By Anis Chowdhury, Adjunct Professor at Western Sydney University & University of New South Wales (Australia), who held senior United Nations positions in New York and Bangkok and Jomo Kwame Sundaram, a former economics professor, who was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Originally published at the Inter Press Service
The United Nations’ renamed World Social Report 2020 (WSR 2020) argued that income inequality is rising in most developed countries, and some middle-income countries, including China, the world’s fastest growing economy in recent decades.
Inequality dimensions
While overall inter-country inequalities may have declined owing to the rapid growth of economies like China, India and East Asia, national inequalities have been growing for much of the world’s population, generating resentment.
In 2005, when the focus was on halving poverty, thus ignoring inequality, the UN drew attention to The Inequality Predicament. Secretary-General Kofi Annan warned that growing inequality within and between countries was jeopardizing achievement of the internationally agreed development goals.
“Leave no one behind” has become the rallying cry of the 2030 Agenda for Sustainable Development. Reducing inequality within and among countries is now the tenth of the Sustainable Development Goals (SDGs) adopted in 2015.
Uneven and unequal economic growth over several decades has deepened the divides within and across countries. Thus, growing inequality and exclusion were highlighted in earlier WSRs on Inequality Matters, The Imperative of Inclusive Development and Promoting Inclusion Through Social Protection.
The UNDP’s Human Development Report 2019 (HDR 2019) drew attention to profound education and health inequalities. While disparities in ‘basic capabilities’ (e.g., primary education and life expectancy) are declining, inequalities in ‘enhanced capabilities’ (e.g., higher education) are growing.
Meanwhile, inequalities associated with social characteristics, e.g., ethnicity and gender, have been widening. The January 2020 Oxfam Davos report, Time to Care, highlighted wealth inequalities as the number of billionaires doubled over the last decade to 2,153 billionaires, owning more than the poorest 60% of 4.6 billion.
Drivers of inequalities
WSR 2020 shows that the wealthiest generally increased their income shares during 1990-2015. With large and growing disparities in public social provisioning, prospects for upward social mobility across generations have been declining.
HDR 2019 found that growing inequalities in human development “have little to do with rewarding effort, talent or entrepreneurial risk-taking”, but instead are “driven by factors deeply embedded in societies, economies and political structures”. “Far too often gender, ethnicity or parents’ wealth still determines a person’s place in society”.
Capture of the state by rich elites and commensurate declines in the bargaining power of working people have increased inequality. Real wage rises lag behind productivity growth as executive remuneration sky-rockets and regressive tax trends favour the rich and reduce public provisioning, e.g., healthcare.
Polarising megatrends
HDR 2019 identifies climate change and rapid technological innovation as two megatrends worsening inequalities, with the WSR adding urbanisation and international migration. Technical change not only supports progress, creating more meaningful new jobs, but also displaces workers and increases income inequalities.
Meanwhile, global warming is negatively impacting the lives of many, especially in the world’s poorest countries, worsening inequality. While climate action will cause job losses in carbon-intensive activities, energy saving and renewable energy are likely to increase net employment.
International migration benefits migrants, their countries of origin (due to remittances) and their host countries. But immigrant labour may increase host countries’ inequalities by taking ‘dangerous, dirty, depressed’ and low-skilled work, pushing down wages, especially for all unskilled, while professional migrations are ‘brain drains’, creating new inequalities and worsening existing ones.
COVID-19 and divergence
COVID-19 may worsen divergence among countries owing to its uneven economic impacts due to the different costs and efficacy of containment, relief and recovery measures, influenced by prior health and health care inequalities as well as state capabilities.
Low-income countries have poorer health conditions, weaker health care and social protection systems, as well as less administrative and institutional capacities, including pandemic preparedness and response capabilities. Hence, they are more vulnerable to contagion, while lacking the means to respond effectively.
Rising protectionism and escalating US-China trade tensions have aggravated challenges faced by developing countries which also face declining trade, aid, remittances, export prices and investments. ‘Vaccine nationalism’ will worsen their predicament.
COVID-19 and inequality
The COVID-19 pandemic has highlighted many existing inequalities, and may push 71 million more people into extreme poverty in 2020, the first global rise since 1998, according to the 2020 UN SDGs Report.
As 55% of the world’s population do not have any social protection, lost incomes mean poverty and hunger for many more. Before COVID-19, 690 million were chronically food insecure, or hungry, while 113 million suffered severe acute food insecurity, or near starvation, mainly due to earlier shocks.
While those in the informal sector typically lack decent working conditions and social protection, most of the workforce do not have the means or ability to work from home during ‘stay in shelter lockdowns’ as most work is not readily done remotely, even by those with digital infrastructure.
Most have struggled to survive. Relief measures have not helped many vulnerable households, while recovery policies have not done much for liquidity-constrained small and micro-enterprises facing problems accessing capital, credit and liquidity, even in normal times.
Meanwhile, many of the world’s billionaires have done “extremely well” during the coronavirus pandemic, growing their already huge fortunes to a record US$10.2 trillion, according to a UBS-PwC report.
