In an extensive interview with Asian Lite’s Abhish K. Bose, Prof. Zamagni discusses the inflation in various European countries and the stagnation in the economy of Europe and world economy after Russia – Ukraine war among other issues.
Stefano Zamagni is Professor of Economics and the former Dean of the Economics faculty at the University of Bologna, and Member of the Board of LUMSA University, Rome. Professor Zamagni is the author of several books including ‘ Macroeconomic Theory’ and Civil Economy and Paradoxes of Growth, both published in 1997. For his academic accomplishments Prof Zamagni has been honoured a number of times. He was named the McDonnel Distinguished Scholar in Helsunki in 1992, and a Paul Harris Fellow by Rotary International in 1995. Professor Zamagni was a member of the Executive Committee of International Economy Association (1989 – 1999), and the Steering Committee of the Pontifical Academy of Social Sciences. Since 1991 he is a member of the Pontifical Council on Justice and Peace. He is a Fellow of the Academy of Sciences of Milan, the Academy of Sciences of Bologna and the Academy of Sciences of Modena.
In an extensive interview with Asian Lite’s Abhish K. Bose he discusses the inflation in various European countries and the stagnation in the economy of Europe and world economy after Russia – Ukraine war among other issues.
ABHISH K BOSE: A number of European countries are encountering mass agitations over inflation, energy costs, demands for better pays and better living conditions. The countries which are facing these protests are England, Germany, Netherlands, Spain, Portugal and France. Is this augur a recession or is this the beginning of the evident signs of a recession?
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Prof Zamagni: Stephen Roach, for many years chief economist at Morgan Stanley and now senior lecturer at Yale University, recently forecasted that 2023 will be a negative year for markets, since the world economy will enter into a creeping recession with an high inflation rate that will be much above the interest rates. (E.g. in Europe, the interest rates increased by 2.5% versus an inflation rate of 10%). The fate of the price of energy depends on the vicissitudes of the Ukraine war and so it is not possible to anticipate now what will occur to recession. As suggested by Roach in the just published book, Accidental Conflict (Yale University Press), US and China will not be able in the short run to converge on the design of a new international order. The reason is that in the last four years, the commercial war between the two superpowers changed into a technological war and, after the Russian aggression to Ukraine, into a new cold war.
A message of hope might derive from EU which is on the way to radically transform its strategy towards developing countries. After decades of paternalistic programs, Bruxelles has decided to launch the “Global Gateway” project that will invest 300 Billion of euros for the next five years. The chosen philosophy is the same as that of the Chinese “Belt and road initiative”: the goal is to finance the construction of big infrastructures, with a specific emphasis on clean energy. This is a noteworthy novelty with respect to the policy that UN organizations, such as International Monetary Fund (IMF) and World Bank, unwisely continue to pursue since the Bretton Woods Agreements in 1944. Hyper-globalization crumbled under several contradictions.
First, there was a tension between the gains from specialization and the gains from productive diversification. Second, hyper-globalization worsened distributional problems in many countries. Third, hyper-globalization undermined the accountability of political leaders to their electorates. Calls to revise globalization’s rules were rejected with the argument that globalization was immutable and irresistible – which is not true.
ABHISH K. BOSE: The world economy which was facing a stagnation over the past years got aggravated by the onslaught of the Covid-19 pandemic. As a result of the Russian invasion of Ukraine this economic crisis got exacerbated due to the ruins of the war. Can we expect a resurgence to normalcy in the near future?
Prof Zamagni : Russia’s armed intervention in Ukraine constitutes the tenth major episode of the new era of war, which began with the fall of the Berlin Wall. (There are 169 wars in the world today!) Two elements characterise this new era. The first is that the end of the Cold War diverted the West from its commitments to the poor countries of the South, once the risk of the spread of Sovietism in those countries had disappeared. This helps to understand why the current war is the first war of a global nature and not the first war of a world nature. The difference is clear. Whereas the latter spreads its direct negative consequences only among the belligerent countries, a global war is such when the consequences also affect third countries that have no part in the conflict. Today’s case of food shortages due, not to the physical lack of food, but to the blockade of maritime and land traffic, is just one example, the one that is surprising the public the most. With the blockade of grain and fertilisers, hunger is strategically planned to take hold in other countries, as a weapon to bring about migrations from African countries to the EU, which is also not at war. The same applies to energy.
The second element is that, until recent years, globalisation had never been thought of in situations of war. Indeed, if there was a widespread belief among scholars and opinion-makers, it was that globalisation, even with its aporias, served the cause of peace. The events of the last thirty years have taken it upon themselves to make us realise a truth that should have been seen long ago, namely that globalisation is a positive-sum game that increases both overall income and wealth, but at the same time increases social inequalities both between countries and between social classes within the same country, no matter how rich. Hence the impetus for the outbreak of armed conflicts.
