, robust, and sustainable.

The ongoing pandemic has powerfully demonstrated the cost of neglecting catastrophic tail risks. The risks tied to climate change, while unfolding more gradually, are at least as great as those posed by COVID-19. Although the international community is rightly focusing its efforts on the immediate health and economic crisis, it should not lose sight of this threat.

Encouragingly, the rapid reduction in the cost of green technologies in recent years has increased the competitiveness of clean energy generated from sources such as solar and wind. As long as policymakers create a credible expectation of long-term profits by committing to strong environmental standards and providing a long-term framework for eliminating fossil-fuel subsidies, investors will likely be willing to incur the fixed costs of green investments.

Indeed, these technological advances imply that the trade-off between climate protection and economic progress has become much smaller than we previously thought. Even when the cost-benefit calculus excludes the immediate negative externalities, such as air pollution, that arise from CO₂ emissions, green investment has clearly become economically viable even without subsidies. In fact, renewable energy sources like solar and onshore wind power, recently became the cheapest option for much of the world.

But it remains to be seen whether this competitiveness can be sustained in the face of the collapse in fossil-fuel prices caused by the pandemic. U.S. benchmark crude fell below $20 per barrel in late April, its lowest level since 1999. The price of natural gas also is cratering. And although oil prices may recover slightly as producers cut output, they are likely to remain depressed for quite some time.

While lower oil prices will give consumers’ finances a welcome boost—with lower-income households benefiting more in relative terms—they will make renewables less competitive, just at a time when the world should be engineering a climate-friendly recovery. Moreover, a prolonged period of low oil and gas prices would also make green energy sources less competitive in the future by discouraging investment in clean-technology research and development.

But it doesn’t have to be that way. In fact, the oil-price collapse presents an excellent opportunity to advance climate policies by levying or increasing carbon taxes at a reduced political cost. In late 2014, when oil prices had declined to $45 per barrel from a high of $108 that June, one of us suggested that policymakers waste no time and introduce carbon taxes. Because taxes affecting politically sensitive oil products like gasoline would only partly offset the steep decline in oil prices, such measures would face less resistance than before.

The case is even stronger today, because oil prices have fallen far below their level then. While the user price of fossil fuels would remain historically low even with a substantial carbon tax, such a levy would blunt the negative impact of these extremely low prices on the competitiveness of renewables, thus making a climate-friendly recovery easier to achieve.

This opportunity should not be lost, because the world is at a crucial juncture regarding climate change. Recovering from the pandemic-induced economic collapse will require large new investments around the world. Whether these investments replicate the past in a rush to return to “normalcy” or lay the foundation for sustainable and resilient growth will determine the planet’s future.

To illustrate, a tax of $200 per metric ton of carbon (equivalent to $54 per metric ton of CO₂) would result in an increase of less than 50 cents per gallon for gasoline in the United States, which currently costs less than $1.80 per gallon on average. At about $2.30 per gallon, the price of gas at the pump—the most politically sensitive variable in most countries, as demonstrated by the “Yellow Vest” protests in France—would remain at historically low levels in the aftermath of COVID-19 despite a sizable carbon tax. Moreover, making the carbon tax flexible by tying it to the price of oil could enable it to function as an automatic stabilizer. For example, for every $5-per-barrel increase in the oil price, the carbon tax could be lowered, but by a smaller amount, in order partly to mitigate the increased cost to consumers. Likewise, for every $5-per-barrel decrease in the oil price, the tax could be raised by a somewhat larger (but still small) amount.

This way, the carbon price would increase over time in line with the overall progress of climate policies, while buffering consumers from oil-price volatility and boosting fiscal revenues. As one of us explained in 2016, once such a carbon tax is in place, “it will become a little-noticed, politically uncontroversial part of pricing for gasoline (and other products)—one that produces far-reaching benefits.”

Of course, carbon pricing would have to be in effect across sectors and economies in order to provide a direct price incentive for climate-change mitigation efforts and to complement regulatory standards and other measures. For example, while oil remains dominant in the transport sector, natural gas is now the primary source of electric-power generation. But natural gas, though a lot cleaner than fuel oil, still emits CO₂ and must be replaced by renewables to achieve net-zero emissions. Even if electric vehicles fully replace gasoline-powered cars and trucks, they will still only be as clean as the electricity that powers them.

