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Even before the coronavirus pandemic hit, the global economy was already facing the risks and costs of reduced global trade driven by increased protectionism and tensions between major powers. The health crisis and accompanying slump have only exacerbated that set of challenges. The question governments around the world need to ask themselves today is what they should be doing to reverse that trend.
As the world emerges from the pandemic, it will be those economies that have displayed public health resilience that are best placed to open up, to grow and to lead the world out of the present crisis.
Studies such as the University of Oxford’s Blavatnik School of Government Response Tracker have shown that countries that were able to respond early and decisively to the emergence of the pandemic are also often those that have been able to re-open sooner. Countries such as the UAE, with strong healthcare governance and an agile administration acted quickly and have been able to relax pandemic restrictions sooner.
But public health resilience alone won’t get countries and people out of the malaise. Countries need economic resilience too, built on competitive markets, strong governance, connectivity, and the use of Prosperity Zones. Only countries that adopt these practices will be able to grow and lead the world out of the present economic crisis. And just as with building public health resilience, it is how the assets and tools at a government’s disposal are deployed to develop economic resilience that is equally as important as the total quantity of the assets.
We’re already on the right track here in the UK. A number of economies, including the United Kingdom, United States, Singapore, South Korea, and the United Arab Emirates have displayed the characteristics for economic resilience in the face of the coronavirus pandemic.
These countries are the world’s “sensory-neurons” with their highly-integrated, knowledge-based and high-income economies and they each display the four key pillars of economic resilience that should serve as best practice for countries wishing to build economic resilience and recover economically from coronavirus should adopt.
The first of these is a commitment to entrepreneurship and competitive markets that encourages and nourishes the development of new businesses and prevents incumbents from exploiting their position to block the use of new technologies and the emergence of competitors. Excessive government interference, manipulation and increased fiscal stimulus must be avoided at all costs.
The second pillar is the development of sophisticated governance and a strong commitment to property rights. Economies such as Singapore and the UAE have shown that strong institutions deployed to protect security and property rights and which properly address market failure are important parts of driving resilience in the face the coronavirus and in delivering growth over the longer term.
Openness and connectivity, the third key pillar of economic resilience, is not simply about economic freedom and the ability of businesses to deploy capital, but also includes important ingredients such as trade facilitation and the simplification, modernization, and harmonization of trade processes.
History has proven that simplification and harmonisation of international trade procedures and border formalities plays an essential role in the development of our economies, benefitting consumers and businesses alike, generating growth, tackling corruption, creating jobs and fighting poverty.
The importance of trade facilitation has only been highlighted by the critical need to move medical supplies and food across borders as the coronavirus has shut other areas of economic activity. But it also includes virtual connectivity.
Virtual connectivity, including the use of smart transportation for fast, safe, and stable connections to global trade supply chains, allows economies to capitalize on their global networks by providing an intelligent ecosystem to match resources, feedstock, technologies, and entrepreneurial spirit from corresponding business hubs all over the world. Highly connected economies are more resilient as the world’s leading economies have shown throughout the coronavirus crisis.
The fourth pillar of economic resilience is the emerging role of Prosperity Zones – or Advanced Special Economic Zones (ASEZs) – as focal points to coordinate and leverage the productivity of high-tech economies.
To date, city states such as Singapore have taken the lead in developing these areas, which offer better regulatory environments to businesses and investors. And as a result, they are becoming increasingly important nodes in the global economy.
The success of prosperity zones will depend on their ability to leverage the other three pillars of economic resilience and, in the context of the UK, freeports are the most readily available manifestation of this concept. After the coronavirus crisis, freeports will be able to set new and competitive standards in fintech, banking, energy and transportation, eliminating anti-competitive practices and distortions while driving resilience and growth, and attracting investment from around the world.
The post-pandemic world will be burdened by challenges but it is also full of opportunities to boost trade and break the cycle of increased trade protectionism, which was already starting to hold the global economy back.
By driving new prosperity zones and ensuring the world becomes more connected than ever before, the world economy will become linked by a series of “trade superhighways”, in which UK is set to play a vital part. As we emerge from Covid-19 and prepare our future outside the European Union, Britain should hold firm to its principles: competitive, strong governance, open and connected. If it does this, the UK economy will become more resilient, we will see wider private-sector led growth and there will be no limits to what the post-coronavirus global economy is capable of achieving.
Lars Karlsson is a former director of the inter-governmental World Customs Organisation and co-author of Economic Resilience in the Face of the Coronavirus Challenge, a report published this week by Global Economic Neural Networks (GENN)).