Managing the impact of climate change on the global economy is one of the most pressing challenges facing policymakers. The UN’s 2021 Adaption Gap report found that climate change adaption is increasingly being embedded in national policy around the world, though more ambitious efforts are required. A new method for assessing the costs and benefits of climate mitigation could spur more action. In October, the US unveiled a roadmap to build a climate-resilient economy; other countries are likely to follow suit if they have not already.
Developing circular economies will play a major role in heading off the risks from climate change and environmental degradation. Key to these kinds of efforts will be the ability to better measure the circularity of certain aspects of the economy, something a new set of 61 indicators will help to expedite. The EU recently proposed new rules that ensure consumer goods are longer lasting, easier to repair and more recyclable, but has also made it clear that technology transfer to developing countries will be crucial to achieve global impact. The growing focus on circular approaches is also driving significant innovation, including a recent collaboration between researchers and Ford that found a way to convert waste plastic from scrap cars into graphene.
Global trade will also need to adopt more sustainable practices if the world is to meet its climate goals. The International Chamber of Commerce recently published draft global standards for sustainable trade, which provide new methods for qualifying the sustainability of trade transactions. A key part of making the global economy more sustainable will be to improve the sustainability of supply chains. One recent proposal suggests that blockchain technology could play an important role here by improving traceability and transparency.
Another major challenge for the future of the economy is the spread of automation technology, which accelerated during the pandemic. This has led to widespread fears about the impact on employment, and a recent forecast predicted as many as 12 million jobs could be lost across Europe by 2040. However, recent evidence from French manufacturers found that spikes in automation were actually linked to growth in employment and a study on the impacts of digital adoption in developing countries found no link to unemployment. One of the challenges in developing policy in this area is spotty data on automation, which has led to calls for a “robot census”. A new automation risk index can also help workers identify if their jobs are under threat and identify safer ones with similar skill-sets.
Finally, a note on the effects of recent world events on the future of economic globalisation. The COVID-19 pandemic made clear the vulnerability of extremely fragmented supply chains and the importance of diversifying one’s sourcing in the face of shocks potentially blocking key supply nodes. But the essence of the economic calculus remained as it was pre-pandemic. This became a problem as soon as the shock in question was a breach of trust.
The exploitation of international specialisation under the recent wave of globalisation was founded on trust — such as the trust that led many European countries to rely on Russian gas. When trust disappears, an immediate and radical retreat of globalisation is inevitable.
The Russia-Ukraine development, together with the recent evolution in the stance of Chinese authorities leading to questions about the future of Taiwan, is raising the prospect of a complete reappraisal of whole segments of our supply chains — with the goal of eliminating exclusive reliance on what were thus-far major economic partners. It may also lead to the fracturing of established economic zones.