Climate policies must address many other related issues and use an array of instruments. Carbon pricing is no silver bullet. But today’s ultra-low oil prices, rather than discouraging investment in clean energy, offer an ideal opportunity to strengthen the pricing component of the toolkit and ensure that the post-pandemic recovery helps create a climate-resilient economy for the long term.

       

The COVID-19 crisis represents an unprecedented test of human solidarity. Will the wealthy—or, indeed, all those with stable incomes or savings cushions—embrace measures to support the poor and economically insecure? Will the young, among whom the mortality rate is lower, make sacrifices to protect the old? And will people in rich countries accept resource transfers to poor countries?

Only if the answer to all three questions is yes will the world be able to minimize the fallout of the pandemic that has killed nearly 38,000 people and crippled the global economy. And yet that outcome is nowhere near guaranteed.

The first form of solidarity that is being tested—across income groups—may be the easiest to secure. COVID-19 has infected the likes of the United Kingdom’s prime minister and crown prince, professional athletes, and multiple Hollywood celebrities, showing that it has no regard for whether a person is rich or poor.

But the economic consequences of public-health measures—such as indefinite business closures and lockdowns—will be borne disproportionately by less economically secure groups, including low-income earners, hourly workers, and those who cannot work remotely. In designing strategies to offset the pandemic’s economic damage, governments must consider these differences.

So far, this is not happening to the required extent. In the United States, for example, many measures, such as expanded sickness benefits, do help lower-income groups, but should have been in place long ago, as they are in other advanced economies. Other actions, such as sending checks to all citizens and ordering federal agencies to halt evictions and foreclosures, hold more promise, but remain far from sufficient to protect the country’s economically vulnerable.

Building solidarity across income groups will require leaders to foster the kind of selfless patriotism that facilitates shared sacrifice in wartime (while rejecting the kind of narrow-minded nationalism that undermines international solidarity). It helps that the hoary argument that support for the poor undermines work incentives, hardly convincing in normal times, loses all credibility during a pandemic. If nothing else works, citizens and political leaders should bear in mind that lower-income individuals remain valuable consumers and (in democracies, at least) voters.

The second dimension of solidarity being tested today is intergenerational. Given the economic (and social) consequences of self-isolation measures, securing the long-term cooperation of younger generations—who are vulnerable to serious complications from COVID-19, but die at lower rates—may not be easy.

Family ties could go a long way toward convincing them to adhere to social distancing. But, as the fight against climate change has shown, that approach has its limits—at least in the opposite direction. Today’s older generations have so far proved reluctant to make the sacrifices that will be required to secure a more sustainable future for their children and grandchildren.

In this sense, however, the pandemic may offer an opportunity for progress. If young people remain dedicated to drastic short-term measures to contain the COVID-19 outbreak, older generations can surely make a medium-term commitment to ambitious climate action.

The third COVID-19 solidarity test will be the most difficult to pass. At a time when political leaders are already demanding so much solidarity within their countries, and national economies are suffering severe losses, generous resource transfers to struggling developing countries will be a difficult pill to swallow. Already, some economies, such as France and Germany, have limited or banned exports of critical medical equipment.

But if a country with a per capita income of $50,000—about the level in Canada and Germany, and lower than in Australia, the Netherlands, and the U.S.—suffered a 10 percent economic contraction, it would still be 10 times better off than low- and lower-middle-income countries were before the pandemic. Perhaps more salient, if poor countries are unable to contain their COVID-19 outbreaks, the virus could reemerge in rich countries that thought they had escaped it.

Solidarity with developing countries is thus a matter of both morality and long-term vision. Failure to pass this solidarity test would leave deep psychological wounds in left-behind countries, paving the way for all manner of extremism and new crises—from pandemics to conflicts—that would threaten everyone.

As the developed countries implement measures to counter the economic consequences of the COVID-19 pandemic, they should also work with international institutions to develop strategies for helping the developing world. While providing immediate liquidity, as the International Monetary Fund proposes, is a good first step, simply piling on more debt is not a sustainable solution. Grants and another round of debt forgiveness will also be needed, and international institutions must ensure that all countries get the medical equipment and other support—including food—that they need.

The world is about to find out whether decades of economic and financial globalization can lead to a deeper understanding of the ties—social, moral, and personal—that bind all people together. Only by recognizing and strengthening those ties can we replace our fragile and conflict-ridden system, built in the service of hyperefficiency and short-term gain, with more sustainable arrangements based on economic, generational, and international solidarity.

       

During this unusual time of flexible schedules and more time at home, many of us may have increased opportunities for long-form reading. Below, the scholars and staff from the Global Economy and Development program at Brookings offer their recommendations for books to read during this time.

