There is an argument that traditional economic models were exasperating development issues, so could the current pandemic serve as an opportunity for the global economy to reform itself? If so, could this be done fast enough to create more resilient systems that prevent many millions more dying as a result of poverty?
The recent pandemic has put the progress of the UN’s Sustainable Development Goals (SDGs) into reverse. According to estimates, in some countries this could be by as much as 30 years, particularly when considering Goal 1; ‘No Poverty’.
According to the UN World Economic Situation and Prospects mid-2020 report, the cause of this reversion of progress is the predicted decline in global economic output, estimated to amount to $8.5 trillion over the next two years, causing job losses and business failures that will result in an estimated 34.3 million additional people to fall below the extreme poverty line. The report also highlights that this spike in poverty will be clustered in less developed countries. As Elliott Harris, chief U.N. economist said in a recent interview; “The crisis is affecting different groups in different ways, and there are groups that are already behind that will fall really behind.” For example, approximately 56% of the additional people living in extreme poverty by 2030 will live in African countries.
This is because, Harris added that “in most of the cases, the economic crisis hit the developed countries first so, but for other countries, the impact has been indirect, in the sense that as the demand in the developed countries fell off so the supply coming from the developing countries has followed suit.”
Economic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries. Growth can generate virtuous circles of prosperity and opportunity. For instance, strong growth and employment opportunities improve incentives for parents to invest in their children’s education by sending them to school, which leads to the emergence of growing groups of entrepreneurs, who in turn are likely to generate pressure for improved governance. Consequently cross-country research and country case studies provide overwhelming evidence that rapid and sustained growth is critical to making faster progress towards the SGDs.
Therefore, to make future economies more resilient, many countries will need systems that can build and retain more human and physical capital during the recovery – using policies that reflect and encourage the post-pandemic need for new types of jobs, businesses and governance systems. Enhancing transparency in financial commitments and investment would also help rebuild confidence and facilitate investment growth. Indeed, a report put out on 2nd June by the World Bank Group outlines that “policies to rebuild economies, both in the short and long-term should entail strengthening health services and putting in place very targeted stimulus measures to help reignite growth…During the mitigation period, countries should focus on sustaining economic activity with targeted support to provide liquidity to households, firms and government essential services. At the same time, policymakers should remain vigilant to counter potential financial disruptions.”
In essence, there is a building body of research to support the view that to emerge from this global crisis in the most positive way, traditional economic models that tend to exacerbate poverty must be left behind, allowing new models of collaboration that encourage better resource utilisation and reduce inequality to emerge.
So what might this look like in practice?
In the short term, if employment prospects of the poor are improved, so are broader indicators of human development. However, according to The Department for International Development (DFID) and OECD, “The extent to which growth reduces poverty depends on the degree to which the poor participate in the growth process and share in its proceeds.” Therefore, the challenge for governments is to combine growth-promoting policies with policies that allow the poor to participate fully in the opportunities unleashed so they can actively contribute to that growth. According to a report by DFID, this includes policies to make labour markets work better, remove gender inequalities and increase financial inclusion.
In the medium term, the DFID report also calls for a focus on integrating the technologies of the fourth industrial revolution across every market “to offer not only ‘catch-up’ potential but also ‘leapfrogging’ possibilities as new science offers better prospects across both productive and service sectors.”
Finally, the report argues that future growth policies and economic models must also be environmentally sustainable in the long term, including “improved management of water and other natural resources is required, together with movement towards low carbon technologies by both developed and developing countries.”
As World Bank Group President David Malpass explains; “Policy choices made today – including greater debt transparency to invite new investment, faster advances in digital connectivity, and a major expansion of cash safety nets for the poor – will help limit the damage and build a stronger recovery.” However, he acknowledges that this is a monumental task saying; “The financing and building of productive infrastructure are among the hardest-to-solve development challenges in the post-pandemic recovery. We need to see measures to speed litigation and the resolution of bankruptcies and reform the costly subsidies, monopolies and protected state-owned enterprises that have slowed development.”
A recent report by the OECD entitled ‘New Approaches to Economic Challenges’ states that; “The pandemic has reminded us bluntly of the fragility of some of our most basic human-made systems. Shortages of masks, tests, ventilators have left frontline workers and the general population dangerously exposed to the disease itself. At a wider level, we have witnessed the cascading collapse of entire production, financial, and transportation systems, due to a vicious combination of supply and demand shocks.” So, whilst the damage done by this global crisis has been unprecedented, there is now an opportunity for the government and businesses of the world to redesign economies and structures that facilitate an inclusive and sustainable growth that ultimately enables more resilient economies. It is vital that we do not waste this chance and instead, we all work together to ensure the path of recovery leads to a bright future for all.
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