“The black swan event wasn’t the emergence of a pandemic but the failure of international cooperation in order to grapple with it,” says John Denton, secretary general of the International Chamber of Commerce (ICC). “That is what no one anticipated.”
Denton leads an organisation representing 45 million companies across more than 100 countries and so knows a lot about global cooperation. He argues that Covid-19 has been fumbled by many sovereign governments and has exposed weaknesses with multilateral institutions.
Business could have helped in Covid fight
A lawyer by trade, the Australian native is a non-executive director of IFM Investors and has seen first-hand how contracts for major infrastructure projects, for example, have always included analysis of rare risk events such as pandemics.
Tomorrow can be a better day. We just need to think in a different way.
Yet he feels business was kept on the outside of crucial conversations, exacerbating problems that led to the failure of supply chains.
A key metric of the global economy, foreign direct investment (FDI) declined steeply in 2020. While Denton doubts 2021 will see a strong rebound in FDI, he says the ICC is busy reminding countries that cross-border investment is a force for good.
He is also optimistic over the longer term. “Tomorrow can be a better day,” he says. “We just need to think in a different way.”
[Keep up with Investment Monitor: Subscribe to our weekly newsletter]
Denton argues that this will only be achieved through a strengthening of global trade and cooperation. “Citizens have rejected trade in many nations because they have incorrectly assumed it has been responsible for their job losses,” he says. “We need to build back confidence in open borders.”
He also argues that the pandemic has revealed the need for structural change within the multilateral organisations that should have been coordinating the global response to the pandemic.
So how can the world recover from Covid-19?
Covid-19 has forced companies to reassess their supply chains, with many seeking to reshore or nearshore operations. Denton blames policymakers for supply disruptions.
“The biggest problem we have seen with the effective functioning of supply chains has not been a lack of willingness from the private sector to reconfigure them in a way to function during Covid-19, it has been the deliberate and often misguided, miscalculated and sometimes politically inspired interference by governments that has contorted supply chains,” he says.
He adds that the ICC found about 60% of countries did not have a mechanism to engage the private sector in response to a pandemic.
“The supply chain mess with PPE and ventilators was not caused by the private sector; it was caused by government intervention,” says Denton. “Even now if you look at the way in which the vaccine distribution has been configured, you see the kind of perversions where a country such as South Africa, which is a net producer of vaccines, has real problems with access to them.”
While critical of government intervention, Denton adds that everyone has to learn from the challenges of Covid-19.
“I laugh at the idea of a great reset,” he says. “A reset would be going back to what it was before but that is not going to happen, and shouldn’t happen. If we continued as we were, with the deficiencies and flaws in the way the global economy was operating, this will only enable a repetition of what we have just seen. We have to think about what resilience looks like.”
The UN has not had a good pandemic. Most Bretton Woods institutions have struggled.
Denton adds that the pandemic will see citizens demand better health systems and greater transparency of governance: “Where the pandemic has been handled well with effective functioning health systems is where you have a strong sense of society and civic duty… I see governments happily calling on citizens to do more but don’t see them thinking about effective and transparent governance.
“The best tonic for the global economy is an effective return to work, and that will only happen once proper risk management is in place, balanced with access to vaccines, therapeutics and mass testing giving confidence to citizens that their health systems are working.”
The case for reforming global institutions
While Denton highlights the failures of national governments, he also says the pandemic has highlighted structural issues with the multilateral institutions that oversee the global economy.
“Are the institutions that support global cooperation fit for purpose for the 21st century?” he asks. “The UN has not had a good pandemic. Most Bretton Woods institutions have struggled.”
He says the toolkit of these institutions is designed for financial crises but they have been ineffective when confronted with a crisis of the real economy.
“There have been long-term problems for SMEs trying to access finance, problems with equitable distribution of opportunity through access to markets,” says Denton. “None of this is new but the way it has been revealed through the consequences of the pandemic has been devastating.
“[The ICC] argued strongly and forcefully that this was a crisis of the real economy. Supply chains were collapsing before the health crisis was even hitting. Bangladesh garment workers were being put out of business before Covid-19 was even in the country.”
He adds that it took a pandemic for the World Trade Organisation (WTO) to properly engage with the ICC for the first time, which demonstrates the problem.
“I think there is a fundamental issue with the nature, purpose and operation of the international institutions that govern or help curate the global environment that enables international cooperation,” he says.
A lack of trust in governments
Denton points to the Edelman Trust Barometer published in January 2021, which shows that trust in business has risen during the pandemic while trust in governments, NGOs and the media has fallen. The report suggests that business is now the only institution globally that is seen as both competent and ethical.
“People have more trust in their employer than they do in their government,” he says.
“The ICC is thinking deeply about how to use that trust in a way that can maintain global cooperation among business and use it to shape the architecture of global governance. A lot of that is about bringing the private sector into these discussions. The idea that you can run a national vaccination programme without engaging with the private sector is crazy.”
Denton says that the ICC is trying to assemble a coalition that wants reform of these institutions.
The future of multilateralism
Denton says that the lack of a global set of rules for the digital economy is a damning example of how multilateral organisations have been found wanting.
The WTO has a set of pre-internet rules and it has been struggling through ever since.
“What we need is a global digital commons which is curated by an organisation that has the capacity to enforce agreements,” he says. “The best organisation for that is the WTO, but the members have been reluctant to bring it into the 21st century. They are imperilling the effective functioning of the multilateral trading system to preserve the status quo, particularly in terms of their own interests.
“The WTO was founded in 1990–91 with a rule book established in the late 1980s. The internet didn’t go into the public domain until 1991–92 and was only really relevant to business when e-commerce arrived later. The WTO has a set of pre-internet rules and it has been struggling through ever since.”
He says digitally enabled businesses will drive the future economy and yet even European countries such as Spain and Italy have a dearth of them.
Denton points to the ICC’s Digital Trade Standards Initiative, launched in April 2020, as an effort it is making to help standardise digital trade, but he says more needs to be done.
He also criticises the WTO for treating trade, sustainability and climate as if they live in separate silos, making the UN’s Sustainable Development Goals and the targets of the Paris Agreement more difficult to achieve.
There has been a shift towards protectionism and investment screening in many countries, which has accelerated during the pandemic. The investment treaty regime has also suffered due to Covid-19 amid legal challenges, and tensions are still high between the world’s two superpowers – the US and China. All of these issues put a strain on global cooperation.
Denton says it is easy to rail against sovereign states for wanting greater protectionism, but that is their right, and global institutions must evolve to meet the changing requirements of global trade. He intends for his organisation to help meet this global challenge.
“The ICC has only recently forced our way in to participate in these discussions,” he says. “They were very happy to have these conversations without any input whatsoever from business. Well, no more of that, thanks.”