Max Bouchet recommends

The Nation City: Why Mayors Are Now Running the World

The toughest problems we’re facing today—climate change, migration crises, income inequality, and obviously pandemics—know no national borders. Their effects concentrate in cities. Yet, cities and their leaders often lack the resources and support to solve these challenges. Rahm Emanuel, who was mayor of Chicago from 2011 to 2019, gives his account of the growing role cities and their mayors play in global affairs. The book offers great insights on the international activities of cities and the job of being a mayor in the 21st century.

Brahima S. Coulibaly recommends

AI Superpowers: China, Silicon Valley, and the New World Order

In “AI Superpowers,” author Kai-Fu Lee writes on everything you need to know about the genesis of artificial intelligence, its evolution, and its geopolitics.

Kemal Dervis recommends

The Narrow Corridor: States, Societies, and the Fate of Liberty

It is a long (more than 500 pages) but very readable book by Daron Acemoglu and James A. Robinson, the authors of “Why Nations Fail,” with a huge amount of history from all over the world. Its length may be acceptable in these stay at home times. It reminds the reader that every generation has to win the battle for liberty and good governance again and again.

Pascaline Dupas recommends

A Man of Good Hope

This 2014 book by Jonny Steinberg tells the unimaginable but true life story of Asad, a Somalian refugee whom Steinberg meets in South Africa while preparing a book on xenophobia. Narrative nonfiction at its best, the book is a powerful introduction to the challenges and complexities faced by displaced populations and the many ways in which the international community fails to support them. A book that never leaves your mind after you’ve read it.

Helena Hlavaty recommends

Persepolis: The Story of a Childhood

Persepolis by Marjane Satrapi is a two-part graphic memoir about the author’s experience coming of age in the time (and aftermath) of the Iranian Revolution. Satrapi’s vivid illustrations bring her experiences to life, effortlessly weaving together countless elements of the human experience across public and private spheres. A remarkably human perspective on a marked moment in history, no brief description can capture the full extent of Satrapi’s work!

George Ingram recommends

Extreme Economies: Survival, Failure Future — Lessons from the World’s Limits

“Extreme Economies” by Richard Davies is an economic and sociological study of nine microeconomies: three economies that bounded back from disaster, three that collapsed, and three that provide a window into the future. Not a special focus of the book, but striking from a development perspective is the theme of the role of informal networks in cases of success, and their absence in collapse.

Addisu Lashitew recommends

Prosperity: Better Business Makes the Greater Good

Professor Colin Mayer’s “Prosperity” answers the timely question of what should be the purpose of business. It is an ambitious, rigorous work that canvases a broad set of topics on the purpose and governance of business. It is strongly anchored on history and yet decidedly forward-looking, tackling key questions on how the corporation should be renewed in order to meet the present needs of our societies.

Payce Madden recommends

Wizard of the Crow

Kenyan author Ngũgĩ wa Thiong’o’s sprawling, comic, incisive novel—translated by the author to English from his native language, Gĩkũyũ—tells the story of a battle for control of a fictional African nation in the postcolonial era. In the process, the novel dissects the 20th-century experience of Kenya, and of Africa more broadly. Ngũgĩ uses magical realism and satire to great effect, providing as nuanced (and entertaining) an account of Africa’s history and possibility as any offered by a historian or analyst.

John McArthur recommends

Bury the Chains: Prophets and Rebels in the Fight to Free an Empire’s Slaves

Adam Hochschild provides a masterful account of how the leaders of the British abolitionist movement toiled for decades to bring about an end to slavery across the empire in 1834. Through so many highs and lows, the activists persisted in growing their coalition for justice into an unstoppable force. Whenever the world’s problems start to feel extra hard and intractable, this book can offer a deep reservoir of inspiration.

Sebastian Strauss recommends

How Asia Works: Success and Failure in the World’s Most Dynamic Region

“How Asia Works” is the closest thing you’ll find to a step-by-step recipe for economic development, with clear and falsifiable prescriptions for poor and rich nations alike. Studwell argues that efficiency considerations—important for developed economies—shouldn’t determine policy in poor countries, which must invest in learning before they can worry about efficiency. Their governments must proactively foster capital accumulation and technological learning. At the same time, rich countries must grant them the policy space they themselves once had, as developing nations cannot be expected to succeed without infant industry protection or state control of financial resources and international capital flows.

