Developing countries join cross-border production networks called global value chains to drive their economic growth and encourage job creation. But the gains from global value chain participation aren’t guaranteed, do not happen automatically, and vary widely. In this blog article, ISS PhD graduate and visiting researcher Gina Ledda discusses the heterogeneity or diversity in the global value chain experience of developing countries and highlights the importance of taking stock and assessing key factors of participation. The new analytical tool Constant Value Added Share Analysis (CVAS) facilitates the measurement and analysis of global value chain participation.
Developing and advanced countries participate in the cross-border, multi-staged production of goods and services called global value chains. Policy makers generally view global value chains as opportunities for developing countries to participate in international trade and reap advantages such as increased employment, higher incomes, and a boost in economic growth. The problem, however, is that the evidence of beneficial effects to joining global value chains is mixed. This blog article argues for a more nuanced perspective and a first step to evaluate participation.
Global value chains or international production networks started in the manufacturing industries when firms from advanced countries, mainly multinationals, began offshoring some segments of their production process. In the 1980s, the initial movement to locate production activities elsewhere was mainly to take advantage of lower labor costs in developing countries. This fragmentation model of production proved successful and was replicated in other manufacturing and service sectors – more recently to digital services like video games – such that many goods and services consumed locally are practically made in the world.
While involvement in global value chains could potentially foster growth in developing countries, heterogeneous or varied global value chain participation poses a formidable hurdle (Ledda 2023). Even though developing and advanced countries are involved in the same global value chain, their roles are dissimilar. Large multinationals initiate the global value chain, select the firms that join, and assign tasks. This asymmetry of power, the focus of global value chain governance, can hamper the movement of a developing country from low to higher value tasks known as upgrading. Upgrading through product, process or functional improvements is usually needed to sustain growth within global value chains but can be difficult to achieve. Lead firms are not keen to transfer the core technology and skills that define their roles and supplier firms may struggle to absorb and build on these higher-value inputs. The typical global value chain model seen in Figure 1 shows developing countries mostly in the lower-value production segment and advanced countries in higher-value tasks in the pre-production (product design, R&D, and branding) and post-production (distribution, retail, and marketing) segments.
Source of information: WTO 2021. Figure by the author.
Another important consideration is that reaping advantages from global value chain participation depends on a complex interplay of internal factors including resource endowments, geographical location, institutions, market, innovation and absorptive capacity for technology, inter-country agreements, and trade and investment regulation. A country’s ability and flexibility to adjust these drivers impact on the effectivity of its participation and present a challenge for government policy coordination and development strategies. The resulting diversity in country responses to these challenges contributes further to the mixed scorecard of beneficial outcomes.
With all these dynamics to consider, how does a developing country benefit from global value chain participation? We argue that the first step is to take stock and assess participation through quantitative and qualitative methods. Our article, Van Bergeijk and Ledda 2024 introduces Constant Value Added Share (CVAS) analysis which is a novel reinterpretation of constant market share analysis, a well-known tool that examines the underlying reasons for a country’s export performance. We use the latest trade in value added data (OECD TiVA 2023) for the years 1995-2020 to measure the value added by each country in global value chains. Applying CVAS analysis to the Philippines, we identified a loss of competitiveness in the computer and electronics sector and emerging sectoral strength in technology-related business services, results that are unclear using the traditional approach and aggregated gross export data. We argue that Constant Value Added Share analysis is useful for assessing the global value chain involvement of other developing countries and can help identify where adjustments can be made towards more gainful participation.
To be fair, a number of developing countries have experienced benefits from global value chain participation. However, global value chains are not static and are changing especially in this post-pandemic era. It remains true that global value chain engagement can be unequally advantageous for participants. An assessment of current participation is a solid first step to ensure that integration into the global economy through value chains supports the pursuit of a country’s sustainable development goals.
References
Ledda, Gina M. 2023. Heterogeneous Participation of Developing Countries in Global Value Chains. Ph.D. thesis, International Institute of Social Studies, Erasmus University Rotterdam, The Hague, The Netherlands.
van Bergeijk, Peter A.G., and Gina M. Ledda. 2024. “Constant Value Added Share Analysis: A Novel Trade Decomposition Technique with an Application to the Philippines” Economies 12, no. 7: 173. https://doi.org/10.3390/economies12070173
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the author:
Gina Ledda has a PhD in development economics from the International Institute of Social Studies (ISS), Erasmus University Rotterdam. She conducts research on global supply chains, digital services and technologies, international trade and competitiveness, and sustainable development. She has worked in a policy research think tank, consulted for government, taught economics at the master’s and undergraduate levels, and is currently a visiting researcher at the ISS.
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The credit scoring system in the United States, particularly the FICO score, significantly impacts individuals’ access to affordable financing, housing, and employment opportunities. In this blog article, recent ISS MA graduate Conor Farrell shows that though deemed “colour-blind,” the model inadvertently perpetuates racial disparities rooted in historical injustices, particularly slavery. Reforms, including AI-enabled credit scoring and policy changes like excluding medical debt from credit considerations, are essential to address these inequities and break the cycle of intergenerational poverty and racial inequality, he writes.
Acting as the economic gatekeeper in the United States, the credit score, most commonly known in its FICO formand that which is referenced throughout this blog article, scores individuals on a range from 300 to 850, with lower scores representing greater risk of default or missing payments, and higher scores the opposite. Within the FICO form, an individual’s score is primarily calculated across five components, each with an approximate weight (1):
Payment history (35%):an analysis of timely payments on outstanding debts and the severity of late payments (i.e., 30 or 60+ days late).
Amounts owed (30%):calculated as a percentage of total credit available and amount currently employed with a rule of thumb to keep this percentage lower than 10%.
Length of credit (15%):calculated as the amount of time an individual has accessed credit.
New credit (10%):how recently the individual opened a new account.
Type of credit(10%): considers the different revolving and installment loans you have active.
Poor credit scores almost always mean far fewer lending options and far more expensive options when available. Putting this into hard numbers, according to data from the Consumer Financial Protection Bureau, a change from a “subprime” 640 credit score to a 740 credit score in one example might allow a potential home buyer to access a mortgage interest rate as low as 5.75% instead of 7.625%, resulting in almost $90,000 in lower interest costs over the life of a thirty-year loan for the same house (2).
The five factors determining the level of risk are claimed not to consider demographic characteristics. However, the map of average percentages of county populations with subprime credit scores in the United States (Figure 1) shows the stark differences between the American south and north.
Figure 1: Subprime Credit Score Populations by County
The percentage of people per county with subprime credit scores in the United States. Orange indicates counties with fewer subprime credit scores and blue counties with more subprime credit scores. The red line on the map is the Mason-Dixon line and Ohio River extension, the traditional division between northern and southern states. Source: (Equifax and Federal Reserve Bank of New York, 2024).
In particular, given that over 60% of the total African American population resides in the American south, as we further break out the average credit score by race, it is therefore unsurprising to find a mirrored divergence in subprime credit scores, particularly between Black and White Americans (Figure 2).
Figure 2: Average Credit Scores by Race in 2021
Seen across race, there is a significant divergence between the average credit scores of White Americans (734) and Black Americans (677) with the average score for Black Americans averaging near the subprime threshold. Source: (Dual Payments, 2020)
This brings into question whether these differences can be explained by other factors not accounted for by the model. Given that credit scores play such a significant factor in one’s ability to obtain affordable finance and in certain cases may impact where one can live or rent or inhibit one’s ability to obtain employment opportunities, how is it then that such a “colour-blind” model appears to be disproportionately impacting Black Americans? In this blog article, I show that a historical institution fundamental to economic development of the United States and the racial and geographic divisions still present in the present — the institution of slavery — can provide an alternative explanation for injustices in the credit score system.
A quick history lesson
While present for the initial two centuries of colonial expansion in North America, slavery rapidly grew in the early 1800s as the United States solidified into a nation-state (Figure 3). Ultimately abolished after a bloody civil war, the history of the United States since slavery’s abolition in 1865 has been characterized by a various forms of institutionalized and explicit forms of race-based discrimination and exclusion, including the sharecropping system, housing discrimination in the form of redlining, and segregation in the education system. While each of these systems and institutions can each be understood to be extensions of the historically unequal forms of development in the United States with their own unique impact of the historical inequalities in their respective period of development, my research as part of my MA thesis set out to determine how is it that the Figure 3 and that of Figure 1 bear strikingly similarities to one another.
Figure 3: Relative Slave Populations by County (1860)
Figure 3 presents the relative slave population as a share of the total population in 1860. Counties with dark yellow shades have the largest slave population relative to the total county population, while light blue are the counties with lower slave populations. Counties in dark blue are either unreported or have zero slave population according to the census. It is important to note that this data may not be fully reflective of the actual slave population, but it is the best official data that is available. Source: (United States Census Bureau, 1864)
Current models are far too simplistic
Hypothesizing that the current model claims to be colour-blind in its analysis and that its simplistic model focuses solely on the present-day actions of an individual without acknowledging the persistent inequalities already present within our society, my research analysed 1860 census data alongside contemporary panel data from 2014–2021 through an instrumental variable specification. Through the most stringent specification applied, I found a 10-percentage-point increase in the relative slave population of a county in 1860 results estimated average effect of 0.791 percentage point increase in the percentage of the current population with a subprime credit score in 2021, holding all else constant; a result that remains highly significant even in the most stringent model employed (3). Put simply, counties that had higher proportions of enslaved people in 1860 tend to have a higher percentage of residents with poor credit scores today, even after considering other factors that might influence this outcome.
Given the consistent but varying forms of discrimination experienced by Black Americans since the abolition of slavery, I also found that relative slave populations influence different channels’ persistence including through an education system that requires Black Americans to take on higher levels of debt to obtain the same education, only to earn consistently lower wages than their White counterparts. Unable to generate as much wealth as their White counterparts, Black Americans are often far more burdened by greater amounts of relative debt, limiting their ability to obtain larger assets like homes, which are so vital in generating and retaining intergenerational wealth (4).
Such findings demonstrate that the current credit scoring model, one that claims to be unbiased and does not explicitly penalize individuals based on race, fails to account for the multitude of contextual historical factors that continue to privilege certain groups while barring others from accessing the same system. Contemporary economic inequalities may be influenced by the lingering effects of historical factors emphasizing the complex interaction between race, inequality, historical factors, and contemporary economic outcomes.
As such, it also provides clear evidence that policies that do not adequately consider historical inequalities existing and persistent in the system may in fact serve only to continue to perpetuate such inequalities. Particularly in the context of the credit scoring model in the United States and similar systems of economic gatekeeping, not addressing the existing inequalities through the model restricts an individual’s ability to access affordable financing, housing, or decent employment prospects.
Significant reforms are the only way to address persistent injustices
The rapid introduction of artificial intelligence (AI) holds some promise in this context. A greater number of AI-enabled credit scoring algorithms are being tested that could vastly expand the number of variables influencing a credit score. This will hopefully allow a far more comprehensive picture of an individual current financial health. Models with a greater number of variables would increase the diversity of scoring criteria and de-emphasize the potentially discriminatory data points currently prioritized in the FICO model. The recent decision by the Biden administration to remove medical debt as a variable influencing credit scores also helps to address the burden of emergency care costs that can be detrimental to an individual’s ability to meet their financial responsibilities (5).
However, given that poor credit scores have the potential to make financing almost inaccessible for low- and middle-income individuals, additional social safety nets must be considered to ensure that drastic emergency expenses do not create cycles of intergenerational poverty resulting from poor credit scores. Without significant reform, the current credit scoring model will continue to punish low-income families, forcing them to take on more expensive financing to obtain the same assets as their neighbours, inhibit access to home ownership, make higher education less accessible without taking on larger debt, and continue to ensure a cycle of poverty that perpetuates racial inequalities within the United States.
(3) Farrell, C. (2024). The lingering legacy of slavery: historical injustices and credit scores in the United States. International Institute of Social Studies (ISS). ISS working papers. General series No. 723
(4) Jones, J., & Neelakantan, U. (2022). How Big Is the Inheritance Gap Between Black and White Families? Richmond: Federal Reserve Bank of Richmond Economic Brief.
(5) The Consumer Financial Protection Bureau (CFPB) (2023). CFPB Kicks Off Rulemaking to Remove Medical Bills from Credit Reports. Washington, D.C.: CFPB. Accessed 4 July 2024.
Consumer Financial Protection Bureau (CFPB) (2023). CFPB Kicks Off Rulemaking to Remove Medical Bills from Credit Reports. Washington, D.C.: CFPB. Accessed 4 July 2024.
Equifax and Federal Reserve Bank of New York, Equifax Subprime Credit Population, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/EQFXSUBPRIME036061. Accessed 28 July 2024.
Farrell, C. (2024). The lingering legacy of slavery: historical injustices and credit scores in the United States. International Institute of Social Studies (ISS). ISS working papers. General series No. 723
Jones, J., & Neelakantan, U. (2022). How Big Is the Inheritance Gap Between Black and White Families? Richmond: Federal Reserve Bank of Richmond Economic Brief.
Conor Farrell is a graduate of the International Institute of Social Studies where he majored in Economics of Development. He is passionate about the intersection of history and contemporary economic outcomes understanding that history is not a set of fixed beginnings and ends, but continues to live on through the institutions we have created to shape our societies and influence our future.
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In this article, Hubert Schmitz and Peter Knorringa look into the pathways, processes, and coalitions necessary for achieving innovation, and compares the recent leaps in the renewable energy sector with the conditions to make frugal innovation practices a reality. They propose new ways of framing frugal innovation, borrowing from renewable energy campaigners, and propose new types of ‘coalitions of the willing’ that can help bring about innovation that is sparing of resources, and also accessible for people with lower incomes.
Photo by Andreas Gucklhorn via Unsplash
Making economic progress sustainable has become the central issue of our time. Recent work on frugal innovation seeks to contribute to this challenge. This blog asks what the analysts and practitioners of frugal innovation can learn from the renewable energy debate. Frugal innovation is a young line of work compared with that on renewable energy, which has a long and prominent history. It therefore makes sense to distil what the former can learn from the latter, particularly since both seek to contribute to the sustainability of human life on our planet.
The key attributes of frugal innovations are first, that they are sparing in the use of resources and second, that poor people can afford them. These features matter especially in poor countries but also for low-income people in rich countries. Frugal innovation is thus relevant for most of the world’s population and can contribute to the Sustainable Development Goals. Here are some examples: low-cost ventilators that do not need electricity to help hospitals treating COVID patients; irrigation pumps that do not require diesel or electricity; safely sending and receiving money without a bank account.
What are we trying to achieve?
Our central concern is to find ways of making frugal innovations more common. Indeed, the central concern which underlies this blog is whether and how the development and uptake of frugal innovations can be accelerated.
There are of course examples of standard innovation that benefit poor people. Perhaps the best-known example is the mobile phone, which enables people to leapfrog fixed phone lines and organise their lives in a multitude of time saving ways: arrange meetings, make payments, negotiate deals, and access the latest information. The standard innovation process, however, is rarely driven by the concerns of poor people. On the contrary, the innovation process is usually targeted at the better off and benefits to the poor tend to be a by-product that emerges at a late stage in the product cycle. Support of frugal innovation aims to target lower income customers at an earlier stage and do so for many products. Even that is just half the battle. The aim is to come up with products which are also sparing in the use of scarce resources. Frugal innovation is about addressing the resource constraint and affordability criterion. This is a tall order.
Another way of capturing the essence of frugal innovation is to talk about over-engineering. Products tend to be over-engineered when the innovation process is not driven by concerns with affordability and material saving. Most of us have ample experience of dealing with over-engineered products that are sophisticated and expensive, providing features which we rarely, if ever, use. In contrast, we tend to have few products which result from frugal innovation. The aim is to help change that balance. But how?
In order to address this HOW question, some useful lessons can be learned from the renewable energy debate which has a longer history. Replacing fossil fuels with renewable energy is essential for reducing carbon emissions responsible for the climate chaos (increasing frequency of extreme weather events) which we can now observe in many parts of the world. We will draw here in particular on the development and deployment of solar and wind energy, so far the most successful technologies in replacing fossil fuels. The literature on the energy transition is huge. In this blog we draw on two articles which have pulled together the most relevant lessons: Cameron Roberts, Frank Geels, Matthew Lockwood et al, 2018, ‘The politics of accelerating low-carbon transitions: towards a new research agenda’, Energy Research & Social Science 44, 304-311, and Hubert Schmitz, 2017, ‘Who drives climate relevant policies in the rising powers?’, New Political Economy 22:5, 521-540.
The first lesson is about framing. The concern is to accelerate frugal innovation. We are not starting from scratch. This provides a space for celebrating the frugal technologies and the organisations which have brought them about. There is something to build on. Exploring frugal innovation is not a hopeless undertaking. A framing in terms of accelerating progress also invites a discussion of why there is success in some cases and failure in others. Even if successes are rare, the comparison with failures makes for a more analytical debate.
