India, not China, model of growth is instructive for developing countries in Africa: Adam Tooze

Edited excerpts:

According to a report released by the World Economic Forum, two-thirds of economists surveyed expect a global recession. What is your sense of how 2023 might pan out for the global economy?

I think that may reflect the gloom from a couple of months ago, to a certain extent. We thought there was a hard landing in the US, a crash landing in Europe due to the Ukraine war and China being stuck in limbo. I think all of those stories have shifted in a much more positive direction in the last couple of months.

And this is not to speak of the big emerging markets, the biggest of which is India. There is no particular reason to expect a full-blown recession in India. Although the Covid news out of China is terrible, the upshot for the economy is that we would expect it to accelerate. In Europe, we are increasingly optimistic about getting through this winter without a crash landing. Remember, three or four months ago, people were literally talking about putting the German economy into hibernation for lack of gas. That’s not an issue anymore. And in the US, I think the likelihood of a soft landing rises every day as the inflation numbers are coming down and the labour market remains immensely strong.

Putting all of those pieces together, it doesn't really seem to me like a global recession picture. But it is still very early to tell. And there is a lot of weakness, particularly in the lower-income, heavily-indebted, import-dependent economies out there. That's billions of people. It's not a lot of global GDP. But if you're looking at this from the point of view of people in the world, then there's every reason to be concerned about the coming year.

You have talked about entering a poly-crisis decade. We are already confronting a pandemic, a war and a looming threat of a global recession. What do you think this means for the global economy and the world order at large?

The war is still a huge concern. I know it seems to be more of a European obsession and it affects the rest of the world differently. But we need to remember that it is a major shooting war that involves the world’s second-biggest nuclear power. It is a huge risk factor and we don’t know how it may unravel. The other thing we have to keep our eyes on is the pandemic.

All we have to deal with is a conventional recession as a result of the Fed tightening, maybe a downturn in the American real estate market or some banks in China blowing up. I think we were ahead in that game. My main concern is there's something really very unexpected out there that's going to blow things up for us.

When you say something unexpected, where do you think the next crisis would be in terms of geopolitics, climate or health?

Well, for me, it is a game you play with yourself. The pandemic is really the thing I think we need to keep our eyes on. I'm consistently alarmed by the way in which that has dropped down the global agenda. We just cannot forget the sheer devastating shock that 2020 delivered. And we are not on top of that disease. It continues to mutate and it may become endemic. We really have not seen a thoroughly lethal strain, since the delta variant. We cannot count on that being the case going forward.

For me in terms of the wildcard scenarios, which would inflict a major shock to India, China, Europe and the United States, the pandemic is what I'm most worried about.

The theme for the WEF this year is cooperation in a fragmented world. How far is that possible?

Indonesia’s G20 presidency in 2022 has taught us that China and America want to walk away from outright conflict over Taiwan. It's quite clear that they understood how risky that became and tried to pull back. There was some serious crisis management going on there. The other thing we saw is that the major powers, as contentious as they may be, did not want to embarrass the Indonesians. And that is an incredibly good sign because it is telling you that everyone is buying into a new multipolarity in which globalisation is no longer driven by bolting the western economies and the Chinese economy together. It’s actually becoming thoroughly polycentric, with players like India, Indonesia, Turkey and Brazil as major pieces of a global jigsaw puzzle.

Will it be the same deep supply-chain story we had in the 90s, 2000s? I think that probably won’t be the case. The new pieces of the puzzle don't lend themselves to that kind of incorporation, especially India. It doesn't have so far a great track record in the manufacturing supply chain. Although Apple’s entry into India might be a sign of things to come in the future, it is something that is yet to unfold. I think what it suggests is that the global configuration has a degree of resilience. A lot of people thought that the G20 summit was really going to see a blow-up and it didn't. The Russians were quite marginalised and India set the terms in very important ways by providing the wording. And it's all about the wording in meetings like that. It’s a tough task to manage the G20. It's fallen to a major player like India, following in Indonesia's footsteps to hold that together.

While the IMF expects a third of the world to slip into recession, it considers India a bright spot as it is still growing at 6.9 percent. With it assuming the presidency of G20, what role can India possibly play in a fragmented global economy where geopolitics seems to be trumping geo-economics?

To put it another way, India is also a society that needs to grow at 6.9 percent. It is still a relatively low-income country and large parts of the population, although out of the misery of the 70s and 80s, are desperately in need of basic developmental growth. India needs to play the role that Indonesia played… Simply bang the table and insist that despite all of the geopolitical argy-bargy between the United States, Europe and China, billions of people worldwide — the majority of the world's population — have a huge interest in seeing sustainable, globally integrated growth going forward.

America may want to wage a chip war with China. But for billions of people on the planet that is simply not the priority, right? What we really need to think about is electrification, the development of adequate, safe and reliable sources of food, and much-improved urbanisation. This includes India and other emerging markets on one hand. But the big challenge that's out there for the next generation is Africa, which so far has been barely integrated into globalisation.

It seems to me that the examples of growth of countries like India are in many ways more instructive for countries in Africa than the Chinese heavy industrial model. Africa can really learn from the extraordinary innovations that India has pioneered in the tech space with regard to the securing of basic rights, basic income, food supply, and so on.

While India is front and centre at the WEF this year, the G7 participation has reduced significantly. What does this say about the forum’s relevance and the priorities of the developed world?

That’s a very interesting question. I think it points to a gear-shifting globalisation because Davos was synonymous with the 90s’ and 2000s’ vision of a flat world. It was about how China was going to be incorporated into the system, with the terms being set by Europe and the United States. In the session we had in May last year, there was a huge emphasis on the war in Ukraine. It felt like a very European event to my mind as Davos seemed to be a platform for Ukraine, Poland, and others who were up against Russian aggression. I think you're right that there has to be a degree of soul-searching on the part of the forum about what precisely its role is, in a world where the confrontation between China and the US is absolutely fundamental.

And maybe what we're seeing at WEF is what we saw at the G20 — the countries that are ultimately now most heavily invested in globalisation as a moving frontier may indeed be the lower-income emerging markets that still have the most to gain from global growth in many ways.

What concerns you the most from a macroeconomic perspective at this point in time?

I'm still tracking the interest rate hikes. We have had a brutal shift in the monetary policy environment. In the United States, mortgage interest rates have doubled in less than a year. It may be that the financial systems of the West have resilience, and it works out just fine. The US housing market now is essentially a publicly-backed government-guaranteed market, which is a very weird and hybrid kind of capitalism.

Where I see a lot of the risk is in the lower-income, developing market, and the rash of bad news out of Africa right now with Ghana, Kenya and Ethiopia in trouble. That is a really very concerning development. Those three countries are in trouble all at once as a result of a common set of factors which had to do with shifts in the bond market and the underlying quantity of debt they've taken in private markets. That's a huge challenge when we think about the frontier of sustainable development, because they need the order of a trillion dollars of fresh capital a year to make growth happen. And if the private market mechanism no longer works, we are faced with some huge, huge problems there.