       

Throughout history, crisis and human progress have often gone hand in hand. While the growing COVID-19 pandemic could strengthen nationalism and isolationism and accelerate the retreat from globalization, the outbreak also could spur a new wave of international cooperation of the sort that emerged after World War II.

COVID-19 may become not only a huge health crisis, but also a crisis of globalization and global governance. Most obviously, it raises the question of how the world should organize itself against the threat of pandemics. But it also has implications for how globalization is perceived and what that perception means for the future of international cooperation.

Five decades of increasing interconnectedness have opened up the world to massive cross-border flows of goods, services, money, ideas, data, and people. While globalization itself is not new, the sheer scale and scope of the current version has made the world unprecedentedly interdependent—and thus fragile.

Today’s global socioeconomic infrastructure looks and works like a hub-and-spoke network in which all nodes are separated by very short distances and essential functions are centralized in large hubs. Financial activity is concentrated in the United States, for example, while China is the world’s manufacturing center. This structure is geared toward maximizing efficiency by capturing the benefits of economies of scale and specialization. Indeed, it has helped to lift millions of people out of poverty (although it also has led to greater income inequality and related social malaise in many countries).

However, connectivity also creates an enormous—but often hidden—risk of catastrophe. This is because connectivity increases what statisticians call “fat-tailedness,” or the likelihood of inherently unquantifiable extreme events, such as financial crises, a nuclear holocaust, hostile artificial intelligence, global warming, destructive biotechnology, and pandemics.

Because critical functional roles are hyperconcentrated and the entire network is so tightly linked, shocks to a central hub such as the U.S. or China can very quickly become systemic and paralyzing. The very reliance on central hubs generates systemic risk, because hubs constitute single points of failure, and the tight interconnectedness between and among hubs and nodes amplifies the potential for cascading failures. That is why the 2008 financial meltdown that originated in the U.S. was so destructive, and why the COVID-19 outbreak that began in China quickly became a global health and economic crisis.

Two different political trends are likely to emerge from this unfolding disaster.

First, the crisis may prompt moves to reduce global connectedness, including in terms of travel, trade, and financial, digital, and data flows. People may instinctively demand more isolation in many domains. Seeking protection through blanket isolationism would be misguided and counterproductive. But in this case, communities can indeed help to contain the COVID-19 threat by adaptively reducing their connectivity through mitigation measures that increase social distance such as school and business closures, bans on public gatherings, and limitations on public transport while the crisis lasts.

Such draconian steps will have high short-term economic and social costs, and they entail undeniable practical and ethical challenges. In hindsight, they may turn out to be unnecessary. But it’s precisely because we can’t predict the spread of COVID-19 that the crisis demands aggressive action early on. As mathematician and risk expert Nassim Nicholas Taleb points out, because exponential growth initially looks deceptively linear, overreaction on the part of policymakers is not only warranted, but required.

This is a tactical consideration, not a strategic one: The goal is not to promote deglobalization, but rather to build greater robustness. When risks are potentially ruinous, systemic survival must supersede efficiency considerations. That is why, for example, macroprudential buffers like higher capital requirements in the financial sector are desirable.

A clear parallel between the COVID-19 pandemic and climate change is becoming apparent. Both feature emergence, path dependence, feedback loops, tipping points, and nonlinearity. Both entail catastrophic fat-tailed risks ruled by radical uncertainty and call for eschewing traditional cost-benefit analysis—which relies on known probability distributions—in favor of drastic mitigation to reduce exposure. And, importantly, both highlight the need for much closer, forward-looking international cooperation to manage global threats.

Indeed, a demand for greater global cooperation is the second and more significant political trend that could emerge from the current crisis. While this might at first sound inconsistent with heightened suspicion of globalization, the necessary reforms can in fact synthesize both trends. Pandemic prevention and containment is a global public good, and providing it requires increased global coordination as well as adaptive, temporary, and coordinated decoupling.

For starters, there is both a need for and an opportunity to introduce global “circuit breakers” that can isolate systemic risks early on and prevent them from spreading. These mechanisms will be most effective if they are clear, transparent, designed in advance, and embedded in a global governance system that legitimizes and continuously updates them. For example, governments could craft and adopt common protocols for temporary travel and trade restrictions in the event of a potential pandemic, supported by globally agreed-upon early-warning systems and thresholds for action.

In addition, the international community may wish to build functional redundancy into complex systems—including finance, value chains, food supply, and public health—in order to prevent central hubs from becoming choke points and to ensure that single failures do not cascade into systemic collapse. Although this would entail some reshoring and deconcentration at the expense of efficiency, economies of scale, and comparative advantage, the goal is not autarky but rather risk reduction through diversification.