The second lesson from the renewable energy debate is that the key problem is not technological but political. This seems to apply also to frugal innovation. Solutions which prioritise saving resources and being affordable can be found. But the forces which drive the innovation tend to take the process into a different direction. This became clear in a discussion we had with a senior EU official who was himself enthusiastic about the potential of frugal innovation but sceptical about getting it high onto the EU innovation policy agenda because ‘nobody lobbies for frugal innovation’.
The coalition perspective
This hint at politics takes us in the right direction but needs further thought. The renewable energy debate helps us with this. It suggests a political economy approach which takes four analytical steps:
Recognising that no single actor has the resources to bring about the transition to renewable energy.
Recognising that actors in government, business and civil society seek to advance or slow down the process.
Paying attention to alignments of interest across government, business and civil society.
Including actors with different motives and to understand these alignments.
Detailed empirical analysis has shown that these alignments of interest have made the difference at key moments in renewable energy promotion. The vocabulary used for these alignments varies, some call them ‘coalitions’, others prefer ‘alliances’. The breakthrough in the renewable energy debate came when it was recognised that those joining the coalition did not necessarily do so in order to fight climate change. Some were more concerned with securing energy for their region or company, others with building a new industry and creating jobs. What mattered was not their motivation but their support for a particular piece of legislation or for a new programme or project. Often the resulting coalition was incidental, members happened to pull in the same direction for whatever reason. In other cases, there was a consciously pursued strategy. This distinction betweenincidental and strategic coalition seems useful as well. Finally, it is important to realise that this coalition approach works both ways. It can help us to understand where and why progress was made. It can also help to understand where and why progress was held back.
In summary, climate-relevant renewable energy research has given us a language and an analytical apparatus which has the potential to advance the frugal innovation debate. We will now discuss some specific ways in which this could be made to work.
Coalitions for frugal innovation?
How can the development and uptake of frugal innovation be accelerated? This is our central question. Adopting the coalition perspective means asking who is interested in frugal innovation – for whatever reason. We will want to look for relevant actors in government (including inter-governmental organisation); in business (both domestic and foreign, both large and small); and in civil society (including academia). Let us start with the latter.
The first actor that comes to mind is us: the members and associates of the International Centre for Frugal Innovation. Most of us are academics, trying to understand the world and improve it. There are others pursuing the same objective but operating under a different heading. A notable example is ‘the circular economy’. We need to apply the coalition perspective to ourselves and reach out to the colleagues who use the circular economy approach. They have an even stronger emphasis on saving resources with their ‘Triple ‘R’ strategy (re-use, repair, recycle) and ‘extended producer responsibility’ for end-of-life disposal. Implementing this strategy requires above all organisational innovation. Affordability is a less explicit objective, but it is implicit in their work. The important thing in adopting the coalition perspective is to concentrate on common ground and not on differences. This can be uncomfortable in that the brand (frugal innovation, circular economy, appropriate technology) gives us a feeling of identity and sometimes also privileged access to a particular funder.
As policy-oriented researchers we need to work with people in government, concentrating not necessarily on ministries or departments but pockets within these ministries or departments that are interested in and relevant for our work. Governments tend to work in silos. The coalition perspective makes us look across these silos and identify the most significant players who (can) support our work. In seeking to identify these players, our question is not whether they have the same objective but whether their policies and projects affect what we want to achieve. For example, there are often pockets in central or local government which seek to promote competitiveness in particular products and services. If their policies make products or services more frugal, we will want to work with the government officials driving these policies whatever their rationale. In practice this will often mean adopting a sector-specific or sub-sector specific approach. The International Centre for Frugal Innovation recently ran a course with entrepreneurs involved in horticulture. Most of them initially thought that ‘doing innovation’ was only for high-tech sectors with R&D labs. They were surprised how they could in a few sessions co-develop frugal innovations that created new markets for their products. For example, one entrepreneur developed a gift set of mini plants that could be ordered online and delivered through a physical mailbox.
If we are serious about accelerating frugal innovation, we need to work with business. This is not easy. We cannot expect business federations or chambers of industry and commerce to put frugal innovation on their banner. These organisations exist to lobby government and support the competitiveness of their members. Broad industry-wide pleas to pay more attention to frugality in their competitiveness strategy are unlikely to work. Cheese producers operate in a world different from makers of electronic sensors or truck manufacturers or enterprises which specialise in shelving solutions. At the sectoral level, however, it might be possible to identify enterprises that have developed frugal products, and which can make them more competitive in their home or international market. Asakawa et al (2019) show how this can be achieved in their article ‘Frugality-based Advantage’ (https://www.sciencedirect.com/science/article/abs/pii/S0024630117305290). Such positive examples are important to demonstrate that frugal innovation is not just desirable from an equality and sustainability perspective but can also be a good business strategy. Working with such enterprises would be essential for making the coalition perspective work.
Business schools have good access to private enterprise and might become key allies. There is fierce competition between business schools to attract the greatest talents. Being relevant for the new age of sustainability is essential for business schools to succeed in this competition. ‘Frugal innovation’ provides them with a focus for achieving this. This can be our entry point for working with business schools. Such collaboration can help us with studying and promoting frugal innovation.
Identifying the relevant actors in a coalition is merely the first step. There is a tested methodology for rapid political economy analysis which can then be used for the subsequent steps: mapping the actors according to whether they support or oppose specific policies or projects; according to how influential they are; according to their location in society (public, private, civic sectors); and according to their priorities (making money, enhancing competitiveness, minimising waste, protecting environment, reducing poverty). There are simple ways of visualising these configurations of actors and identifying (potential) coalitions. These methods are of the ‘quick and dirty’ kind, more appropriate for rapid analysis than for PhD level research.
The analysis will then need to distinguish between incidental alignments of interest that come together just to get a particular law or project approved and coalitions which have a more enduring character with regular meetings on strategy and targets. This is an important point. Coalitions need not be long term alliances, they can be short term for specific aims such as: reforming industrial policy, vocational training or industrial standards; exhibiting a new approach at a trade fair; or developing a new conceptual and practical course on ‘frugal innovation’ to be taught at business schools. Tracing where renewable energy made significant steps forward showed that this kind of coalition perspective helps to see political feasibility in a different – usually more optimistic – way. In short, in order to accelerate the development and uptake of frugal innovations we need to come to grips with the politics of the process. Borrowing freely and selectively from those who have analysed the political economy of the energy transition is a promising way forward.
Aerial photo of solar panels in Offingen, Germany by Andreas Gucklhorn via Unsplash
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the authors:
Professor Hubert Schmitzis a renowned development economist specializing in sustainable industrialization, investment politics, and green transformations with 40 years of expertise. An Emeritus Fellow at the Institute of Development Studies, he advises bilateral and multilateral development agencies. Known for concise policy research synthesis, he has managed international teams and focused recent research on the impact of the global power shift on low-carbon transformations and the drivers of climate-relevant policies.
Peter Knorringa, Professor at Erasmus University Rotterdam, specializes in the multifaceted influence of businesses on development. As the academic director of the International Centre for Frugal Innovation since 2013, he examines the developmental impact of frugal innovations. His broad research portfolio spans clustered SMEs, trust in value chains, and sustainability standards. With extensive experience in India, Vietnam, and other countries, he contributes to a nuanced dialogue on when and where entrepreneurs and firms contribute to inclusive and sustainable development.
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Indonesia’s interest in approaching developed country status is reflected in President Joko Widodo’s plan to join the OECD (Organisation for Economic Cooperation and Development) instead of the (Brazil, Russia, India, China) alliance. The historical relationship between Indonesia and the OECD has become stronger since 2007, promoting initiatives for growth and information sharing. Access to information, materials, and money for gender-inclusive climate programmes would be easier with the OECD’s support, improving transparency and accountability and allowing adaptive management to handle gender and power dynamics effectively. In this blog, a PhD researcher at the International Institute of Social Studies Irma Nugrahanti poses questions on the potential of the membership.
Image by Ahmad Syahrir on Pexels.
Recently, President Joko Widodo has expressed an interest in joining the Organization for Economic Co-operation and Development (OECD) as a member instead of the BRICS (Brazil, Russia, India, China, and South Africa) coalition. During his G20 visit to India, he started to seek support from OECD countries such as France.
Indonesia is already a familiar face to the OECD
Indonesia is not new to OECD partnership having been a critical partner of the OECD since 2007, where the nation’s relationship with the Organization has greatly deepened. For example, in order to participate in knowledge exchange on creative ideas to accelerate development, Indonesia joined the OECD Development Centre in 2009. In 2012, Indonesia became the first Key Partner of the OECD to sign a Framework of Cooperation Agreement (FCA), and a Privileges and Immunities Agreement in 2013. Furthermore, Indonesia opened the OECD’s first Southeast Asian regional office in Jakarta in 2015. Additionally, Indonesia helped establish the OECD Southeast Asia Regional Programme in 2014 and held one of its initial co-chair positions from that year to 2017.
This application comes with an expectation to increase Indonesia’s per capita income. The average annual per capita income of OECD members is over $10,000 USD. According to a World Bank report, Indonesia’s current gross national income (GNI) per capita is $4,500, and it is categorized as an upper-middle-income country. The goal is for this GNI to increase to $5,500 in 2024.
If Indonesia’s application is successful, this means Indonesia will move closer to becoming an ‘economically developed’ country. Indonesia can use the OECD standards as a benchmark and as best practices and will also receive support for its development initiatives. Indonesia will be the third Asian country (after Japan and South Korea) to become an OECD member. With a GDP that ranks 16th internationally based on market prices and 7th based on purchasing power parity (PPP), Indonesia has one of the most significant economies in the world. Only three other OECD nations have economies that are larger than Indonesia on a PPP basis: the United States, Japan, and Germany.
What does this mean to climate change and gender inequality issues in Indonesia?
Since 2014, Indonesia has been using climate change budget tagging to differentiate between climate-relevant and development expenditures based on the intended impact of the activity. This practice followed the objective-based definitions of climate-relevant activities and expenditures from OECD Rio Markers. The adoption of Indonesia’s climate budgeting, which is also responsive towards gender, has the potential to move significantly with Indonesia’s membership in the Organization for Economic Co-operation and Development (OECD).
First, this participation can make it easier for the country to have access to crucial knowledge and best practices, such as technical help and policy guidance, improving the government’s capacity to incorporate gender issues into climate budgeting successfully. Additionally, better data collecting and research assistance would help Indonesia detect and rectify gender inequities in climate policies. Indonesia could benefit from studying how OECD members incorporate gender-responsive budgeting into their policies to address environmental and climate concerns. For instance, examining the practices of OECD countries such as Ireland, where the development of a tagging system has been instrumental in linking budget allocation line items to key dimensions such as equality, green initiatives, well-being, and alignment with Sustainable Development Goals (SDGs). Additionally, Austria has demonstrated the efficacy of gender budgeting methods, extending their implementation to the city level since 2006. The budgeting method played a crucial role in shaping sustainable practices, as seen in the development of green cities. Third, by fostering peer review and accountability systems, the OECD would encourage transparency and accountability in the allocation of funds for gender-inclusive climate programs. Indonesia can have better access to climate finance sources that give priority to projects that take gender equality into account, enhancing its ability to address the unique climate-related difficulties faced by both men and women.
Lastly, Indonesia can generate accurate performance measurements for its climate policies, particularly those pertaining to gender equality, by using OECD markers and indicative lists. This makes it possible to monitor development more effectively and spot potential problem areas. On the basis of OECD principles, regular monitoring and evaluation can help with adaptive management, enabling Indonesia to modify its climate policies and projects in response to gender dynamics and power relations.
Even though Indonesia has to go through a rigorous process to become an OECD member, Indonesia could benefit a lot from the OECD to achieve a stronger economic and inclusive governance system. The ongoing endeavour of the Indonesian government entails the implementation of a budget tagging system, designed to identify and monitor expenditures in accordance with the nation’s climate objectives while placing gender sensitivity first. By incorporating gender and climate change considerations into government budgeting and planning, this procedure aims to increase the efficiency, accountability, and fairness of resource allocation. Indonesia can further enhance its approach by linking budget allocations to various equality dimensions and Sustainable Development Goals, in accordance with OECD principles. Complemented by the knowledge-sharing initiatives with OECD members, this will ensure that a gender-responsive climate budget adheres to global standards. Overall, Indonesia’s membership in the OECD presents a significant opportunity for it to improve its gender-responsive climate budgeting procedures and, as a result, contribute to more just and efficient climate action.
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the author:
Irma Nugrahanti is a Ph.D. researcher at the International Institute of Social Studies of Erasmus University Rotterdam. She is a six-time scholarship recipient and a gender equality and inclusive governance enthusiast. Her doctoral research focuses on the link between gender-responsive climate budgeting and climate change policies in Indonesia. Combining her years of experience in finance and policy advocacy with her research project, she aspires to fill the knowledge gap in understanding the intersectional gender-responsive budgeting practice to ensure the promotion and implementation of equity-responsive policies for climate change adaptation and mitigation responses in Indonesia.
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The global climate finance agenda in its current form is insufficient for tackling climate change and fostering a green transition across the globe. Calls to close the massive climate finance gap that prevents developing countries from accessing much-needed funds often rely on the expectation that domestic resource mobilization and blended finance can help close the gap. In this article, we demonstrate why this expectation seems wildly optimistic and argue that instead of relying on insecure trends, global policy makers should take action by developing policies that grant a bigger role for public money and innovative monetary solutions.
Source: Asian Development Bank is licensed under CC BY 2.0
Many emerging economies are having a tough time – they are still struggling to recover from the pandemic and simultaneously suffer from unprecedented debt levels and cost-of-living crises. What’s more, the climate crisis is manifesting itself more than ever, and international financial promises to enable a just energy transition across the globe continue to be broken. Meanwhile, the costs of climate mitigation, adaptation, and loss and damage are soaring, which makes it even less likely that these countries will get the climate funding needed to respond adequately to the crisis. As a result, the climate financing gap is widening.
In a response to these developments, the COP26 and COP27 presidencies some months before last year’s November COP27 summit launched an Independent High-Level Expert Group equipped with the task of “scaling up investment and finance to deliver on climate ambition and development goals”. This distinguished group of experts launched their report in November, calling for a “rapid and sustained investment push […] to drive a strong and sustainable recovery out of current and recent crises […] and to deliver on shared development and climate goals.”
The investment push that’s needed relies on domestic resource mobilization and blended finance that together with other financial levers form part of the so-called Grand Match financing strategy. This strategy was proposed by Amar Bhattacharya, Meagan Dooley, Homi Kharas, Charlotte Taylor and Nicholas Stern in a bid to foster a big investment push for emerging markets and developing economies. However, both the total amounts assumed for blended finance (USD 395 billion) and domestic resource mobilization (USD 653 billion) are unlikely to materialize and are unlikely to close the climate finance gap, as we will show.
Blended financing and domestic resource mobilization failing to deliver
As early as 2016, the rising popularity of blended finance as a way to close the global climate finance gap could be observed; in April that year, British weekly newspaper The Economist ran an article called “Trending: blending” that examined “[t]he fad for mixing public, charitable and private money”. In the past few years, the concept of blended finance has gained further traction; key global financial institutions such as the World Bank, IMF, and the G20 have pointed to blended finance as a solution to close the global climate investment gap. For example, during its last spring meeting, the IMF emphasized that its members should “recognize the importance of stepping up climate finance from all sources, including by mobilizing private investment”. Similarly, domestic resource mobilization (DRM), whereby governments channel their own resources towards public goods and services, such as by raising taxes or by improving auditing processes, is viewed as an important climate financing tool.
However, blended finance has not delivered on its promise. Back then, The Economist observed that “few data exist on the scale and success of blended finance”. Now, with more data available, it’s becoming clear that private investments made in low- and middle-income countries through blended finance actually have decreased from USD 150 billion to 100 billion, and between 2019 and 2021, only USD 14 billion was pledged to poor countries through private channels. Similarly, the mobilization of domestic resources has not held up to its promises — its potential has been overestimated.
These tools are therefore unlikely to sufficiently help close the finance gap that has arisen. And with the current grim global economic outlook, an increasing number of low-income countries are already in debt distress and are increasingly impacted by the loss and damage of climate change itself, thus decreasing their ability to use these tools even more.
In fact, the reliance on these financing mechanisms is dangerously optimistic, as this prevents us from considering the additional sources of finance that are needed to provide climate investments at the scale and time needed. Here’s why:
1. There is a huge climate finance gap, especially in low-income countries, and it’s becoming bigger, not smaller.
By 2025, if no measures to increase climate funds are taken, the amount of money needed by emerging economies (excluding China) to address the effects of climate change – generally referred to as the climate finance gap – would amount to USD 1 trillion (as estimated in 2022). Lower-income regions such as South Asia and Africa have the largest investment needs (7-14 times and 5-12 times more investment, respectively), but these are not being met. While most of the money needed to close the gap is supposed to be sourced through domestic resource mobilization (USD 653 billion) and private investment, supported by public funding through blended finance (USD 395 billion), in reality, this is not happening.
