COVID-19 Has Shown Us Inequality and How to Treat It

The coronavirus recession, the worst recession in four decades, will have lasting consequences of tremendous magnitude. It is not a normal recession, as it was caused by a health crisis, not a financial crisis. The heavier the efforts to contain the virus become, the deeper the recession gets. 

Globally, countries have spent close to $12 trillion in fiscal support to keep their economy alive. Leading central banks have cut interest rates, injected liquidity and bought assets. The staggering size of the rescue bills helped the world avert an even worse catastrophe. But the recovery is slow and patchy. 

The International Monetary Fund projected a global GDP contraction of 4.4 percent. The world will have lost $11 trillion of economic outputs between 2020 and 2021, and $28 trillion between 2020 and 2025, the size of one of the largest economies. This is a severe setback. Interest rates are practically zero. National and private debts have soared to a historic peak. All of these are hindering recovery. Developing countries, faced with $2 – 3 trillion debt payments next year, are in desperate need of debt relief and development finance.

Meanwhile, the root causes of hunger, including conflict, climate change, downturns and slowdowns, have not gone away. Even if the pandemic were to end tomorrow, it will have long-lasting pernicious effects on human capital.

The Pandemic’s Toll

COVID-19 has disproportionately affected those in lower economic strata, exacerbating their vulnerabilities, which drives pre-existing inequality deeper. It’s a vicious feedback loop. Two decades of progress on poverty reduction was wiped out just in six months. For the first time in 20 years, extreme poverty is rising. An additional 88 million to 115 million people could be pushed into extreme poverty just in 2020 losing more than a decade of poverty reduction. 

Even before the pandemic, global hunger was rising, with 690 million people going to bed hungry every night — and more than 130 million could now join their ranks as a result of COVID-19. Three billion people couldn’t afford healthy foods. With staggering job losses, more people are shifting to cheaper, unhealthy diets. Many have lost health care. With school closures, over 370 million children are missing out on education and school meals. In 10 years, these children could become a lost generation, with poorer mental and physical health and lower levels of productivity.

Young people are one of the worst-affected groups. By the time those who enter the job market in 2020 reach the age 40, they’ll be making 7 percent less every year than had they begun working in 2019. Their life expectancy will decline by 1 to 1.5 years. 

The penalties for joining the labor force during the coronavirus recession could be worse in developing countries, where governments lack resources to stimulate the economy. Not only that, wealthy countries’ policy loosening has had trade-offs for poorer countries resulting in capital flight, falling export revenues, collapsing exchange rates, inflation and rising food prices. 

Deepening inequality has increased vulnerability to shocks. So vulnerable communities require commensurate assistance. The immediate priority should be to contain the pandemic and address its health and economic consequences. Social protection mechanisms ensure that the most vulnerable people have access to food. The more successful countries are in protecting their vulnerable populations through stronger social safety nets, the less likely is the pandemic to worsen inequality. 

In the long term, both rich and poor countries must address the structural causes of inequality.

Inequality and Food Systems

The world produces enough food to feed everyone, but not everyone has access to it. Most of the world’s hungry live in rural areas. Gender inequality and pervasive urban-rural divides worsen the challenges to food security. Women across the world are much more likely to have jobs hit hard by the coronavirus recession. The same pattern holds in food systems, which employs over 1 billion people. COVID-19 is expected to eliminate 35 percent of those jobs, the majority of which are performed by women in food processing, services and distribution, according to an unpublished FAO/IFPRI estimate

Robust and targeted investment in low-cost and high-impact interventions can reset countries’ food systems and make them more resilient. For example, funding digital agricultural information systems, agricultural R&D, small-scale irrigation expansion, and scaling up existing social protection programs and trade could double the incomes of more than 545 million smallholder farmers, according to a new study by FAO and the Center for Development Research at the University of Bonn. Such a pivot requires donors to double their spending on food and nutrition assistance by giving an additional $14 billion annually between now and 2030. 

Resilience has two elements: minimizing vulnerabilities and coping with shocks when they occur. Big data, technology and innovation can accelerate the transformation of food systems and make them more resilient. But these accelerators must be complemented by human capital, governance and institutions, so that the transformation doesn’t increase inequality. 

Early warning systems are essential in minimizing and preempting risks. FAO is working with countries and agencies to do this. For example, it analyzes domestic prices of basic foods to alert countries when food prices rise. By providing real-time data on food chain and prices and food markets, FAO enhances market transparency and encourages international policy coordination during crisis. FAO has realigned its agricultural and livestock relief and rehabilitation programs to respond to the desert locust infestation in Africa and Asia. 

The “one health” approach, which FAO has also been promoting together with the World Health Organization and Organization for Animal Health has significant potential to improve food safety and control zoonotic diseases, which can be transmitted from animals to humans, like COVID-19. 

Countries should also make agricultural insurance widely available. This can be done by increasing access to finance and combining traditional insurance with index-based insurance, in which insurance payouts are pegged to easily measured environmental conditions.

Catalytic Interventions for Recovery

To cope with shocks, recovery plans must be linked to five interrelated, catalytic actions. First, stave off hunger and malnutrition by scaling up cash transfers and other social safety nets. 

Second, redirect farm subsidies from staples to high-value commodities, such as fruits and vegetables. This is an extremely difficult realignment but is necessary to lower the cost of healthy foods and make it affordable for everyone. 

Third, promote trade to ramp up food availability and farmers’ income. Trade can be used to stabilize food prices, which is of special urgency at the regional level. 

Fourth, improve food supply chain infrastructure and link them to financial systems. Connecting rural areas to intermediate cities can generate huge returns, as it reduces inequality, halts migration to cities and cuts food loss. We lose 14 percent of food, worth $400 billion annually, due to poor road conditions, inadequate refrigerated transport and storage facilities, among others. Improving value chain infrastructure means getting nutritious food to the market at lower cost, thereby reducing hunger and malnutrition. It would also improve productivity and cut agricultural greenhouse gas emissions. Electronic warehouse receipt systems can guarantee that farmers get paid for the deposit. 

Finally, invest in digital innovations in food and agriculture. Agriculture was already becoming automated through artificial intelligence and big data, shifting the demand toward higher-level skills. The pandemic is accelerating this dynamic. It’s up to countries to ensure that technological advancements benefit everyone. This means making technologies affordable and investing in human capital and institutions, so people can use them. Digital agriculture, for instance, can help build value chains in rural areas to generate high-skilled jobs for women and young people. 

The digital divide, too wide within and between countries, has to be eliminated. By different estimates, between $125 billion and $2.1 trillion can fill the digital gap in the world. This is within reach. In Africa alone, an investment of $97 billion can connect the unconnected. The returns could be extremely important.

The coronavirus pandemic has shown us inequality. It’s given us a dire warning that we must open our eyes. In a few years, the pandemic will be behind us. We can decide whether we also leave behind deeply entrenched inequality and the structural drivers that cause them. COVID-19 has also demonstrated that multilateral, international cooperation is the only way to fight shocks like a pandemic. We must make smart decisions to spur recovery and prepare for the next crisis, which will surely come. 

We have the resources to do all this. So what are we waiting for?

This article first appeared in China Investment on January 20, 2021.

(Photo by Gabriella Clare Marino on Unsplash)