Humanity must organize itself to mitigate the tail risks associated with climate change, pandemics, bioterror, and unmanaged artificial intelligence. Although this will require a historic leap, major crises often open the political space for radical reforms. Precisely at a time when rules-based multilateralism is in retreat, perhaps the fear and losses arising from COVID-19 will encourage efforts to bring about a better model of globalization.

       

A time-honored but often problematic practice in basic welfare economics is to separate efficiency considerations from distributional concerns. In an economy with given endowments and a given distribution of them, the argument goes, there exists a set of prices that will guide competitive behavior toward an efficient allocation of resources. If the result is not desirable on equity grounds, then a separate set of redistribution policies can be used to achieve a more desirable outcome.

There are, of course, many qualifiers to this proposition, related to imperfect information, incomplete markets, economies of scale, pricing power, and the need for redistribution to be in lump-sum form in order to preserve efficiency. Moreover, redistribution is often politically and institutionally unfeasible. Nonetheless, the “separability” of efficiency from distributional priorities remains a bedrock of the market-economy narrative.

This narrative shapes much of the climate-change debate, particularly the discussion of carbon border taxes, which would equalize the cost of carbon use from domestic and foreign sources, thereby preventing “carbon leakage.” There is little point in having unilateral carbon taxes in a world in which carbon dioxide emissions can be offshored from carbon-pricing countries to non-carbon-pricing countries, leaving total emissions much the same.

To be sure, carbon border taxes would face many difficult measurement problems. As a result of global value chains, the carbon content of most products originates in many different countries with varying climate policies. But, in principle, border taxes that prevent carbon leakage could approximate what a global carbon tax would do.

As Kenneth Rogoff recently argued, “a worldwide carbon tax would achieve in one fell swoop what myriad command-and-control measures cannot easily replicate.” The theoretical argument for border taxes advocates moving toward a global cost of carbon and then dealing with the international distributional problem through some mechanism for transferring resources to lower-income countries.

In practice, international negotiations have not strictly separated efficiency from distributional concerns. It has always been accepted that developing countries should not be asked to bear the full short-term burden of the transition to a carbon-neutral global economy. There has been a recognition that poorer economies will take longer to reduce CO₂ emissions, consistent with a lower price of carbon in these countries, and that they will also need financial help from richer countries during the transition.

Distributional concerns would thus be addressed through a combination of “inefficient” differences in the price of carbon across countries and resource transfers. Some global inefficiency would be necessary, given the great difficulty of mobilizing sufficient resources to compensate developing countries for the lower growth that would result from their having the same carbon price as advanced economies.

A comprehensive implementation of carbon border taxes without exceptions for developing countries, but with resource transfers to them, would depart from this mixed approach and be more consistent with the basic “separability” narrative. Such an approach would, of course, run the risk that resources are promised but not transferred. Any commitment would therefore have to be ex ante credible, or perhaps even paid for upfront—as Georgetown University’s Shanta Devarajan has suggested in a domestic policy context.

The future debate on carbon border taxes is likely to unfold amid a shift in emphasis from international distribution to within-country redistribution. Over the coming decade, clean technologies will become highly competitive, owing to a dramatic increase in know-how and a more ingrained ethic of climate responsibility around the world. Greater expertise will tend to lower the price of carbon needed for an optimal growth trajectory. Likewise, the increase in climate responsibility—reflected in a shift in investor and consumer preferences toward cleaner assets and products at any given set of prices—also will make carbon neutrality somewhat easier to achieve.

If these trends are confirmed, then a country investing during the 2020s that considers all past costs as sunk would embark on a low-carbon growth path even with a carbon price that is lower than previously estimated. But for countries with large stocks of existing infrastructure, the biggest problem will be the legacy of past investments in the form of stranded assets and concentrated local unemployment, rather than the cost of new clean investments. This implies that managing distributional issues within countries may become more of a hurdle than redistribution across them.

Moreover, many middle-income economies with more recent investments in carbon-intensive infrastructure will tend to face bigger internal distribution problems than either advanced economies with already more depreciated assets, or poor countries with little existing infrastructure. A graph showing the magnitude of the within-country distribution problem may therefore be an inverted U-curve. But mobilizing international support for easing the fiscal difficulties of middle-income and lower-middle income economies is harder than mobilizing aid, on per capita income grounds, for the poorest countries. And yet partly concessional forms of support are needed for countries such as India and some countries in Eastern Europe.