And the finance gap might be even bigger than we think. For example, in a recent report Oxfam estimates that the annual shortfall for necessary investments in health, education, social protection and tackling climate change in low- and middle-income countries could be as high as USD 3.9 trillion.
Blended finance should be helping funnel private funds to low-income countries, but it’s still mostly public money
Blended finance[1] has gained the status of a silver bullet. The assumption underlying the belief in the effectiveness of this tool is that public capital investments would lever private investments according to a certain ratio of the ‘blend’. If done properly, investing by blending different financial sources indeed could result in a multiplied number of private investments that could be used to finance climate action.
However, the amount of private money available to match each public dollar is overestimated – in reality, much less private money is invested, while public funds continue to form the largest share of the total amount. In one report, the IMF for instance expects the ratio of private to public money to be 9:1. In 2020 however, private finance constituted only around 50% of global climate finance, with the rest being public finance. And in low-income regions where climate investments need to increase most strongly, even a public-private ratio of 1:1 is often not tenable. In Sub-Saharan Africa, for example, around 90% of climate finance comes from public sources.
The IMF anticipated that emerging economies could raise as much as USD 236 billion in additional taxes by 2025 through domestic resource mobilization. To do this, they would have to implement relevant tax and administrative reforms to tackle their sometimes very low tax rates and high levels of tax exemptions.[2] However, implementing and enforcing these kinds of reforms is challenging. Emerging economies are renowned for administrative capacity constraints that prevent them from addressing tax evasion and keeping avoidance under control. Studies on the projected development of tax-to-GDP ratios in emerging economies show that their tax revenues are expected to only slightly, but not significantly, increase.
Moreover, some international support initiatives have already been in place, such as the Tax Inspectors Without Borders (TIWB) assistance programmes between 2012 and 2020. This has helped raise the tax revenues of these countries by a mere USD 537 million – a figure far below the necessary additional USD 417 billion in domestic resource mobilization estimated in the IHLEG’s report.
Countries are holding on to their money – tightly
Lastly, in response to the Russian invasion of Ukraine and the subsequent spike in inflation levels, a global monetary tightening cycle has begun. This has resulted in capital outflows by the private sector from emerging economies, which is bound to substantially hinder these countries’ economic growth. It has already been shown that the simultaneous monetary and fiscal tightening policies across the globe impact developing countries and emerging economies disproportionately.
This makes efforts to close the climate finance gap seem even more unrealistic, especially given the high value of the dollar and the outstanding dollar-denominated debt in the Global South. Of the low-income countries eligible for special IMF support, as of 2023, nine are currently in debt distress, while 27 are at a high risk, 26 countries at a moderate risk, and seven countries at low risk of debt distress.
More realism needed if we want to close the gap
The global climate finance gap (excluding China) currently amounts to a stunning 1 trillion until 2025 under the business-as-usual scenario. Promises of the past have not been lived up to while the climate crisis and green energy transition are becoming more urgent every day. Global policy makers seem to rely on domestic resource mobilization and blended finance to close the gap.
However, as this blog post has shown, the empirical success of blended finance remains very limited, while the challenges to boost domestic resource mobilization remain huge. Time is, however, very limited. Instead of relying on insecure trends, global policy makers should act by developing policies that grant a bigger role for public money and innovative monetary solutions.
[1] According to the OECD, blended finance is “‘the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries’, with ‘additional finance’ referring primarily to commercial finance’” (OECD 2018).
[2] In this context, the IHLEG recommends an incremental tax effort of at least 2.7% of EMDEs’ GDP, equal to USD 650 billion, so an additional USD 417 billion by 2025 on top of IMF projections (Bhattacharya et al., 2022).
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the authors:
Sara Murawski is a policy advisor and researcher in the field of international trade and investment, finance and European integration. She has worked in the world of journalism, think tanks, NGOs, the Dutch and European Parliament as well as with many activist groups. At Sustainable Finance Lab, Sara is project leader on the project “Changing ‘Fiscal Rules’ and reforming the EU fiscal framework” that tries to shift the debate in the Netherlands from frugal to forward looking. The continuous dialogue with experts, policy officials and local actors in developing her thoughts, output and activities is crucial for her.
Rens van Tilburg is director of the Sustainable Finance Lab at Utrecht University. Rens has experience working in the European and Dutch parliament and as an advisor on innovation policies for the Dutch government. With the academic think tank the Sustainable Finance Lab Rens has worked extensively on banking, asset management, supervision, public finance and monetary policies. Focusing on financial stability issues and the impact of climate change and biodiversity loss.
Anna Ghilardi is a research intern at Sustainable Finance Lab. She attained her bachelor’s degree in Economics and Business Economics at Utrecht University, where she wrote her thesis about the impact of previous monetary policy on European house price growth before and during the Covid-19 pandemic. She is now completing a double degree master’s programme in European Governance, a two-year curriculum attended both at University College Dublin, Ireland and Utrecht University. Therefore, she is currently writing her master’s thesis at Sustainable Finance Lab on Poland and Bulgaria’s capacity to single-handedly fund their climate finance gap in view of the European Union’s climate neutrality ambitions.
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So often we think that ethics and business do not blend, and too often we are proven right. But what if this is not always the case? What if there were a way for profit to be generated and for companies to grow, with the only compromise being the time taken to do so? In this article, Niyati Pingali argues that companies do not have to forgo their profit objective – adopting a more-is-more mindset that entails engaging in a slow process of forging and consolidating ethical and sustainable business practices can drive immediate change in the sector, an intervention that can sit well alongside larger degrowth agendas.
Hamstrung by corporate interest
About halfway through the 2015 movie The Big Short about the 2008 financial crisis instigated by a crash on Wall Street, investor Mark Baum and his band of cynical, dogmatic investors take a trip to Moody’s, the reputed financial ratings agency, to ask them why they were actively assigning AA and AAA ratings to housing mortgage bonds (these being two of the highest ratings a bond can receive, representing a bond comprising sound mortgages that are assigned to people with good credit scores and a history of repaying debts) when the bonds should have been rated lower. One Moody’s employee replied in a straightforward manner: if she and her colleagues didn’t rate these bonds AA at least, banks would go down the road to S&P or any other established ratings agency to get themselves rated “appropriately”. This confession stuns Baum and his colleagues: the system is rigged, and those who could be fixing it are themselves hamstrung by corporate interest.
Which is why it was fascinating to me to learn that in 2019, Vigeo Eiris, an established independent environmental, social and governance (ESG) research and consultancy services company, was bought over by Moody’s and rebranded. Eiris was originally founded in 1983 and dedicated itself to equipping businesses to help manage risks and increase their social impact. It came up with a global ratings system that ranks companies based on their efforts, involvement and long-term practices in good governance and sustainable business (Vigeo Eiris, 2019).[1]
Immediately upon reading about the acquisition, alarm bells started ringing in my head. However noble the goal of a ratings agency to start accounting for the value of a stock or company based on its commitment to protecting the environment and society, if a company like Moody’s has found itself behaving unethically on the ground not even 20 years ago, what’s to say that an ‘independent’ research agency under the Moody’s umbrella would be given the autonomy to act ethically and by extension have the authority to publish unimpaired, unbiased, verifiable facts even if they disparage their ‘mother’?
While no empirical evidence (beyond anecdotal) exists to prove that this will be the case, it’s clear that potential censorship, should Moody’s not uphold its end of the bargain, would lead to fallout, resignation and, as experience indicates, the start of a slippery slope from ‘ethical’ to ‘convenient’.
Sidelining ethics in the name of profit
Sadly, this is not the first time a company has lost its ethical backbone. Think for example of the of Timnit Gebru, the Ethiopian-American AI researcher working in the ethical AI research team of Google who parted ways with the company because of ‘irreconcilable differences’. While now universally acknowledged to be a consequence of machine learning based primarily on easily accessed data (usually from the internet, which in and of itself is a biased source), the issue Gebru and her colleagues tried to make Google see (and by extension help amend in its products) was that its existing AI-powered products were foundationally flawed and required a series of very different datasets and priorities to redress the balance. She and a number of colleagues were eventually driven out of Google for their criticism.
In doing this, Google has shown that, like many other companies, it is focused on building harmony (and, obviously, its bottom line). To anyone following what’s going on around the world, this is hardly breaking news. Indeed, my own experience in corporate social responsibility (CSR) for a multi-national corporation proved the degree to which my efforts at protecting and promoting the company’s good potential and community-relevant ties were deprioritized.
While indeed the revelation made here that companies (particularly larger ones) prioritize profit over society is not a new one, it is important to consider the impact the concept of ethical business can have. In this, I do not refer to social enterprises (although they are highly beneficial), or even the established Creating Shared Value (CSV) business strategy that companies like Friesland Campina have successfully adopted. Instead, I am talking about a more-is-more mindset: electing to grow slowly but consciously – keeping profit at the fore but being more selective and long-term about the partners one chooses to work with.
More is more: how partnering mindfully can pay off
The good news is there are companies who are doing this. Take Jeevanti, a now non-operational for-profit healthcare company in western India whose aim to build world-class healthcare facilities in small Indian towns. Their business approach was to lease existing hospitals and nursing homes, and work with local medical professionals, staff and support services such as catering and cleaning services within said towns, and source locally manufactured medical technology, thus creating locally rooted value chains with the hospital at the centre. Ironically, the business closed due to the high demands and questionable practices on the ground by a member of the (systemically corrupt) Indian medical fraternity involved in the project, not because the vision or business function itself proved unviable.
Or consider abillion, an upcoming social media platform catering to vegans and sustainable consumption. When I asked the founder about the issues around discrimination in AI, and the effect that automatised feedback could have on the system, he said it was about feeding their system the right kinds of information – echoing Gebru’s crusade to include a wider variety of data into the existing data universe. In this case it is about training the system to recognise vegan versus non-vegan content and believing in the users of the platform to be ethical in their buying, selling, and sharing practices. It sounds idealistic and I was initially sceptical, but his argument about the majority of people wanting to actively protect the integrity of the platform convinced me.
Both companies grew (one continues to grow!) despite this ‘counterintuitive’ business logic. These examples make it clear that the socio-economic impact of slow, steady, community-AND-profit-centric growth cannot be underestimated.
Putting mind over money
At ISS we often talk about the concept of degrowth. This topic is hotly debated in class and over drinks, its merits and flaws laid out and sliced up a thousand different ways until, inevitably, we come to the (in)conclusion: in today’s day and age, an inaccessibly inordinate number of things in our socio-politico-economic psychology will need to shift to make happen even a tenth of what degrowth asks for. In essence, in today’s day and age, degrowth is an impossibility, available only to those privileged enough to know the concept, or to afford surviving in it.
Which leads us to what is left that perhaps can actually be done to get out of this quagmire and what it will take for companies like Google and Moody’s to dig us out. It’s a simple matter of putting mind over money, taking the long route and, like the turtle, winning the race based on resilience, stability, and keen determination.
[1] Moody’s, on the other hand, was established in 1900 by John Moody with “a vision to widen access to information and establish a global language of credit” (Moody’s, 2022). They have achieved this and more by incorporating research and risk assessment services into their consultancy repertoire, becoming one of the leading risk assessment and ratings services in the financial world. Their website states upfront their commitment to “bring transparency, expertise and trust to bond transactions”, all key buzzwords that customers, and importantly, the average street consumer, genuinely seek.
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the author:
Niyati Pingali is currently completing her MA in Development Studies, focusing on governance and development policy. As a former corporate employee, she knows the cost and the benefits of capitalism and plans to dedicate her life to changing the narrative to ensure both people and the economy benefit equally: a feat that sounds impossible but she knows can happen.
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Rolph van der Hoeven and Rob Vos are the authors of a chapter* of the recently published book ‘COVID-19 and International Development’. In this blog, they elaborate on their chapter, which is about the international financial system. They urge governments worldwide to implement four reforms, necessary to create more fiscal space and access to adequate external finance for developing countries.
Deep inequalities in pandemic response capacity
The global economic crisis provoked by the COVID-19 pandemic has painfully revealed the fundamental flaws in the international financial and fiscal system (IFFS). While advanced countries could engage in massive fiscal and monetary support measures, low- and middle-income countries lacked such capacities and were hit disproportionally. During the first year of the pandemic (2020), advanced countries provided fiscal stimuli to the tune of 12.5 percent of Gross Domestic Product (GDP) on average. This was three times more in relative terms than the stimulus in emerging and other middle-income countries, and almost 10 times more than governments in low-income countries could provide (Figure 1). This divergence in government support mimicked the inequality in vaccine roll-out.
Figure 1. Fiscal and monetary support in response to COVID-19, as of January 2021
Source: Van der Hoeven and Vos (2022), based on data from IMF (2021), Fiscal Monitor, Database of Country Fiscal Measures in Response to the COVID-19 Pandemic.
Four reforms to overcome financing flaws
As with past crises, a lack of adequate contingency financing forced poorer nations to take a big hit with lasting consequences. While high-income countries could engage in massive, and almost costless fiscal and monetary expansion, low-income countries saw their external debts increase to severe distress levels. In addition, they were forced to devalue their currencies, and curtail economic and social support programs. Consequently, an estimated 100 million to 150 million more people faced hunger during 2020, lifting the total number of people with not enough to eat to 810 million.[1]
The lack of fiscal space and access to adequate external finance for developing countries has its origins in the weaknesses of the International Financial and Fiscal System (IFFS). These structural weaknesses demand four urgent reforms, outlined below:
Establish credible mechanisms for international tax coordination.
Such mechanisms would include, among other things, an internationally agreed, uniform corporate tax rate of approximately 25% to stop tax base erosion. This tax rate would hinder multinational companies shifting their profits to tax havens. Improved tax coordination should further include mandated publication of data on offshore wealth holdings. This would enable all jurisdictions to adopt effective progressive wealth taxes and facilitate the monitoring of income taxes effectively paid by the super wealthy. After years of deliberations, the G20 indeed agreed to a proposal for uniform corporate tax treatment in 2021. Unfortunately, at 15%, the rate is still significantly lower than we proposed, thereby falling short of making a more significant impact on boosting tax revenues and on limiting profit-shifting behaviour.[2]
Establish a multilaterally backed sovereign debt workout mechanism.
Although existing mechanisms to renegotiate sovereign debts with private creditors have improved over the years, they are still far from adequate. This is due to the multiplicity of debt contracts, some of which are not subject to collective action clauses. These collective action clauses are perceived as preventing more drastic action in cases of crises; without them bonds could potentially lose a great amount of their value. A global institutional mechanism to renegotiate sovereign debts should, therefore, be put in place as soon as possible. To this day, sovereign debt solvency problems continue to be solved in an ad-hoc fashion, at little favourable terms to debt-distressed countries. Moreover, they are accompanied by policy conditionality. This leads to unnecessary hardship in affected countries.[3]
Reform of policy conditionality attached to International Monetary Fund (IMF) contingency financing.
While the IMF has recognized the need for enhanced public spending by developing country governments, including those facing debt distress, in practice, however, it continues providing pro-cyclical policy advice. This means that the IMF asks for fiscal restraint, rather than deficit spending when economies are in recession.
Increasing the availability of truly international liquidity by increasing Special Drawing Rights (SDRs) and making these available to developing countries.
As an important step in this direction, the IMF approved the issuance of US $650 billion in new SDRs in June 2021. However, no agreement has yet been reached regarding how these additional SDRs should be allocated to developing countries, and how they can leverage additional investment to foster sustainable development. Had such reforms been in place already, the pandemic response would have provided a fairer level playing field for emerging and developing countries. This would have mitigated the pandemic’s worst economic consequences.
Conclusion
None of these reforms should be seen as acts of charity. They are necessary to facilitate a global economic recovery that is both sustainable and equitable. As in past crises, government leaders have acted with a ‘me first’ attitude, as has been blatantly clear in the roll-out of vaccination programs. Some countries perceived this as a return to protectionism. This form of protectionism was evident in the unprecedented fiscal responses of high-income countries to protect the livelihoods of their own citizens, but which woefully disregarded the fate of people in low-income countries. The governments of those countries did not have the means to protect the livelihoods of their citizens to the same extent. Beggar-thy-neighbour policy responses, however, will affect global prosperity in the long term, and will make the Sustainable Development Goals elusive.
