By John Kinoti
The global financial crisis that erupted in 2019 due to Covid 19 and its long-standing effects has evidenced several fundamental flaws in the way in which the world economy has been functioning under a “finance-driven globalization”.
This has been characterized by increasing income inequality and a diminishing role of the State in the economy.
The crisis has evidenced a changing structure of the world economy, with a larger share in global output and trade for developing countries. Development strategies should thus rely less on export-led growth-oriented to developed countries markets and more on domestic and regional demand, based upon better income distribution.
In this framework, there is an essential role for a developmental State on both the demand and the supply side. Developing countries need to preserve and creatively use the remaining policy space within the multilateral rules to implement industrial policies to diversify and upgrade their economies.
They also need to strengthen their domestic sources for financing investment and reinforce the fiscal space, which is essential for the success of the programs and fighting rampant poverty.
An important indication of the nature of the crisis is the fact that this time its epicenter was in the most advanced countries in the world. This contrasts with the financial crises that have recurrently hit developing or transition economies since the beginning of economic and financial liberalization in the early-1980s. The global financial crisis originated in the most sophisticated financial markets from countries that were leading in all the rankings of financial efficiency and good governance prepared by different “market-friendly” institutions. The crisis was not due to an imperfect functioning of institutions or Rethinking Development Strategies after the Global Financial Crisis, the bad implementation of liberalizing policies, but rather to the very nature of those institutions and policies. The Covid 19 crisis reveals several fundamental problems of the economic system that have accumulated tensions and imbalances at both the national and global level in recent decades.
The way most governments have handled the crisis which was not only the global healthcare challenge but the financial crisis call for the various stakeholders in the developing world to rethink how to do businesses, development, and best ways to caution communities from such disasters. As we slowly finish 2020, it’s key for the National Government, County Governments, and all development NGOs and the business sector to immediately have a turnaround strategy to ensure recovery from the already lost momentum in the circles of development. All we ensure is to keep hope alive and ensure that more robust planning and rebuilding of the economy and development programs are fast-tracked to ensure meaningful gains are achieved.