COVID-19 and global economic ordering: radical shift or more of the same?

The fallout from COVID-19 has triggered narratives about profound changes to economic ordering. A closer look provides a more complex picture, particularly for countries in the global South. 

Lorenzo Cotula's picture Brendan Schwartz's picture
Lorenzo Cotula is principal researcher and Brendan Schwartz is a senior researcher in the legal tools team, in IIED’s Natural Resources research group
24 April 2020
A cement factory

A cement factory in Cameroon. The country's government has a framework for development policy that identifies the extractive sector as one of its driving forces (Photo: copyright RELUFA)

As the world begins to reckon with the scale of COVID-19’s economic impacts, there is a growing sense that the pandemic will reconfigure the role of state and market for years to come.

Yet, much debate has focused on policy shifts in higher-income countries and sizeable middle-income economies. For many low and middle-income countries, it may be harder to renegotiate the structures of global economic ordering. 

Emergency measures vs longer-term responses 

The pandemic has exposed socioeconomic disparities that were, all along, clear for everyone to see but gained little traction in policy agendas. Whether we lose our job, take risks by carrying on working or are able to ‘self-isolate’ by working from home is largely a function of class. Where available, data on the racial demography of the epidemic highlights the extent of racial disparities in both infection and death rates. 

In the global North, policy responses have shattered long-held economic dogmas and prompted commentary about a reconfiguration of economic governance. There is talk about the ”end of neoliberalism”, and even business media envisages ”radical reforms” (subscription required) that could ”revers[e] the prevailing policy direction of the last four decades” – where the state has a greater role in the economy and ”privileges of the wealthy” are redistributed. 

But many state measures are designed to safeguard national economies during the crisis, rather than restructure economic relations, and we should not confuse emergency packages with longer-term trends. 

Diverging North-South trajectories

The pandemic has called into question global dimensions too: increased interdependence facilitated the rapid spread of the virus, and the economic fallout has highlighted the fragility of a global system that, until now, seemed the only one possible. Several high-income and BRICS countries have announced restrictive trade and investment measures, accelerating an already emerging trend. 

However, the ability of states to reshape their economic policy depends on development patterns, political economies and their integration into the global economic system.

In the global South, state capacities to implement emergency measures and public policies vary greatly. Contrary to recurring narratives of helplessness, there is much the world can learn from Africa’s experience with tackling epidemics

Yet, many low and middle-income countries were already in a weak structural position prior to COVID-19, due to their place in global economic ordering and the terms imposed by higher-income countries and multilateral institutions. This includes: heavy levels of public debt; high dependence on international financial institutions; a hangover from structural adjustment, and harsh loan conditionalities, which eroded state capacity; trade agreements restricting policy space, including options to protect domestic industries; and extensive corporate power over matters of public policy. 

Further, the trade and investment agreements signed by global South countries over the years, often from unfavourable negotiating positions, remain in force. Low and middle-income countries often find it difficult to terminate or renegotiate these agreements, particularly those with their higher-income counterparts.

Some commentators have already begun assessing whether multinationals could bring investor-state dispute settlement (ISDS) claims against states over measures adopted to deal with the pandemic (though states could deploy compelling arguments to defend themselves).

And if wealthier states pursue narrow national interests in responding to the economic fallout, there could be significant negative impacts on low and middle-income countries. The last global economic crisis and the food price hikes of 2007-08 sparked a global wave of ‘land grab’ deals, whereby businesses from wealthy food importing countries acquired large areas of land in poorer countries, causing dispossession. 

Law’s contribution to a bankrupt development model

In many low and middle-income countries, vulnerability is compounded by dependence on the export of raw materials. Not only have resource extraction sites proved hotspots of virus transmission, but these economies are disproportionately affected by the slump in global demand and commodity prices caused by COVID-19. 

In a recent blog, Mukasiri Sibanda provides a stinging indictment of development models premised on resource extraction: despite Zimbabwe’s richness in mineral resources, the country has little state capability to protect its citizens against the pandemic.

In these contexts, economic law is structured around facilitating resource extraction. This includes:

  • Legislation that grants states extensive powers to expropriate land and resources and reallocate them to commercial operators 
  • The trade and investment treaties that protect foreign investors’ resource claims, and
  • The policy tools whereby international institutions limit the fiscal and policy space necessary for robust government intervention in social and economic matters. 

It is difficult for low and middle-income countries to extricate themselves from these arrangements. Unless the model and its legal underpinnings are reconsidered, many commodity-dependent countries could come under even greater pressure to attract foreign investment, under terms favourable to businesses, post COVID-19 – possibly exacerbating a backlash against 'rights' advocates and reducing political space for those who contest business as usual. 

Voices from the South: what IIED’s partners think

These conditions are not favourable to a genuine economic reconfiguration that responds to the needs and aspirations of people in the global South. If anything, many of the partners we work with are concerned COVID-19 will cause greater hardship and entrench current paradigms. 

Samuel Nguiffo – head of Cameroon’s Centre for Environment and Development – sees parallels between today’s predicament and the situation that led to the structural adjustment programmes of the 1980s to present: a commodity crash and debt crisis opening the door to exacting harsh donor conditionalities. 

José Aylwin at Chile’s Citizen Observatory observes new momentum in Latin American political discourse to challenge neoliberalism and promote more effective state intervention for realising economic, social and cultural rights. But while some Latin American states may be well-placed to react in this way, José notes that dependence on external aid and investment could limit options. 

Liliane Mouan highlights how, even under significant donor pressure, African states can exert agency in shaping their economic policy – but crises provide opportunities for external actors to increase pressure on states to reshape economic policy against the interests of the poor.

Organising to shape a better future

Different trajectories are possible. But if we are to develop a fairer and more sustainable economic order, people will have to fight for it. As Samuel Nguiffo puts it, “we will not automatically be rid of our greed, which is what led us here”. This raises fundamental political issues, but we also need innovative legal thinking to identify issues and explore ways forward. 

There is much we can build on. A new generation of scholars and practitioners grew up with 9/11, the financial crisis and now COVID-19 – and many are prepared to think differently.

Initiatives such as, TWAILR, the IEL Collective and AfricanArguments are creating new spaces for critical voices, including from the global South. We need to collectively track developments from a global South perspective, so public action can build on evidence rather than grand narratives, and to reshape global spaces for dialogue, so marginalised voices are heard.

With thanks to IIED’s director Andrew Norton and to Celine Tan, reader at Warwick Law School and Director of the Centre for Law, Regulation and Governance of the Global Economy (GLOBE), for their comments on this blog – though the views expressed are the authors.

About the author

Lorenzo Cotula ([email protected]) is principal researcher (law and sustainable development) in IIED's Natural Resources research group

Brendan Schwartz ([email protected]) is senior researcher in IIED's Natural Resources research group

Lorenzo Cotula's picture Brendan Schwartz's picture