[1] Laborde, D., Martin, W. and Vos, R. (2021) Impacts of COVID-19 on Global Poverty, Food Security and Diets, Agricultural Economics 52(3) https://doi.org/10.1111/agec.12624, and FAO, IFAD, UNICEF, WFP and WHO. 2021. The State of Food Security and Nutrition in the World 2021. Transforming food systems for food security, improved nutrition and affordable healthy diets for all. Rome: FAO. https://doi.org/10.4060/cb4474en
[2] A. Cobham, 2021 Is today a turning point against corporate tax abuse? Tax Justice Network, 4 June 2022
*This blog is based on: Rolph van der Hoeven and Rob Vos (2022), ‘Reforming the International Financial and Fiscal System for better COVID-19 and Post-Pandemic Crisis Responsiveness’, Chapter 2 in Papyrakis, E.(ed.). COVID19 and International Development, Springer
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the authors:
Rolph van der Hoeven is Professor of Employment and Development Economics at the Institute of Social Studies (ISS)
Rob Vos is Director of Markets, Trade and Institutions Division at the International Food Policy Research Institute.
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Due to the war in Ukraine not only the country’s inhabitants have come under fire, but also the granary of much of the world. If the war is not stopped, grain prices will rise. This will have severe effects on many countries and vulnerable countries in Africa are likely to bear the brunt. The war, like the corona pandemic, illustrates how closely we are interconnected as nations on a global scale. What effects do such crises have on existing inequality? In this blog, a number of researchers of global development and social justice share their thoughts.
On 17 March, the Institute of Social Studies (ISS) at Erasmus University launched the book ‘COVID-19 and International Development’ (Springer, 2021). During the recent book launch in Amsterdam, ISS researchers have shed light on the unseen faces of the corona pandemic in low-income countries. We spoke with some of the authors of the book about the impact of COVID-19 on the Global South, and their expectations for the future.
What are the main socioeconomic impacts of the COVID-19 pandemic in the Global South?
Rolph van der Hoeven and Rob Vos: ‘Developing countries have suffered severe economic fallouts due to the pandemic. Between 100 and 160 million more people in low-income countries have fallen into poverty and hunger. The recovery has been bumpy and developing countries have had little fiscal and monetary capacity to respond. Many countries now face severe debt distress. Some progress has been made towards realizing two of four reforms we proposed in the book: international tax coordination and issuance of new SDRs. However, these still need to be tailored to serve the interests of the Global South. Worldwide, we are unprepared for future pandemics and major global crises. Just look at last year’s events: many of the world’s poor also had to cope with a surge in food prices. The current Russian invasion of Ukraine will further increase food prices, while the capacity of the government to protect the vulnerable has eroded. We should expect poverty and hunger to rise even further.’
Natascha Wagner: ‘We still have very little fact-based evidence on the indirect health consequences in the Global South where health information systems are weak. We have observed severe disruptions in the provision of routine health care services, preventive care, and treatment schemes. Foregone health care potentially results in more severe complications, co-infections and uncurable conditions, in particular among the poorest. The combination of ad hoc lockdowns without a social assistance system that just as rapidly reaches the poorest has severely affected the already sluggish progress towards the SDGs.’
Farhad Mukhtarov: ‘The pandemic has made it clear that the global water crisis is not so much about scarcity or affordability of water. These can be resolved in most cases by temporarily augmenting supply and providing subsidies. Rather, it is about societal inequality, racial and class-based patterns of violence and exploitation. Many things are needed: fairer wealth re-distribution, more equal practices of taxation, greater investment in the public sector, as well as greater social provision of marginalized groups. They are all necessary to treat various ailments of contemporary global societies.’
Matthias Rieger: ‘The global nature of the pandemic and insufficient data often render it hard to precisely quantify “impacts”. During the pandemic I noticed confused public and policy discourse around the world on “impacts” without proper counterfactual thinking. I think the pandemic has highlighted the need to use natural experiment approaches in global health research and to routinely collect reliable health data.’
Sylvanus Kwaku Afesorgbor: ‘We are getting more and more confident that our optimism about the quick recovery from the COVID-19 trade shock was justified. Although the omicron is more contagious, it has less health consequences and the impact of the pandemic is weaning off – also amongst the non-vaccinated’.
Have you become more (or less) optimistic about the COVID-19 -related impacts since your chapter was written?
Peter A.G. van Bergeijk: Globalization encountered another setback with the Russian invasion of Ukraine. The revival of a Cold War setting is on the verge. This will tend to reduce the world’s openness by another 1.5% points (indication of the increase in the share number): Mr. Putin may have effectively killed the era of globalization.’
Binyam Afewerk Demena: NEW The major (COVID-19) implication is that the feasibility of export-oriented growth strategies decreases. In addition, the workings of international organizations will be further frustrated. That is bad news for developing countries. The Global South still has to deal with many challenges posed by the COVID-19 pandemic, due to weak health systems, low socio-economic conditions, extreme poverty rates, and limited access to sanitation to contain impacts.’
Agni Kalfagianni: ‘The COVID-19 pandemic has put further strain on poor health care systems and has reduced even more access to food for the most vulnerable. Not much has changed really to give reason for either optimism or pessimism in that respect. The lack of solidarity towards vaccine access from the Global North to the Global South exacerbated existing problems. Regarding future pandemics; we may react more quickly, given the experience that we gained. But until major changes in the health care systems and global cooperation take place, we will fail again.’
Are we now better prepared to protect vulnerable individuals and communities from future pandemics?
Zemzem Shigute: ‘The corona virus has proven to be a conundrum that even the most economically powerful nations were not able to control. The virus itself does not discriminate between rich and poor people or nations. However, marginalized groups, including migrants, continue to bear its plight. They face intersecting layers of struggle based on various factors including gender, marital status, education, language, employment, and duration of stay in the country.’
Syed Mansoob Murshed: ‘The COVID-19 pandemic’s initial impact on inequality was negative. However, there are signs that the world’s inequality tolerance may be diminishing. Secondly, the labour supply surge – engendered when China and the former Eastern bloc embraced capitalism – is now also ending. That may be good news for workers and the poor in developing countries but has to be counterbalanced with the bad news about trade disruptions and rising energy prices.’
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
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Binyam Afewerk Demena is one of the authors of several chapters of the recently published book ‘COVID-19 and International Development’. In this blog, he and his colleagues elaborate on their contributions to this book. We welcome you to join us for the book launch on March 17 (3:30-5:00 CET) at Pakhuis de Zwijger. Registration is now open.
The COVID-19 outbreak has posed a threat to both lives and livelihood. Because of the strong and interdependent global production value and linkages, coupled with the closure of international borders, businesses, and factories, the economic expectations and forecasts in the early months of the pandemic were generally pessimistic.
The prospect of the world plunging into another major and long-term economic recession comparable to the Great Depression in 1930s and the Great Recession of 2008/9 was on the minds of many economists, governments, international organizations, and citizens worldwide. The attacks on supranational governance and international cooperation were a symptom of an underlying disease – inequality – that has been illuminated by the pandemic. The de-globalization process was driven by increasing inequality, and a dreary lack of trickle-down of the benefits of internationalization.
COVID-19 and globalization
Globalization is a multifaceted concept that describes the process of creating networks of connections among actors at intra- or multi-continental distances. This emphasizes that globalization captures the increased interdependence of national economies, and the trend towards greater integration of different varieties of flows such as information, goods, labour, and capital.
More recently, however, there has been growing discontent and increase in negative sentiments about the impact of globalization. These negative sentiments have manifested in different ways, including through the election of the former U.S. President Donald Trump in 2016, Brexit, and criticism of the World Trade Organization. For instance, Afesorgbor and Beaulieu (2021) argue that the Trump presidency strained diplomatic relationships with close allies, and undermined the rule-based global system, creating uncertainty for the global economic system.
We* set out to explore the impact of COVID-19 on the global economic system by looking at three components of globalization: economic, social, and political globalization. The pandemic and the economic policy response to the crisis have impacted these three aspects to different degrees.
Economic globalization
Economic globalization has been conceptualized by means of flows of goods, services, capital, and information in connection to long distance market transactions. Although the pandemic is global, regions and countries have experienced differential effects on various indicators of the economic dimension of globalization. For instance, merchandise trade contracted for the global economy, but the rate of decline was more pronounced in advanced economies compared to in developing and emerging economies. Moreover, not only were trade flows hit, but the impact of COVID-19 on foreign direct investment (FDI) was also immediate, as global FDI flows declined by nearly half in 2020.
Social globalization
COVID-19 was also impactful, in particular, on social globalization, an aspect which involves interaction with foreign nationals through events such as migration, or actions such as international phone calls and international remittances paid or received by citizens.
Linking COVID-19 to social globalization is important since the former reduced interpersonal globalization, as many countries imposed travel restriction on both residents and foreign travellers. Border closures hindered temporary migration, especially tourists’ and foreign students’ movements in and out of countries. Migrant remittances were also affected, not because of any formal restrictions on remittances, but mainly because of a negative labour market shock on immigrant employment. Demena et al. (2022) found that the pandemic, overall, negatively affected various labour market outcomes. The impact has been most pronounced, in particular, in developed countries, reducing the number of remittances that could be repatriated to developing countries.
Political globalization
Political globalization captures the ability of countries to engage in international political co-operation, as well as the diffusion or implementation of government policies.
The initial outbreak of the COVID-19 pandemic negatively affected international co-operation, mainly because of the blame game between the two largest economies in the world, the US and China. Although global co-operation to fight the virus did not begin immediately with the outbreak of COVID-19, there were many efforts later by different countries to co-operate in fighting the pandemic. China, for example, supported countries like Italy, which became the epicentre of the COVID-19 pandemic in Europe in April 2020. Politically, the outbreak of the coronavirus could, therefore, be used as a building block in the future to reinforce international co-operation and strengthen the pillars of political globalization.
Optimistic outlook for the global economy
There are, in fact, reasons to be optimistic about the COVID-19 economic recovery, as well as about the future of globalization. The main reason for optimism is the noteworthy resilience of world merchandise trade and investment during previous global crises. Multinational enterprises have already had their stress test during the 2008 – 2009 collapse of world trade. That collapse kick-started the process of de-globalization. However, global merchandise trade and industrial production recovered to previous peaks quickly, and this recovery has occurred even quicker during the COVID-19 crisis.
This is the big and fundamental difference with the Great Depression of the 1930s, and it may be related to the fact that world trade is governed and supported by the multilateral trading system. The shock of the pandemic was sharp and immediate, but so has been the recovery. The so-called invisible flows (FDI, remittances, tourism, official development cooperation) have been hit harder compared to the two major historical economic crises during the Great Recession and the Great Depression, and a full recovery of these invisible flows is not to be expected before vaccination is ‘sufficiently global’ in scope. Yet, the expectation of a speedy recovery is realistic at the time of writing. For instance, global FDI has shown full recovery in the last quarter of 2021, although recovery has been highly uneven regionally, and was concentrated in developed economies. Recovery efforts, therefore, took hold early, compared to the two major historical episodes of economic crises. This suggests stronger resilience of the global economic system than anticipated.
The disease of inequality
The prediction and reports of the expected “death” of globalization, however, were, with hindsight, grossly exaggerated. Yet, the pandemic has taught us that inequalities are the breeding ground for the spread of disease and the suffering that follows. Reducing epidemic vulnerabilities, therefore, requires tackling those inequalities. The fight against next potential pandemics, however, implies that we cannot limit ourselves to domestic developments only. Inequalities around the world – within and between countries – provide the breeding grounds and disease pools from which new variants, viruses, and other contagious diseases emerge. Adhering to the United Nations Sustainable Development Goals (SDGs) is a high-return investment project, in particular SDG 10 (reduced inequalities). A recent study by Fantu et al. (2022) pointed out that the COVID-19 pandemic exacerbates the inequalities between migrants (in particular Eritrean and Ethiopian migrants) and ordinary citizens in the Netherlands. Likewise, Murshed (2022) highlighted that the COVID-19 pandemic is likely to accelerate the various forms of inequality.
And last but not least, the outlook for openness of the world economy is still much better than in the 1930s. Yes, de-globalization exists. Yes, overall globalization will probably be lower for the foreseeable future. Our societies will, however, remain much more open than at the start of the globalization wave in 1990. We are now connected via the internet with an intensity that has never been observed before in history. Even though the push towards de-globalization certainly still exists, economies are now digitally connected in ways they have never been before.
Conclusions and recommendations
In conclusion, the eradication of the spread of the virus will require international co-operation, and a global effort to make sure that no single country is left behind. A pool will be forged to prevent new variants and potential future outbreaks. Vaccines must be made available to all countries and must be affordable, something that has been reiterated by the promise of the leaders of the G7 nations as a ‘big step towards vaccinating the world’ – to supply one billion doses of vaccine to poorer nations. A global initiative recently called for urgent further funding to supply a minimum of 600 million additional doses. Just as globalization has ramifications for all countries, the health of different nations is intertwined. The health of one nation affects the health of the other, as the pandemic has demonstrated. The implication, therefore, is that fighting a pandemic requires us to tackle inequalities, as the latter determine pandemic vulnerability to a large extent. Moreover, it requires a global approach to ensure equality for all the world’s citizens.
References:
*Afesorgbor, S.K., van Bergeijk, P. and Demena, B.A., 2022. COVID-19 and the Threat to Globalization: An optimistic note. In E. Papyrakis (Ed.) Covid-19 and International Development, Springer.
Demena, B.A., Floridi, A. and Wagner, N., 2022. The short-term impact of COVID-19 on labour market outcomes: Comparative systematic evidence. In E. Papyrakis (Ed.), Covid-19 and International Development, Springer.
Fantu, B., Haile, G., Tekle, Y.L., Sathi, S., Demen, B.A., and Shigute, Z., 2022. Experiences of Eritrean and Ethiopian Migrants during COVID-19 in the Netherlands. In E. Papyrakis (Ed.), Covid-19 and International Development, Springer.
Murshed, S.M., 2022. Consequences of the Covid-19 pandemic for economic inequality. In E. Papyrakis (Ed.), Covid-19 and International Development, Springer.
van Bergeijk, P.A.G., 2021. Pandemic Economics, Edward Elgar: Cheltenham.
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Community economies based on collective action and reciprocity have the potential to help us move toward a postcapitalist economics. However, communities tend to be romanticised and their politics sidelined. (Almost) forgotten economists have some interesting things to say about community economies and how they can be strengthened to contribute to systemic change, writes Irene van Staveren.
Image: Good Energy
My training as an economist did not prepare me sufficiently to tackle the four ‘wicked problems of today – climate change, rising inequality, pandemics, and increasing financial volatility – through my work. The reason for this is that I was taught to take an individualist perspective, which holds that markets generate added value for society and improve well-being, whereas the state merely redistributes this created value. According to this logic, markets are by definition the most efficient mechanism for allocating value, even when this reinforces inequalities. When having to choose between market and state, the market always wins – or so mainstream economists claim. The exception is when markets fail, but then the state may be captured by private interests and hence may not be able to repair market failures. I’ve struggled with this concept ever since coming to the realisation that it simply isn’t working in this day and age.
There is a way out of the binary trap that forces us to choose either government-led or market-based ‘solutions’ that to date have been insufficient. We can look completelybeyond either the market or the state to find innovative and hopefully enduring policy options that could help address the four wicked problems. Of course, a global tax floor for multinational companies is very welcome, as is a demand for a temporary waiver of patent rights on COVID-19 vaccines. But systemic change in the economies of both the Global North and Global South may come from an unexpected corner: the community economy.
A number of heterodox economists have mentioned community economies as alternative to the state-market binary either explicitly or implicitly in their work. This triggered my interest, so in a recent book I decided to look at fundamentally different ideas about the economy in which the community economy plays an explicit or implicit role. Interestingly, they do not only have a positive role, as I’ll explain below.
The bad/sad news is that romantics who hope that communities will save the world will be disappointed. Communities are made up of people – the same ones who are also consumers, investors, producers, and workers. Feminist economist Barbara Bergmann pointed at gender discrimination in communities, which affects the attitudes of employers, colleagues, and, through socialisation, even sometimes of women themselves. Indeed, gender norms may constrain women worldwide in their agency and wellbeing, as many feminist development economists have shown.
Thorstein Veblen, the founding father of institutional economics, pointed at another negative effect of communities, namely their tendency for emulation: we look up to the rich, copy their lifestyles, and thereby increase our ecological footprint – we emulate them. And status seeking makes it difficult to shift to a less materialistic lifestyle or even simply to give up the basic comfort of using plastic bags and bottles, for example.
Fortunately, there are also economists who believe in the transformative power of the community economy. Because it can be where collective action for the common good originates, it can provide the social norms for cooperation even if the benefits are not individually, but jointly obtained or are reserved for future generations.
Adam Smith, who is often referred to as the promotor of markets with his metaphor of the ‘invisible hand’, actually used this famous metaphor only once in his foundational economic book The Wealth of Nations. Instead, Smith wrote a whole book titled TheTheory of Moral Sentiments twenty years earlier in which he theorised that the community economy was necessary to help markets flourish. Not the other way around, thus.