Widespread school closures are not only disrupting the education of the young, but also school feeding and child nutrition. Poor access to health services is making matters worse, as already weak health systems are further overstretched.
Unexpected crossroads
UN and Oxfam reports show that growing inequality is not inevitable. The world saw sustained growth with declining inequality in the Golden Age of the 1950s and 1960s. With the neoliberal counter-revolution against development and Keynesian economics, government commitments to development and tackling inequalities have waned.
A 2020 Oxfam report notes, “only one in six countries … were spending enough on health, only a third of the global workforce had adequate social protection, and in more than 100 countries at least one in three workers had no labour protection … As a result, many have faced death and destitution, and inequality is increasing dramatically”.
Governments must adopt bold policies to radically reduce the gap between rich and poor and to avoid a K-shaped recovery. Internationally, improved multilateralism can help check vaccine nationalism, rising jingoist protectionism and debilitating neoliberal trade and investment deals.
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COVID-19 has not been the Great Leveller that some predicted (even Scheidel himself said as much in an op-ed.) The crisis has been insufficient to actually topple existing power structures as many of those former crises once did.
Instead, it has proved to be the Great Accelerator, jamming the accelerator on trends that were occurring already. Accelerating inequality, both nationally and internationally; governments taking advantage to prop up the stock market at the expense of the real economy and further shift the balance between labour and capital; the accelerated decline of public services in the countries that have fallen sway to neoliberalism (with patches of outright looting in places). Perhaps the accelerated decline of the fossil fuel industry will be the only good outcome.
Yes, regrettably I think that Covid will not be one of those crises/disasters that made things better in the longer term. The damage to the tourism/restaurant/entertainment industries will be catastrophic for people on lower incomes or young people seeking a first career or business step, while there seems a lot of evidence that it will also solidify the hold of the more secure classes of people on property (not least, being able to buy more property). I suspect that right across the world we’ll see a real negative income impact over the medium to long term.
As you say, probably the only good thing is the chronic damage to much of the fossil fuel industry, and related industries like airlines. There are noises from China and elsewhere that this could be a tipping point for a transition to more sustainable energy policies, but it will be years before we see if this is a real thing. I’d not hold my breath.
Geopolitically, I do think however that it has been something of a leveller, in that so many small to medium sized powers, particularly in Asia, seem to have benefitted from a (so far) successful approach to Covid. While all eyes are on China and the RCEP, the mid sized Asian powers such as Vietnam and South Korea are very much emboldened now to stand on their own feet, which has to be good news.
The one potential positive I would say is that historically democracies often screw up when first facing a crisis – autocracies are much better at rapid response. But in the longer term, democracies tend to be more flexible and responsive and, in an often very tortuous manner, find better ways to respond for the next round. I do think that in Europe in particular (maybe also in other regions), a lot of good lessons have been learned, perhaps the most important one being that the private sector needs to be a servant, not the master, of the economy.
The Covid ‘response’ has been to increase the centralization of power through crushing small enterprises and tightening the net of debt slavery around those who manage to find employment with large enterprises. Inequality is only going to increase as the breakaway civilization cements its control. Funny how this happened to benefit the monopolists. Almost like it was planned.
There doesn’t need to be a conspiracy surrounding the academic… merely incompetent and selfish people responding to a crisis in a way to maximise their own self-interest.
On a more positive note, at least we now have people talking about household debt forgiveness and UBI without automatically being laughed out of town.
Quite a lot of things that would have been ‘laughed out of town’ only a year ago are making headway into the mainstream.
Here in NSW the conservative government, already implicitly admitting the truth of MMT analysis by going into unprecedented deficit territory, has commenced a process to replace stamp duty on properties with a Henry George style land tax.
https://www.theaustralian.com.au/inquirer/key-states-put-their-stamp-on-tax-reform-leadership/news-story/a58b002d88f7735a07b0ab18829134de
Unfortunately, being conservatives, they haven’t quite grasped the nettle fully:
https://www.prosper.org.au/2020/08/tell-him-hes-dreaming-perrottets-stamp-duty-reform-fails-cost-benefit/
good lessons have been learned, perhaps the most important one being that the private sector needs to be a servant, not the master, of the economy.
Maybe in the UK, but I don’t think the US private sector has come to that conclusion, yet.
In the United States many of the hardest hit areas are those that only contribute roughly 25-30% of national GDP while some of the areas coping better contribute 70% or more to national GDP.
And although GDP is an imperfect measure it does map to the economic sacrafice zones inside the U.S.
I say all of this because at the beginning of the pandemic, you could see that the only thing some regions of the U.S. had going for them was isolation and in time that advantage was taken away.
If I wanted to be very cynical I would say our elites view the pandemic as “the opening up new properties in the productive cities as people and businesses die” and “opening up access to land/resources in the unproductive country side as people and businesses die”.
Many have been the times when I’ve read “The Hamptons Are Not a Defensible Position” on this very blog. And they won’t be.