The future of economic and financial globalization is in doubt as this once-dominant paradigm is now being challenged by domestic political upheavals on both sides of the Atlantic. The catalyst is widespread disappointment with outcomes that, while handsomely benefiting a few, have failed to deliver sufficiently high and adequately inclusive growth for most. With that come concerns about a world economic order that is failing to keep up with realities on the ground, both in the advanced and emerging worlds. What comes next—specifically, whether it is a continued slip into dysfunction or an orderly growth-oriented reset—has enormous implications for the well-being of billions around the world.

From Good Theory and Practice

Quite a strong economic consensus took hold of the policy world for decades in the post-World War II period—one that, in simple terms, viewed economic and financial globalization as the best path to generating growth and prosperity. It was underpinned by theoretical work that illustrated the benefits of openness, exchange, and networking, as well as an institutional setup aiming to enhance comparative advantages, economies of scale, efficient cross-border production, and consumption interactions. And all was supported by seemingly sophisticated financial tools, responsible risk-taking, adequate regulation, and adherence to rule-based multilateralism.

High and inclusive growth was to be attained through a potent combination of macroeconomic stability, private sector-led productivity gains, and ever-deeper cross-border exchanges. The free flow of goods, services, and capital was to be supported not just by bilateral arrangements but, much more effectively, by established regional and multilateral structures such as the European Union, North American Free Trade Agreement, International Monetary Fund, World Trade Organization, and many others. And enlightened redistribution polices using targeted fiscal measures would limit those in society who are left behind.

Reflecting the realities of the moment, it was a set up anchored by the advanced countries and led by the largest economy in the world, the United States. It operated most visibly through the highly anticipated official summits and meetings of the G7 (consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and, in the leading role, the United States), and less visibly through various informal interactions and networks.

In all this, a handful of advanced countries, and the United States in particular, were placed at the center of the world economic order. They were provided with enormous responsibilities over the functioning of the global economic and monetary order, including the de facto management of global financial flows. They were also afforded considerable benefits and privileges, from de facto veto power in multilateral institutions to the issuance of reserve currencies that enable the exchange of paper for goods and services produced by other countries, as well as issuing the financial securities used by other countries in allocating their savings and investments.

It was a system that worked well for quite a while—not only by countering the occasional inclination to slip back into destructive “beggar-thy-neighbor” policy stances that prevailed in the 1930s, but also by unleashing and enabling human and capital productivity, as well as technological leapfrogging, that delivered considerable levels of growth and prosperity that were once thought improbable.

At first, the main beneficiaries were concentrated in the advanced world, including poverty alleviation, the healthy emergence of a middle class, greater social mobility, and a more fluid upper-income class that was no longer so reliant on inheritance. With time the paradigm—and its formalization via the “Washington Consensus” that was advocated by the G7 directly, as well as through the International Monetary Fund and World Bank—influenced policymaking in developing countries, leading to considerable gains there, from lower domestic poverty to higher growth to a reduction in cross-country income inequality.

To Disappointing Outcomes

But what initially worked well overall started to disappoint as the effects of a more challenged growth momentum was accentuated by unfortunate compositional shortfalls and amplified by a major financial crisis that almost tipped the world into a highly damaging multi-year depression. The “great moderation,” one that combined steady inclusive growth with financial stability, proved a short-term illusion. The inequality trifecta—that of income, wealth, and opportunity—worsened to levels deemed unacceptable to growing segments of society. And cross-border policy coordination became a lot less effective.

The longer these economic shortfalls persisted, the greater fuel there was for further economic and financial dislocations and political polarization and dysfunction. As such, it should not come as a great surprise that a once-solid consensus is now being challenged by a series of economic, financial, institutional, and, most visibly, political headwinds that raise questions about the future of both globalization and regionalization.

On the economic front, years of low and non-inclusive growth are eating away at the potential for future prosperity, thereby aggravating the “growth crisis” facing the advanced countries. And the longer this continues, the harder it will be for emerging economies to maintain their growth and development processes.

Financially, some 30 percent of global government debt has recently been trading at negative interest rates—that is, lenders pay rather than receive interest income when they lend their money. This highly unusual, and once unthinkable, phenomenon, eats away at the integrity of the financial system and makes individuals less secure. Not only are they generating a lot less income on their savings, but they are also increasingly worried about the soundness and availability of long-term financial protection products such as life insurance and pensions.

Institutionally, the unusual economic and financial period has seen central banks take on enormous policy responsibilities. They have done so by necessity rather than choice, and for much longer than they (and the vast majority of experts) ever anticipated. As a result, they have been forced deeper and deeper into experimental policy terrain. This raises understandable concerns about the risk of collateral damage and unintended consequences. It has also increased their vulnerability to political attacks, thereby risking their crucial operational autonomy.

