If not now when? COVID-19 is boosting global pressure to tackle the wealth gap.
London – Governments around the world, faced with strong evidence that the fallout from COVID-19 has widened wealth gaps and destroyed economies, have widened social safety nets and, in some cases, started to explore bolder ways to fight against imbalances.
Massive injections of fiscal and monetary stimulus and ideas such as single taxes on the rich and basic income support for the poor have potentially set the stage for the greatest egalitarian change since the emergence of generous welfare states. in Western Europe after WWII.
“The good side of the pandemic is that there may be an opportunity here for us to review and renegotiate the social contract,” said Francisco Ferreira, director of the International Inequalities Institute at the London School of Economics ( LSE).
Stimulus packages have put many major economies on track for rapid rebounds after a scorching 2020, and the International Monetary Fund estimates that global GDP will grow by 6% this year, a rate unprecedented since the 1970s.
But behind this encouraging title, the divisions are widening.
In the United States, one of the few countries to provide detailed ethnic breakdowns of economic data, figures for April showed unemployment among whites fell from 14.1% a year ago to 5.3 %; Unemployment among blacks fell only from 16.7% to 9.7%.
A March report on the gender gap released by the World Economic Forum concluded that it would now take an average of 135.6 years for women to achieve parity with men on a range of factors, including economic opportunities and the political power.
This represents an increase from the 99.5 years described in its 2020 report, which marked a gain of 36 years.
Meanwhile, the dominance of developed countries in accessing the vaccines needed to ease restrictions and revive economies has led to urgent warnings that disparities between rich and poor nations will widen.
A new economy?
With the pandemic having highlighted existing inequalities – for example the lowest-paid workers concentrated in the service sector jobs hardest hit by the lockdowns – some signs of a more incisive policy response are emerging, however.
“One important place where this is really happening is the United States, where the (Joe) Biden administration represents a serious break with the past,” said Ferreira of the LSE.
The $ 1.8 trillion U.S. presidential plan for families is expected to lift more than 5 million children out of poverty and includes proposals for paid family leave and medical leave.
Pressure from his administration for a global minimum corporate tax of more than 15% is also gaining ground.
Economists believe such policies could mark a break with the Reagan-Thatcher era of “small government” that dominated financial market thinking for much of the past four decades.
The IMF plans to better take into account the risks associated with climate change, inequalities and demographics in its economic assessments.
He urged advanced economies to use progressive taxation to alleviate inequalities exposed by COVID-19, including, as figures cited by Oxfam show the world’s billionaires grew richer by $ 3.9 trillion between March and December 2020, possible taxes on accumulated wealth.
A more radical redistribution of wealth, the Universal Basic Income (UBI), is also experiencing renewed interest with Wales seeking to pilot such a program. It was tested in Finland in 2017.
“There is a direction of travel, which is heading towards the UBI model,” said Mike Savage, author of The Return of Inequality. “I think COVID will increase interest in UBI as a prospect.”
Central banks – which have sought to deflect criticism that their aid, through bond buying programs, has worsened inequality by inflating the prices of homes and other assets beyond the reach of many – show a more explicit interest in social issues.
The Federal Reserve is committed to full “inclusive” employment, citing the drag on the economic potential of marginalized groups and income inequality. The fight against inequalities is also on the radar of the European Central Bank.
The populist threat
Whether all of this will amount to real change is debatable. A rise in sovereign bond yields this year suggests that markets have incorporated some pullback from austerity, but nothing more.
Still, some argue that the status quo could prove politically untenable.
“The idea is that a crisis can be a turning point and it is too early to judge whether thoughtful policies will be transformative,” said Tina Fordham, partner and head of global policy strategy at consultancy Avonhurst.
“But if we don’t use the opportunity presented by the pandemic crisis to rebuild better, then we should be very concerned about a resurgence of populism not limited to the next 12 months but over the next one or two election cycles.”
Rising inequality is commonly cited as a factor in the rise of populism since the global financial crisis and has fueled the Black Lives Matter protests that erupted last year.
He could feature in Europe’s most important vote this year, the German federal election in September. Promises to raise the minimum wage and consider wealth tax are part of the debate, as are soaring house prices.
But while a crisis can be a catalyst for change, the risk of disappointment is high, with past discussions of more inclusive forms of capitalism often producing little tangible results.
Ferreira, of the LSE, said the government should reduce its reliance on “blunt” policy tools such as strong monetary stimulus as they emerge from tackling the crisis.
The Resolution Foundation think tank said Britain, criticized for plans to ‘level’ the economy with £ 830million ($ 1.2 billion) of urban renewal projects outside London , does not have a plan to meet the challenges in the long term.
Likewise, doubts persist about the European Union’s 750 billion euro plan to create a more resilient economy and ensure that the rich and poor nations of the bloc do not diverge further.
Ella Hoxha, Senior Investment Manager, Global Bonds at Pictet Asset Management, said that while the measures proposed by Italian Prime Minister Mario Draghi to tackle inequality are encouraging, “a strong dose of caution” is needed as the Italy has struggled to reform its economy in the past.
Fordham in Avonhurst said authorities must consider both the desirability of reform and the imperative to do so.
Otherwise, “we’re just planting seeds that will come back to haunt us in five to ten years,” she said.
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