A year has now almost passed since the first cases of the pandemic were reported in Europe. No one thought that this would take so long. As Israel emerges as the leader in vaccinating its population, many European countries lag. We have all been hit by this pandemic. Some have lost their lives, others have lost their dear ones, and many have lost their income.
While the COVID-19 crisis affects all, its impacts are not being felt the same way by everyone. The pandemic has reached every country on the planet. It did change the way we live. The crisis is bringing inequalities in society into sharp focus, as very often those with less to start with—poorer health, inadequate housing, less secure jobs—are experiencing larger losses. The evidence available so far suggests that the crisis is likely to have long term implications for equity and social mobility.
Over the past months, we have witnessed pandemic-driven lockdowns and political upheaval. But it does not stop there. COVID-19 has turned the poor into poorer and the wealthy into wealthier.
The most obvious economic legacy of the COVID-19 recession will be higher government debt levels, though debt will remain manageable while real interest rates remain low, which is widely expected – indeed promised by central bankers – over the next few years. Small countries like Malta have suffered deeply given its significant reliance on tourism.
Another worry is that the recession will give way to even lower long-term productivity growth because of its effect on investment in human and physical capital and because of tightening of financial constraints on the most vulnerable firms and individuals. Certainly, concern about children missing school is justified. However, the evidence so far is that – helped by liquidity injections – gross fixed capital formation remains near pre-crisis levels, bankruptcies have increased but remained within tolerable bounds, and banks remain adequately capitalised.
As rightly so stated by the EU Ambassador to Israel, Emanuele Giaufret, the crisis arising from COVID-19 has wreaked havoc on so many economic sectors – hurting employees, employers, small businesses and people who are self-employed.
The new economy that took shape in the wake of the COVID-19 pandemic destroyed the lives, savings, and many small businesses, but the last months were not a financial washout for everyone.
The world’s billionaires are worth some 20% more in collective wealth when compared to the end of 2019. Most companies owned by the world’s billionaires soared in value during this pandemic.
It is a shocking snapshot of how the pandemic has distorted large sections of the real economy. A persistent economic inequality is growing fast, in every country.
Oxfam research shows that over a third of the world’s population has had no public money to cope with the effects of the pandemic. Oxfam is calling for a Global Fund for Social Protection to avert a huge increase in global inequality and poverty, as a keystone toward a more equal and resilient post-Covid economy.
Many argue that inequality threatens to undermine healthy market competition both now and, in the future, as more small- and medium-sized businesses are forced to close their doors and consolidation accelerates. A temporary loss of income for micro and small firms can turn into longer-term destruction of jobs that the vulnerable groups in urban areas are particularly reliant on. Many micro and small enterprises are likely to collapse, particularly those in the service and small manufacturing sectors in the urban areas, so that many of the jobs they produce would not come back readily even when the economy starts to recover. Thus, the duration of the shock to livelihoods would be higher in those engaged in these firms and sectors, with implications for equity in the short and long term.
This global inequality is not just between the rich and poor people. It is also between so called rich countries and those labelled as third world countries. The global economy has long been cleaved by profound disparities in wealth, education, and access to vital elements like clean water, electricity and the internet. The pandemic has further widened these disparities. COVID-19 will likely add another division that could shape economic life for years, separating countries with access to vaccines from those without.