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Positioning Academia | Reducing inequality should be our top priority during the COVID-19 pandemic—but it isn’t

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The COVID-19 pandemic has exacerbated income inequality all over the world. The UN’s Sustainable Development Goal of reducing inequality (SDG 10) is getting more and more off track. How are countries reacting to this worrying trend? This blog reviews how governments report on reducing income inequality to the UN, showing  that although attention to income inequality is increasing, strong policy measures to tackle the underlying structural factors that cause income inequality are often not reported and are still found wanting.

Through this series we are celebrating the legacy of Linda Johnson, former Executive Secretary of the ISS who retired in December last year. Having served the ISS in various capacities, Linda was also one of the founding editors of Bliss. She spearheaded many institutional partnerships, promoted collaboration, and organised numerous events, always unified in the theme of bringing people in conversation with each other across divides. This blog series about academics in the big world of politics, policy, and practice recognises and appreciates Linda’s contribution to the vitality of the ISS.

COVID-19 has been with us for around a year, and we can finally see what it’s doing based on the results of ongoing research. Such research on the dynamics of the COVID-19 pandemic clearly shows that income inequality in low-, middle- and high-income countries is increasing: according to the ILO, poor workers are becoming poorer as some 600 million people work in sectors which are hardest hit and that pay poorly, while the informal sector where many of the poor work and lack any protection and public support is also severely affected. On top of that, the generation gap is increasing, with a greater number of younger workers being excluded from the labour market and having to work under precarious conditions, while relatively privileged workers are better sheltered from the COVID-19 economic outfall. Furthermore, as the value of global stocks has soared after an initial brief dip, the rich, and especially the super-rich, are getting richer during the pandemic.

It is in light of these worrying developments that a lack of progress in meeting the SDGs requires greater attention. The UN’s Voluntary National Reviews (VNRs) discussed at its annual High-Level Political Forum (HLPF) can help shed light on how countries have been doing in meeting the SDGs during the pandemic. Every year a batch of 40-50 different countries provide the forum with an extensive report on progress on the SDGs in their country—the so-called Voluntary National Reviews (VNRs). I have been involved in these discussions and in shaping an analysis discussed below.

According to a UN-CDP analysis published in 2019, SDG 10 (Reduced Inequalities) was the most underreported SDG in 2019 VNRs. However, a preliminary analysis of last year’s reviews shows that attention to this SDG has increased. This is a positive sign, as reducing income inequality, which is growing as mentioned above, is needed more than ever in a post-COVID-19 world.

But we also observe that those SDGs that echo the MDGs, such as the ones on health, education, and gender, still dominate in most of these reviews. The MDGs were concentrated almost exclusively on social issues, while the SDGs seek to include broader issues of economic, social, and environmental issues and the structural changes required to address these, which are necessary for real progress in reaching the social targets and in reducing income inequality.

The UN reports that increasing income inequality ironically not only moves the world further away from reaching SDG 10, but equally importantly also affects many other SDGs. Thus, that inequality still gets insufficient attention in the reviews remains worrying, especially in the gruesome times of the COVID-19 pandemic, which is exacerbating social and economic inequalities due to the far-reaching effects of national lockdowns. The effect of inequality on efforts to address it now requires our attention.

Some 2020 VNR country reports do refer to the COVID-19 pandemic and its economic and social consequences, including its effect on income inequality, but fewer refer to policies on how to structurally redress increasing income inequality. In this respect, it is useful to recollect what happened to income inequality after the 2008 recession.[1] A striking factor of the 2008 global recession and its aftermath was that poor and unorganized groups both in developing and developed countries were thrice affected—firstly because they did not profit from the economic boom preceding the crisis, secondly because they profited less from income support provided after the crisis, and thirdly because they suffered more from an economic slowdown when restrictive monetary and fiscal policies were prematurely introduced in 2011.

So, in order to not to repeat the mistake in the form of economic policies introduced after the 2008 recession, governments must foster structural changes to redress the growing inequality between incomes from capital and labour and to stimulate sustainable growth. Do we see in the 2020 batch of VNRs a strong tendency to undertake such policies?

Of the 40 reviews of last year mentioning SDG 10 explicitly, only 22 refer to Target 10.1 (increasing growth of the poorest 40% of the population faster than the rest[2]), while even fewer countries (19 and 12 respectively) refer to targets which have a bearing on fostering structural changes, such as Target 10.4 (improving fiscal, wage, and social protection policies) and Target 10.5 (regulation of national and global financial markets)[3]. And of these countries that report on these targets, less than half give sufficient details to gauge important changes in budget outlays and explicit policies. It therefore also comes as no surprise that special schemes and projects (including those to reduce gender inequality) dominate actions related to SDG 10 in the overview report of the 2020 VNRs.

Some 40 to 50 countries are now starting to prepare their reviews for this year’s High-Level Political Forum that will take place in July this year. One might hope and even assume that the continuous onslaught of the pandemic will result in greater attention to income inequality and to the necessary structural changes that are called for to achieve that. But policy change does not come automatically. It needs continuous efforts from progressive and concerned scholars and from civil society to push for structural changes.

Foot Notes

[1] van der Hoeven, R. 2019.  ‘Income Inequality in Developing Countries, Past and Present’, Chapter 10 in Nissanke, M. and J. A. Ocampo (eds.), The Palgrave Handbook of Development Economics, Palgrave McMillan, https://doi.org/10.1007/978-3-030-14000-7_10

[2] Target 10.1 is in itself a rather weak target. See van der Hoeven, R. 2019.  ‘Income Inequality in Developing Countries, Past and Present’, Chapter 10 in Nissanke, M. and J. A. Ocampo (eds.), The Palgrave Handbook of Development Economics, Palgrave McMillan, https://doi.org/10.1007/978-3-030-14000-7_10

[3] Some countries addressed income inequality and SDG 10 in the context of other SDGs, but as such did not focus on structural changes needed to reduce income inequality.

About the author:

Rolph van der Hoeven is Professor Emeritus in Employment and Development Economics at the ISS and a member of the UN Committee for Development Policy (UN-CDP).

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COVID-19 | Is deglobalization helping or hindering the global economy during the coronavirus crisis? by Peter A.G. van Bergeijk

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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

graph

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.

pag van bergeijkAbout the authors:

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS.