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Kemal Derviş
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This week, Project Syndicate catches up with Kemal Derviş, former Turkish Economy Minister and UNDP Administrator and current Senior Fellow at the Brookings Institution.

Project Syndicate: “Precisely at a time when rules-based multilateralism is in retreat,” you and Sebastián Strauss recently wrote, “perhaps the fear and losses arising from COVID-19 will encourage efforts to bring about a better model of globalization.” But how likely is that? As you acknowledge in your most recent PS commentary, “Solidarity across borders will be the most difficult challenge posed by the pandemic catastrophe.” Could the COVID-19 pandemic thus result in uncontrolled deglobalization? How might such an outcome be avoided, or at least mitigated?

Kemal Derviş: As Strauss and I acknowledge, it could go either way. Fears about global interdependence are set to deepen, as will the instinct to protect one’s own country by reducing dependence on “foreigners.” US President Donald Trump’s insistence on calling COVID-19 a “Chinese virus” reflects this approach. If the leaders of the world’s major powers succumb to such suspicion and blame, the crisis could be deeply divisive.

But there are reasons to hope that the pandemic could lead to greater international cooperation. We are also seeing an unprecedented level of open scientific collaboration, aimed at developing vaccines, diagnostics, and therapeutics. Japan and China – usually rivals – quickly offered each other generous aid. Even US and Chinese leaders pledged mutual support in a phone call on March 26!

Such support must extend to developing countries as well. In fact, if the developed economies neglect poor countries’ enormous needs during this crisis, it would foster deep resentment that would be very difficult to manage in the future. It would also likely lead to additional waves of infections globally – including in the rich countries that have contained the virus.

This point is worth stressing, given recent developments in China. Domestic infections almost disappeared, but as soon as border controls began to be relaxed, new “imported” infections were reported. This shows that the only way to eradicate COVID-19 in one country is to eradicate it in every country.

What is urgently needed is leadership in presenting a forward-looking narrative about how the world should handle not only the COVID-19 crisis, but catastrophic risks more generally. As Nobel laureate Robert Shiller argues in his book Narrative Economics: How Stories Go Viral and Drive Major Economic Events(which I recommend below), clear and compelling narratives matter enormously in shaping public opinion – and public policy.

Narratives are also often linked to personalities: credible figures who are effective communicators are particularly successful in advancing them. In the US, New York Governor Andrew Cuomo gained national prominence with his compelling case for stricter lockdowns; if some states falter, he points out, everyone will be in danger. A similar sort of leadership is needed globally. International scientific collaboration could play an important role is supporting this effort, showing what global cooperation can achieve.

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PS: You and Strauss compared the COVID-19 pandemic to climate change. Both “call for eschewing traditional cost-benefit analysis – which relies on known probability distributions – in favor of drastic mitigation to reduce exposure.” The difference, of course, is that COVID-19’s effects are immediate, whereas a similar sense of urgency about climate change may come too late to make a difference. And, in fact, many major economies – including the United States, the United Kingdom, and Russia – stand to pay a heavy price for delaying their COVID-19 response as long as they did. How might we translate the condensed urgency of the pandemic to climate action?

KD: The COVID-19 crisis is a dramatic example of the world knowing about a tail risk, and ignoring it. The same can be said about climate change: science tells us that a global temperature rise of 2° Celsius above pre-industrial levels carries potentially catastrophic tail risks, which would affect the entire planet. It may not be possible to imbue the climate conversation with precisely the same level of urgency as the pandemic, but the COVID-19 crisis could help to spur a more general – and much-needed – global debate on the most desirable balance between short-term efficiency and longer-term robustness.

Designing robust systems requires building some redundancy and slack into them, at the expense of some efficiency in the short term. But if – or, in the case of climate change, when – the tail risks materialize, the more robust systems will prove to have been more efficient from a long-run perspective.

This is not to say, of course, that we should abandon all consideration of short-term efficiency and focus only on robustness. That would be economically and politically unsustainable, and thus counter-productive. But the COVID-19 crisis has highlighted the global system’s fragility in the face of risks, which could include not only climate change, but also bio-terror, cyber-attacks, or misuse of artificial intelligence (AI), to name a few realistic threats.

Unfortunately, the responses to particular disasters have tended to focus on preventing that exact kind of disaster from recurring, rather than mitigating risks more broadly. After the September 11, 2001, terrorist attacks in the US, for example, robustness was built into airport security – and not much else.

Each area of risk will require specific policies. More ambitious climate action, for one thing, is essential. But the sheer magnitude of the COVID-19 crisis should result in a broader shift toward greater systemic robustness.

