A Great Global Calamity
Five years ago this month, the novel coronavirus that would eventually become known as Covid-19 began to spread in Wuhan, China, kicking off a sequence of events that quite literally changed the world as we know it, the global climate not excepted.
The most dramatic effect of Covid on climate change wasn’t the 8% drop in annual greenhouse gas emissions caused by lockdowns and border closures in 2020, however. It wasn’t the crash in oil prices, which briefly went negative in April 2020. It wasn’t the delay of COP26 and of the United Nations Intergovernmental Panel on Climate Change’s Sixth Assessment Report. And it wasn’t, sadly, a legacy of green stimulus measures (some good efforts notwithstanding).
Rather, it was in the way the world’s governments (especially the largest and most powerful) responded to the virus, which undermined the very idea of multilateralism, climate action included. This took place along three main vectors: inertia on global financial rules, even as long-acknowledged failings turned catastrophic; a renaissance in industrial policy that may prove transformative for domestic fiscal policy; and, at the intersection of both, deterioration of what we might call geopolitics or “global solidarity.”
Evidence of this phenomenon can be found in nearly every aspect of the global order. The World Bank in October pointed to Covid as chief among a “polycrisis” of “multiple and interconnected crises occurring simultaneously, where their interactions amplify the overall impact.” Development gains have almost slowed to a halt. Extreme poverty has increased overall in low-income countries since 2014, after decades of improvement, according to the World Bank’s analysis.
None of this, however, was an inevitable effect of Covid. Poor countries got poorer, for the most part, because of norms and hard rules in global finance that they have little control over — what a group of researchers last year termed “financial subordination.”
To understand why, a brief history: Developing countries during the 2010s were seeking new avenues of finance as traditional sources like multilateral development bank loans, official development assistance, and commercial bank loans waned. Many turned to the U.S. dollar sovereign bond markets, and also to China; a few countries also turned to commodity traders like Glencore and Trafigura, taking on opaque debts to be repaid with their own oil and other commodities.
When the pandemic response shut down many kinds of economic activity in 2020, what World Bank researchers called a “fourth wave” of debt followed. After a continuous series of debt surges from 1970 to 1989, 1990 to 2001, and 2002 to 2009, global debt markets had been relatively stable for the preceding decade. What was different about this fourth wave was that it was largely in developing countries.