(First of two parts)
As we assess the long tail of the damage COVID-19 wrought, a grimmer picture is coming to light.
Global output most likely declined by -3.3 percent in 2020, with job losses worldwide at 114 million. Per capita incomes have shrunk by 8.3 percent, equivalent to $3.7 trillion or 4.4 percent of global gross domestic product. With 93 percent of the global workforce still in areas with some form of lockdown in January 2021, the World Bank reports that COVID-19 has “reversed at least a decade of per capita income gains in about a quarter of emerging market and developing economies.” United Nations Development Programme (UNDP) says global human development was set back for the first time since 1990.
This, just as the world’s billionaires have gotten $1.9 trillion richer in 2020, improving their lot by a whopping 20 percent. The incremental gain alone could well lift 680 million of the world’s poorest out of poverty and pay for the world’s global vaccine supply estimated at $141.2 billion. In large part due to global monetary stimulus, billionaire wealth has risen at its fastest clip in a 10-year period.
Reality is much worse than what these two opposing headlines suggest. Global inequality has gotten alarmingly worse in the past couple of years; COVID-19 has not only brought it to stark relief but exacerbated many of the underlying schisms forking these two worlds. In this two-part piece, I think aloud and posit some initial ideas to encourage better discussions in addressing inequality.
COVID is not an equal impact virus
It is clear—especially in the months when lockdown measures were strictest—that COVID is not an equal impact virus.
Minimum health standards, like proper handwashing and social distancing, are impossible to observe when communities lack access to clean water and live in crammed spaces. In terms of preparedness, the UNDP says that while developed countries have 55 hospital beds, more than 30 doctors, and 81 nurses for every 10,000 people, in developing countries those figures are much lower: seven beds, 2.5 doctors, and six nurses for every 10,000.
Falling incomes and rising unemployment meant 40 million to 60 million people were pushed by the pandemic into extreme poverty, according to the World Bank. Indeed, lockdowns have hurt the poor the most. Informal workers, estimated at around 2 billion people, saw their livelihoods practically taken away as soon as lockdowns were imposed.
“Essential” workers, quite ironically, are the least paid and most exposed. This is likewise true in client-facing service sectors like hotels and restaurants, sales, and tourism. One US study says you are two times more likely to be made redundant if you earn less than US$20,000 than if you earn $80,000.
The global poor faced a bevy of realized risks: of exposure to COVID-19 on the job, of losing incomes and livelihoods, and of getting poorer health outcomes because of lack of quality affordable access to health care.
These risks shift in intensity across ethnic and gender lines, too. For example, mothers were 1.5 times more likely to stop work than fathers. Women are also more especially at risk because they are overrepresented in the service and consumer-facing sectors that were shut down, and underrepresented in sectors that managed to be insulated from lockdowns. In the United States, for example, women accounted for 55 percent of all jobs lost to the pandemic.
All this points to the direct impact COVID-19 has on global inequality.
A VOXEU CEPR study found that income inequality often falls in the aftermath of catastrophic disasters, such as wars, earthquakes and stock market crises, because they involve large-scale, indiscriminate wealth destruction. A study of five pandemics between 2003 and 2016, however, showed that health disasters increase income inequality as they involve large-scale job destruction and income reductions disproportionately affecting lower-income groups.
The direct impact is just the tip of the inequality iceberg. Income and livelihood losses during lockdowns can lead to permanent scarring, causing deep and lasting aftershocks as workers sever their ties with the labor market, losing their connections and skills training opportunities.
A K-shaped recovery is no recovery
Economists are predicting what is called a K-shaped recovery, where trajectories of different sectors, socioeconomic groups, types of workers, and even countries take completely divergent paths.
Juxtapose, for example, the breathtaking rise of technology, online retail, and digital financial services, just as travel, tourism, and entertainment sectors are in prolonged demise. In the same vein, the professional class undertaking cognitive, nonrepetitive work are on the upswing, while unskilled workers doing noncognitive, repetitive jobs continue to be under threat of displacement.