This will require enhanced international cooperation, including global early-warning mechanisms, shared circuit-breakers and shock absorbers, a pool of resources ready to be deployed immediately when a crisis strikes, pre-agreed burden-sharing formulas, and automatic exchanges of critical information.

PS: Distributional implications are another parallel between the COVID-19 pandemic and climate change. You and Strauss have argued that the mostly lower-income short-term losers in a rapid climate transition must be compensated through social policies. Which policies do you have in mind? Is there any overlap between such measures and those that might help to support the lower-income wage earners who, as you point out in your most recent PS commentary, are suffering the most from pandemic-related lockdowns?

KD: Strauss and I argue that distributional issues are the real obstacle to ambitious climate policies. Renewables have, in recent years, become competitive with fossil fuels in many areas, despite low carbon taxes – at least before the recent oil-price collapse. But renewable energy still entails high fixed costs, against a background of significant policy uncertainty.

The immediate costs of a rapid transition toward a carbon-neutral economy would be felt more strongly by low-income households (for which energy-intensive items tend to represent a larger share of expenditure) and precarious workers in carbon-intensive industries (such as truck drivers). To gain their support for a transition to clean energy – and, indeed, to make such a transition possible – policies to protect them must be implemented. This means, first and foremost, strong social safety nets, which make societies more resilient against shocks.

Likewise, the economic consequences of the current lockdowns affect lower-income groups more strongly, particularly in countries with weak social safety nets, such as the United States. Again, strengthening these safety nets – including by ensuring universal health care – is essential.

The measures included in the $2 trillion relief package enacted in the US are appropriate but insufficient. They must be augmented and extended. In particular, foreclosures and evictions should be stopped, not only by public agencies, but also by private lenders. In Europe, the time has finally come to launch jointly guaranteed eurobonds. How the European Union handles this catastrophe will make or break it.

PS: Back in 2014, on the centenary of the outbreak of World War I, you pointed out that, “It was a political breakdown that led to three terrible decades for the world economy.” And yet, “the business community shrugged off political problems as either temporary or irrelevant.” The same seems to have happened with the uptick in political tension and uncertainty that preceded the COVID-19 pandemic. Managing such risks may be a political challenge, given the need for international cooperation, but what about economic actors? How can they be forced to internalize rising risks, thereby potentially discouraging political leaders from “sleepwalking” toward crisis?

KD: The whole world sleepwalked into WWI, even though war was entirely predictable. Indeed, the way alliances were set up among major European countries, together with intense rivalries and nationalist ideologies, made it all but inevitable. If Austria’s Archduke Franz Ferdinand and his wife had not been assassinated in Sarajevo, something else would have triggered it.

The business community did little to mitigate rising risks; on the contrary, fearing the “internationalist” workers’ movements, it supported nationalism (despite its own cross-border connections). The same occurred in Germany before World War II, but even more overtly. The business community and most conservative politicians despised Hitler, but, fearing socialism more, they acquiesced to the Nazis. They assumed that once Hitler had crushed the left for them, they could simply get rid of him. We all know how that turned out.

Fortunately, many business leaders today have more sense than that, as evidenced by recent calls from within the business community to embrace “stakeholder capitalism.” Some companies are leading carbon-mitigation efforts. And far from siding with the extreme neo-nationalists, big business is often criticized by them for supposedly promoting “cosmopolitan elitism,” not least because it generally operates globally.

But the business community – particularly multinationals – could do much more to support far-reaching institutional change that emphasizes cooperation and robustness. This includes supporting global measures to end tax avoidance and regulations to protect against tail risks in cyberspace, AI, and biotechnology. As the COVID-19 crisis demonstrates, a globalized world requires multilateral cooperation, joint planning, and global rules, not just global markets. Business should recognize and support that message.

BY THE WAY. . .

PS: What do you think of proposals in the US to provide emergency cash to households during the COVID-19 crisis? Could such an approach catalyze more serious discussions about universal basic income in the longer term?

KD: Given the magnitude and speed of the current crisis, I think that direct cash support to households with incomes below a certain level is appropriate. But in normal times, I am not a great fan of a universal basic income. I would prefer a negative income tax (which can be more progressive), complemented by adequate unemployment benefits and social security provisions.

PS: The debate in the US has taken a disturbing turn. President Donald Trump has said that the cure cannot be worse than the disease, flouted expert advice to impose tighter restrictions, and shown more interest in protecting the economy than human lives. Is the choice really public health or the economy?

KD: I am not an expert in epidemiology, but at this stage, I don’t see a tradeoff between public health and the economy. After all, allowing the infection to spread freely would do far greater economic damage than short-term social-distancing measures. Even if a substantial share of the infected display only mild symptoms, the total number of very sick people would be very large.