Let me mention one more almost forgotten economist here: Gunnar Myrdal. This Swedish economist who won a Nobel Prize did an extensive study on relentless racism in the US. In his explanation, he came up with the concept of cumulative causation. He deliberately proposed this as an alternative to the concept of a market equilibrium. In a market, supply and demand are supposed to be independent. But, Myrdal argued, markets are influenced by social norms, attitudes, beliefs, and behavioral patterns.
Why is this important? Just like Veblen before him, he recognised the power of institutions in economic behaviour. But he added a dynamic model to this, showing that one form of discrimination, for example racial segregation in neighbourhoods, triggers another form, such as prejudice among white populations about unemployment and poverty in those neighbourhoods. This in turn feeds other forms of discrimination, such as lower-quality schooling for black children, which subsequently feeds into lower labour market opportunities.
So the important insight from Myrdal was that discrimination is not a linear process that can easily be ended with some legal changes. Instead, he argued, when discrimination is part and parcel of community life, it inevitably affects markets and is self-reinforcing.
The good news is that social inclusion and empowerment follow the same logic of cumulative causation, for example of women in the Global South. For example, with more girls in school and the labour market, African economies experience more growth and human development while at the same time individual girls and women obtain more opportunities, bargining power in the household, and more influence on their fertility.
Challenging unequal North-South relations
I think that these ideas are still relevant today, but now on a global scale. They help us to understand how social norms, attitudes, and beliefs in the Global North affect the Global South through structural inequalities in markets: global value chains, financial markets, labour markets, and even land markets. Hence, global markets tend to constrain the opportunities of people in the Global South to choose their own development paths.
Countries in the Global South are then likely to rely less on global markets and more on the strength of their own communities to help markets flourish. This is an inherently negative development, but it can also have positive dimensions when it comes to a possible economic transformation. Here are three of countless examples of how community economies in the Global South can provide the seeds for postcapitalist economies to develop their own strength in a way that makes them independent from the unequal market relationships with the Global North.
A first example is the increasing popularity of worker cooperatives. We find them in all sectors – from agriculture to manufacturing, and from construction to energy. The strength of these is that the market in which capital hires labour is dissolved. In worker coops, labour owns capital and controls it in terms of investment out of their own pockets, bank loans, and retained profits.
A second example is the decades-old practice of savings and loan associations such as the ROSCAs (Rotating Savings and Credit Associations) in Africa. Here, the market is dissolved by excluding banks and financial market transactions. Communities themselves bring savings and credit together by using rotating schemes or lotteries with all members having an equal position as both saver and lender. The stokvel is a classic example.
A third and last example is community-led energy initiatives. Across the Global South, rural communities which are not yet connected to the national electricity network, or who experience many power interruptions, build off-grid solar power networks. These provide the community with power for light, water pumps, or other basic needs. Again, the market is dissolved, in this case through bypassing electricity firms and national supply and demand of electricity on markets.
Community economies can be key – but don’t romanticise them
The urgent wicked problems that the world faces cannot be addressed by the market, while the state is often not capable of addressing them effectively. The community economy is a likely candidate for systemic economic change. But it should not be romanticised. We need a new balance of power, influence, and innovation between the market, the state and the community economy, with the last one in the lead. How this may be done can be learned from some key insights by (almost) forgotten economists.
Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.
About the author:
Irene van Staverenis professor of pluralist development economics at the Institute of Social Studies (ISS) of Erasmus University Rotterdam. Professor van Staveren’s theoretical interest in is feminist economics, social economics, institutional economics and post-Keynesian economics.
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The most important lesson that we can learn from the COVID-19 pandemic is that inequalities are the Achilles heel of a society that has been hit by a pandemic. Based on selected insights from his new book, Pandemic Economics, Peter van Bergeijk argues that relatively small interventions in the Global South and the adjustment of the SDGs to include combating pandemics can go a long way in preventing future pandemics.
van Bergeijk, P. A. (2021). Pandemic Economics. Edward Elgar Publishing.
You learn a lot about humanity during a pandemic. Pandemics reveal imbalances, contradictions and inequalities that we can no longer ignore at the peril of succumbing under the pressure of the next pandemic (Meskoub 2021). Here are some of the most important lessons we have learned so far:
We have learned that access to basic health care is not guaranteed during a pandemic and that marginalised groups are most vulnerable.
We have learned that essential workers are at high risk to be contaminated and that society cannot do without the people that continue to provide essential services.
We have learned that working conditions and the organisation of workplaces to a large extent determine the speed of transmission of a virus and that especially low-income earners appear to work in places where outbreaks occur frequently.
We have learned that marginal poor and informal sector workers have no access to proper sanitary facilities and that lockdowns are no realistic tool, since their livelihoods are threatened.
We have learned that the most vulnerable clusters in society consist of people that have no opportunity to work from home, need to travel by public transport, and have low incomes so that their housing does not afford much scope for social distancing.
We have learned that this is true both for the Global South and the Global North.
We have learned… I sincerely hope that we have learned.
A business proposition
The fact that COVID-19 is a pandemic amplifies our current problems, but even for new contagious diseases that do not reach all continents, inequalities are the breeding ground for the spreading of disease and the suffering that may follow. Reducing epidemic vulnerabilities requires reducing the inequalities above.
But fighting the next pandemic implies that we cannot limit our attention to inequalities at home, because the equalities around the world – within and between countries – provide breeding grounds and disease pools from which new variants, viruses and other contagious diseases emerge. The implication is that reducing inequalities in other countries and continents becomes a business proposition: an investment project with a high rate of return.
‘Wash your hands!’ and the SDGs
One of the least intrusive and most effective measures against any contagious disease is washing your hands thoroughly. It is extremely important that handwashing is taught at home and at school and that this discipline is maintained. What we have learned from COVID-19 is that every Earthling is at risk, so we cannot afford the luxury of focusing on groups that are particularly vulnerable to infections only. Handwashing for example is only possible if clean water, ablution facilities and soap are available to everyone.
Since a pandemic is global, the approach needs to be global. Handwashing facilities in developing countries are a cheap, significant and necessary precaution. Therefore SDG 6 – ‘Ensure access to clean water and sanitation for all’– is an excellent business proposal that reduces pandemic vulnerability. Investing in clean water and sanitation is a very cost effective measure to reduce global pandemic vulnerability.
The realisation moreover that poverty is a breeding ground for pandemics implies that income inequality between and within countries is much more important than the Sustainable Development Goals (SDGs) seem to acknowledge (van der Hoeven and van Bergeijk, 2018). From this perspective, a reformulation of SDGs may be necessary.
It is the planet, stupid!
The emergence of contagious virus should have come as no surprise, yet ‘preparedness’ to deal with the emergency was below standard. (Sathyamala, 2021). How can we increase pandemic preparedness? The scale of preparations cannot be international (that is, involving many countries), but needs to be global – so involving all countries. This obviously to some extent had already been recognised before the corona crisis by the move from ‘international health’ to ‘global health’.
Pandemics, however, have not yet received the explicit attention they need in the SDGs. The SDGs (and in particular the SDG 3 – ‘Ensure healthy lives and promote wellbeing for all at all ages’) do not mention prevention of pandemics per se. Health target 3.3 – ‘By 2030, end the epidemics of AIDS, tuberculosis, malaria and neglected tropical diseases and combat hepatitis, water-borne diseases and other communicable diseases’ – could be easily adjusted. Target 3.d – ‘Strengthen the capacity of all countries, in particular developing countries, for early warning, risk reduction and management of national and global health risks’ – seems satisfactory at first glance, but misses the point that the ‘in particular’ is equally relevant for the advanced countries. The SDGs are targets for every country independent of its level of development.
Perhaps this is the most important lesson for the Global North. The advanced economies are not invulnerable and were ill prepared. The Global North needs to take inequalities seriously in order to survive. Fighting inequalities around the globe and domestically is the best business proposition that we have for the Global North.
Sathyamala, Christina, 2020, COVID-19: a biopolitical odyssey. ISS Working Paper No. 667, Erasmus University ISS: The Hague.
Opinions do not necessarily reflect the views of the ISS or members of the Bliss team.
About the author:
Peter van Bergeijk is professor of international economics and macroeconomics at the ISS.
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Bitcoin and other cryptocurrencies are becoming increasingly popular, especially among young ‘digital natives’ who are living a significant part of their lives online. But besides helping smooth the transition to a physical-digital life, cryptocurrencies are also changing the world in a different way. This article, part of a two-article series on cryptocurrencies, shows how Bitcoin and blockchain technologies are rooted in a quest for social justice.
Bitcoin is increasingly seen as an alternative to fiat currencies owing to its ‘stable value’ (this can be refuted). At the start of this year, a single Bitcoin fetched more than $40,000, while it was worth $6,000 in March 2020, when the COVID-19 pandemic hit. In 2009, shortly after the currency was created, it was not worth a single dollar. This trend can be observed across the almost 5,000 cryptocurrencies that are flooding the market: in early January, total global trade in digital money reached one trillion USD, doubling since the start of the pandemic.
It’s clear that cryptocurrencies are a big deal. Here’s why.
In his paper ‘A Peer-to-Peer Electronic Cash System’ (2008), Bitcoin’s founder, Satoshi Nakamoto, explained that the peer-to-peer version of purely digital money would allow online payments to be made directly from one party to another without going through a financial institution or a third party. As a system, Bitcoin is a type of software used for transacting objects of value (money), as well as for issuing forms of money with certain values. The digital currency, also called Bitcoin, is transacted via the Internet.
While Nakamoto did not link Bitcoin to blockchain technologies in his original paper, the term was coined by Hal Finney, a cryptographist from the United States who was also involved in providing input on the ‘Bitcoin system’ to Nakamoto, before the system was launched in early 2009. Blockchains are termed as such because collections of transactions are recorded in blocks that are linked or chained chronologically and secured cryptographically. They are considered very, very safe and very, very private.
The reasons for this financial tendency towards digitalised money include the uncertainty and depreciation of fiat money, high inflation, and high banking costs. But privacy was also a key concern driving the emergence of cryptocurrencies. Starting in 1992, hundreds of scholars with backgrounds in philosophy, mathematics, computer science, cryptography and political science have been joining hands with a multidisciplinary group of experts and activists calling themselves cypherpunks to seek alternatives to the mainstream economy and politics (Assange, 2016). Initial discussions were rooted in concerns about the increasing loss of privacy in the digital world, followed by other fundamental discussions that challenge both the establishment and the vulnerability of the financial system. One important question the discussion group sought an answer to, was how the epistemology of value is returned to each individual. Another was whether banks as custodians of valuable assets could be eliminated. After it was created in 2008, Bitcoin seemed to tick all of the boxes.
So here’s the good news about cryptocurrencies: they can be seen as one avenue of pursuing transformative change. We argue that blockchain, the ecosystem of cryptocurrencies, is essentially based on idealism, particularly the notion that individuals should not be subordinated and exploited by a system that does not work for them. Sovereignty is key. Moreover, the system is based on a sense of solidarity as opposed to individualism in the sense that those who buy and trade digital currencies are collectively opposing the mainstream economy and their position in it.
Thus, cypherpunks – those seeking to enforce a return to greater privacy through digital technologies and cryptography – are leading a scientific rebellion. They are seeking the decentralisation of currencies, so that each individual becomes his or her own bank. They are seeking currencies where the exchange rate remains stable instead of depreciating. And they are seeking a fair world in which humans are not exploited by financial systems, but instead can participate freely in a financial system that promotes trust, stability, and accountability.
Are there real-world examples of how cryptocurrencies can be used for good?Intergovernmental organisations and INGOs are also interested in using cryptos for their transactions and donations. In October 2019, for example, UNICEF announced its Cryptocurrency Fund (CryptoFund) to enable donations worldwide through a singular digital currency. Save the Children was listed as the first NGO to receive and distribute digital money, and the Oxfam family and hundred of other NGOs across the world are following suit.
Yet blockchain technologies carry some risks, and its greatest benefit may also be its downfall. Bitcoin is not only being pursued by financial firms, corporations and hedge funds as yet another form of capital – cryptocurrencies have the potential to be misused by corrupt politicians, the mafia, and armed groups and terrorists because of the unrivaled privacy it enables to those using it (RAND, 2019).
It is also notable that countries with strong authoritarian tendencies are exploring cryptocurrencies. Zimbabwe recognised digital money as a possible alternative to fiat money following the collapse of the Zim dollar in 2008, and the collapse of the Venezuelan bolivar in 2018 led Venezuelan president Nicholas Maduro to create the Petro. Superpowers like Russia and China have created their own cryptocurrencies. These developments should be closely monitored to ensure that cryptocurrencies and blockchains do what they are intended to – serve individuals and promote fairness, freedom, and privacy.
Opinions do not necessarily reflect the views of the ISS or members of the Bliss team.
About the authors:
Saurlin Siagian holds an MA degree from the ISS (2007-2008) and is chairperson of HARI (The Institute for Forest and People Studies) in Indonesia.
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The recently published UNDP Human Development Report shows that we’ve come a long way in recognising the damage we’re doing to the planet and how intricately connected natural resource use and poverty are. The COVID-19 pandemic has exacerbated inequalities and poor living conditions, making it clear that we don’t have time to waste in addressing the double challenge of environmental and social injustice. We now have an opportunity to change things for the better – if only we seize this opportunity together, writes Kitty van der Heijden, Director-General for International Cooperation at the Dutch Ministry of Foreign Affairs.
During this event, in my keynote speech I stressed that we are in fact destroying the natural resources on which we depend – be it water, soil or a stable climate. We are entering the sixth mass extinction of species. We are using the atmosphere of this planet as the global sewer for greenhouse gases. And in a period of about 150 years, without intending to do so, we as humankind managed to change the properties of an entire planet’s atmosphere. That is quite an accomplishment for a bunch of fur-free apes.
In so doing, we are not only ruining our own future here in the Netherlands, but more importantly, we are losing the prospect of a life in dignity for the many poor and vulnerable communities worldwide that we have promised a better future. They are least responsible, and least capable of dealing with the impact, and yet this is where we are.
Over the past year, the COVID-19 crisis exacerbated multidimensional inequalities within and between countries that existed prior to the pandemic. But what the report truly shows is that inequalities and environmental degradation are not separate issues. We cannot eradicate poverty if we do not at the same time address the accelerating degradation of natural resources on which we all depend, but poor people even more so. Natural resources like forests, freshwater and fertile soils are often called ‘the only wealth poor people have’. They are essential for their survival.
Yet it is in no small part our production and consumption patterns, particularly from developed economies, that degrade and destroy such resources. Protecting the environment and combatting climate change is not a luxury.It’s not icing on the human development cake. Environmental degradation and poverty are inextricably linked. They are two sides of the same coin and they exacerbate each other. Together they are a truly toxic combination. If we do not change the way we use our planet, we will never be able to reach the Sustainable Development Goals (SDGs). And meeting these is essential for just, equitable and sustainable development that leaves no-one behind.
When you look at climate statistics, you might feel like pulling a duvet over your head and going back to sleep. Nevertheless, I am still optimistic. There is hope, and I will tell you why:
What is evident now was not so evident ten years ago
In 2012, I was involved in the Rio+20 United Nations Conference on Sustainable Development. Around that time, the link between environmental degradation and poverty eradication was not recognised. Development experts considered the environment a separate realm. ‘Real’ development – to them – was working on health, education and malnutrition. Countries from the Global South thought that anything ‘green’ was an aid conditionality or a luxury – something you would do after development projects were completed. The environment was seen as a Western agenda.
In less than ten years, a broader understanding has developed that you cannot achieve human development without looking at durable usage of a country’s natural resources. This paradigm shift in thinking happened in a very short time span, which gives me hope for the future.
We are starting to take universality seriously
Development used to be seen as a foreign policy objective, as something you ‘do and deliver elsewhere’. We have come to realise that with global challenges such as water shortages, climate change or soil erosion, none of these challenges can be dealt with through development cooperation alone. In a globally connected world, we are linked through supply chains and terrorism, through climate change and communicable diseases, through the Internet and information systems and through migration and global media. We thus need a whole-of-government approach, because our global environmental footprint impacts people well beyond our borders, our trade policies may impede or enhance people’s ability to achieve a life of dignity, etcetera. And even more so,we need a whole-of-society approach. This means including the private sector, science communities, civil society organisations, and so on, in a holistic effort to bring about global sustainable development.
Solving these issues will require looking at our policies through the lens of policy coherence for sustainable development. Our actions here in the Netherlands as part of the Global North have an impact elsewhere. This realisation will hopefully speed up and accelerate an integrated pathway towards global sustainable development.
All proposals for law in the Netherlands are subject to an SDG test. But research shows that all developed countries can still do (much) better in achieving policy coherence.
The COVID-19 crisis offers an opportunity for change
The COVID-19 pandemic has set back human development tremendously. Decades of progress have been undone by the lockdowns globally, but especially in developing economies where shock resilience is low. Job losses, especially in the informal sector, have led to a steep increase in (extreme) poverty and malnutrition. Children are unable to go to school, and digital education is still a dream for too many. Too many girls will lose the opportunity to proper schooling – as they are married off early or fall in the hands of sex traffickers. Gender-based violence is on the increase. And it’s important to realise that this crisis in fact originated in environmental degradation, zoonotic diseases and rapid biodiversity loss.
