By Rusiripala Tennakoon –
No one can foretell what accidents and disasters will happen and when. But mankind has always paid heed to possibilities. Some disasters arrive with little forewarning. And when a disaster strikes, it takes away the time to prepare against. Hurricanes, earthquakes, tornados, wild fires, floods and the likes, all take us unawares most of the time overtaking the human conquest of technology and beating the highly advanced and sophisticated forecasts.
Some disasters are natural while some are man-made. Causing destructions to the environment by the humans has been a root cause for many natural disasters. It is difficult to draw a line to divide them as natural and man- made because human element is almost always associated with the disasters directly or indirectly. Preparedness and lessons learned from the history will certainly help mitigate the impact of natural disasters. However, some calamities and troubles can be directly attributed to human involvement. History is full of chapters about human conflicts that have developed into wars and finally leading to world wars engulfing the human fate in worse forms than under natural disasters.
The World war 1 began in July 1914 and ended in November 1918 claiming 17 million human lives and injuring over 20 million. The crisis sparked off an incident due to the assassination of a nobleman from Austria by a person from Serbia supported by a nationalist organization there. The climate for such a flare off remained ripe and ready associated with the economic competition, nationalism, imperialism and unresolved territorial disputes that prevailed as hidden embers. For many countries, in addition to the loss of human lives and national wealth, funding the war had severe economic cost which affected their asset bases and the general survival. WW1 ended with many nations coming together to sign the Treaty of Versailles on the positive side and also paving the way to one of the deadliest global pandemics on the worse. This came to be known as the ‘Spanish Flu’ which killed an estimated number of 50 million people around the world (between 1918 and 1920). The entire world became victims of this natural calamity and our ancestors in Sri Lanka too succumbed to it sacrificing more than 57,000 lives.
In the aftermath of WW1 The League of Nations was founded on 10th Jan 1920 to maintain world peace. But the Treaty and the League of Nations did not serve the purpose of its mission and twenty years later disastrous Second World War started. This was an instance of history proving that precautionary measures taken by humans do not always yield expected results.
It became a global war and lasted from 1939 to 1945 pushing the countries in the world into two opposing military camps Allies and the Axis. About 3% of the world population lost their lives estimated to be around 75 million. The war brought in disease and starvation in addition to the genocide, massacres and devastation due to mass bombings. Started by Adolf Hitler by invading Poland on 1st September 1939, it spread to Britain and France within two days. When it ended with the surrender of powers headed by Hitler’s Germany the war had engulfed the entire world. The war culminated to its zenith with the US detonating two nuclear bombs in Hiroshima and Nagasaki areas in Japan on August(1945) 6th and 9th one after the other. The ruination caused by the bombings were beyond any human apprehension. Under any standard it was an act of barbarism, immoral and no doubt a war crime which amounted to state terrorism. The estimated deaths in Hiroshima was around 140,000 and 70,000 in Nagasaki. And by no means it was a correct account of the human carnage which extended to several years after due to radiation after effects.
With so many dead and incapacitated permanently, cities crumbled down to rubble, human refugees thrown all over, the second world war causing unbelievable hardships, compelled the world to bring about required changes to continue human lives humanly. This tendency and acceleration gave birth to several newly created institutions with the conviction of upholding universal standards under notions of common humanity. This brought about the replacement of the failed League of Nations with the United Nations Organization. Several leading nations which did not care to join the league of Nations earler agreed under the new situation to join. This movement brought about several other organizations to deal with the economic situation. Bretton Woods System, World Bank, IMF and the General Agreement on Trade and Tariffs were among those. This shows how the humans react amidst differences that exist to face up to situations resulting from disastrous occurrences.
In the post war period, it is noteworthy, that there was no peace treaty for settlement as was seen after the first world war. But countries entered into number of separate agreements on an ad hoc basis. However, the institutions that were established played a prominent role in keeping the different countries of the world tied together. There is no doubt that these institutions effectively assisted the countries to overcome the impacts of the war as well as many other situations that arose later. They proceeded to create many other affiliated and new institutions and organizations in the course of time.
The World bank for example which serves the purpose of mainly the poverty alleviation and providing grants to governments for that purpose, has established other institutions; the IBRD (international bank for reconstruction and development), IDA (international development association), IFC (international finance corporation), MIGA (multilateral investment guarantee agency),and ICSID (international Centre for settlement of international disputes).
