## Conquering the Great Divide

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### COVID-19 and inequality: core observations
- "COVID-19 HAS NOT BEEN an equal opportunity virus": it disproportionately affects people in poor health and those whose daily lives expose them to greater contact with others, and thus goes disproportionately after the poor, especially in poor countries and in advanced economies like the United States where access to health care is not guaranteed.
- The United States has among the poorest average health standards of major developed economies, exemplified by low life expectancy (lower now than it was even seven years ago) and the highest levels of health disparities.
- Countries differ markedly in pandemic outcomes because of:
  - the preexisting state of health care and health inequalities;
  - a country’s preparedness and the resiliency of the economy;
  - the quality of public response, including reliance on science and expertise;
  - citizens’ trust in government guidance; and
  - how citizens balanced individual freedoms with recognition that their actions generated externalities.
- Two illustrative country experiences:
  - United States as an extreme example of poor outcomes.
  - New Zealand as an example where competent government relying on science and expertise, high social solidarity, and trust brought disease under control and is redeploying underused resources toward a greener, more knowledge-based economy with greater equality, trust, and solidarity.

### Labor markets, technology, and distributional consequences
- The pandemic is likely to accelerate automation and substitution of machines for humans:
  - "While robots do get viruses, they are more easily managed. So it is likely that robots will, where possible, at least at the margin, replace humans."
  - "Zooming" will, at least at the margin, replace airline travel.
- The pandemic broadens the threat from automation to low-skilled, person-to-person services workers previously seen as less affected, including sectors such as education and health.
- Consequence: decreased demand for certain types of labor, which will almost surely increase inequality—accelerating existing trends.

### New economy, new rules: diagnosis and required reforms
- The competitive equilibrium model that has dominated economic thinking does not adequately describe today’s economy, particularly for explaining the growth of inequality or innovation-driven growth: "We have an economy rife with market power and exploitation."
- Causes of poorer performance and greater inequality:
  - Weakening constraints on corporate power;
  - Minimizing the bargaining power of workers;
  - Eroding rules governing exploitation of consumers, borrowers, students, and workers;
  - Policy shifts that weakened automatic stabilizers (for example, from defined-benefit to defined-contribution pensions, or from public to private pensions).
- Comprehensive rewriting of the rules is needed, including:
  - Monetary policies that focus more on ensuring full employment of all groups and not just on inflation;
  - Bankruptcy laws better balanced to replace those that became too creditor-friendly and that provided too little accountability for predatory bankers;
  - Corporate governance laws that recognize the importance of all stakeholders, not just shareholders;
  - Globalization rules that do more than serve corporate interests, protecting workers and the environment;
  - Labor legislation that better protects workers and provides greater scope for collective action.
- Redistribution is also required: improving market distribution of income is not sufficient; tax and transfer systems must be addressed. Example: some countries with high market income inequalities, like the United States, have regressive tax systems where top earners pay a smaller share of their income in taxes than lower-income workers.

### Resilience and preparedness: failures revealed
- Pandemic responses and preparedness reflect the underlying rules governing economies. Countries that encouraged shortsightedness and inequality were often less prepared and built insufficiently resilient global supply chains.
- Example: when COVID-19 hit, American firms could not provide enough supplies of simple items like masks and gloves, let alone tests and ventilators.

### International dimensions and global solidarity
- COVID-19 has exposed and exacerbated inequalities between countries: least developed economies have poorer health conditions and systems, more vulnerable living conditions, and fewer resources to respond.
- The pandemic "won’t be controlled until it is controlled everywhere," and the economic downturn requires a robust global recovery; developed economies’ assistance to developing economies and emerging markets is both self-interest and humanitarian.
- The Group of Twenty committed to use every instrument available, but aid so far has been insufficient.
- One underused instrument: an issuance of $500 billion in Special Drawing Rights (SDRs) (used in 2009) has not been employed due to lack of enthusiasm from some countries, including the United States and India. Provision of SDRs would be of enormous assistance to developing economies and emerging markets with no or little cost to taxpayers of developed economies; donating SDRs to a trust fund for developing economies would be even better.
- Vaccine access and knowledge-sharing: some countries show "vaccine nationalism," while others (for example, Costa Rica) seek to ensure that all knowledge relevant to addressing COVID-19 is used for the entire world, analogous to annual flu vaccine updates.
- Debt vulnerabilities:
  - The pandemic is likely to trigger a rash of debt crises. Low interest rates and profligate borrowing have left several countries with more debt than they can service given the pandemic-induced downturn.
  - International creditors, especially private creditors, should recognize that there will be debt restructuring; the key question is whether it will be orderly or disorderly.

### Outlook and concluding policy message
- The pandemic is likely to increase disparities and leave long-lasting scars unless there is stronger global and national solidarity.
- International institutions like the IMF have provided leadership; some national governments have shown effective leadership; others have failed, hampering the global response.
- "The pandemic is likely to be with us for a while and its economic aftermath for a much longer time. It’s still not too late for such a change of course."

*Joseph Stiglitz, "Conquering the Great Divide," Finance & Development, September 2020*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2020/september/covid19-and-global-inequality-joseph-stiglitz.pdf_