Dear Ambassador, Distinguished Guests,
I am delighted to participate in this NAEC Group Conference, focusing on how to tackle interconnected global challenges in the recovery from COVID-19. I would like to thank the Fields Institute and Rebuilding Macroeconomics for their collaboration on the systemic recovery agenda.
In 2019, the OECD’s New Approaches to Economic Challenges (NAEC) Initiative suggested, “a new crisis could emerge suddenly, from many different sources, and with potentially harmful effects”. The Conference was called Averting Systemic Collapse. Six months later, sadly, that collapse came. In October 2020, we discussed Confronting Planetary Emergencies and today, we will outline A Systemic Recovery.
In many ways, COVID-19 confirmed what NAEC had been tabling for years. It has tragically impacted human health, lives and livelihoods across the globe – notably now in India, highlighting that the crisis is not over.
There are positive signs, with vaccines being deployed in many OECD countries. Also, throughout the crisis, policymakers have learnt about different policy responses. However, the virus has been learning too, with several mutations.
Importantly, COVID-19 will not be the last pandemic. The chance of a major influenza causing 6 million deaths globally is about 1% each year. Zoonotic risks, as with coronavirus, are increased due to human intervention. Pneumonia and antimicrobial resistant pathogens are also a huge risk. And a health-related shock has about a 10 to 20% probability of occurring over the coming decade.
But pandemics are not the only crisis we face. Even if we manage to keep the average increase in global temperatures below 2°C, 99% of coral reefs will still be lost. Insects, vital for pollination of crops and plants, will likely lose half their habitat. Rising sea levels would threaten millions of people. The frequency and intensity of droughts, storms and extreme weather events will also be increasingly likely.
We will recover. But what type of recovery? COVID-19 has demonstrated how a health emergency can provoke severe global economic consequences. It has generated massive economic and financial imbalances in both developed and developing countries, with major longer-term consequences for the world economy. Like natural systems, our socio-economic and financial systems can also suffer emergent failures, positive feedbacks, tipping points and non-linearities.
The deep interdependence of global systems means that local crises can rapidly prompt planetary environmental, social, economic, and political emergencies. These global scale systemic challenges must therefore be tackled by rethinking our systems – how they interact and how they are designed, operated, managed and how they can fail.
A systemic recovery requires an economic approach that balances several factors - markets and states, efficiency and resilience, growth and sustainability, national and global stability, short-term emergency measures and long-term structural change. For instance, the short-term monetary and fiscal measures we take in OECD countries must not lead to Post-Covid stagnation or to financial pressures for emerging economies.
To achieve a systemic recovery, we need to think beyond our silos, comprehend our interconnections, and build resilience into our systems. That is what NAEC is doing. That is what NAEC is here to do!
Let me discuss three key areas of our work.
First, to develop practical, internationally-supported strategies for systemic action it is important to start with understanding people. NAEC recently launched a Neuroscience-inspired policy initiative around the concept of “Brain Capital” and the importance of brain health and skills in our economies. Admiral Bill McRaven has championed this cause and is here today.
Second, we cannot solve the systemic challenges of the 21st Century with the entrenched policies and institutions of the 20th Century. Our NAEC publications “Systemic Thinking for Policy Making” and “The Financial System” outlines plans and strategies based on new inter-disciplinary frameworks, concepts, models and narratives for our political and financial institutions.
And third, NAEC is expanding the analytical arsenal to fight future shocks. It has developed work on systemic resilience through collaboration with Igor Linkov and Benjamin Trump from the U.S. Army Corps of Engineers. We will hear from Tom Bostick this afternoon, the former Chief Engineer and Commanding General of the Army Corps.
We are also working with Barry Lynn and the Open Markets Institute to discuss ways to “Shock Proof” the international production system. As well as modelling and simulating pandemics and crisis dynamics with Joshua Epstein from NYU.
Nine years ago I said that we needed to draw “pertinent and sometimes difficult conclusions from the crisis”. NAEC is about understanding where we could have connected better, drawn from other disciplines, and avoided complacency about what our data missed or our mindsets were not prepared for.
Today, at my final NAEC Group, this reflection function is necessary as we emerge from a new, systemic crisis. We need to continue to upgrade our analytical tools, stress-test our concepts and traditional narratives and use NAEC for a more systematic and cross-cutting reflection.
So let us innovate and move forward, confront the emergencies we face and ensure a systemic recovery together.