COVID-19 and Global Inequality – IMF F&D
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Bibliographic details
- Authors: JOSEPH STIGLITZ
- Published: September 1, 2020
Overview
- Author: JOSEPH STIGLITZ, Nobel Memorial Prize in Economic Sciences recipient and professor at Columbia University.
- Publication: F&D Magazine, Conquering the Great Divide, September 2020.
- Central claim: The pandemic has revealed and is likely to increase disparities and inequalities within and between countries unless governments and international institutions change course.
Health, vulnerability, and unequal exposure
- COVID-19 disproportionately affects:
- people in poor health;
- those whose daily lives expose them to greater contact with others;
- the poor, especially in poor countries and in advanced economies where access to health care is not guaranteed.
- United States example:
- Attributes part of its high number of cases and deaths to having among the poorest average health standards of major developed economies.
- Notes life expectancy is lower now than it was even seven years ago and highlights the highest levels of health disparities.
Cross-country differences in pandemic management
- Key factors explaining country outcomes:
- preexisting state of health care and health inequalities;
- preparedness and economic resiliency;
- quality of public response, including reliance on science and expertise;
- citizens’ trust in government guidance;
- how citizens balanced individual “freedoms” with respect for others (externalities).
- Contrasting cases:
- United States as one extreme.
- New Zealand as an example of competent government, reliance on science, social solidarity, trust in government, successful disease control, and redeployment toward a greener, more knowledge-based economy with greater equality.
Labor markets, automation, and widening inequality
- Pandemic-induced shifts likely to increase inequality:
- Perceived higher risk/cost for certain activities, goods, services, and production processes.
- Greater substitution of robots for humans where possible.
- “Zooming” replacing airline travel at least at the margin.
- Broadening of automation threat to low-skilled, person-to-person service workers (including education and health).
- Result: decreased demand for certain types of labor and accelerated inequality trends.
Policy prescriptions — domestic economic rules and redistribution
- Need for a comprehensive program to reduce income inequality; upskilling alone is insufficient.
- Critique of prevailing economic model:
- Competitive equilibrium model does not well describe today’s economy, especially regarding inequality and innovation-driven growth.
- Economy characterized by market power, exploitation, rent seeking, and weakened constraints on corporate power.
- Recommended rule changes and policy directions:
- Monetary policy that focuses more on ensuring full employment of all groups and not just on inflation.
- Bankruptcy laws better balanced to replace creditor-friendly rules and to provide accountability for predatory bankers.
- Corporate governance laws that recognize the importance of all stakeholders, not just shareholders.
- Globalization rules that protect workers and the environment, not just corporate interests.
- Labor legislation that better protects workers and provides greater scope for collective action.
- Improve redistribution mechanisms because market distribution alone and current tax systems (notably regressive systems in some countries like the United States) are inadequate.
International dimensions and global solidarity
- Developing countries face:
- poorer health conditions and systems;
- greater vulnerability to contagion due to living conditions;
- fewer resources to respond to the economic aftermath.
- Global pandemic control and recovery require assistance from developed economies as a matter of self-interest and humanitarian concern.
- Group of Twenty commitment noted but aid to date described as insufficient.
- Proposal for Special Drawing Rights (SDRs):
- Reference to an issuance of $500 billion in SDRs used in 2009 and readily available now.
- Lack of enthusiasm from the United States and India has prevented issuance so far.
- Suggestion: developed economies could provide SDRs to a trust fund for use by developing economies to meet pandemic exigencies.
Debt, restructuring, and global economic outlook
- Expectation of a rash of debt crises:
- Low interest rates and loose lending by advanced-economy financial markets contributed to profligate borrowing in emerging market and developing economies.
- Several countries now have more debt than they can service given the pandemic downturn.
- International creditors, especially private creditors, should anticipate debt restructuring.
- The key question: whether restructuring will be orderly or disorderly.
Conclusions and imperative for change
- The pandemic has revealed enormous cleavages and is likely to increase disparities and leave long-lasting scars unless there is greater global and national solidarity.
- International institutions like the IMF have provided leadership; some countries have shown effective domestic leadership.
- Where failures occurred, they have hampered the global response.
- The pandemic and its economic aftermath are likely to persist for a long time, but it is "still not too late" for a change of course.
Source: COVID-19 and Global Inequality – IMF F&D (September 2020).
Content in this bundle
- COVID-19 and Global Inequality – IMF F&D
- Superar la gran brecha ● Finanzas y Desarrollo ● Septiembre de 2020
- Vaincre la Grande Fracture