I believe that a proposal for peace negotiations between the two belligerent countries must be put forward, although it might take a long time, given the nature of the measure. The aim of the negotiations cannot be limited to achieving negative peace in the sense of J. Galtung who, as early as 1975, introduced the distinction, which later became famous, between negative peace and positive peace. While the former refers to the absence of direct violence (‘to the cease-fire’, as they say), the latter lays down the conditions for attacking the causes of war. Indeed, only positive peace is sustainable in the perspective of duration. Yet, it is the notion of negative peace that continues to be invoked and sought after. For example, it is to this type of peace that the Global Peace Index (GPI), drawn up by the Institute for Economics and Peace in Sydney, refers as its conceptual basis. This is a serious gap that needs to be filled, and quickly.
The war in Ukraine is likely to evolve into a war of attrition and may end either as a frozen conflict or as a negotiated peace. It has been proven that a negotiated peace is always a superior outcome to the other possibility. And this is true not only for Russia and Ukraine, but also for the US, the EU and the rest of the world. For an accurate demonstration, also of an empirical nature, I refer to C. Blattman, a Canadian economist, and his recent volume Why We Fight. The roots of war and the paths to peace, Wiking, London, 2022.
On the other hand, Russia with its structurally weak economy can hardly expect to be able to compete in international markets. (The Russian economy is less than one twentieth of the US and EU economies combined). This fact helps explain why wars for territorial conquests are so appealing to Moscow’s leadership. But – as history teaches – wars for territory are always lost in the long run; today, even more so than in the past, it is futile to think, that more territory means more power. (This is well understood by China, whose geopolitical strategy is to conquer markets, not territories).
At a time when neoliberal policies are in decline everywhere, geopolitical realism is becoming the dominant ideology. At the heart of realist thinking is the ‘security dilemma’: a situation in which the major powers choose national security as the primary objective of their action. Now, since it is difficult to distinguish between defensive and offensive measures, the attempt of one side to become more secure ends up by increasing the insecurity of the other side, thus triggering countermeasures that feed a real vicious circle. The case of Ukraine is a very clear confirmation of this dilemma. If the Ukrainian affair served to make us realise the extent of the serious vulnerabilities of the current international order and spur us to act accordingly, we could say that this huge tragedy will have served some good purpose. This would open up hope, not only in the future, but also the present, since our actions, in addition to a final goal, also have a meaning and value here and now.
ABHISH K. BOSE: Globalisation has accelerated the impact of any pertinent actions at one part of the globe trickling across the world and consequently the resonance of the Ukraine war will also be expressed throughout the globe. Could you suggest some measures or strategy for other countries to antidote the influence of the war on the global economy so that a vast multitude can be absolved from its disastrous consequences?
Prof Zamagni: The global economy will be shaped in the years ahead by three major trends: the relationship between market and the State will be rebalanced in favour of the State; rebalancing between hyper-globalization and national autonomy in favour of the latter; our ambitions for economic growth will need to be scaled down. If crisis is needed to trigger a fundamental reform of capitalism, might the Ukraine war be the catalyst? If so, what should be done?
i) All countries should renew their commitment to collaboration based on whole-of government and whole-of-society approaches. Since we cannot rule out a return to an old-style dirigisme, it is vital to refer to the principle of subsidiarity. The question is what form this principle will take. It is also time to rethink public-private partnership. The effort to develop a COVID vaccine and how to satisfy the universality condition could become a case in point.
ii) The principle of solidarity is an ancient one; so in which sense can we speak of new forms?
It is a fact the we are facing in this time a silent counterrevolution, that of social de-solidarity that manifest itself in the growing expansion of the many areas of exclusion, that tend to drive the “existential outskirts”, as pope Francis calls them.
What do we find at the roots of such a tendency?
A specific cause has to do with the endemic and systemic increase of structural inequalities, which are advancing faster than the increase of income and wealth. Yet, inequality is not a fate, nor a historical constant. It is not a fate, because it has to do with the institutional structure, that is, with the rules of the economic game that society decides to give itself. We only have to think of institutions like the labor market, the banking system, the welfare system, the tax system, the educational sector.Depending on how they are designed, different consequences affect how income and wealth are distributed among those who have contributed to produce them. Nor are rising inequalities a historical constant, because there have been times when in some countries they diminished. The question then arises: if inequalities do not increase because resources are scarce, or because we do not know kow to act, or because they are due to particular hardships affecting certain categories of persons or certain territories, what are they the ultimate result of?
iii) We bear responsibility for the ideas upon which institutions, both political and economic,are based. And we bear responsibility for what bears us: nature. Now, it is a well recognized fact that market systems are consistent with many cultures, conceived as tractable patterns of behaviour or, more generally, as organized systems of values. In turn, the type and degree of congruence of market systems with cultures is not without effects on the overally efficiency of the systems themselves: in general, the final outcome of market-coordination will vary from culture to culture. Thus one should expect that a culture of possessive individualism will produce different results from a culture of reciprocity where individuals, although motivated also by self-interest, entertain a sense of solidarity. In the same way, a culture of cooperative competition will certainly produce different results from a culture of positional competition. But cultures are not to be taken for granted. Cultures respond to the investment of resources in cultural patterns, and in many circumstances it may be social beneficial to engage in cultural engineering.