Carbon border taxes could help the world move more efficiently toward sustainability. But for such taxes to be part of a consensual multilateral approach rather than a new source of conflict, policymakers must tackle distributional issues upfront as part of a strategic design, not as an afterthought.

       

The provision of global public goods (GPG)—such as mitigating climate change, fighting tax avoidance, or preserving and extending fair rules-based international trade—is even more important for Africa than for other parts of the world. And yet, Africa could be sidelined from the decisionmaking process for the foreseeable future in a global governance system dominated by the G-2 (the United States and China) or the G-3 (should the European Union succeed in acting cohesively).

Mitigating climate change. A prime example of a GPG in which Africa has an outsized stake is climate protection given the region’s high exposure to climate change. In fact, according to the Intergovernmental Panel on Climate Change, given Africa’s geographic position, high dependence on ecosystem goods and services, and weak adaptation capacity, no continent is more vulnerable to the effects of climate change that come with worsening drought conditions, increased water stress, and sea level rise. (For more on the impacts of climate change on Africa, see Chapter 4.)

A world in which the rules of the game are essentially made by the superpowers alone, either globally or within their own spheres of influence, is not in Africa’s interest.

Protecting corporate tax bases. Given Africa’s challenge with domestic resource mobilization, another important example of a GPG for the region is the protection of corporate tax bases—in other words, preventing large corporations from shifting their accounting profits to the countries with the lowest tax rates. This issue is particularly important for Africa, where corporate taxes are a substantial fraction of total government revenue. Some progress has recently been made on this front under the OECD/G-20 Inclusive Framework on Base Erosion and Profit Shifting. The OECD-sponsored work has expanded to the issue of fair taxation of digital platforms, and is now trying to unify various proposals with the aim of reaching international rules focused on an agreed definition of a country’s tax base as well as a global floor to national tax rates. The issues involved remain contested: Progress has been made on tax evasion through the automatic exchange of information between countries, but steps to reduce legal tax avoidance are still being discussed. It is good that many African countries are participating in the work of the OECD/G-20 to make sure the region’s interests are well represented.

Ensuring a fair and stable system for international trade. As many African countries are small, trade-dependent economies where export-led strategies are necessary for economic success, a fair and stable system of rules governing international trade is a third example of a GPG vital for Africa. Sidelining the World Trade Organization would not be in the interest of African countries. In these as well as other domains of global governance, Africa’s mostly small nation-states have a great interest in a rules-based multilateralism rather than an international order based on ad hoc “deal-making,” where the very large players can exert their weight in each case.

The way forward

In the past, the least developed countries—including most African nations—were able to secure some special consideration in the domains of trade (“equal but differentiated treatment”) and climate (special treatment in the Kyoto protocol), owing to their low income levels. This principle should continue to be applied during the coming decade.

However, going forward, Africa’s losses because of tax avoidance or global warming threaten to dwarf the gains it may receive through the traditional special treatment regime. Full participation in the rule-making process is thus the first global governance-oriented objective that African nations should pursue.

Africa’s mostly small nation-states have a great interest in a rules-based multilateralism rather than an international order based on ad hoc “deal-making,” where the very large players can exert their weight in each case.

A related specific objective for African countries should be to argue for the introduction of a population variable in the calculation of voting weights where weighted voting applies, such as in the governance of the Bretton Woods institutions.

True, it would be unrealistic and unjustified for population to be the main determinant of voting weights in international institutions. There is no global democracy, nation-states are still the legitimate constituent units of the global system, and voting weights should reflect nations’ capacity and willingness to contribute resources to the provision of global public goods. But population should not be excluded altogether. The basis of global governance has always included a partial recognition of the democratic principle of “one person, one vote,” as is evident from the beginning of the Charter of the United Nations: “We the People…” This principle should translate into at least a modest role for population in calculating governance weights.

A world in which the rules of the game are essentially made by the superpowers alone, either globally or within their own spheres of influence, is not in Africa’s interest. For Africa to be able to lend its support to the kind of multilateralism from which it will benefit, African nations will have to take further steps in uniting their voices toward this common goal.

       

There is an overwhelming consensus among scientists that this decade will be the last window for humanity to change the current global trajectory of carbon dioxide emissions so that the world can get close to zero net emissions by around 2050, and thus avoid potentially catastrophic climate risks. But although the massive technological and economic changes required to achieve this goal are well understood, their political implications are rarely discussed.

