Marginalised and dominated economically by the Global North, developing countries must urgently cooperate to better strive for their shared interests in achieving world peace and sustainable development.

Cold War rivalry

During the first Cold War between the US, NATO, and other allies, on the one hand, and the Soviet Union and its allies, the former prided itself on sustaining economic growth, especially during the post-war Golden Age.

Since the 2008 global financial crisis (GFC), successive governments – led by Obama, Trump and Biden – have all strived to sustain full employment in the US.

However, real wages and working conditions for most have suffered.

Exceptionally among monetary authorities, the US Fed’s mandate includes ensuring full employment.

However, without the US-Soviet rivalry of the first Cold War, Washington no longer seeks a buoyant, growing world economy.

This has affected US relations with its NATO and other allies, most of which have been hit by worldwide economic stagnation since the GFC.

Instead of ensuring worldwide recovery, ‘unconventional monetary policies’ addressing the ensuing Great Recession have enabled further financialisation.

Interest rate hikes slow growth

Since early 2022, the US has raised interest rates unnecessarily.

Stanley Fischer, later IMF Deputy Managing Director and US Federal Reserve Bank Vice Chair, and colleague Rudiger Dornbusch found low double-digit inflation acceptable, even desirable for growth.

Before the fetishisation of the 2 per cent inflation target, other mainstream economists reached similar conclusions in the late 20th century.

Since then, the US Fed and most other Western central banks have been fixated on inflation targeting, which has no theoretical or empirical justification.

Fiscal austerity policies have complemented such monetary priorities, compounding contractionary macroeconomic policy pressures.

Many governments are being ‘persuaded’ that fiscal policy is too important to be left to finance ministers.

Instead, independent fiscal boards are setting acceptable public debt and deficit levels. Hence, macroeconomic policies are inducing stagnation everywhere.

While Europe has primarily embraced such policies, Japan has not subscribed to them. Nevertheless, this new Western policy dogma invokes economic theory and policy experience when, in fact, neither supports it.

The US Fed’s raising interest rates since early 2022 has triggered capital flight from developing economies, leaving the poorest countries worse off.

Earlier financial inflows into low-income countries have since left in great haste.

The new Cold War has reduced investment and technology flows to the Global South.

New Cold War contractionary

The new Cold War has worsened the macroeconomic situation, further depressing the world economy.

Meanwhile, geopolitical considerations increasingly trump developmental and other priorities.

The growing imposition of illegal sanctions has reduced investment and technology flows to the Global South.

Meanwhile, the weaponisation of economic policy is fast spreading and becoming normalised.

After the Iraq invasion fiasco, the US, NATO and others often do not seek UN Security Council to endorse sanctions. Hence, their sanctions contravene the UN Charter and international law.

Nonetheless, such illegal sanctions have been imposed with impunity.

With most of Europe now in NATO, the OECD, G7 and other US-led Western institutions have increasingly undermined UN-led multilateralism, which they had set up and still dominate but no longer control.

Inconvenient international law provisions are ignored or only invoked when useful.

The first Cold War ended with a unipolar moment, but this did not stop new challenges to US power, typically in response to its assertions of authority.

Such unilateral sanctions have compounded other supply-side disruptions, such as the pandemic, and exacerbated recent contractionary and inflationary pressures.

In response, Western powers raised interest rates in concert, worsening the ongoing economic stagnation by reducing demand without effectively addressing supply-side inflation.

The internationally agreed sustainable development and climate targets have thus become more unattainable.

Poverty, inequality and precariousness have worsened, especially for the most needy and vulnerable.

Limited options for South

Due to its diversity, the Global South faces various constraints.

The problems faced by the poorest low-income countries are quite different from those in East Asia, where foreign exchange constraints are less of a problem.

IMF First Deputy Managing Director Gita Gopinath has argued that developing countries should not be aligned in the new Cold War.

This suggests that even those walking the corridors of power in Washington recognise the new Cold War is exacerbating the protracted stagnation since the 2008 global financial crisis.

Josep Borrell – the second most important European Commission official, in charge of international affairs – sees Europe as a garden facing invasion by the surrounding jungle. To protect itself, he wants Europe to attack the jungle first.

Meanwhile, many – including some foreign ministers of leading non-aligned nations – argue that non-alignment is irrelevant after the end of the first Cold War.

Non-alignment of the old type – a la Bandung in 1955 and Belgrade in 1961 – may be less relevant, but a new non-alignment is needed for our times.

Today’s non-alignment should include firm commitments to sustainable development and peace.

BRICS’s origins are quite different, excluding less economically significant developing countries.

Although not representative of the Global South, it has quickly become important.

Meanwhile, the Non-Aligned Movement (NAM) remains marginalised.

The Global South urgently needs to get its act together despite the limited options available to it.

(Jomo Kwame Sundaram was an economics professor and United Nations Assistant Secretary-General for Economic Development.)