Professor Sir Anton Muscatelli, Principal and Vice Chancellor, University of Glasgow
As economists, we are often expected to be able to predict the future.
But economists are not soothsayers. We cannot make unconditional forecasts. What we can do is to make some predictions conditional on our analysis and the shocks which may impact on our economies and society. Our toolbox does not contain a crystal ball, but it does contain some models which can help us understand how to respond if certain future shocks were to happen.
Nobody could have predicted the extent to which the pandemic would force the shutdown of economies across the globe and create the greatest economic crisis experienced for years, but on reflection now there is much we could do differently to build resilience and cushion our economies.
The impact of the pandemic was especially acute in emerging economies, and it brought to the fore many pre-existing socioeconomic inequalities, with losses to income forcing a dramatic rise in inequality within and across countries. Global poverty increased for the first time in a generation.
And as soon as we began to see some of the financial pressures of the pandemic ease, we are now faced with growing energy and cost of living crises caused by Russia’s invasion of Ukraine aggravating inflationary tensions as the economy recovered from the pandemic. Geopolitical instability has taken over from Covid: a recent McKinsey Global Survey found that geopolitical instability remains the top-cited threat to the global economy, closely followed by inflation and supply chain disruptions, followed by volatile energy prices and rising interest rates.
The pandemic and the geopolitical shock both lead to global uncertainty. Ongoing economic uncertainty matters: it impacts upon how quickly investment and the economy recovers. In turn this impacts on productivity growth, and the public investments we can make going forward.
And here lies a catch-22 of sorts: we find ourselves in a tangle of uncertainty, with no crystal ball to predict the timing, length or form of the next economic shock.
But what we can do is consider a series of measures to support our economies to respond better and be more resilient to a range of possible shocks.
In the same way that a shock absorber keeps a car as steady on the road as possible, there are measures we can introduce in our economies. When there are the inevitable economic potholes to deal with, we need stable and sturdy measures to keep us on the straight and narrow.
On Monday 3 October, the University of Glasgow will launch its series on Future Global Shocks- be they economic, health or social- and how we respond effectively. We’re seeking to understand the shock absorbers our societies need to be resilient, and we’ll have a series of expert commentators sharing their perspectives. Our first session reflects on the lessons we can learn in the health sphere, and in the weeks to come we’ll be discussing the challenges facing our economies, our ageing population, our communities and our civil liberties. And importantly, how we can respond effectively.
For our economies, we need to learn how to deal with temporary disruptions. Government needs to communicate clearly how they will deal with further economic setbacks- particularly with the dual energy and cost of living crises. We need the bulk of any financial assistance to support those most vulnerable in our societies, but we also need to understand and plan for these crises in the longer and medium term.
Business investment in the UK has also been well below trend since the Brexit referendum, unlike the USA and the Eurozone economies. It flatlined between 2016-2020 and then fell back further because of Covid. Recovery of business investment in 2022-23 will require clear messaging around the fiscal and macroeconomic environment, which includes how we intend to manage continuing uncertainty.
To build national resilience we need to invest now for the longer term. In hindsight pandemic preparedness measures would have cost us a fraction of the Covid 19 cost: in terms of the economy but most importantly in human loss.
There are also difficult decisions facing the new Prime Minister on how the tax burden is shared. Unless we can re-boot productivity growth, these choices become even more difficult as the problem becomes one of pure redistribution.
And finally, whilst we are focused on our own domestic policies, the pandemic has shown crises do not happen in isolation – the climate emergency is a crisis facing us all. We need to think critically about how international institutions can be bolstered to address these global shocks.
So, while we can’t predict when or how the next economic crisis will hit, there’s much we can do now to stabilise our economies and provide a bulwark against future global shocks.
Global Shocks Lecture Series
The first event in the University of Glasgow’s Global Shock series is Preparing Scotland for the Next Global Health Challenge: Lessons Learnt from the Pandemic
Monday 3 October, 6pm, University of Glasgow
This article first appeared in The Herald on 14 September 2022.