While climate activists have built an impressive international movement, broadening their political support and crossing borders, the nationalist narrative has been gaining ground in domestic politics around the world. Its central message—that the world consists of nation-states in relentless competition with one another—stands in sharp contrast to the climate movement’s “one planet” emphasis on human solidarity. And these two trends are on a collision course.

Although greenhouse-gas (GHG) emissions do not respect political borders, and climate change affects all parts of the planet, the impact of global warming is decidedly not uniform. An average global temperature increase of 2°C will create extreme heat stress in India and Africa. Similarly, although rising sea levels will threaten lower-lying areas around the world, and more extreme weather events will affect almost everyone, already poor and vulnerable populations are especially at risk. Another inherently international aspect of the problem is carbon leakage as a result of trade. While GHGs are emitted in one country by the production of, say, steel, it is the use of that steel in importing countries that “causes” the emissions in the exporting country.

The net benefits for all countries of controlling global warming are clear, because the various tipping points (and the possibility of cascading effects) present huge global risks, and not just for future generations. Moreover, the green economy offers big medium-term opportunities. But, because climate mitigation is a global public good, and given the geographically varied impact of global warming and the transmission of emissions through trade, it is extremely difficult to make progress through multilateral negotiations. Every government tries to maximize its gains and minimize its losses according to a narrowly nationalist perspective—and often within very short-term political timeframes. The failure of the recent COP25 climate negotiations in Madrid reflects these difficulties only too well.

The climate movement has thus correctly perceived that success will require a planetary ethics based on global solidarity and responsibility, with any credible solution necessarily including compensation for the temporary losers from green policies. Solidarity may take the form of direct financial transfers or a global agreement to vary national emissions targets or carbon taxes according to countries’ income levels.

For that reason, climate change poses a clear dilemma for the political right. On one hand, an increasing number of voters—including many conservatives—are becoming more sensitive to the climate challenge, as extreme weather events and air pollution resulting from GHG emissions directly affect them. Some strongly religious voters have also become sympathetic to conservationist pleas, and Pope Francis has weighed in with an encyclical on ecology, Laudato Si’.

On the other hand, the need to overcome short-term national interests in tackling global warming runs counter to the resurgent nationalist narrative. This is especially so in rich countries, which will have to compensate less developed economies either directly or by agreeing to differentiated rights and responsibilities. Raghuram G. Rajan, for example, recently proposed a formula whereby rich countries with per capita CO₂ emissions above the world average would pay into a global fund that rewards low per capita emitters. However, under Rajan’s proposal, the United States would pay about $36 billion per year into the fund. Would nationalist politicians in advanced economies ever agree to such a formula, or even to much less ambitious variants?

Moreover, even governments that claim to be committed to the overall (and insufficiently ambitious) mitigation targets in the 2015 Paris climate agreement are dragging their feet when action requires substantial short-term sacrifice. Without robust solidarity, it seems, the tough measures and difficult compromises needed to protect the world from potentially devastating climate change are unlikely to come soon enough—if at all.

Some climate advocates minimize the distributional issue, because they want to build as wide a political tent as possible and emphasize the long-term gains for all from tackling global warming. And as some center-right political parties, notably in Europe, make climate protection part of their programs, government coalitions comprising them and green parties appear increasingly possible. Globally, however, the inherent contradiction between the conservative nationalist and green internationalist narratives will remain.

What China and India do is crucial, because they already account for about one-third of total global CO₂ emissions. Further rapid increases in their share would fuel the nationalist reflex elsewhere, making any global climate agreement even harder to achieve. The European Union’s plans for a carbon border tax will be hotly contested, not least on equity grounds, unless developing countries are exempted. The EU’s proposed tax also could trigger a negative reaction from the U.S., depending on the results of November’s presidential election.

The Nobel laureate economist Robert J Shiller has argued that economies are driven more by popular “narratives” than by technical policies. The same is true of politics, and, given the centrality of the climate issue this decade, the conflict between climate activism and nationalism is likely to become more pronounced.

In fact, this clash may become a defining feature of politics, with the nationalist right facing a coalition of climate-oriented voters comprising not only today’s Greens, but also those from the social-democratic center-left and the traditional center-right. Moreover, other issues will be connected to this fault line, not least the need for domestic compensation of those groups that temporarily lose out as a result of ambitious climate mitigation efforts.

