preprints.org > business, economics and management > economics > doi: 10.20944/preprints202401.1061.v1

Preprint Essay Version 1 Preserved in Portico This version is not peer-reviewed

Version 1 : Received: 1 January 2024 / Approved: 13 January 2024 / Online: 15 January 2024 (03:11:23 CET)

One of the main challenges of the globalization became the increased destabilization and frequent economic crises. In general, managing an economic crisis is a particularly difficult task for any economy (developed or developing, and regardless the size). In the context of globalization, the process faces additional challenges. On the one hand, the world economy witnessed a shift from traditional purely economic instruments to more financial mechanisms of economic development. Indeed, the liberalization of the economy since the 1990s complicated the traditional trends of the world market development, resulting in significant fluctuation of the growth rates between different countries and regions. To respond to this evolution, governments and international organizations changed well-established strategies. For example, financial sector found itself given expanded role in economic development, with, different financial mechanisms used as key variables to evaluate an economic growth. On the other hand, the increased role of financial sector in a globilised world, increased financial relations among individual states and thus, interdependences. This “financial globalization” causes important fluctuations in the system and, as a result, causes instability in socio-economic development. Thus, an economic crisis of any important economy soon becomes a global issue (financial crisis of 2008, economic crisis of 2020).The recent global economic crisis due to the Covid-19 world pandemic, appeared to be unique for several reasons. First, it highlighted the transnational and origin-specific nature of the crisis. Second, it appeared to be the first case when non-economic factors caused a major economic crisis. As a result, this crisis turned out to be particularly difficult to predict and to manage. In this case, the main strategy of the global post-crisis rehabilitation became the restoration of the economy's predictability and ensuring its ability to obey the classical principles. According to the Organic Law on "Economic Freedom" of the European Union (2011), any factor which increases the equilibrium amount of output is reflected in the economic rehabilitation plan. Such exogenous factors are primarily fiscal mechanisms, i.e. - Reduction of taxes and increase of state expenditures. This crisis caused important structural problems with their effects on public expenditures (especially health expenditures, to the public expenditures, economic growth, price stability and budget balance) in both, developed and developing countries. Nearly every state declared an increase in public debt, inflation, and unemployment rates, while an important decrease was shown in growth rates and capital outflows. As the crisis due to the world pandemic was radically different from previous economic crises, it was difficult to manage it efficiently at the initial stage. It was complicated to forecast the scenarios of the unknown crisis with non-standard nature which was more linked to epidemiologic factors than objective economic law. The dynamics of crisis resolution depended on correct forecasting and effective implementation of global, but especially country-based reforms. More importantly, this crisis showed the important role of individual states to manage the global crisis. The traditional function of a government to ensure country’s socio-economic growth and security, increases in an extraordinary environment, such as sharp economic fluctuations and crises. In such contexts, the centralized management functions are sharply activated. The global pandemic processes have updated the economic essence of the state. The large scale of the latest economic crisis due to the world pandemic has determined the need for mutually coordinated development of anti-crisis plans of different countries. In today's dynamic landscape, modern global systems are redefining the standards and priorities of national economic policies. The economic status of countries is changing significantly as a result of their participation in these systems. As a result of these changes, today's global economy is marked by the proliferation of regionalism and the emergence of spatial economic frameworks. Thus, classical economic concepts are evolving, giving rise to a new model known as economic nationalism. This paradigm shift is generating new risks, which are increasing in severity and scope. The overriding objective of economic policy is now to ensure and predict stable development. Reflections are underway to meet the challenges of economic equilibrium and its social and institutional sustainability.In addition to the decentralization of the unified governance system, the global economy is characterized by the activation of centralized governance elements within individual countries. This requires the development of new norms for global cooperation and the careful balancing of national integration and development factors. The question of government's influence on the economy and the delegation of its powers becomes relevant once again. Effective coordination of public administration is based on the principle of decentralized government, which is a key element of a democratic model of society and facilitates the transfer of management tools to the public. The key objectives of this research are focused on the optimal distribution of state functions and the study of hierarchical principles of territorial organization within the country, fiscal mechanisms for the distribution of powers, as well as the particularities of the structuring of the spatial economy and its budgetary provisioning mechanisms.The example of the last two economic crisis showed that contemporary anti-crisis strategies should reflect several considerations. First, it becomes impossible to develop a single unified model of crisis management. Even in the context of important economic and financial globalization, the current decentralization and new spatial economic processes make it necessary to find a balance between the local priorities and global interests. Second, the role of non-economic crisis-causing factors increases compared to economic determinants. That is why international and country-based reforms should aim at not only economic rehabilitation, but also on the social, cultural and environmental restorations. Third, it becomes difficult to correctly predict the consequences of the crisis and thus, the effects of the anti-crisis strategy. Consequently, the success of the post-crisis rehabilitation of the countries' economies depends significantly not only on the effective realization of their own plan, but also, in general, on the specificities of the global economy and on the ability of the world markets to overcome the negative consequences of a crisis. In this context, the development of complex post-crisis platforms and state post-crisis strategies is the priority. The most effective component in the anti-crisis strategy is the monetary instruments of economic management. As for the determinant of successful functioning of economy, the priority should be given to the regulation of exchange rate, interest rate and inflationary processes. A state anti-crisis programs should reflect the crisis prevention strategy, which, on its turn, should differentiate the economic functions of the state and crisis management mechanisms according to the specific trends of given processes. It should aim at gaining stable development of the economy. Additionally, an anti-crisis plan should reflect the role of the society in the development process and its mental changes under crisis conditions. The state should be responsible for establishing and monitoring anti-crisis management mechanisms, financial recovery of the country and formation of correct relations. It is especially important to ensure economic security, to stabilize the development process and standard of living, to support the private sector and small entrepreneurship, to increase economic freedom, to ensure effective distribution of labor and capital, and others. All strategies of the anti-crisis platform should be focused on social results, as it should contribute to a fair distribution of income and to poverty reduction.

crisis management; post-crisis; public finances; monetary policy; economic growth

Business, Economics and Management, Economics

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