Still … it may also be the best opportunity we ever had to address the planetary (or climate/environmental) crisis. Never before in the history of mankind has the public sector globally poured in this much money in relief and recovery programs to combat the impact of COVID-19. Never ‘waste a good crisis’, the old adage goes. If we use these resources well, we can keep global warming within the 1.5˚C limit (compared to pre-industrial levels), as well as the SDGs within reach.
The alternative is simply too horrifying to contemplate. If we do it wrong – if we return to the old, wasteful and polluting economy – the planet and mankind will suffer the consequences. Not just for the next 10 years, but possibly for the next 10,000 years.
Thus, the message of the Human Development Report that we must act now to combat both poverty and environmental degradation is crucial to keep the dream of a life in dignity for all humankind alive. The realisation of that dream depends on all of us.
Opinions do not necessarily reflect the views of the ISS or members of the Bliss team.
About the authors:
Ms. Kitty van der Heijden is Director General for International Cooperation at the Ministry of Foreign Affairs. Her responsibilities include development cooperation policy, implementation and funding. Central themes are gender, sustainable economic development, and climate policies.
Between 2014 and 2019, Ms. Van der Heijden has served as Vice President and Director Africa and Europe at the World Resources Institute in Washington. She served as the Dutch Ambassador for Sustainable Development from 2010 until 2013 and as Ambassador for the Millennium Development Goals in 2009. Before that she held several other policy and managerial positions at both the United Nations and Dutch Ministry of Foreign Affairs.
Other positions Ms. van der Heijden has served in include a position as non-executive member of the board at Unilever NL (2014-2019), and Advisory Board positions at ‘Pathways to Sustainability’ at Utrecht University (2018-2019), the Global Commission on Business and SDGS (2016-2017), SIM4NEXUS (2015-2019) and Global ‘Planetary Security’ Conference (2015-2018). She was awarded the Viet Nam Presidential Medal of Friendship in 2009 and the Dutch National ‘Green Ribbon’ of Honor in 2013.
Ms. Van der Heijden (56) holds an MSc degree in Economics from the Erasmus University Rotterdam. She enjoys family time, nature walks and kick-boxing.
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[vc_row css=”.vc_custom_1592900783478{margin-right: 0px !important;margin-left: 0px !important;}”][vc_column css=”.vc_custom_1592900766479{margin-right: 10px !important;margin-left: -10px !important;}”][vc_column_text]The COVID-19 pandemic has made the majority of people living in the MENA region even more vulnerable, adding to existing structural problems that include under-resourced public health services, a high degree of labour informality, and high poverty and unemployment rates. Temporary social and economic support measures to mitigate the pandemic’s effects are not sufficient, however – the region has to go beyond piecemeal policies. Countries need to expand the scope and scale of social provisioning and social protection as well as the quality of and access to public health services by moving towards a universalist approach to social policy, writes Mahmoud Messkoub. [/vc_column_text][vc_separator color=”custom” accent_color=”#a80000″ css=”.vc_custom_1594895181078{margin-top: -15px !important;margin-bottom: 10px !important;}”][vc_single_image image=”19534″ img_size=”full” add_caption=”yes” alignment=”center”][vc_separator color=”custom” accent_color=”#a80000″ css=”.vc_custom_1594895181078{margin-top: -15px !important;margin-bottom: 10px !important;}”][vc_column_text]In the Middle East and North Africa (MENA), the COVID-19 pandemic has thrown into sharp relief the importance of state-centred approaches in managing pandemics and mitigating their socio-economic impacts on the population. But public health services in most MENA countries are underfunded and inadequately designed to cope with the pandemic. The MENA population has suffered, especially those people living in low-income and non-oil-exporting countries.
Here, as elsewhere in the world, to mitigate the impacts of the pandemic, states have taken a number of measures ranging from temporary cash payments to the poor and vulnerable, furlough schemes, and financial support to employers and industries to the relaxation of regulations governing financial market support to companies and individuals through lower interest loans. Most MENA countries adopted a combination of these measures (OECD, 2020).
However, these short-term measures cannot deal with the long-term structural insecurity and vulnerability facing the majority of people in the MENA who live precarious lives in highly unequal societies, where the top 10% of the population takes 64% of the total income (Alvaredo et al., 2017). Their vulnerability to a large extent can be ascribed to the concentration of economic activity and employment in the informal sector, which is usually overlooked in social security and regulatory measures that tend to focus more on formal employment sectors (ILO, 2019; O’Sullivan et al., 2012). The exclusionary character of the countries’ social protection programmes is a great cause for concern, as even in ordinary circumstances vulnerable populations working informally do not have adequate social protection against health problems, a loss of income, and other contingencies.
Informality and unemployment rates are high in the MENA
According to OECD (2020), in the MENA the informal sector employs some 68% of the workforce, while in individual countries such as Yemen and Lebanon the portion rises to 74% and 71%, respectively. Another structural problem is persistently high unemployment rates that have particularly hit the youth as well as educated women across the MENA (O’Sullivan et al., 2012). In 2018, the youth unemployment rate was around 30% in the MENA – the highest in the world (Kabbani, 2019). And large-scale poverty and vulnerability are also high in the MENA despite its riches. MENA countries are heterogeneous in terms of their resource base. The headcount poverty rates of a-dollar-a-day (or more) are high in the labour-abundant and resource-poor countries like Egypt. But poverty is also present in the populous, resource-rich and industrializing countries of Iran and Algeria. The other aspect of poverty is its regional spread: rural headcount poverty rates are higher in rural areas than in urban areas (Messkoub, 2008).
The most vulnerable are being overlooked, also during the pandemic
It is against this backdrop of poverty and vulnerability that the pandemic emerged, plunging the weakest countries in the region into a deeper crisis, with very limited social protection measures to help protect vulnerable populations. Whilst all countries in the region had some kind of social protection programmes before the pandemic, and in some cases extensive ones, coverage in most middle- and low-income MENA countries is limited to members of the civil service, police, and military, as well as those in the modern, regulated private sectors of manufacturing and services. The majority of the population working in agriculture, the informal sector, and other unregulated activities have very limited access, if any, to state social protection programmes. To start with, entitlement to most of these programmes requires a formal labour contract. But entitlement and access vary depending on the area of social protection: health, old age, unemployment, work injury, or family allowance.
Regarding health services, there is an urban-rural divide in favour of the former, in addition to high out-of-pocket expenditure and a general neglect of primary and preventive healthcare. High spending on expensive diagnostic and curative health care can be observed, and low-income/low-status migrants, displaced people, refugees, and ethnic minorities have limited access to public health services (WHO, 2010; Loewe, 2019).
The fragmentation of health insurance and service provision also limits the coverage and adequacy of social policies. In most MENA countries, there are different public and private health insurance programmes and health service providers. If these were integrated into a common national health insurance programme, the result could be increased coverage and an improvement of the services provided by reducing administrative costs and rationalising overlapping services (Loewe, 2019). Other complementary public health measures should also be placed on the agenda: the provision of clean water, improved sanitation, and a greater emphasis of preventative health care (Karshenas et al., 2014).
Why universal social protection is needed now more than ever
Thus, countries in the region are in urgent need of increasing expenditure on public health to manage the current pandemic as well as strengthening the health system to improve entitlement and access to health services. Reform and re-organisation of the health system beyond the public sector is part of this agenda. The region needs to return to the ideals of universal entitlement and access to health and other social services that are essential to the social policy agenda of developmental states. Selectivity and exclusion in terms of who qualifies for social protection benefits will only harm these countries, as responses to the pandemic have shown.
References and further readings
Alvaredo, R., Assouad, L. and Piketty, T. (2017) Measuring lnequality in the Middle East 1990 2016: The World’s Most Unequal Region? Reprinted 2020. [https://halshs.archives-ouvertes.fr/halshs-02796992/file/2017-15_.pdf] [Accessed: 10 September 2020.]
ILO, 2019. Working Poor or how a job is no guarantee of decent living conditions. April.
Karshenas, M., Moghadam, V. and R. Alami (2014), ‘Social Policy after the Arab Spring: States and Social Rights in the MENA Region,’ World Development, Vol. 64, issue C, pp.726-739.
Loewe, M. (2019), ‘Social Protection Schemes in the Middle East and North Africa: Not Fair, Not Efficient, Not Effective,’ in Jawad, R., Jones, N. and M. Messkoub (eds., 2019), pp.35 60.
Messkoub, M. (2008), Economic Growth, Employment and Poverty in the Middle East and North Africa, Geneva: ILO Working Paper Series, No. 19.
Messkoub, M. (2021, Forthcoming), ‘Social Policy in the MENA Region,’ in H. Hakimian, ed.(2020) Routledge Handbook on Middle Eastern Economy. London: Routledge.
OECD, 2020. COVID-19 crisis response in MENA countries. Updated 9 June [https://read.oecd-ilibrary.org/view/?ref=129_129919-4li7bq8asv&title=COVID-19-Crisis-Response-in-MENA-Countries] [Accessed: 10 September 2020.]
O’Sullivan, A., Rey, M-E and Galvez Mendez, J. (2012) Opportunities and Challenges in the MENA Region. OECD.[/vc_column_text][vc_separator color=”custom” accent_color=”#a80000″ css=”.vc_custom_1594895181078{margin-top: -15px !important;margin-bottom: 10px !important;}”][vc_column_text]An earlier version of this blog titled ‘COVID-19, Public Health and Social Policy in MENA’ was first published by the Alternative Policy Solutions, a public policy research project at the American University of Cairo.[/vc_column_text][vc_separator color=”custom” accent_color=”#a80000″ css=”.vc_custom_1594895181078{margin-top: -15px !important;margin-bottom: 10px !important;}”][vc_column_text css=”.vc_custom_1614791812480{margin-top: 0px !important;}”]About the author:
Mahmoud Messkoub (PhD Econs, University of London) is based at the International Institute of Social Studies (ISS, Erasmus University of Rotterdam, NL). He has researched and taught economics of development, social policy and population (mobility/migration, age structure and ageing) at universities of London (Queen Mary), Leeds and Erasmus (ISS). His current research interests are in the areas of economics of: social policy and population ageing, migration and universal approach to social provisioning. His recent publications are related to social policy, poverty and employment policies, cash transfers and evaluation of unpaid household work. He has acted as a consultant to ESCWA, ILO and the UN (DESA, UNFPA). He is currently working with an EU and African consortium on an EU funded – Horizon 2020 research project : ‘Crisis as Opportunities: towards a Level Telling Field on Migration and a New Narrative of Successful Integration’
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While the US economy is going through its worst crisis in the last eight decades, with small businesses shutting down en masse and millions of Americans losing their jobs, one wouldn’t know anything is wrong solely from looking at the largest US companies. The crisis, triggered―but not caused―by the COVID-19 pandemic measures, has enabled some of the world’s largest corporations to amass record profits. It allows them to capture ever-larger shares of a market that is increasingly monopolised. How could that happen and what will it lead to?
The widening gap between the Big Five and the rest
It is no secret that Amazon has done well throughout the pandemic, with both the company’s profits and Jeff Bezos’ personal wealth shooting up to record highs in the middle of one of the worst recessions the US has ever seen. While brick-and-mortar retailers have suffered tremendous damage as a result of the measures implemented in response to COVID-19, Amazon has thrived off the accelerated shift to online services.
And it is not alone in this: The so-called US tech companies―also referred to as the Big Five―have all managed to keep increasing their profits while the US economy is contracting. Apple, Alphabet (Google’s holding company), Amazon, Facebook, and Microsoft saw their combined pre-tax profits rise by an annualised 5% in the second quarter; starkly contrasting profits of the rest of corporate America, which fell by an annualised 27% (excluding finance).
A company experiencing profits growth during a recession is highly unusual, and the Big Five’s outperformance has led to a dramatic increase of their share in total non-financial profits made by US companies. Having already risen from 4% in 2011 to 11% in 2019, the Big Five have increased their slice of the pie to 16% in the first half of this year.
To put this into perspective: The concentration of US non-financial profits in the top five companies has historically been around 7-9% while the current top five, which includes three of the large tech companies, accounted for an astounding 19.3% in 2019. Since the onset of the pandemic, this figure is estimated to have risen further to 25%. This would mean that five companies now receive one quarter of all non-financial profits made in the US.
[/vc_column_text][vc_single_image image=”18704″ img_size=”full” add_caption=”yes” alignment=”center”][vc_column_text]A long-standing trend of market concentration
There is no question that the pandemic measures have accelerated the ever-widening gap between the Big Five and the rest, but at the same time it cannot be ignored that the US economy has seen a long-standing trend of market and profits concentration. Even before Big Tech came along, many of the major industries, ranging from beer to healthcare, had already seen the emergence of oligopolies (a few dominant firms), duopolies (two dominant firms) and even monopolies (one dominant firm).
A prime example is the case of high-speed internet provision in the US, for which the market is almost completely controlled by the three telecom giants AT&T, Verizon, and Comcast. By carving up the market, they have avoided competing in the same regions, forcing as many as 75% of US households to ‘choose’ from just one provider. Health insurance is another industry for which the market has been sliced up by the companies who dominate it, ensuring that competition is avoided as much as possible. As a consequence, in many states 80-90% of the health insurance market is controlled by just two companies.
Capitalism is a system in which competition drives innovation and growth. The natural strategy for a company to become dominant in an industry is to outcompete its rivals by producing better and cheaper products―i.e., by innovating. The problem in the US today is that more often than not, it has been a lack of competition which has allowed for high levels of market concentration and abnormally high profit margins in the US.
But it wasn’t always like this. The US government used to pay great attention to market concentration and threats to competition, which was why they had created antitrust regulation in the first place around the turn of the 20th century. According to Jonathan Tepper and Denise Hearn, who documented the vast extent of uncompetitive and increasingly concentrated industries in the US in ‘The Myth of Capitalism’, point to the dismantling of antitrust regulation since the 1980s as one of the major causes for the growing degree of what they refer to as ‘industrial concentration’.
An illustration of when antitrust was still applied in full force is the case of IBM in 1969. The US government brought an antitrust lawsuit to PC maker IBM who held 70% of the market at the time. The lawsuit instigated IBM to make its hardware compatible with software other than the programmes it sold itself, allowing for new companies such as Microsoft (founded in 1975) to emerge and produce software for IBM machines and, eventually, for those produced by other companies.
In 1998, when the number of antitrust cases was already much lower than before, the US government brought an antitrust lawsuit against Microsoft because it was starting to monopolise the PC software market. The tech giant was using its popular Windows operating system to favour its own programs such as the Internet Explorer. And with the internet on the rise, the company was also well positioned to block competitors from areas such as search engines. The lawsuit helped curb Microsoft’s growing power and allow other software companies to compete. Perhaps more importantly, it also allowed tech startups―such as a little company called Google―to grow.
The Big Five and the abandonment of antitrust regulation
The irony of Google owing its existence to antitrust is that the tech giant is currently one of the largest violators of antitrust principles, which appear to no longer be enforced by the US government. Apart from being a monopoly in the market for search engines, Google together with Facebook controls the market for online advertising with both companies actively barring new entrants to the industry. When Facebook bought social media rival Instagram in 2012, there was not a single antitrust case brought against them to block the acquisition.
Buying the competition certainly has been a favorite tool for retaining dominance. Since 2005, the Big Five have acquired 549 companies, which in many instances were direct competitors. From 1985 to 2017, the number of mergers and acquisitions completed annually rose from 2,308 to 15,361 nationwide. Unsurprisingly, Tepper and Hearn are able to show that the rise in acquisitions has a clear inverse relationship with the number of antitrust cases.
On top of acquisitions, the Big Five have found other ways to cement their market dominance. As US President Donald Trump correctly pointed out, Amazon is subsidised massively by their exclusive access to state-owned US postal services (USPS) at cheap rates. It is estimated that the USPS undercharges Amazon by $1.47 per package―no wonder Amazon accounts for more than 43% of online retail sales.
Boosting profits without being more competitive
Highly concentrated industries allow for two major distortions that boost corporate profits without the dominant companies having to be more competitive: price gouging and suppressing wages.
For price gouging, the internet provision industry serves as a good example. New York University economist Thomas Philippon found in a 2019 study that prices for a monthly broadband connection were almost twice as high in the US than in Europe or South Korea. Similar price differences were observed for air travel in the US when compared to Europe. Flights in the US are dominated by four major airlines that often enjoy regional monopolies and have solidified their market dominance since the US deregulated the airline industry in 1978. Having been fairly stable until that point, inflation-adjusted flight prices jumped by 50% in the first ten years after deregulation.