Then there is the politics of anger. An anti-establishment wave has taken hold of much of the Western political system, causing upheavals that were once thought improbable if not unthinkable. Whether it’s the United Kingdom’s surprise referendum vote to exit the European Union or the equally unexpected election of Donald Trump to the U.S. presidency and the constitutional referendum defeat in Italy, there is an unusual degree of uncertainty as to what lies ahead in a world where traditional political setups have lost credibility and popular support.

Blame the Excessive and Ill-Fated Romance with Finance

While many reasons may be cited for the current situation, my number one candidate is the West’s unfortunate romance in the 1990s with finance as the engine of growth. It was a romance that went way too far, leading to the 2008 global financial crisis and subsequently the Great Recession and the aggravation of the inequality trifecta. And its legacy continues to undermine the global economy from attaining its considerable potential for high inclusive growth and genuine financial stability.

Rather than investing in genuine drivers of economic growth and human productivity—from education to infrastructure and from well operating labor markets to non-distortionary tax regimes—the West fell in love with financial engineering as a the way to deliver prosperity. Countries competed to be regional and global financial centers (see Frankfurt, London, and New York), allowed the size of their financials sector to grow to a multiple of their GDP (see Iceland, Ireland, and Switzerland), or excessively resorted to external indebtedness as a substitute for proper domestic resource mobilization (see Greece, Italy, Portugal, and Spain). With that came regulatory complacency, excessive risk-taking by institutions, the explosion of deficit financing, and a general failure of risk management processes and mindsets.

The 2008 financial crisis that erupted in the advanced economies illustrated the limitation of finance as a growth engine, and did so in a fashion that wreaked havoc on many people around the world. What failed to follow, however, was a proper and sustained policy reaction and growth pivot. Rather than implement a comprehensive policy response that delivers high inclusive growth, advanced economies ended up relying too much and for far too long on central banks. Exceptional levels of official liquidity support replaced the once-flourishing private factories of credit and leverage.

While central banks can buy time for the economy, and have done so repeatedly, this only makes long-term sense if it is followed by an effective handoff to more comprehensive policy responses that properly address the cyclical and structural headwinds to high and inclusive growth. The longer this handoff is delayed, the greater the risk of collateral damage and unintended consequences. With that comes an even larger threat of seeing central banks go from being part of the solution to becoming part of the problem.

These developments in the advanced world have made it harder for emerging economies to be successful. After all, it is not easy to be a good house in a challenged and unstable neighborhood. It has also encouraged the most systemic of these countries to start building ways to bypass, albeit partially and gradually, the domination of the global economic order by the advanced countries. China has been particularly active in this space, be it through a growing number of bilateral payment arrangements or leading the creation of new institutions such as the Asian Infrastructure Investment Bank.

What Comes Next Matters

There is nothing preordained about this situation, and there is nothing automatic about the future, at least not yet. Much will depend on how politicians respond to the unusual uncertainty they face on multiple fronts—economic, financial, institutional, or political. In addition to determining the scope for economic well-being at the individual country level, this will influence whether the international economic and financial order fragments or evolves into a more effective globalized system.

What is crucially needed is a durable policy pivot that improves domestic economic performance while establishing a stronger foundation for growth-enhancing globalization and regionalization.

Fortunately, it is not an engineering issue. Indeed, the design component already commands quite a bit of support in the economics profession. It involves a transition away from excessive reliance on over-stretched central banks and toward a more comprehensive policy stance that emphasizes four elements: (1) pro-growth structural reforms, including corporate tax reform, infrastructure boosts, and energized labor retooling, (2) fiscal expansion in countries where there is space, (3) lifting pockets of excessive indebtedness, including sovereign debt in Greece and components of U.S. student debt, and (4) improving cross-border policy coordination while making progress in strengthening Europe’s economic and financial architecture.

This “big thing” is unlikely to materialize without some sort of inspiring catalyst for political systems that have tended to slip into paralyzing complacency when it comes to economic governance. It can come in the form of an endogenous shock, with the emergence of anti-establishment movements raising intriguing possibilities in this regard, or it can come from outside the political system, such as a new economic and financial crisis that shocks the political establishment into action.

The good news is twofold: the engineering design of the solution is quite advanced and there is a lot of private capital that, rather than remain idle on corporate balance sheets or be used for additional short-term financial engineering, can be unleashed to enhance growth-promoting investments in plants, equipment, networks, and people. The challenge is to ignite the benefits of the catalysts, be they internal or external, while minimizing their costs and risks. Without that, economic and financial globalization will face even greater headwinds.

Mohamed A. El-Erian is the chief economic advisor of Allianz. Follow on Twitter @elerianm.