Policymakers determined to ‘build back better’ after the Covid-19 pandemic will have to contend with the fact that the coronavirus has made inequality much worse. New kinds of policy and creative innovations will be needed to repair the damage.
“We’re all in the same storm but not necessarily in the same boat,” said Mark Carney, UN special envoy on climate and finance, at the World Bank/IMF annual meetings.
From governments, civil society, companies and even central banks a chorus of voices is calling for the recovery from the pandemic not just to restore the economy to what it was, but create a new one that is greener and more just.
Away from the rhetoric, the reality is bleak. Pre-Covid, the World Bank had estimated 7.9% of the world’s population would be living in extreme poverty on less than $1.90 a day in 2020. Now, it projects that to be 9.1%-9.4%, and the rate is unlikely to decline much next year.
The effect will worsen gaps between rich and poor countries, as well as between communities within each country. Existing divides — between blue and white collar workers, women and men, black and white, those with good access to the internet and those without — have all been worsened by the pandemic.
Christine Lagarde, president of the European Central Bank, emphasised the positive when she discussed the structural changes brought about by Covid at the Institute of International Finance on Monday. “Look at how it has changed the nature of domestic activity — it’s quite amazing,” she said. “You are working remotely, I am and yet we are communicating and achieving something.”
Working from home, online retail and digital payments were all helpful trends that had been boosted by Covid, she said. Lagarde predicted “a new wave of service-driven globalisation”, pointing to her oncologist sister-in-law who had done all her consultations online for two months.
But she also pointed out that other disease outbreaks since Sars in 2002 had depressed productivity 6% and investment 11% even five years later. The pandemic was expected to raise Europe’s Gini coefficient, a measure of inequality, by 14%.
Faced with such an uphill struggle, very targeted policies will be needed to put the economy on a better course. Jared Bernstein, economic adviser to Joe Biden, Democrat candidate for US president, said at the IIF a “new policy architecture” was needed to make the economy “far more resilient to the type of shocks that come fast and furiously these days — it could be wildfires, 100 year storms that come every year or two, a level of racial injustice that we see reverberating through our economy”.
As an example, he said “Childcare is essentially missing in this country.” Wealthy people could afford childcare; many found it difficult. Biden’s $770bn plan to provide universal pre-school care would help parents get to work and lead to “long term positive growth effects”, Bernstein said.
For many countries, however, spending on that scale is way out of reach — meaning the gulf between them and rich states could widen.
Angola, like most African countries, is facing a daunting array of needs: trying to protect people’s incomes and save small businesses in the short term, while also finding resources to build crucial infrastructure such as roads and attract investment to the sectors that can diversify its economy away from oil — tourism, mining, agriculture, manufacturing.
“Managing a reformist agenda is stressful, painful, with a lot of social tension,” said Vera Daves De Sousa, Angola’s finance minister. “To manage all this you need to give people a sense of hope. I believe all this crisis is quite a revolution that’s happening, but it’s an opportunity to restart, to look at each other and understand we are evaluated by our weakest link — so we need to make sure no one is left behind.”