If the dominant divide of the 2020s is between the nationalist narrative and green internationalism, then the climate debate may import global issues into national politics like never before. The outcome, of course, remains to be seen.

       

Abhijit Banerjee and Esther Duflo, two of this year’s recipients of the Nobel Memorial Prize in Economic Sciences, are the latest among leading economists to remind us that gross domestic product is an imperfect measure of human welfare. The Human Development Index, published by the United Nations Development Programme, aggregates indicators of life expectancy, education, and per capita income and has long been available as an alternative to per capita income alone. In 2008, Joseph E. Stiglitz, Amartya Sen, and Jean-Paul Fitoussi outlined the many failures of GDP for the French government-sponsored Commission on the Measurement of Economic Performance and Social Progress. Subsequent OECD-sponsored work elaborated on their findings, and related research by the Brookings Institution’s Carol Graham (on subjective well-being) and Duke University’s Matthew Adler (on the measurement of social welfare) has received well-deserved acclaim.

Nonetheless, GDP continues to reign supreme in the halls of power. Policymakers around the world are constantly awaiting the latest quarterly data on GDP growth, and variations of one-tenth of a percentage point are regarded as significant indicators of macroeconomic performance. The International Monetary Fund’s “World Economic Outlook” may include in-depth analysis across a wide range of topics, but it always starts with GDP.

To see why treating GDP growth as a proxy for progress even in terms of income alone is highly problematic, consider the case of a country with ten citizens and a GDP of $190, where nine citizens start with $10 each and the tenth citizen starts with $100. (Moreover, assume that GDP is equal to national income, so that net factor income from abroad is zero.)

Now, imagine that the first nine citizens experience no income growth in a given year, while the tenth enjoys a 10% increase. GDP will have increased from $190 to $200, implying an annual growth rate of approximately 5.26%. This is reflected in the usual way national income is computed. Individuals are weighed by their share of total income, and that 5.26% rate represents a weighted average in which the income growth of the tenth citizen counts nine times more than that of each of the other nine citizens.

Contrast this example with one in which the same country uses a “democratically” measured growth rate, weighing each individual equally as a share of the population rather than as a share of total income. Here, the growth rate would reflect the weighted sum of nine 0% growth rates and one 10% growth rate, each weighed at one-tenth, with a resulting total growth rate of 1%.

The weighing of individuals by their share of income is not generally perceived by the public. But this implicit practice is important to point out, because it enshrines the principle of one dollar, one vote, rather than one person, one vote. It is essential for assessing the total size of a market or the economic “power” of a country, but it does not capture an economy’s performance for its citizens.

This is hardly the only reason why GDP is an inadequate measure of human well-being. It also ignores people’s need for respect, dignity, liberty, health, rule of law, community, and a clean environment. But even if all of these other democratic “goods” were satisfied, GDP still would fail as a metric of progress, purely in terms of income alone.

Building on work by the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, the Center for Equitable Growth has proposed “GDP 2.0,” a metric that would complement existing aggregate GDP reports by disaggregating the income growth of different cross-sections of the population (such as income quintiles). Providing this kind of distributional picture regularly would require increased coordination among government departments, as well as some conventions on, for example, how to use tax data to complement the usual national accounts. But conventions are also needed for existing national income accounting.

Provided that distributional data are routinely available, one could compute a growth rate based on the weighted average across each decile of the income distribution, with equal weighting for population, as in the example above. Individuals would still be weighed by their incomes within each group (which is why it would be preferable to use deciles rather than quintiles), but the final product would be much closer than current methods to the “democratic” ideal.

One of the main advantages of GDP growth is that it is expressed with a single number, whereas other performance indicators either are presented within dashboards comprising multiple metrics or aggregated in essentially arbitrary ways. The implicit use of income shares as aggregation weights is perfectly appropriate for macroeconomic analysis and is not arbitrary. The problem arises when GDP becomes a proxy for progress. What we can measure easily and communicate elegantly inevitably determines what we will focus on as a matter of policy. As the Stiglitz-Sen-Fitoussi report put it, “What we measure affects what we do.”

Publishing a democratic metric like the growth rate of GDP 2.0 is no pipedream. A GDP growth rate using equal weights for each decile of the population would also produce a single number to complement the usual growth rate. True, it still would not capture the substantial differences within the top decile in many countries where the top 1% have been gaining disproportionately compared to everyone else. And we still would need other metrics to measure performance in dimensions other than income. But as a single figure published alongside GDP growth, it could go a long way toward changing the dominant conversation about economic performance.