Crisis Economy: Trends, Features And Possible Development


From the ordinary to the extraordinary

After the global economic crisis of 2008, a number of critical problems remain unresolved. The list of these macro- and microscale problems is quite extensive. However, despite this abundance, it is still possible to formulate several general theses characteristic of all of them: (1) due to the (voluntary) reduction of the role of the state - as an impartial arbiter - the healthy principles of market economy gradually atrophy; (2) under the influence of uncontrolled egoism, oriented to super-profit, social synergy is broken; (3) due to the resulting inequality and, in some places, lack of perspective, vices appear that threaten not only the order within the state, but also the stability and order necessary for the global system of international relations.

In this year's final article, we sought to point out, through our own observations and assessments, several trends and events which are not only statically significant for the economic structure, but which will also have a significant impact on its formation in the foreseeable future. It is clear that my assessments made here to the judgment of the reader, as a non-economist, are done from an "amateur point of view," which is supported by a personal interest in the subject and a multifaceted legal practice. Accordingly, this article, too, speaks to the reader by avoiding categorical conclusions, using balanced assumptions, and making judgments to activate further reasoning.

However, it seems to us that the fact that modernity has faced not one or two, but many systemic crises, the so-called "poly-crisis," should not cause heated debate. And this makes it extremely difficult to correctly perceive, analyze and, most importantly, resolve the difficulties.

The peculiar synchronization of crises of different nature or content in the current regime (the global pandemic, significant damage to the pre-pandemic supply network, the recession of major economic centers, the war in Ukraine, the decline of China's export potential, etc.) draws attention: that is, if not all, then several crises explode in one particular geography, in one particular time, simultaneously and with equal force. And, given the high degree of "interconnectedness and interdependence" of the world economy, the "export" of crises from one geography to another became widespread, eventually leading to a multiplicity of systemic crises - the world "poly-crisis".

Importantly, the current situation provides a sufficiently clear basis for investigating cause-and-effect relationships, as well as for identifying possible future trends. Our intention is to highlight and articulate some of these in a concise format. Understanding the current process will be useful not only to have insight into global events, but also to determine where and how these events can lead our country; to anticipate, plan and prepare better so that we do not become passive observers of global transformation; to take care and act so that, by drawing sound and timely conclusions, we can increase our own social and public resilience, the competitiveness of the Georgian state and our ability to adapt.

So, let's give specific names to the main trends and systemic events that have only been mentioned.

The (unintended) consequences of poly-crisis?

It is a generally accepted axiom that any crisis is welcome as long as it allows us to draw the right conclusions and make decisions. In spite of the dramatic nature of the situation today, even so, there are trends that create opportunities for justifiable intervention in processes. At the same time, there are also trends that, whether or not the different people approve or disapprove of them, are the objective consequential manifestation of existing challenges.

Let us now turn directly to some of them, provide their brief description and assess their relevance.

Reconsidering the liberal economic order: It is one of the fundamental pressing issues involved in reassessing free market relations. This is not a question of a complete rejection of the existing market system. Of course not. In fact, academic circles (as well as practitioners) are now openly discussing the dangers of uncontrolled reliance on market instincts, when such lack of control - or "culture of self-regulation" by corporate actors - is detrimental not only to ordinary citizens, but also to the stability of state and society, the stability of the world economy and its systemic development.

The return of the state to the economy: Once again, it must be said that the creation and distribution of the wealth requires an impartial arbiter. And only an actor-oriented toward secure and inclusive development, providing equal access to the means of realization and supporting social solidarity can be such an arbiter - the state. In doing so, its unconditional role is to create a reasonable balance between the demands of the healthy forces of the market economy and adequate public expectations. Without such a moderate and reasonable balance, it is impossible to achieve long-term peace in the country, nor to fully and competitively activate national economic resources in the foreign economic arena. Obviously, the next few years will give us more reason to better judge the modern manifestation of Neo-Keynesianism in the state economy.