Some have tried to diminish the threat that COVID-19 poses by comparing its death toll to that of, say, traffic accidents. But the comparison is invalid, because a car accident is not contagious, whereas a single COVID-19 infection can lead to thousands more infections, if barriers are not in place. Car accidents have never pushed health systems to the breaking point, as COVID-19 has already done in Italy, Spain, and New York City.

There will come a moment when social-distancing measures can begin to be relaxed, helping to revive the economy, without triggering another wave of infections. We don’t yet know when that will be. The Chinese experience suggests that we may not have to wait too long, if social distancing is pursued effectively. But that’s a big “if,” particularly in developing countries.

For now, we should focus on ensuring that restarting the economy can be done safely. Large-scale testing – to find out how many are infected, and who has antibodies – may be essential here. And given the aforementioned danger posed by “imported” infections, the need for a coordinated global strategy is inescapable.

PS: In an article for the Brookings Institution, you argued that “full participation in the rule-making process is….the first global governance-oriented objective that African nations should pursue.” Given how difficult it has been even for the major emerging economies to increase their weight in international institutions, what steps could African countries take to advance this objective?

KD: African countries are subject to international rules and agreements in many domains, including pandemic response, taxation, and trade. The only way that they can increase their influence over those rules and agreements is to pool their resources and take a united approach that leverages their collective weight.

PS: You’ve devoted your career to public service and academia, serving at the World Bank, in Turkey’s government, as Administrator of the United Nations Development Programme, and now as a senior fellow at the Brookings Institution. Did the private sector ever tempt you?

KD: I started by teaching economics at the Middle East Technical University in Turkey and at Princeton, but was quickly drawn to policy advising when I joined the World Bank in 1977. Then I was suddenly called to help tackle the Turkish economic crisis of 2001 as part of a coalition government. In 2005, when I was an opposition parliamentarian, I was elected to become administrator of UNDP. These opportunities for public service were a profound privilege for me.

At the end of my term at UNDP, I did consider the private sector. But for my entire career, I had been involved in national and international economic policymaking; by then, public policy was practically second nature to me, and I couldn’t imagine giving it up. So it made more sense for me to choose the Brookings Institution, in order to remain active in research and policy advice.

Derviş recommends

We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Derviş's picks:

  • Narrative Economics

    Narrative Economics

    A Nobel laureate in economics, Shiller describes how narratives, whether accurate or misleading, have far bigger effect on public opinion and policy than complex models or theories. He draws parallels with infectious disease, and even includes an appendix on epidemiology – which is particularly interesting in the current context.

  • Capitalism Alone: The Future of the System That Rules the World

    Capitalism Alone: The Future of the System That Rules the World

    In this masterful “big picture” view of the world, Milanović distinguishes between the liberal-meritocratic capitalism that has evolved mostly in the West (and its social democratic variant) and the state-led political capitalism that China embodies. He provides careful factual analysis of the two systems, within a grand historical perspective. While his analysis does not focus on the history of economic and political thought, it is grounded in his deep knowledge of the classics, from Plato and Aristotle to Marx and Max Weber. Milanović does not attempt to predict the future, but he does offer possible trajectories and argues that liberal capitalism’s survival depends on its ability to improve social mobility and address income inequality.

  • The Narrow Corridor: States, Societies, and the Fate Of Liberty

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

    Coming in at more than 500 pages, this fascinating book by the authors of Why Nations Fail: The Origins of Power, Prosperity, and Poverty is ideally suited for these days of confinement. The central argument is that liberty and good governance depend on both a strong state and a strong society. Moreover, the search for the right balance between state power and citizens’ ability to restrain the state is never over. Acemoglu and Robinson drive this point home with carefully assembled historical details about how political communities, from ancient Greek city-states to our modern nation-states, have tried – and, often, failed – to maintain this balance.

From the PS Archive

From 2016
Derviş warns against facile reasoning in explaining complex and consequential developments, such as Brexit and Donald Trump. Read more.

From 2019
In this PS On Point Global Bookmark, Derviş reviews three books examining the anatomy of crony capitalism in the Middle East, Russia, and China. Read more.

Around the web

At the 2018 World Policy Conference, Derviş discusses the effects of – and possible solutions to – the ongoing crisis of multilateralism. Watch the video.

In the Intersections podcast, Derviş and Bruce Katz, the inaugural Centennial Scholar, examine the multidisciplinary, adaptive approach cities take to tackle public policy challenges, and highlight other lessons for modern governance. Listen to their discussion.

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