The impact of current disruptions on policies and institutions

Previous wars and crises have accelerated the creation of new institutions that have changed the lives of millions. After the 1930s Great Depression, the New Deal set up new federal instituions in the US that expanded the role of government. After the second World War, the lessons of the previous post-war were learned, and new global and European institutions were created to make peace and economic development compatible. The reaction to the Covid-19 crsis also learned from the mistakes of the (at least in Europe) flawed reaction to the global financial crisis. It took years for the EU to react with energy (“whatever it takes”) to the global financial crisis; it took months to react to the Covid-19 crisis, and it has taken days to react to the Russian invasion of Ukraine.

But in the long run, we must think about the likely impact and the desirable impact on our democratic infrastructure and how to make them coincide. In the short run there is a catastrophic impact on the Ukrainian economy (-35% growth estimated by IMF this year) and the need to plan for reconstruction in the mid run. Ukraine alone cannot handle this.

Once Ukraine is helped to survive and to reconstruct, the likely impact is a strengthened and more integrated European Union, which mutualizes the cost of economic aid to Ukraine and sanctions to Russia. Unfortunately, part of the likely impact is also a more fragmented world, where the EU is alone (perhaps helped by US administrations that are not hijacked by Putin allies such as Trump) supporting the rule of law.

The desirable impact is a more integrated and federal Europe in a more integrated world that addresses global challenges in a mutualistic way, such as climate change, tax competition, sustainable improvement of standards of living and migrations. How to make the likely and the desirable coincide will be a matter for global collective action and for evolutionary forces in a no longer linear progress.

The increasing difficulties of separating tasks in economics (between markets and governments, between fiscal and monetary policies, between different government levels, between politicians and technocrats) highlight the need to take an integrated approach, to put together the skills of many disciplines to tackle current challenges.

The logical next step after the national welfare state is the federal welfare state, as argued by Piketty in his last book, “A Brief History of Equality.” Some previous wars (the first world war, the Balkan wars, successive wars in the Middle east) ended with the sacralization of the nation-state and the consolidation of ethnocracies, paving the way for ethnic cleansing, future wars and economic stagnation. It is about time that we realize that multicultural democracies with universal rights, where respect for the rule of law is compatible with cross-border relations, are a much better way of sustaining economic development and sustainable peace.