Social welfare system: One of the main conditions for preserving national-state strength and stability is that not only should no member of society feel excluded, but he/she should be perceived as a full participant in society. And the way to such participation is through economic policy and legislative measures that enable a citizen, a member of society (obviously, subject to his/her will and appropriate skills) to find his/her place in the process of nationwide development. The convergence of grand political objectives and specific human needs is unique in that it involves the realization of such a wide range of goals that lead to increased national security, the strengthening of the structure of social resilience, and the creation of an appropriate environment for personal fulfillment.

A new social contract: The relevance of talking about the need for a new social contract has increased, and we must consider its role again and again along with the above-mentioned topics. Its essence is expressed in the greater involvement of business in the nation-building agenda, its greater social support for society, and its greater responsibility for nationwide development. In short, it is about what business and the business community (including in Georgia) have always more or less done and managed. However, given our times and realities, this needs to be done "in excess": more systematically, deeply, thoughtfully, consistently. There is no doubt that a new economic culture formed on the basis of a new social contract between the state, business and society ("contract" here is a conditional word and refers to a new norm of interdependence, unwritten norms of behavior) will help fill the public gaps, reduce national threats and manage risks to the development of the state. Thus, all three "signatories" to the new social contract will benefit equally and proportionately.

The rise of "economic nationalism"?.. It is somewhat premature to speak of its firm establishment, but there is a definite trend in this respect. Speaking of the new social contract, we have already noted that in the international economic "puzzle" now taking shape, all the elements are in their interconnection and interaction. It is clear that economic nationalism cannot be seen as a separate phenomenon either. Moreover, it is one of the driving forces of the geopolitical-geo-economic (dis)order, which is in the mode of renewal.

Experimental or war economy?

Perhaps these titles are interchangeable because: (1) contemporary economic relations are characterized by the breaking of old rules and the vague content of new rules, and (2) war and the global competition caused by it define again and again a crisis economy in a state of experimentation.

In this context, we consider it necessary and possible to name several features caused by the confrontation of several different political and economic systems.

A renewed economic networking. Like the new hub-and-spoke system of global security and international relations, the global economic picture is undergoing fundamental changes. First of all, we are talking about a shift in the vector of global industrial potential from the West to the East. Although this process began relatively early - even before the pandemic and the new confrontation between the great powers as a result of the Russian invasion of Ukraine - today, in fact, the industrial and commercial pull to the East has become more evident. Thus, it is no coincidence that in the Western world, too, this fundamental process is not only discussed, but that so-called "countermeasures" are given special attention in practical and policy-defining documents. For example, the new U.S. national security strategy considers it insufficient to rely on the most important instruments of U.S. global economic influence - the U.S. dollar and trade agreements. The mentioned document emphasizes the need to neutralize the economic risks coming from the East, primarily from China, by making significant investments in the U.S. national economy and launching various stimulus projects. This course is very close to the stated policy of the Trump presidency and, if we recall the observations made in this article, boils down to a kind of American "economic nationalism" as a counterbalance to the "extreme" global liberal order.

The statement can also be phrased differently: do these and other examples not point to a new feature of the economic order - a liberal economy, but with a national sign? This tendency (if not a trend) is particularly noteworthy from the perspective of our Georgian economic system and offers us a number of practical recommendations for the future.

Turning fuel into a "weapon": the phenomenon we know as "weaponization". Much has been written about its real nature and the consequences associated with it. Therefore, we will try to spare the reader from repeating already familiar assessments and focus only on some practical aspects.

In particular, Western circles are actively discussing measures to neutralize the detrimental consequences of this new form of aggression - the so-called "petrol aggression". This issue has become particularly urgent for European business. Along with the deterioration of the social background, bilateral restrictions on energy resources (both by the EU and by Russia) have put the EU before the real threats: (1) as a result of the voluntary embargo, rising energy prices have threatened the development of industry at the necessary pace in Europe (in some places this process was even called deindustrialization, which, in our opinion, is excessive); (2) caused the need for significant investments in the infrastructure of transportation of energy resources from alternative sources, which in turn led to a reduction in funding for social programs; (3) the competitiveness of European businesses may decrease: both in relation to the U.S. and in relation to Asia.