Being often one of the few employers (in some cases the only employer) in small-town America, monopolies also hold significant power over labour, which they exert through lobbying for laxer labour laws, inserting non-compete clauses in labour contracts, and consequently depressing wages. Marshall Steinbaum, Ioana Marinescu and Jose Azar found that wages are typically 10-25% lower in a ‘highly concentrated’ industry than in a ‘very competitive one’. Overall, wages adjusted for inflation have been stagnant in the US since the 1970s.
The suppression of wages has no doubt elevated profits margins, as Tepper and Hearn show in an almost perfectly inverse relationship between the two. What they further show is that the income distribution to the lower percentiles has a remarkably close correlation to union membership, the latter of which has been on a steady decline since the 1960s, implying that the large US corporations have successfully worn down the power of labour.
The consequences of not having to compete
Higher prices and lower wages are the reason for the exorbitant profit margins we see in today’s economy. But apart from that, they also lead to a complete loss of the capitalist drive that usually spurs companies to innovate. This decline in innovation is for a large part indicated by the number of US-American start-ups―which usually account for a large portion of total innovation―having fallen by nearly half since the 1970s.
What’s more, the large companies that dominate their industries are themselves not driven to innovate anymore. Instead, they have found a new way to inflate the value of their company: share buybacks. A study conducted by the Harvard Business Review found that between 2009-2018, companies listed on the S&P500 spent $4.3 trillion, or 52% of net income (profits), on share buybacks and $3.3 trillion, or 39% of net income, on dividends. This increases the wealth of both owners and managers, but does not make the company any more productive as little capital remains for research and development (R&D). In 2018, only 43% of all companies listed on the S&P500 index invested in any R&D.
Of the Big Five, the loss of competitiveness is perhaps the clearest in the case of Apple. The American electronics manufacturer that once pioneered and dominated the smartphone market for almost a decade has been knocked to the fourth place in global smartphone sales, losing out to East Asian competitors Samsung, Huawei and Xiaomi. The only market Apple still dominates is the US, although it is worth wondering whether this would be the case if Huawei were allowed to sell its phones in the American market.
It is not to say innovation in the US has completely left the scene (for instance, the US is still a leader in microprocessors), but that the dynamism that once allowed for rapid technological change and global dominance is in decline. Tesla is another good example of a monopoly born in the US and having received billions worth of government support (see Mazzucato’s 2013 book ‘The Entrepreneurial State’) that now has increasing difficulty remaining competitive in an international setting.
The concentration of profits in the largest US companies and their dominance of entire sectors is essentially not a reflection of their superior competitiveness, but the result of a system benefiting them disproportionately while allowing them to accumulate wealth without becoming more competitive.
The lack of innovation is significant because an economy thus hollowed out of its productive capacity is bound to crumble, and, in the case of the US, allow a new power to rise and take its place in the global economy. There is only one reason that the loss of international competitiveness has not yet fully translated itself into a deterioration of living standards for Americans: the Dollar.
This article was originally published on Kapital Economics, the platform for evidence-based economic analysis.
About the authors:
Josephine Valeske holds a MA degree in Development Studies from the ISS and a BA degree in Philosophy and Economics. Apart from contributing to Kapital Economics, she currently works for the research and advocacy organisation Transnational Institute.
Bram Nicholas holds an MBA from the University of Western Sydney and is in the process of writing a PhD on the subject of exchange rates and forex markets at the University of Colombo. He is the founder and CEO of Kapital Economics and currently lectures at HUTECH, Vietnam.
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In 2010, approximately 34% of young women in developing countries – some 67 million – married before reaching 18 years of age. An additional 14-15 million women will marry as children or adolescents every year in the coming decades. Child marriages lead to pregnancies and childbirths at an early age, which can have negative consequences for the health of both mother and child. Does the age at which motherhood takes place matter, and can postponing motherhood into adulthood help increase the chances of children surviving beyond five years of age? My study of teen pregnancies amongst Bangladeshi girls shows that age does matter, and it matters quite a lot.
Globally, in developing countries excluding China, one in three girls will probably be married before they are 18, according to UNFPA figures from 2012. Bangladesh has the highest rate of child marriages in Asia (and the third-highest rate worldwide); two in three women marry as children or adolescents in this country. This exceptionally high rate of child marriages in Bangladesh persists despite a minimum legal marriage age of 18 years for women, and it leads to more teenage pregnancies and a care burden for young women. A survey interviewing 72,662 Bangladeshi mothers in 2001 showed that 10% of interviewed women had their first child between the ages of 10 and 14 years, and another 69% of them had their first child between the ages of 15 and 19 (Figure 1).
Figure 1: Age at which Bangladeshi women have their first child
Figure 1: In total, 72,662 Bangladeshi women who gave birth in at least two different points in time were surveyed for the Maternal Health Services and Maternal Mortality Survey of 2001. This figure shows which fraction of these women gave birth for the first time at a certain age. Source: Trommlerová (2020).
In general, we know that adolescent childbearing is associated with negative health outcomes for both mother and child. The mother faces an increased risk of premature labour, labour-related complications, and death during delivery (Senderowitz, 1995). She may also suffer an injury, an infection or a serious health limitation, such as an obstetric fistula or perineal laceration (UNICEF, 2001), due to giving birth. These problems are caused both by physical immaturity and poor socio-economic conditions of young mothers, including a lack of access to sufficient antenatal and obstetric care (WHO, 1999).
The child of an adolescent mother is at a higher risk of a low birth weight (Restrepo-Méndez et al., 2015), which is mainly associated with poor maternal nutrition of adolescents during pregnancy (UNICEF, 2001). Low birth weight is, in turn, a frequent cause of death in the first year of life of infants (McCormick, 1985, Sohely et al., 2001). Apart from biomedical reasons, there are additional channels that link adolescent pregnancies to higher mortality in early childhood. These include insufficient access to maternal health care services and lack of experience in taking care of children.
A better understanding of the link between adolescent childbearing and young children’s survival chances is important as scientific evidence can drive policy changes, particularly in enforcing the minimum legal marriage age in Bangladesh. It can also inform the advocacy of changes in cultural practices. Thus, the central question is: Can postponing motherhood of teenage girls help their children to survive beyond infancy or childhood?
Building on previous knowledge, I looked more closely at the impact of adolescent childbearing on the mortality of young children at different ages between 0 and 5 years. The goal was to separate the effect of having a child at an early age from the fact that poorer (and, frequently, less healthy) mothers tend to marry younger and might therefore have less healthy children. The idea is the following: if children born to young mothers suffer higher mortality in early childhood due to biological factors, such as physical immaturity of mothers and the resulting low birth weight of their children, then we should observe different mortality rates not only between children born to adolescent and adult mothers, but also among siblings born to the same mother in her adolescence and adulthood—that is, in different phases of her life.
It turns out that children born to young mothers (child brides in Bangladesh) are more likely to die in the first year of life than their siblings born later on. This is true irrespective of how rich the household is (left graph in Figure 2). Only in poor households, these negative effects extend up to the child’s fifth birthday (black and blue lines in right graph of Figure 2).
In the two graphs below, we see how much lower the probability of death for an infant or a child is if the mother is older than 10-14 years. The age of the mother is displayed in five-year age groups on the horizontal axes. Different lines indicate different income groups (poorest Quintile 1 – black; Quintile 2 – blue; Quintile 3 – green, Quintile 4 – red; richest Quintile 5 – yellow). The percentage of increased risk of early childhood mortality per age group is shown on the vertical axes of the graphs. The left graph depicts infant mortality (up to one year of age) while the right graph shows child mortality (between one and five years of age).
The graphs show that up to one year of age, the income of the family does not really matter (left) while between one and five years of age, a higher income can help outweigh the negative effect of teenage pregnancies (right). The downward trend observable in the left graph is universal for all income groups and it indicates that all children have higher survival chances in the first year of life if their mother is not a teenager. In the right graph, a similar downward trend is observable only for the two poorest income groups, which means that only in poorer families, children of ages one to five have worse survival chances if their mother is a teenager. The three richer income groups show no downward trend (and their slightly upward trend is statistically not important) which means that in richer families, the mother’s age does not really influence her child’s survival if the child managed to survive the first year of life. The graphs are based on my study of adolescent childbearing among Bangladeshi women.
Figure 2: Infant and child mortality effects of maternal age for five different wealth quintiles
Figure 2: Dash-dotted lines mark the average mortality rate to benchmark the effect sizes. Source: Trommlerová (2020).
These results confirm my idea that the effects of adolescent pregnancies on child survival in the first year of life are of biological nature because they are universal. Possibly, they are related to the immaturity of young girls’ bodies and to low birth weight of their children. Beyond infancy, these negative effects remain only in poorer households, which is consistent with the notion that richer households are able to counteract a biologically induced, worse starting position of children born to adolescent mothers by compensatory investments in child health. However, these investments do not become effective until the children reach the age of one year old.
Finally, the estimated effects are substantial in magnitude: for instance, the survival chances of children born to mothers aged 20-24 years are 56% higher in infants’ first year of life and 24% higher when the child is aged between one and five, when compared to their older siblings who were born to young mothers (aged 10-14 years). These effects either persist or become even larger when comparing adolescent maternal age (10-14) to older ages (25-29, 30-34, etc. up to 45-49 years). Importantly, these results remain true also when I exclude older women or first-born children from the sample.
To summarize, I have shown that infants and children have a much better chance of survival when their mothers are adults. The postponement of motherhood into adulthood could help prevent around 12,900 infant and 18,700 under-five deaths annually in Bangladesh, as rough calculations explained in my paper show. These effects can be directly attributed to the practice of child marriages.
This article is based on a recent paper I authored, see here.
Main reference:
S.K. Trommlerová (2020). When Children Have Children: The Effects of Child Marriages and Teenage Pregnancies on Early Childhood Mortality in Bangladesh. Economics & Human Biology 39, 100904.
Other references:
McCormick, M. (1985). The contribution of low birth weight to infant mortality and childhood morbidity. The New England Journal of Medicine 312(2), 82-90.
Restrepo-Méndez, M.C., D.A. Lawlor, B.L. Horta, A. Matijasevich, I.S. Santos, A.M. Menezes, F.C. Barros and C.G. Victora (2015). The association of maternal age with birthweight and gestational age. Paediatric and Perinatal Epidemiology 29, 31-40.
Senderowitz, J. (1995). Adolescent Health: Reassessing the Passage to Adulthood. World Bank Discussion Paper 272. World Bank, Washington DC.
Sohely, Y., D. Osrin, E. Paul and A. Costello (2001). Neonatal mortality of low-birth-weight infants in Bangladesh. Bulletin of the World Health Organization 79(7), 608-614.
UNFPA (2012). Marrying Too Young. End Child Marriage. United Nations Population Fund, New York.
UNICEF (2001). Early Marriage – Child Spouses. Innocenti Digest 7. Innocenti Research Centre, Florence.
WHO (1999). The Risks to Women of Pregnancy and Childbearing in Adolescence. WHO, Division of Family Health, Geneva.
About the author:
Sofia Trommlerová is a postdoctoral researcher in economics at Universitat Pompeu Fabra in Barcelona, Spain. Her main research interests encompass family economics, gender, child health, development economics, and economic demography. In 2017-2018 she was a postdoctoral researcher in development economics at the International Institute of Social Studies (ISS), Erasmus University Rotterdam, The Netherlands.
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During the summer of 2017 we studied financial inclusion of street vendors in the Nyarugenge District (Kigali, Rwanda), a group of underprivileged that very often cannot be reached by traditional surveys or a census. Street vending is prohibited in the Kigali, Rwanda Nyarugenge District, and during the field work several raids by local security agencies were observed. Just a few weeks after the field work, street vending was officially forbidden. Our fieldwork offers a unique and no longer existing opportunity to survey street vending as a truly informal activity in this area. The peer reviewed publication of our innovative multimethod field research appeared in Journal of African Business.
Policy makers need to focus on actual use
Having a financial account is an important policy issue for poverty reduction in Rwanda, where most of the small businesses (tailors, masons, vegetable sellers, welders, and so on) are in the informal sector and run by people with no or limited formal education. A recent Finscope survey finds that the government’s goal to accomplish 90% of ‘financial inclusion’ by 2020 is realistic and attainable.
The government’s target, however, relates to de jure financial inclusion, that is: formal financial account holdership. But simply having an account is not what matters for effective poverty reduction. In our sample the majority of financial account holders does not use the financial account frequently: 57% accessed it once or less a month (half of these accounts have been inactive over the past 12 months). Our findings point out the need for the government to reformulate its policy in terms of actual use (de facto inclusion) and our investigation indicates which tools could be useful to achieve that target.
Individual characteristics do matter for use of an account
We have collected several individual characteristics of the respondents to our survey including gender, age, marital status, and education in order to be able to test if individual characteristics matter for being formally and/or de facto financially included. In our analysis we also control for weekly sales and four types of products that were traded (edibles, clothes, shoes and cosmetics). Gender turned out to be the single most significant driver of de facto financial inclusion (Figure 1) and this was confirmed in our ordered probit model (a higher level of education is associated with a higher frequency of use, but not with formal financial inclusion). Policies supporting female financial inclusion would thus seem to be necessary to correct this imbalance.
Financial infrastructure is key
The presence of a financial institution in the home location of the street vendor is the most significant determinant identified by our research. From a policy perspective this underlines the importance of a good financial infrastructure: the economic geography of financial inclusion is important. Being close to a financial institution is associated with better financial inclusion. The importance of geography and location has also been established by earlier research on the differences between urban and rural areas, but our results are more specific. According to our findings the driver is the availability of a financial institution in the street vendor’s hometown, thus providing policy makers with a concrete tool to improve financial inclusion in Rwanda.
This blogpost was originally published on the INCLUDE platform.
About the authors:
Diane Irankunda is a former student at the International Institute of Social Studies (ISS) in Economics of Development.
Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.
Title Image Credit: Adrien K on Flickr. The image has been cropped.
We are only starting to see the economic impact of the COVID-19, but it is likely to have far-reaching effects and will result in unprecedented economic transformation. We are currently in a phase of deglobalization and the impact on livelihoods is closely linked to how we respond to the pandemic. The bad news is that we’re not yet responding very well. The silver lining is that we will nevertheless stay globally connected.
Suddenly deglobalization is no longer a hypothetical possibility, but a reality: the IMF in its April 2020 World Economic Outlook predicts a reduction of the world trade volume for this year by 11%, which pales in comparison to the 13% best-case scenario of the World Trade Organization (WTO) in which the economy is somewhat robust and its 32% worst-case scenario that sees the world economy in free fall.
What can we learn from earlier periods of deglobalization?
World openness 1880 – 2021
Source: P.A.G. van Bergeijk, Deglobalization 2.0, updated using IMF WEO April 2020
The Great Depression of the 1930s with its enormous negative impact on world openness and economic welfare was preceded by the worst pandemic of the previous century: the Spanish Flu. Estimates of its death toll vary widely from 20 to 100 million fatalities. With a world population of about two billion people, that amounts to a mortality rate of 1-5%. With COVID-19 these numbers look like a chilling possibility as well.
The pandemic that preceded the Great Depression did not cause it. Recovery of the recession triggered by the Spanish Flu was relatively quick and spontaneous. World trade did not collapse. A major difference between the context of the Spanish Flu and the economic background against which COVID-19 now is emerging is that our world was already in the downward phase of Deglobalization 2.0 when COVID-19 hit. The pandemic appeared at top of the deglobalization wave.
Pandemics are signs of the times
Indeed, in hindsight the Spanish Flu was a sign of the impact of a virus on a globalized world, in a sense a warning of a turning point in globalization. That turning point was due to the rising costs and decreasing benefits of globalization. It would bring the world what I have called Deglobalization 1.0.
COVID-19 can of course not be seen as such a sign, but the fact that preparation for pandemics was not sufficient, in addition to the breakdown of international cooperation, reflect the second underlying mechanism of deglobalization. We can observe both in the Great Depression of the 1930s and in the Great Recession that the leading power of the time (the hegemon) deserted the rules of the game that underpinned globalization and were actually designed by its interest in an open trade and investment climate. An open, stable and relatively peaceful system allows other countries to develop and grow faster, capturing a larger share of the benefits of globalization. In the early phase of globalization, a smaller share from a larger economic pie may still be an improvement. At some point, the costs of being a hegemon, however, outweigh the benefits. This is where the emergence of China as the new hegemon comes into play.
It is ironic, but sad, that the United States and the United Kingdom (the hegemons that helped to build a constellation in which trade, democracy, and peace were reinforcing aspects of the world order) are spoiling global and European governance. Proceeding with Brexit is a dangerous mistake, but it is an outright disaster that the United States, in the midst of a pandemic, has cut its support to the World Health Organization, in the same vein as it paralysed the World Trade Organization earlier this year. This attack on global governance is dangerous, but it is not unexpected—it is after all behaviour that one can expect from a declining hegemon in a period of deglobalization.
