Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

A new global economic consensus

Mariana Mazzucato 14th October 2021

The pandemic has highlighted the deficiencies of economic deregulation and market liberalisation and a new policy-making paradigm is emerging.

new global economic consensus,new policy-making paradigm,Washington Consensus
Focused on the common good (Edinburgh Reporter)

The Washington Consensus is on its way out. In a report released this week, the G7 Economic Resilience Panel (where I represent Italy) demands a radically different relationship between the public and private sectors, to create a sustainable, equitable and resilient economy. When G20 leaders gather on October 30th-31st to discuss how to ‘overcome the great challenges of today’—including the pandemic, climate change, rising inequality and economic fragility—they must avoid falling back on the outdated assumptions that landed us in our current mess.

The Washington Consensus defined the rules of the game for the global economy for almost half a century. The term itself came into vogue in 1989—the year western-style capitalism consolidated its global reach—to describe the battery of fiscal, tax and trade policies being promoted by the International Monetary Fund and the World Bank. It became a catchphrase for neoliberal globalisation and thus came under fire—even from its core institutions’ leading lights—for exacerbating inequalities and perpetuating the global south’s subordination to the north.

Having narrowly avoided a global economic collapse, twice—first in 2008 and then in 2020, when the coronavirus crisis nearly brought down the financial system—the world confronts a future of unprecedented risk, uncertainty, turmoil and climate breakdown. World leaders have a simple choice: continue supporting a failed economic system or jettison the Washington Consensus for a new international social contract.

Pursuing social goals

The alternative is the recently proposed ‘Cornwall Consensus’. Whereas the Washington Consensus minimised the state’s role in the economy and pushed an aggressive, ‘free-market’ agenda of deregulation, privatisation and trade liberalisation, the Cornwall Consensus (reflecting commitments voiced at the G7 summit in Cornwall last June) would invert these imperatives. By revitalising the state’s economic role, it would allow us to pursue social goals, build international solidarity and reform global governance in the interest of the common good.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

This means that grants and investments from state and multilateral organisations would require recipients to pursue rapid decarbonisation (rather than rapid market liberalisation, as required by IMF lending for structural-adjustment programmes). It means that governments would pivot from repairing—intervening only after the damage is done—to preparing: taking steps in advance to protect us from future risks and shocks.

The Cornwall Consensus would also have us move from reactively fixing market failures to proactively shaping and making the kinds of markets we need to nurture in a green economy. It would have us replace redistribution with pre-distribution. The state would co-ordinate mission-oriented public-private partnerships, aimed at creating a resilient, sustainable and equitable economy.

Disastrously incapable

Why is a new consensus needed? The most obvious answer is that the old model is no longer producing widely distributed benefits—if it ever did. It has proved to be disastrously incapable of responding effectively to massive economic, ecological and epidemiological shocks.

Achieving the United Nations Sustainable Development Goals, adopted in 2015, was always going to be difficult under the prevailing global-governance arrangements. But in the wake of a pandemic which pushed state and market capacities beyond breaking-point the task has become impossible. Today’s crisis conditions make a new global consensus essential for humanity’s survival on the planet.

We are on the cusp of a long-overdue paradigm shift. But this progress could easily be reversed. Most economic institutions are still governed by outdated rules which render them unable to marshal the responses needed to end the pandemic—let alone achieve the Paris climate agreement’s goal of limiting global warming to 1.5C, relative to preindustrial levels.

Our report highlights the urgent need to strengthen the global economy’s resilience against future risks and shocks, whether acute (such as pandemics) or chronic (extreme wealth and income polarisation). We argue for a radical reorientation in how we think about economic development—moving from measuring growth in terms of gross domestic product, gross value added or financial returns to assessing success on the basis of whether we achieve ambitious common goals.

Salient recommendations

Three of the report’s most salient recommendations concern Covid-19, the post-pandemic economic recovery and climate breakdown. First, we call on the G7 to ensure vaccine equity globally, and to invest substantially in pandemic preparedness and mission-oriented health financing. We must make equitable access, particularly to innovations that benefit from large public investments and advance purchase commitments, a top priority.

We recognise that this will require a new approach to governing intellectual-property rights. Similarly, the World Health Organization’s Council on the Economics of Health for All (which I chair) stresses that IP governance should be reformed to recognise that knowledge is the result of a collective value-creation process.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

Secondly, we argue for increased state investment in the post-pandemic economic recovery and we endorse the recommendation by the economist Nicholas Stern that this spending be increased to 2 per cent of GDP per year, thereby raising $1 trillion annually from now until 2030. But marshalling more money is not enough: how that money is spent is equally important. Public investment must be channelled through new contractual and institutional mechanisms that measure and incentivise the creation of long-term public value rather than short-term private profit.

And in response to the biggest challenge of all—the climate crisis—we call for a ‘CERN for climate technology’. Inspired by the European Organization for Nuclear Research [CERN is the original French acronym], a mission-oriented research centre focused on decarbonising the economy would pool public and private investment into ambitious projects, including removing carbon dioxide from the atmosphere and creating zero-carbon solutions for ‘hard-to-abate’ industries, such as shipping, aviation, steel and cement. This new multilateral and interdisciplinary institution would act as a catalyst for making and shaping new markets in renewable energy and circular production.

New paradigm

These are just three of seven recommendations we have made for the years ahead. Together, they provide the scaffolding for building a new global consensus—a policy agenda for governing the new economic paradigm that is already beginning to take shape.

Whether the Cornwall Consensus sticks remains to be seen. But something must replace the Washington Consensus if we are to flourish, rather than simply survive, on this planet. Covid-19 provides a glimpse of the momentous collective-action problems confronting us. Only renewed international co-operation and co-ordination of enhanced state capacities—a new social contract underwritten by a new global consensus—can prepare us for tackling the escalating, interlocking crises ahead.

Republication forbidden—copyright Project Syndicate 2021, ‘A new global economic consensus’

Mariana Mazzucato
Mariana Mazzucato

Mariana Mazzucato is professor in the economics of innovation and public value at University College London, chair of the World Health Organization’s Council on the Economics of Health For All and author of The Value of Everything: Making and Taking in the Global Economy and Mission Economy: A Moonshot Guide to Changing Capitalism.

You are here: Home / Economy / A new global economic consensus

Most Popular Posts

Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic
Orbán,Hungary,Russia,Putin,sanctions,European Union,EU,European Parliament,commission,funds,funding Time to confront Europe’s rogue state—HungaryStephen Pogány

Most Recent Posts

reality check,EU foreign policy,Russia Russia’s invasion of Ukraine—a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger
sustainability,SDGs,Finland Embedding sustainability in a government programmeJohanna Juselius
social dialogue,social partners Social dialogue must be at the heart of Europe’s futureClaes-Mikael Ståhl
Jacinda Ardern,women,leadership,New Zealand What it means when Jacinda Ardern calls timePeter Davis

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube