Devil’s Bedfellows: Covid-19 and Inequality


A year ago, at the beginning of the Covid-19 pandemic, it was fashinable to say that „Covid is a great equalizer“. It would hit young and old, rich and poor, women and men, North and South. Today, one year later, it is recognized that the pandemic has greatly increased pre-existing inequality, both between countries and within countries. In its spring meeting of 2021 the International Monetary Fund, no left-wing radical institution, has called this inequality as the biggest threat to the global system. A number of studies appeared1 recently dealing with this renewed danger to the world, which before had been limited to critics of the present mainstream. Now, even the IMF, OECD, the World Bank, the UN and others call excessive inequality a great threat to stability. The only „truth“ in the equalizer myth is the recognition that „the pandemic is not under control anywhere unless it is controlled everywhere“2.

I will approach this topic briefly under three headings: the North-South problem; U.S. wealth during increasing poverty; European dimensions of this new inequality.

1. North-South Inequality

So far 10 rich countries have acquired 80% of Covid vaccine doses; the poorest developing countries have so far received 0.1% of doses; more than 30 African countries have not received a single dose.

Many less developed countries (LDC) are unable to repay official (and private) debt because of the stillstand of the global economy and because of their own efforts to combat Corona. A year ago, the G-20 group of largest countries decided on a debt moratorium for 73 elegible countries3. 46 of these countries have taken up the offer and had their interest and capital repayments delayed until March 2021. This amounts to roughly 10 bill $. At the G-20 meeting which took place parallel to the 2021 Spring Meetings of the IMF and the World Bank, the G-20 decided to extend this moratorium until the end of 2021, after which time the eligible countries are given 6 years to repay in full. During the Spring Meetings the idea was revived again and supported by the G-20 (after the USA had previously rejected this idea) to increase the Special Drawing Rights (a virtual currency being part of each country‘s IMF deposit) by 650 bill $ and grant these to LDC, in order to enable them to rebuild their economies and fight the Corona pandemic. Since SDR are in practice „hard currency“ they can easily be used to purchase and import necessary equipment and would not be a repayable financial burden on recipient countries. A formal decision is expected by the Annual Meeting in the fall of 2021. The IMF estimates that LDC would need around 250 bill $ to fight Corona and another 250 bill $ to reduce the increased poverty (see Fn.7).

More than 800 million children have lost school education since the start of the pandemic: either their parents can no longer pay the fees, and/or schools have closed because teachers have become sick or have left the profession. More than 95 mill. Persons have fallen again into „abject poverty“ (the World Bank definition of having to subsist on less than 1.50$ a day), the UN estimates that an additional 80 mill. persons, among them many children, go hungry.

The international efforts to supply LDC with Covid vaccines (Covax) have so far received only inadequate response. Many richer countries insist on inoculating their own citizens first and will consider only then (when?) to give up some of the excess doses they have secured (see interview by US Foreign Secretary Blinken, quoted in Fn. 8).

2. USA: Obscene New Riches among Increasing Poverty

The British charity Oxfam4 estimates that since the crash of the US stock market in March 2020 (as a result of the financial market recognition of the severity of the pandemic) the wealth of 600 U.S. billionaires has increased by 1.1 trill. $5, i.e. 40% and now amounts to around 4.1 trill. $. Jeff Bezos‘ (Amazon and Washington Post) wealth has increased by 60%, that of Elon Musk (Tesla) by 630% (!), that of Mark Zuckerberg by 70% (to reach 37 bill. $), to name just a few. Oxfam states that Bezos could pay each of his 870.000 employees a bonus of 105.000$ and still would be as rich as he was before the crisis. At the same time, his management vehemently opposed a first-time attempt by his employees in a warehouse in Alabama to establish a works council and join a labor Union6.

During the last year the real income of the average US employee fell by 2%; 12 mill. citizens lost their health insurance, 73 mill. their job, and 12 mill. children go hungry. The long lines at the charitable soup kitchens show that many previously middle-class citizens have zero savings and have to rely on free food handouts7. In the spring of 2021 IMF forecasts for the US economy are very high, around 6%), but they mainly relate to averages. President Biden‘s proposed checks to US families, plus his plans to increase child benefits show that the new administration at least recognizes the dangers of further economic polarization.

IMF assessments show that countries with high vaccination rates have better economic prospects.

3. European Dimensions of Covid Inequality

(mainly based on evidence from Austria)

Several dimensions need to be looked at to analyze increasing inequality in Europe. Many of the same dimension work the world over. While the joint provision by the EU of inoculation doses has been widely criticized as unprofessional and ineffectual, the „distribution of scarcity“ across member states has been relatively equal, given individual member states‘ preference for the different vaccines. These preferences were also influenced by financial considerations – to the chagrin of those countries which opted for the relatively cheaper Astra-Zeneca vaccine, which has big problems to provide the contracted doses. While joint Corona fighting strategies and measures across the EU would be preferable, each country has devised its own ups and downs of lockdowns, distance and mask requirements, curfews, school and shops and event openings and travel restrictions. Given the pervasiveness of the virus and its mutations, it is hard to see how expected freer travel can be reconciliated with individual countries‘ protection of their own citizens from further contagion.

a) Sectoral differences

A number of sectors have fared very well during the pandemic, many of them have higher activity and higher profits than before the crisis. The best performing are online platforms; financial sector actors, mainly banks; telecom firms; delivery services; pharmaceutical firms; producers of disinfectants, protective and medical equipment; also pet foods; bicycle producers and traders. The worst performing are gastro enterprises (hotels and restaurants); tourism; construction; apparel; events, i.e. conferences and cultural events; individual artists of all kinds; retail sales, personal services (hairdressers, masseurs, etc.): all of these plus others have lost much turnover, many did not do any business because of lockdowns and other restrictions.

b) Workload

Hospital personnel (doctors, nurses, technicians, helpers) have experienced extremely heavy workloads (especially in intensive care units) more or less continuously for over one year, caring for Covid patients in addition to the usual patient load; similar for care personnel where additionally many temporary migrant workers have not been able to return home; communal infrastructure

service workers; teachers; kindergarten personnel. In addition to heavy workloads all these have been exposed to higher contagion risks due to the fact that they deal with many different people.

While in spring 2020 there was nearly universal appreciation for the dedication of these people (remember Italians clapping on their balconies, Spaniards singing from apartments, others

banging pots, etc.), „real“ appreciation in the form of salary increases and additional personnel has not been forthcoming. Burnouts and psychological distress occur, there are reports that a number of these workers have quit their demanding jobs.

Working from home is only possible for office jobs, not for those requiring physical presence (manufacturing, construction, personal services).

c) Incomes

In Austria 40% of employees have experiences losses in income of 25% or more; food banks are booming; in Vienna a rent moratorium has shifted the problem into the future for 17.000 potential evictions; in April 2021, Austrian unemployment numbers more than 400.000 (previous peak 500.000), plus more than 400.000 persons are on „short-time“ programs where the government pays the employer 80% of the wage bill. The number of free workplaces at the Labor Exchange is only 25.000. The number of long-term unemployed has reached unprecedented heights.

While economists extol about the doubling of the personal savings rate to 14%, we also know that 30% of households have no savings, but rather net debts – which will lead to a high rate of personal bankruptcies and evictions once the moratorium is over. A discussion about a permanent increase in the rate of unemployment compensation (at 55% of previous net income, Austria has one of the lowest European rates) has been rejected in favor of two small one-time lump sums. The last safety net (Notstandshilfe) in Austria is 50% of last income, the legislated increase by 5 percentage points (to the rate of unemployment insurance) was extended until end of June only after heavy protests when this increase ran out in March 2021. This concerns the income of 220.000 beneficiaries.

d) Women

In nearly all of Europe, unemployment rates for women have increased more than those of men. Women work more in the sectors negatively affected. In addition, because of the uneven

distribution of work in the homes, women who had homeoffice got the extra task of supervising and entertaining children in distance learning.

e) Migrants and Foreign-Born Households

Like women they work more in negatively affected sectors, thus were laid off more than autochthone Austrians. In addition, information about infections, testing and inoculations were for a long time predominantly provided in German, thus not reaching these communities. Children are disadvantaged because of language difficulties and lack of computer equipment for distance learning.

f) Children

Distance learning creates additional difficulties for many children (and teachers). Children with learning difficulties suffer more; many low achievers dropped out of schooling completely, also because teachers could not reach their parents. For many, a „lost year“ looms with life-long income and integration losses.

New studies point to high degrees of psychological distress, depression and even suicides. In Austria there is a structural lack of child psychologists.

g) Graduates and other potential starters of working life

The number of jobs for starters and apprenticeship places fell to a low during the pandemic. This has severe sociological and psychological effects for these youngsters, because they cannot get their expected start into a self-earning working life. Studies point to increased affinity to right-wing populist groups.

h) Asset owners

Also in Austria, as in all of Europe and elsewhere, stock market prices have increased significantly, as have prices of single-family houses and apartments. Renters (in Austria the majority of households rents), on the other hand, as a result, have experienced high rent increases (highest increased item in CPI). 17.000 flats might be repossessed when the government-legislated moratorium runs out.

i) Government measures

In Europe, governments have committed and/or spent around 10% of GDP on relief measures for businesses and households. The EU has decreed a moratorium on its infamous Stability and Growth Pact provisions until the end of 2021, thus enabling this unprecedented government spending. Depending on fiscal space and the assessment of the severity of the Covid crisis and its effects, governments are spending different amounts of money. Aid to businesses, involving partial replacement of lost sales, of fixed costs incurred, of income maintenance, various schemes to keep workers in employment (furloughs, short-time work, moratoria on firings), moratoria on missed rents and loan repayments, and more have been devised country-by-country. The effectivity of these measures has not yet been evaluated on a wider basis, but the differences in IMF GDP forecasts for 2021 show a relatively small variety (of course, also determined by other factors): Spain is supposed to grow fastest at 6.4%, Sweden slowest at 3.1%8. Given the very strong revisions of international and national recent GDP forecasts, also the latest (April 2021) IMF forecast needs to be taken with a large grain of salt. It does not seem to take into account significant „scarring“ to individual firms, supply chains and workers (especially the long-term unemployed) which the year-long crisis has inflicted on these economies. Only demand-side effects are taken into account, and there a relatively quick recovery is assumed, given the pent-up demand by consumers as signified by the increased savings rate,.

Unemployment rates are still very high, the EU forecast for 2021 is 7.3%, ranging from a low in Poland and the Netherland just above 3% to highs in Spain and Greece of 16%. This shows that Covid has also exacerbated inequality in Europe to become an acute and severe problem.

This list shows that the Corona virus and the measures to combat it have created additional serious inequalities on businesses and persons all over Europe.

Assessment

Rich vs. Poor Countries

Global problems are best dealt with jointly at a global level. This has not happened with the Covid crisis, even though some international cooperation at firm level enabled the very quick development of a variety of vaccines. Access to these vaccines, however, remains very unequal. The Covid pandemic has exacerbated already existing inequalities: rich countries have better health systems, access to vaccines and financial means than poor countries which lag in all these dimensions, with the resulting gaps in treating their populations and recover from the effects of the crisis. These global inequalities induce higher migration flows, less stability in impoverished countries, some of which threaten to become failed states. Leading countries‘ rivalries about world leadership result in divisions, in globally counterproductive „vaccine diplomacy“ by favoring like-minded countries, or creating new dependencies. Overall, access to vaccinces for emerging and developing countries remains totally inadequate.

Massive government intervention (different from country to country) has shown that the long-reigning mantra of private market superiority relative to state intervention has been disproven during this pandemic. Whether this will have a longer-term effect on the mainstream (neo-classical, or neo-liberal) economic paradigm will have to be seen. One negative side effect of this otherwise welcome reassessment of the efficacy of government action is the fact that it has strengthened a „my country first“ approach, at the expense of international cooperation. Politicians are elected by their citizens with a mandate to promote their own citizens‘ wellbeing9. This attitude has facilitated the spread of the virus, has fragmented the global community further and has made efforts to control its spreading less effective and more expensive, both in terms of deaths incurred and financially.

Rich vs. Poor Citizens

Inequality is not a new phenomenon. It has become an increasing problem during the past 30 or so years10.The additional and increasing inequality as a result of Corona threatens global and national cohesion. Poor countries and impoverished citizens will have lost confidence in the fairness of the

political process. As a result, they will withdraw from „politics“, go their own ways, or be more inclined to follow (rightwing) populist „leaders“ who criticize existing political systems and offer seemingly easy solutions. The support of right-wing politicians of European demonstrations against

government Covid measures speaks volumes.11 Further fragmentations are ahead. Some of the demands of the demonstrators and by other citizens, that government measures threaten hard-fought

civil liberties, need to be taken seriously by governments: their temporary duration must be stressed and continuously re-assessed against the human costs of further infections and Covid deaths. The despair and anger-driven violent outbreaks and demonstrations (e.g. gilets jaunes, Northern Ireland, various European capitals) are signs of polarizations and divisions which can no longer be ignored.

Strong government intervention, however, need not necessarily lead to more nationalism.

Does Stronger Government Action lead to More Nationalism?

Governments and their representatives usually form the basis of formal international cooperation. To combine national needs with global/international cooperation is possible – and has formed the basis of all global agreements12. While large businesses are „footloose“ and thus cooperate more easily across borders, their objective is not the comprehensive wellbeing of citizens, but their shareholders‘ profit and managers‘ incomes. NGOs also cooperate more easily, but again their legitimacy for general wellbeing is not given. So civil society needs to lean on governments to engage in international cooperation, in order to counter exacerbating inequality during the Covid crisis. The IMF recently13 has called for more international cooperation and a wealth tax on the rich to counter inequality, raise financial means to combat the crisis, but especially to show that the winners of Covid are prepared to participate in joint efforts to overcome these divisions14.

Inequality Has Become a Mainstream Concern

When mainstream international organisations, like the IMF15 stress the dangers of Covid-induced inequality and ask for specific remedies, because of the political fallout from increasing inequality, this issue no longer can be seen as a leftwing effort by „socialist forces“. The success of the mainstream economist Thomas Piketty‘s book „Capital in the 21st Century“ and the like-minded volume by Gabriel Zucman (The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, together with Emmanuel Saez, Paris 2019) give ample empirical evidence about growing international and national inequality. The political fallout of alienation, fragmentation and loss of social cohesion as a result of Covid has become a mainstream topic, in need of strone government intervention. Since wealth is mainly held in intangible assets and can be transferred easily, international efforts against (legal and illegal) tax shifting are needed. But before that, as IMF Managing Director in her quoted speech stressed, more equal access to vaccines is necessary. The IMF‘s recent Fiscal Monitor stresses the „rate of return“ of general access of Covid vaccines as one of the best investments available.

No Adequate Tackling of Inequality in Sight

In spite of these admonitions, neither at the global level nor at national levels (exemplified here by conditions in Austria – which are not atypical for most European countries – policy makers take the dangers of further increased inequality for global and personal welfare not seriously enough.The pandemic will be only controlled once it is controlled everywhere.

But inequalities in all the mentioned areas will remain at an excessive level and form the basis for new and additional inequalities brought about by the climate crisis. Inequality needs most urgent attention by policymakers, civil society and international/global institutions.

1 Among them Oxfam (see fn 4); Financial Times; ETH Zurich; IMF

2 Peterson Institute of International Economics, Februrary 2, 2021, https://www.piie.com/blogs/realtime-economic-issues-watch/pandemic-not-under-control-anywhere-unless-it-controlled

3 Debt Service Suspension and COVID-19“, https://www.worldbank.org/en/news/factsheet/2020/05/11/debt-relief- and-covid-19-coronavirus

4 Oxfam „The Inequality Virus, Bringing together a world torn apart by coronavirus through a fair, just and sustainable economy“, London January 2021

5 Chuck Collins, „U.S. Billionaire Wealth Surpasses $1.1 Trillion Gain Since Mid-March. Institute for Policy Studies, Washington, D.C. Jan. 25, 2021, https://ips-dc.org/u-s-billionaire-wealthsurpasses-1-1-trillion-gain-since-mid- march/

6 The motion was defeated.

7 Tim Smart, „The 2020 Economy Set all Kinds of Records, Bote Bad and Gold“, U.S. News and World Report, New York, 29.1.2021

8https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD/EUQ

9The recent statement by US Foreign Secretary Anthony Blinken in a CNN interview (April 11.2021) that US further support for developing countries delivery of excess US vaccines will have to wait until „all Americans are inoculated“ is only one of many such examples.

10„Neoliberal economic policies have been successful in sustaining social and economic hierarchy“, Oxfam, S. 4; und „This inequality is the product of a flawed and exploitative economic system, which has its roots in neoliberal economics and the capture of politics by elites..“, „These systems generate huge profits accumultred in the hands of a White patriarchal elite by exploiting people living in poverty, women and racialized and historically marginalized and oppressed, Oxfam S 10.

11The parliamentary members of the Austrian right-wing Freedom party refuse to wear masks in parliament, in spite of a parliamentary protocol to the contrary. They not only endanger other parties‘ members of parliament, but also the several hundred strong parliamentary aides and other service personnel.

12The most recent reversal of US rejection of global minimum corporate income taxes by President Biden shows that his proposal for a 21% minimum tax would serve both national, but especially international objectives by enabling a step towards eliminating the previous „race to the bottom“ of corporate income tax rates.

13https://www.imf.org/en/News/Articles/2021/04/07/tr040721-transcript-of-imf-md-kristalina-georgievas-opening-press-conference-2021-spring-meetings

14It needs to be mentioned that new and/or more progressive income and wealth taxes alone will not dent wealth inequality significantly. To remedy that fundamental changes to the economic system, especially to the functioning of financial markets will be necessary.

15https://www.imf.org/en/Publications/FM/Issues/2021/03/29/fiscal-monitor-april-2021

Leave a comment

Filed under article in english, Crisis Response, European Union, Fiscal Policy, Life, Socio-Economic Development

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s