The K-shaped recovery also depicts a divergence between the fates of the haves and have-nots. We have seen how coordinated quantitative easing in the years after the 2008 global financial crisis has allowed asset holders to accumulate wealth at a faster rate than workers have been able to increase incomes to support a living wage.
We see the K-shaped recovery here, too: Colliers Philippines says upscale and luxury preselling projects in Metro Manila have sold more than 90 percent of their inventory as of Q3 2020, just as millions of Filipinos remain unemployed.
We also expect to see a K-shaped divergence among different countries, as vaccine access spells out the difference. Differing pandemic management policies, social support programs and social safety nets are also differentiating factors.
Most importantly, we also see diverging recovery paths among income groups. The World Bank says after an economic crisis, richer than average households can revert to where they were, but poorer than average households tend to get worse than even their precrisis levels, as the job losses they undergo cost them foregone work experience and skills depreciation.
Likewise, the decisions poor households are forced to take to survive crises often leave them further behind. The World Bank found that poor households often cut back on food and sell otherwise productive assets, causing them to further reduce their capacity to grow human and financial capital.
Oxfam thus estimates it would take more than a decade for the global poor to recover from the economic wreckage of COVID-19, whereas the world’s 1,000 richest people were already able to recoup their losses within just nine months.
All of these make for a fragile and uneven global economic recovery. In fact, they sow the seeds for further disruptions and only set the clock for when the next economic bust will occur.
COVID is not an equal opportunity virus
As we survey the long-term wreckage, it is likewise becoming clear that COVID is not an equal opportunity virus. We know for a fact that the elderly are invariably more vulnerable to the virus, and that children’s immune systems leave them relatively unscathed. But we are starting to learn that younger generations are set to be in a world of pain, the seeds of social ills having been planted at a much faster rate than at any other time in recent history.
Education the great inequalizer
Unesco reported at least 1.5 billion students were affected by school closures in 2020, which the World Bank says cost children an equivalent of 0.6 years in lost learning. But the effect is not homogenized: according to UNDP, in low human development countries, 86 percent of children in primary schools were deprived of an education in 2020, against a proportion of just 20 percent in countries with very high human development.
As millions of kids shift to e-learning, we are discovering how households with limited resources and connectivity are put at a huge disadvantage. Here, many Filipinos are growing up on the wrong side of the digital divide, with 74 percent of 46,700 public schools unable to connect to the internet, despite 70 percent of these schools having connection to the electric grid.
School disruptions are also likely to have a chilling effect as children removed from schools are unlikely to return, as they’ve found (or been urged by their parents to find) work instead.
For those who graduate during or immediately after the pandemic, young workers are finding fewer opportunities to put down roots in the job market in the most critical time when they are supposed to do so. Establishing contacts, developing networks, learning skills not taught in the classroom, and getting opportunities to “stumble into a career” are all made more challenging in a remote working environment, which tends to embody a more transactional character.
Educated and skilled workers are more likely to adapt toward advancement post-COVID, while less skilled workers will be left behind with opportunities growing scarcer and wealth accumulation shifts further away from labor to capital.
Economist Joseph Stiglitz says automation will be more widespread as the lessons of the pandemic are sunk into business calculations, and entire classes of workers and swaths of industries will decline. Business models now prioritize technology and monopolistic tendencies (think superapps), and will only solidify this inequality gap.
All of these contribute to a dramatic shortchanging of the younger generations, creating what economists are calling an “inequality time bomb.” The corrosive effects of inequality are well-known: political strife, social unrest and radical polarization have all reared their ugly heads in recent years, with 2020 looking like it has reached its peak. As it turns out, we are only seeing the beginning. INQ(To be continued)This article reflects the personal opinion
of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is a member of MAP, former finance secretary of the
Philippines, Asia Fellow at the Milken Institute, and founding partner at Ikhlas Capital, a pan-Asean private equity growth platform.