At this stage several basic measures are mentioned to counteract the economic pressure that was discussed, namely: (1) "rationalization" of energy consumption - lean consumption of imported energy resources; (2) price control - introduction of a reasonable "ceiling"/maximum limit on income and (3) the so-called Solidarity Contribution - introduction of a tax for social purposes on excess profits of energy companies.

All this once again redirects us to the trends mentioned in this article related to a reasonable return of the state to economic processes and, along with the necessary balance of social justice, an intensification of the state's role in managing internal and external security risks. Any such trend is especially important for our country, for its competitive development. And it is practically impossible without achieving energy self-sufficiency, and for this we must pragmatically agree on the goals of necessary (and sometimes unpopular and disadvantageous for political parties) measures.

The fact is that the world is in the phase of the so-called "war economy," and looking at the large-scale use of developed processes and means of economic pressure (which, along with energy resources, also applies to food, medicines, etc.), we can say that we are practically witnessing the first world economic war.

The conundrum of "much" or "little" credit resources: which is no less relevant in today's war economy. During the poly-crisis, on the one hand, a large infusion of funds into social and other supportive/stimulus programs was required, which, on the other hand, led to an escalation of inflation. As a result, the crux of the conundrum is the following: should generous investments in social needs - including through lending to the real economy - continue, or should greater caution (and in some cases clear limits) be exercised to contain inflation?

In an economy of crisis, the problem of proper management as well as the rational dosage of credit resources has increased the role of sound monetary policy together with the fiscal one; That, in turn, has made both academics and practitioners reassess the importance of the central bank. As a result, over the last few decades, this institution has had a 'forced' two-dimensional function: in parallel with managing inflation processes and prices, to avoid stagnation and to supply the necessary 'fuel' for the movement of the real economy - an adequate supply of money. In this extraordinary situation, the task of the state as a "smart regulator" is to strike a rational balance between the insatiable appetite for financial resources and the long-term priorities of equitable and predictable economic development. This is precisely the task faced by developed countries today, and with the acceleration of growth, the developing (Georgian) economy may also face it more tangibly.

Finally, the processes of adjustment to post-financial capitalism in financial and other, especially technology-related, critical industries have actualized the postponed problems of the post-Cold War period mentioned in this article: (a) adjusting regulations while maintaining a commensurate pace of development; (b) transition from financial corporatization (i.e., with a focus on super-profits) to corporatization in a broad sense (the imperative of an inclusive public and social agenda for the development of the country); (c) the introduction of new, exclusively meritocratic criteria for measuring success in economic activity, etc.

Conclusion to continue

Any recession or crisis leads to a new equilibrium. This is a kind of axiom: also in economics. The future equilibrium will be unique in that it will be characterized not only by the confrontation of geopolitical centers, but also by the struggle between the economic global North and the global South. This "multilayered" (r)evolution of the process requires constant observation and proper analysis on the Georgian side.
Regardless of the pace and quality of replacing old rules with new ones, we would suggest the following characteristics of the next stage equilibrium: (1) the elimination of unacceptable inequalities between different social strata to manage external threats and internal extremist risks; Which, among other things, can be achieved by (2) the state's attempt to intervene in the economy in proportion to the political-intellectual and material resources available to it; And that, under a large assumption, leads to - (3) the end of the stage of the so-called "small government" and closer to the Keynesianism of national economic model (the state as an active client and determinant of economic growth) - naturally - in accordance with modern realities and requirements.

Obviously, no discussion these days suffers from a lack of assumptions. Some are relatively more convincing, others less so. In times like these, it is important to remember that the road to "new normals" of economic system is full of many surprises. The American macroeconomist Ben Bernanke rightly noted about his professional career that "one of the lessons of my life is that nobody knows what will happen."

Given the challenges of our time, this observation is critical not only for the economy, but also for other areas. Therefore, Georgia - represented by its society, academic and research communities, as well as its political leadership - must prepare itself to overcome the bumpy road caused by the unpredictability of the modern world. It is a path that requires a combination of strategic persistence and the art of tactical improvisation.