Policymakers around the world will need to address a confluence of economic, political and climate-related shocks in 2023. While governments can’t solve these crises alone, deft political leadership will be crucial to holding societies together and enabling communities and businesses to step up and do their part. What the world desperately needs is public servants and politicians who are willing and able to innovate.

At the end of last year’s UN Climate Change Conference in Egypt, world leaders agreed that climate change is putting communities everywhere at risk and requires urgent action ^[1]. Businesses, in particular, must transform ^[2] the way they use energy and transport. But even companies that have made ambitious net-zero pledges are struggling to present ^[3] credible plans for achieving this goal.

The lack of clear and enduring regulatory frameworks has made it even more difficult for companies to achieve net-zero emissions. Only governments can put in place the required mechanisms, and they must seek innovative ways to ensure regulatory stability. There’s little point in passing climate legislation today if voters and businesses believe it will likely be overturned after the next election.

Any effective climate framework requires broad public support. To build trust, politicians must reach out to communities and businesses, and form coalitions across the political spectrum. While bridging today’s political divides will surely require leaders with extraordinary skills and vision, it’s not impossible. Germany is divided, too, yet it is currently governed by a coalition comprising the centre-left Social Democrats, the left-wing Greens and the business-friendly Free Democrats. In deeply divided Brazil, leftist leader Luiz Inácio Lula da Silva has just been sworn in as president with his centre-right vice president, Geraldo Alckmin.

In addition to polarisation, governments will face no shortage of economic troubles in 2023. A global recession is, according to the International Monetary Fund and the World Bank, inevitable ^[4]. Effective government action will be crucial, but as a recent IMF report ^[5] points out, if policymakers are too aggressive in their efforts to fight inflation, they could exacerbate the US dollar’s appreciation and trigger debt crises around the world.

Simply put, the stakes are life or death, particularly for low-income countries. The pandemic pushed about 70 million people around the world into extreme poverty, according to the World Bank’s latest report on poverty and shared prosperity ^[6], with the world’s poorest countries hit the hardest. To offset the enormous social costs of the pandemic, governments need to make massive investments in health and education.

Addressing these economic disparities could save the lives and livelihoods of millions, but would require governments to take steps that are not politically expedient. Targeted cash transfers, for example, could effectively mitigate the cost-of-living crisis. While broad subsidies are more popular, they often benefit the wealthy. According to the World Bank, half of all spending on energy subsidies in low- and middle-income countries ‘goes to the richest 20% ^[7] of the population who consume more energy’.

High-return investments, particularly in education, research and development, and infrastructure could also help address ^[7] both the climate crisis and rising inequality. But such investments require careful planning and execution, as well as higher taxes to pay for them, which could further hurt the poor if not executed properly. To avoid this outcome, political leaders must focus on property taxes and carbon taxes (even though both are unlikely to be popular with their campaign donors).

During the pandemic, some governments managed to offset Covid-19’s impact on poverty through various emergency support measures. Governments must now adopt the same crisis-mitigation approach to improving their citizens’ education and health outcomes and restoring economic growth. Simply cutting public services across the board would be a lazy and disastrous return to the austerity playbook of 2010.

At the same time, one budget item has not been cut at all. On the contrary, with Russia’s invasion of Ukraine deepening the fault lines of today’s increasingly fractured geopolitical order, global military spending surpassed US$2 trillion ^[8] for the first time this year. To mitigate these costs, policymakers must tackle perennial problems of waste and corruption in military procurement and arms sales.

Moreover, increased military capability often produces unintended—and unwanted—consequences. We learned this in the 1980s, another decade characterised by rapid growth in defence spending. Back then, the United States armed the Taliban to fight the Soviet Union in Afghanistan, and Israel covertly supported Hamas to help in the fight against the Palestine Liberation Organization.

In an ideal world, the magnitude of humanity’s current challenges would attract some of the most creative and highly motivated citizens to public service. In many countries, however, public-sector pay has sunk to levels that make it increasingly difficult to attract top talent. In the UK, as the Financial Times’ Martin Wolf notes ^[9], while overall real private-sector pay has increased by 5.5% since 2010, public-sector wages have fallen by 5.9%, and much of that decline has happened in the past two years. The result is a personnel deficit at every level. Recent data from the National Health Service in England shows a huge nurse shortfall ^[10]. Other data shows that teacher recruitments are well below target ^[11].

Too often, the public sector falls into a vicious cycle of cost-cutting and resignations. Nurses in the UK are overworked and many will likely succumb to exhaustion soon, leaving their remaining colleagues even more overburdened and demoralised. Another austerity wave will make it even harder to retain quality workers.

Proactive recruitment must become part of governments’ mindset. For the past 10 years, as the dean of a school of government, I have had the privilege of identifying and educating some of the best current and future public-sector leaders from more than 80 countries. Every week, global-management consultancies, financial institutions and tech companies approach our students with job offers. Over the past decade, however, not a single public-sector agency has done so. That is no way to meet the challenges of the 21st century.