The IMF now spread over 189 countries, was established for the primary purpose of creating and preserving the stability of the international monetary system. Today the IMF provides loans to member countries to tide over their balance of payments problems and to restore conditions for economic growth. IMF also is involved with governments to update their economic policies and improve Growth. Over the years of existence IMF has become the last resort for emergency financial and economic situations of the members. Assistance is provided but always in exchange of dictated structural adjustments. It is known to instruct governments to spend less than they earn to assure the buildup of surplus needed to repay the debt. Bailout packages appear to be one of its cardinal roles today.
There is no debate that these institutions and bodies has served the member countries in a big way. But it is not an end in itself. World is realizing fast that bailouts are not the panacea for the economic ailments. We have many examples from the European region itself. After bailouts unemployment remains high, minimum wages continue below accepted standards. Government spending on essentials such as education and health have been reduced by 50%. Even in the current Pandemic situation we observe immoral political interventions by those who could influence the IMF. Countries under various embargoes are deprived of their rights to assistance rather hypocritically.
World is trying to face the economic downturn resulting from the CORONA pandemic in such a scenario. Can the orthodox institution system meet up to the need? The distance the World economy traversed so far has ended up at lamentable levels. Current situation of the distribution of the wealth of the world will throw some light on this presumption.
A recent UN based report on the wealth inequality across the world population (OECD in 2012)indicate as follows;
Percentage of the Population Number % Ownership of Wealth
Top 0.6% 42 million 39.3
Next 4.4% 311 million 32.3
Bottom 95% 7068 million 28.4
Credit Suisse- on Wealth Distribution (2018), summarized the position as follows in one of their reports;
- Half of the world’s net wealth belongs to the TOP 1%
- Top 10% of the adult population hold 85%
- Bottom 90% hold the remaining 15%
- Top 30% of adults hold 97% of the total wealth of the world.
This is the inequality that exists today. International Institutions and Organizations do not appear to address this reality in that sense. It is important to understand why these differences and inequalities exist and the causes for such. The effects of this inequality will not be confined to only the poor countries, there will inevitably be issues and cause for resentment to the rich countries as well with high political consequences.
The ever growing emphasis on the ‘market economy’ should be reviewed from the point of view of ‘social desirability’. In an abstract sense, a market economy is meant to promote individuals and corporates to freely produce, buy and sell any products or services . But absence of such circumstances lead to ‘market failure’ which in turn lead to the inequalities. Such failures contribute to growing inequalities further aggravating the position if unaddressed early.
Many criticisms are levelled In such a context against the established institutions. There is a growing concern to bring proposals to reform the international monetary system to be made more development oriented, and that it should happen as part of the overall effort to establish a new international economic order, providing for ‘fully representative management of the international economic system’. It will be difficult for a body composed of unequal ownership based on the value of shares held, to equitably address social inequalities!
This shows that even before the onset of the CORONA virus disaster there was a growing economic cancer. Unfortunately, world was not in a mood to focus on such a situation. But now many are looking for remedies to the economic debacles in the wake of the Corona effect. Countries compelled to grant moratoriums to the economically affected people are turning towards International Organizations for similar concessions for them. We see suggestions of this nature emanating from parties claiming as ‘meaningful relief’. The problem is so many are eligible under the vulnerability. If an assessment is made by those institutions, they will tend to look at the worst affected in priority those ruined their economies due to other bungling before Corona. So if some country wishes to address the International, before they address the issue at a global level, a more meaningful approach may be required beyond the begging bowl strategy.
Emergence of new bodies to fill the vacuum created in their objectives and services by the WB and the IMF deserves to be taken into consideration in this regard. It is relevant to reflect on some developments taking place in the Asian region. Despite the historical tensions prevailing among countries in this region, In order to maintain the required stability, Asia’s major powers have formed several new organizations recently. Asian Development bank (ADB), regional forums like ASEAN,EAC RCEP are some of those. The most recent development is the Asian Infrastructure Investment Bank (AIIB). These organizations will be able to steer Trillions of dollars’ worth of financing around the region.
Crisis hit countries have to think twice before finalizing bailout packages or obtaining grants under severe conditions on the grounds of the hardships they would cause to the population to suffer more. In the modern world it has become fashionable to liberally grant facilities to falling businesses. The reality behind this is public being made to bear the losses of the private. In other words, converting private debts to public debts. 2008 Financial crisis caused due to the foolhardy lending policies led to a mortgage crisis resulting in billions of public money being pumped in for the rescue.
Economic advisers and policy makers should open their eyes towards the hard way to find solutions to the economic problems now faced. There is nothing so sacrosanct in running with a begging bowl. Temporary restructuring may be helpful politically. Still we need sound policy formulations of our own to develop the economy in a sustainable manner.