ABHISH K. BOSE: What will be the condition of U.S. in this milieu?
Prof Zamagni : The institutions that have sustained global economic cooperation for the past 75 years are under threat. Despite admonitions that global peace and prosperity are at risk, policymakers in important countries ignored the rules of the multilateral order in recent times and moved down the path of unilateralism and economic sovranism. This is particularly evident in the recent acts of US policy. What is needed now is international statesmanship which presupposes a return to multilateralism. Indeed, to-day’s mess is better understood as a global polycrisis (Adam Tooze), a term indicating that humanity is dealing with a complex knot of distinct but actually entangled crises. As a result, this polycrisis is causing a much greater damage worldwide than the sum of its individual harms.
Until recently, we have been accostumed to identity and face systemic risks one at a time (such as climate heating, zoonotic diseases, biodiversity decline, worsening economic inequalities, financial instability, ideological extremism, etc.). The point is that these risks, today, reinforce one another, amplifying in severity and accelerating in rate. The result is risk synchronization determining simultaneans crises. That is why we have to adopt a holistic approach to tackle the present global polycrisis. In turn, this implies a new interdisciplinary dialogue between the economic, political, cultural dimensions at stake.
ABHISH K. BOSE: Do you think a radical shift in the economic policies of the countries are essential so as to contain this crisis. In such a scenario what sort of changes in policies that we have to undertake?
Prof Zamagni : One of the biggest challenges that countries face today is the scandalous unequal distributions of opportunities; resources, income and wealth across people. Inclusive prosperity remains elusive. As stated by Princeton Nobelist Angus Deaton, the fundamental problem of present epoch is unfairness, that the great wealth at the top is seen as ill-gotten in a system that gives no chance to many, in spite of the meritocratic rethoric. To address those issues, societies face choices among many different policies and institutional arrangements. Clearly, in order to choose one needs a criterion of choice, which is never value-free. A criterion that has been recently advanced is limitarianism, according to which it is morally undesirable to be superrich. The justification for such a position is that much economic success is based on collective efforts (such as social capital and the collective rules related to property rights) and on the inheritance of past generations.
Whence the unavoidable question how to divide up the benefits from economic cooperation. For ancient Greeks, any citizen who would not care about the surplus wealth – the wealth above the riches line that indicates the point at which additional wealth no longer adds to human flourishing – was called an “idiot”. An authoritative source to grasp the ultimate meaning of the Greek conceptualization is that of Jonas Salk, the inventor of the antipolio vaccine. “I now see – wrote Salk – that the major shift in human evolution is from behaving like an animal struggling to survive to behaving like an animal choosing to evolve. And to evolve, we need a new kind of thinking, a new ethic and a new morality. It will be that of the evolution of everyone rather than the survival of the fittest” (1973). The goal is to move ahead towards a different kind of market economy, one that is inclusive and not exclusive, humane and not de-humanizing, one that cares for the environment, not despoiling it.
ABHISH K. BOSE: What are your anticipation on the developments in world economy in the coming years?
Prof Zamagni : For more than three decades, the global economy-whose beginning can be traced back in November 1975 at the G6 Summit in Rambouillet (Paris) – was defined by unbridled integration and unprecedented interdependence. Neither political spats nor localized conflicts could slow the globalization machinery. Multinational corporations became more multinational. The new scenario emerging from the COVID disaster and above all the Ukraine war, will mark a change from hyperglobalization to slowbalisation. Actually, initial signs of such a change were favoured by the great trade collapse following the 2007-08 global financial crisis and the ensuing fragility of the global value chain
The mechanics of these events are already well known. What is still unknown is the configuration of the slowbalisation process. What we know are the key words of slowbalisation: resilience, robustness, reshoring, friend shoring. But what we do not know yet is how to fill these empty boxes with policy actions. It is very likely that the new globalisation – i.e. slowbalisation –will be selective: an integration among groups of countries connected among them by affinities not only economic, but also political and cultural.
According to the well-known Global Gaider Model (GGM), productivity growth and its interaction with demographic change are the main drivers of future economic power. Fiscal conditions and automation matters are secondary factors. In this new era of strategic competition, the economy that loses the most may well be China’s. In fact, in recent years, the openness that underpinned globalization has given way to a geopolitically focused, zero-sum mindset. International trade and finance will more and more be shaped by national-security considerations. Export controls, particularly in the high-tech technologies, the blacklisting of companies will become commonplace.
I would like to conclude with the motto of many medieval Academies: “Ubi lux lincet, humanitas surgit” (Where light shines, humanity revives). This is our primary task, today: urgently overcoming the crisis of thought, i.e. of light, that is perversely affecting our societies.
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