Economic policies weaponised: WEF

After the World Bank assessment about global economy comes the Global Risks Report of Davos-based World Economic Forum (WEF). Based on an opinion poll of economists, it says that the trouble for the world arises not from wars between countries but from weaponising economic policies like tariffs, investments and control over supply chains.

The report terms “geo-economic confrontation” as the greatest threat in the short term. The WEF has been the voice of free market economy, flow of investments and trade in goods and services. Every early February, business and political leaders gather at the Swiss resort Davos to exchange views. The Global Risks Report comes ahead of this year’s Davos summit.

Saadia Zahidi, managing director, WEF described “geo-economic confrontation”: “[It is} when economic policy tools become essentially weaponry rather than as a basis of cooperation.” Free markets presuppose cooperation between countries where each country trades what it produces best for what others do well, so there is a balance. And no country takes advantage of monopolist advantages.

But the weaponising of economic policy introduces a sharp competitive edge which hurts trade partners. The report did not name countries. It is a reference to US President Donald Trump’s torrent of tariffs, and China’s restrictions on export of critical minerals that the US needs to keep its electronics, Internet and AI industries going.

The report notes: “Protectionism, strategic industrial policy, and active influence by governments over critical supply chains all signal a world growing more intensively competitive.” The report goes on to say that economic rivalries raise concerns over “an economic downturn, rising inflation and potential asset bubbles as countries face high debt burdens and volatile markets.”

If these are the short-term anxieties over the state of the global economy, the long-term concerns over a ten-year period are over extreme weather, change in ecological systems and biodiversity loss.

There was also concern over the possible disruption of critical infrastructure that includes energy, digital systems and water, which ranked 23rd in the ranking of risks for the last two years, but has now moved to the 22nd position. Peter Giger, chief risk officer of Zurich Insurance Company, in an accompanying report said that the dangers of disruption on the critical infrastructure was “underplayed”. He said, “That’s strikingly low for something so fundamental to modern life” and called it a “dangerous oversight”.

Even as the world is engulfed by crises caused by the politically aggressive foreign policy of Trump, and internal turmoil in countries like Iran, the economic risks get overlooked. And it is the economy that poses a greater and larger threat to the lives and livelihoods of the majority of the people, living mainly in developing countries. The focus of the leaders of the big and small countries is over political crises, and not much time or thought is spared to tackle the economic challenges.

The economy is passing through the double crisis of low and uncertain growth on the one hand, and that of innovative technology like the AI, which is also necessarily disruptive in nature. It will create a lot of destruction of existing systems, economist Joseph Schumpeter described it as “creative destruction”, and whatever benefits it will bring in its wake and improve the ways of life is very much hid in the mists of the future. It has also been noted that AI is an energy and water guzzler which will make the climate change crisis more acute than ever.

It seems that experts are of the general opinion that the prospects for the people this year and in the next few, do not promise any improvement, and there is the difficult situation of the cost of living that people are experiencing in the United States under Trump and in Iran under the religious clerics holding power in Tehran. Economic crisis is worldwide.