Lessons from history
The first thing is that isolationism offers no protection against a highly contagious virus. Indeed, probably the scariest thing about the Spanish Flu was its ability to reach even the most remote corners of our planet. Mind you, that was a world without mass tourism, global production networks and refugee flows. We have also learned that sound policies can counteract the negative economic forces that turned the 1930s into the Great Depression.
I do not think that the expansionary monetary policy does any good in this crisis that is essentially a negative supply shock x it is perhaps best seen as a signal – but support of effective demand is welcome especially if it can be organized more efficiently by focusing on the needs of new industries that we need to fight COVID-19—machinery and protective gear for the health sector, the testing industry (including case monitoring), distribution and logistics, and ICT. Finally, we have learned that the deglobalization virus in the 1930s spread especially in autocratically governed countries, but that it first showed up in the democratic world during the recent phase of deglobalization.
A striking difference between autocracies and democracies is the difference in death toll of the virus, and it may reflect the fragmentation and lack of solidarity in modern democracies.
Room for optimism
The first reason to be optimistic is because of the significant resilience of world trade and investment during global crises. Global firms have had a good exercise with the collapse of world trade by 20 percent in 2008. That collapse did set in motion the process of deglobalization, but the good news is that world trade and investment recovered to previous peak levels within a year. The finding that deglobalization started during the Financial Crisis is also a reason for optimism because Deglobalization 2.0 thus preceded Brexit and the “Make America Great Again” movement.
We should not confuse the symptoms and the disease. The attack on supranational governance has an underlying disease that can be cured if we fight the underlying causes that have driven the deglobalization process so far, that is greater inequality and a lackluster trickling down of the benefits of international trade and investment.
And last but not least, the outlook for openness of the world economy is still much better than in the 1930s. Yes, deglobalization exists. Yes openness will be much lower than previously expected. But as illustrated in Figure 1, it will in all likelihood remain at a level that is two to three times the level in the 1950s. Even if trade and investment flows would decrease according to the WTOs gloom and doom scenario our societies would remain much more open than in the 1950s, connected via the internet at a level never seen before in history.
This blogpost appeared April 21 on Edward Elgar blog and is reproduced with permission. Readers of Bliss can order the paperback Deglobalization 2.0 by Peter A.G. van Bergeijk at a discount (enter VANB15 in the discount code box at the basket stage of ordering here). The article is part of a series about the coronavirus crisis. Find more articles of this series here.
About the authors:
Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.
Ecuador is currently (as of 8 April) the South American country worst affected by COVID-19 in terms of the number of confirmed cases and fatalities per capita. While even the universal health systems of Northern European countries are becoming severely frayed by the nature of this pandemic, Ecuador serves as a powerful example of how much worse the situation is for many low- and middle-income countries, particularly those whose public health systems have already been undermined by financial assistance programmes with international financial institutions (IFIs). The IMF and other IFIs such as the World Bank must acknowledgethe role they have played and continue to play in undermining public health systems in ways that exacerbate the effects of the pandemic in many developing countries.
The recent IMF Extended Fund Facility (EFF) Arrangement, signed in March 2019 with the Government of Ecuador, was already the subject of massive protests in October 2019 given the austerity and ‘structural reforms’ imposed on the country (aka structural adjustment). It has also directly contributed to the severity of the pandemic in this country given that health and social security systems were among the first casualties of the austerity and reforms. In particular, the government’s COVID-19 response has been severely hindered by dramatic reductions of public health investment and by large layoffs of public health workers preceding the outbreak of the virus.
From this perspective, even though the IMF has recently moved to offer finance and debt relief to developing countries hit by the COVID-19 pandemic, a much more serious change of course is needed. For this, it is vital to understand its own role – and that of other IFIs such as the World Bank – in undermining health systems before the emergence of the pandemic in various developing countries, lest similar policy recipes are again repeated.
The baseline
It is clear that the pre-existing national healthcare system in Ecuador has been replete with problems even in ‘normal’ times. As in most of Latin America, the weaknesses of the healthcare system in Ecuador stem from its segmented and stratified character, with a distinct segregation between three main subsectors – the public, social security, and private sectors. The Ecuadorian Ministry of Health has a weak coordinating and regulatory role over these three subsectors, each of which caters to different beneficiary populations and with clearly distinct quality of services. The public system is the lowest quality and the one accessed by most poor people. Despite claims of universal health, the national system is a far cry from anything approaching genuine universalism.
Moreover, there has been a progressive privatization and commodification of healthcare since 2008. For instance, the building of capacity within the social security system has been undermined by the channelling of health funding via contracts to the private sector, where pricing is also mostly unregulated [1]. More generally, Ecuador has consistently exhibited one the highest out-of-pocket (OOP) health expenditure shares in South America, despite a government discourse and constitutional mandate to deliver free, high quality, public healthcare for all citizens. OOP payments – or direct payments by users at the point of service – reached 41.4% per total health spending in 2016 [2]. They include, for instance, payments for medicine or medical supplies by poor people in public hospitals, as well as payments by middle- and upper-class people for consultations and surgeries. The COVID-19 crisis puts pressure on precisely these aspects of healthcare provisioning, rendering the system prone to systemic failure for the majority of the population, especially in times of economic crisis when the ability of users to pay is severely curtailed.
Crisis and IFIs
These problems in the healthcare system have been exacerbated by the austerity measures of the current government of Lenín Moreno. The measures were introduced in the context of the protracted economic crisis that started in 2014 and have been endorsed by the IMF and other IFIs. Public health expenditure plateaued at 2.7% of GDP in 2017 and 2018, and then fell slightly to 2.6% in 2019, when GDP also slightly contracted (see figure). This was despite the constitutional goal that established an increase of at least 0.5% of GDP per year until 4% was to be reached, which is still far below the 6% of GDP recommended by the Pan American Health Organization [3].
* The main component of this expenditure is on non-contributory social protection (social cash transfers).
** It excludes health expenditure of the social security system.
However, the collapse in public investment in the health sector has been far more dramatic, falling by 64% from 2017 to 2019, or from USD 306 million in 2017 to USD 110 million in 2019 [4]. Such reductions would have been largely borne by the public health system and constitute expenditures that are vital for a COVID-19 response, such as the construction of hospitals and the purchase of medical equipment.
It was in this context that the IMF Extended Fund Facility (EFF) was agreed and signed in March 2019. Within the framework of this programme, the government implemented a large layoff of public healthcare workers (including doctors, nurses, auxiliary nurses, stretcher-bearers, social workers, and other healthcare workers). The layoffs continued throughout 2019, despite protests by the National Syndicate of Healthcare Workers of the Ministry of Health [5], [6], [7]. It is difficult to know the exact number of layoffs because of the fragmented functioning of the health system, although within the Ministry of Public Health alone, 3,680 public health workers were laid off in 2019, representing 4.5% of total employment in this Ministry and 29% of total central government layoffs in that year [calculated from 8]. Similar reductions in the social security sector were announced in 2019 for 2020, although we have not yet been able to find any data on these reductions.
Thus, it is not a surprise that Ecuador is currently doing so poorly in handling the COVID 19 crisis. The retrenchment of the public health system together with an already weak and retrenched social protection system coupled for the perfect storm. But even more worrying is that, in the face of the pandemic, the government paid 324 million USD on the capital and interest of its sovereign ‘2020 bonds’ on 24 March instead of prioritizing the management of the health crisis. This decision was taken despite a petition on 22 March by the Ecuadorean assembly to suspend such payments, along with a chorus of civil society organizations lobbying for the same [9] [10]. The government nonetheless justified the payment as a trigger for further loans from the IMF, World Bank, Inter-American Development Bank, and Andean Financial Corporation [11]. This is especially problematic given that Ecuador has been hard hit by the collapse of oil prices and, as a dollarized economy, its only control over money supply and hence hope for economic stimulus rests on preventing monetary outflows from the economy (and encouraging inflows).
The payment is also paradoxical given that the IMF and the World Bank are currently calling for the prioritization of health expenditure and social protection and for a standstill of debt service, and have announced initiatives for debt relief and emergency financing [12] [13]. Nonetheless, despite such noble rhetoric, it appears that the precondition for such measures continues to be the protection of private creditors over urgent health financing needs.
Atoning for past and present sins on the path to universalism
The COVID-19 pandemic undoubtedly exposes the inadequacies of existing social policy systems in developing countries and the urgent need of moving towards more genuinely universalistic systems. Ecuador is exemplary given that it has until recently been celebrated as a New Left social model even while its national health system has remained deeply segregated and increasingly commodified.
However, while the IMF and other IFIs have emphasised the importance of placing health expenditures in developing countries at the top of the priority list in the context of the COVID-19 pandemic [12], they have not acknowledged their own continuing roles in undermining these priorities. Indeed, their messaging is often contradictory, given that both the IMF and the World Bank have also repeatedly insisted that developing countries must persist with ‘structural reforms’ during and after the pandemic [13] [14]. In other words, there is no evidence that the course has been reset. As one way to induce a reset, it is important that they acknowledge the roles they have played and continue to play in undermining public health systems and universalistic social policy more generally, lest they continue to repeat them despite the switch to more noble rhetoric.
This article is part of a series about the coronavirus crisis. Read all articles of this series here.
About the authors:
Ana Lucía Badillo Salgado is a PhD researcher at the ISS focusing on the political economy of social protection reforms in Ecuador and Paraguay, in particular the role of external actors in influencing social policymaking. She is also a Lecturer at Leiden University College.
Andrew M. Fischer is Associate Professor of Social Policy and Development Studies at the ISS and the Scientific Director of CERES, The Dutch Research School for International Development. His latest book, Poverty as Ideology (Zed, 2018), was awarded the International Studies in Poverty Prize by the Comparative Research Programme on Poverty (CROP) and Zed Books and, as part of the award, is now fully open access (http://bora.uib.no/handle/1956/20614). Since 2015, he has been leading a European Research Council Starting Grant on the political economy of externally financing social policy in developing countries. He has been known to tweet @AndrewM_Fischer
In June, a colloquiumcalled ‘capital accumulation: Strategies of Profit and Dispossessive Policies’ was organised for the 50th anniversary of the University of Paris Dauphine. The colloquium provided a snapshot of the current debates and concepts within the field of Marxism. The discussion between the main key Marxist speakers – David Harvey and Nancy Fraser– revolved around conceptualising various challenges that capitalism is facing. The different conceptual mapping of the crises provides different paths to emancipatory changes.
Capitalism is facing many heterogenous ills: Economic, financial, environmental and care deficits. Harvey analyses these ills under the single umbrella of economic crisis that found its origin in the contradictions that the capitalist system carries. Basically (and we all know the drill), capitalism is a process of circulation. Capitalists put some money to buy labour power and means of production, make them work together under a given technology and organisation to produce a commodity that will be sold on the market for a value. In this process, workers are not being paid according to the value they have produced but rather are being paid wages that barely cover the socially necessary costs of their own reproduction. The difference between waged labour and the real value produced by the workers fuels capitalist profit. Given that the capitalist system is a process, a part of that profit has to be capitalised and put again into circulation to extract more profit. The quest for more profit compels capitalists to promote endless growth rates.
In David Harvey’s view, the two classes’ social relations of exploitation are at the crux of the accumulation process of capitalism, overaccumulation and consequent crisis. Overaccumulation as a crisis is defined as surpluses of labour and capital which cannot get together in a profitable enterprise. In this understanding, social reproduction of labour and nature are what Harvey calls free gifts for the capitalist system and are not conceptualised as independent mechanisms of accumulation.
The economic crisis or overaccumulation gets temporarily solved through spatio-temporal fixes or what Harvey also calls accumulation by dispossession[1]. The crises of capitalism are being temporarily tamed by geographical expansion and restructuring. Indeed, capitalist accumulation works within a fixed space where there are built environments such as transport, factories, roads etc. leading to dispossession of the local population to produce profit. The process of capitalism destroys the space as it needs to increase profit through growth. Once the space is destroyed, at a later point, capitalism re-creates a new space to reproduce the capitalist system of overaccumulation. So, this process of creation and destruction is at the very core of globalisation and understanding the geographical principles of globalisation will help to find a path for emancipatory changes.
While Fraser agrees that the crux of accumulation lies in the two classes’ social relations, she thinks that this view is too narrow[2] as it focuses only on social processes and social relations that are accorded value in the capitalist system by the capitalists and that the capitalists themselves define as having economic value. It does not integrate the non-economic phenomena of global warming, care deficits and the hollowing out of public power. Rather, Fraser believes that currently, capitalism is having two crises: the economic and the non-economic crisis. While the economic crisis is the one described by Harvey, the non-economic crisis is coming from activities which are not recognised by the capitalist system. The non-economic activities are the borders of the capitalist economy. These activities are for instance the non-wage labour of social reproduction which provides the supply of labour but also activities such as social bounds, solidarity and forms of trust. There are other spaces than the private home where activities of social reproduction and its associated care activities are occurring. For instance, public education and health care systems as well as leisure facilities are all part of the activities of care. Slavery and immigration are the two most common ways capital has replaced labour. The separation between social reproduction and production enables capitalist forms of women’s subordination while being the indispensable background precondition for the possibility of capitalist production (Fraser, 2014).
Particularly, Fraser focused on the crisis of the activities of social reproduction. The division between social reproduction and production have shifted overtime. In the 20th century there has been mutations of social reproduction activities within the state. After the Second World War, some aspects of the social reproduction moved from the realm of the private home to the realm of public services and public good while in the Neoliberal era, social reproduction and care mutated from the realm of public services to the realm of the market forces.
The last mutation has accentuated care extractivism and hence the crisis of care. The concept of care extractivism as development by Wichterich is an analogy to the concept of resource extractivism and posits the increasing reliance of the extraction of care, through commodification and, economisation in the market forces . For instance, this concept can be used for transnational reproductive networks where the Global North recruits through the free market care workers from the Global South to provide care activities. This process creates a deficit of care in the family of the care worker of the global south. In other words, care workers who work in a family in the Global North do not have as much time for their own families in the Global South. As Wichterich argues, the neoliberalisation of care ‘depletes care as commons in societies and families of the Global South’. Moreover, the extraction of care workers in the Global South are not the only source of crisis.
The neoliberal mutation has led to a deficit – crisis – of care in other domains. It has led to a deficit of teachers and care givers because the state abandoned supporting these public good services. It also has led to a deficit of the quality of care as the persistent drive for growth and expansion while focus on profit has pushed capitalism to intensify efficiency to reduce costs. As Witchery points out, in many domains such as industrial process, efficiency can lead to quality. However, care is different. For instance, it is not possible to increase efficiency and productivity of feeding a baby or a dement person. It means that the emphasis of efficiency to cut on cost will impede the quality of the care provided.
Last, the privatisation of care has reconfigured the gender and race order as these activities are mostly carried out by cheap workers constructed along social hierarchies of gender, class, race and North South and, post-colonial division. By looking at social reproduction and care extractivism, Marxist theory opens up then to feminism, and colonialism while still acknowledging class struggles.
Mapping social reproduction is at the core of Marxist discussions. While traditional Marxists such as Harvey places it at the point of production and value, others such as Fraser wants to go at the border of the capitalist activities and consider social and care activities that occur outside and inside the private home. It also recognises social resistances outside class struggle such as movement for free education or free childcare. Finally, the points of resistances at the border of the capitalist system can be seen as sources of emancipatory changes.
References
[1] David Harvey, “The ‘New’ Imperialism: Accumulation by Dispossession,” Socialist Register 40 (2004): 63–87.
[2] Nancy Fraser, “Behind Marx’s Hidden Abode: For an Expanded Conception of Capitalism,” New Left Review 86 (2014): 55–72.
About the author:
Maryse Helbert is a Post-doctoral Research Fellow at the ISS. Prior to that, she was a Post-doctoral Research Fellow at the Rachel Carson Center for Environment and Society. She has been an advocate for women’s rights for decades, having worked for AWID (Association for Women in Development), DIPD (Danish Institute for Parties and Democracies), and she is a gender-based violence research expert to achieve the Sustainable Development Goals for the United Nations Development Programme. Taking an ecofeminist approach, her PhD looked at oil industry and its economic, social and environmental impacts on women in three countries. In her latest work, she takes on the lessons learnt from the fossil fuels industry to explore the challenges of a post-carbon society.
By 
Bram Nicholas holds an MBA from the University of Western Sydney and is in the process of writing a PhD on the subject of exchange rates and forex markets at the University of Colombo. He is the founder and CEO of Kapital Economics and currently lectures at HUTECH, Vietnam.
Diane Irankunda is a former student at the International Institute of Social Studies (ISS) in Economics of Development.
About the authors:
Ana Lucía Badillo Salgado is a PhD researcher at the ISS focusing on the political economy of social protection reforms in Ecuador and Paraguay, in particular the role of external actors in influencing social policymaking. She is also a Lecturer at Leiden University College. 
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