• Thursday, Dec 02, 2021
  • Last Update : 06:53 pm

OP-ED: A silver lining?

  • Published at 02:42 am February 9th, 2021
covid banking economy

The coronavirus pandemic could actually be helping narrow global inequality

It may seem counterintuitive, but the Covid-19 pandemic has closed the wealth gap between rich and poor countries, and not widened it. 

High-income countries such as France and the UK have seen output fall by around 10% during 2020, while low-income countries such as Kazakhstan and Nigeria experienced economic contractions of the order of 3%. Remarkably, and contrary to the simple narrative of, “lives versus livelihoods,” poorer countries have also outperformed their richer peers in terms of Covid-19 related deaths. As of late January 2021, Belgium, Italy, and the US had recorded around 1,500 deaths per million, while Ghana and Sri Lanka had fewer than 15 deaths per million.

Admittedly, the lower reported mortality rates in low-income countries could simply reflect measurement errors, including undercounting Covid-19 related fatalities due to lack of testing. However, all countries have mature systems for measuring economic activity (GDP), and data shows poorer countries have, on this occasion, suffered smaller economic recessions than their rich counterparts.

Drawn from a recent research paper by the Nobel prize-winning economist, Professor Angus Deaton, these observations come as a shock to most readers. Is it that within countries, Covid-19 has been associated with increasing inequality: Wealthier people have been more likely to retain their livelihoods, and have access to better health care.

How can inequality be decreasing between countries? At this stage, we can only hypothesize, while noting that these trends may disappear at a later point as the pandemic develops and vaccines play a larger role.

Nevertheless, Professor Deaton does offer some potential explanations why lower-income countries have experienced fewer per capita deaths, and hence less acute economic problems than high income countries. This, despite the latter group having more resources, and vastly superior health systems.

First, poorer countries tend to have younger populations, which are medically less susceptible to Covid-19. Further, poorer countries are, on average, warmer, with more activity taking place outside, and with lower dependence on the cramped spaces of mass transit and elevators.

Services also account for a higher percentage of economic activity in richer countries than in poorer ones, and it is services that are most affected by Covid-19-related social distancing measures, be they voluntary ones taken by people as a precaution, or mandated ones imposed by governments as part of lockdowns.

However, as Professor Deaton notes, the fact that poorer countries have experienced lower levels of economic damage does not imply that they have suffered less in terms of quality of life. Poverty has risen globally, and since poverty is defined in terms of an absolute level of income, many more people have been pushed below poverty in poorer countries than in richer ones.

Data on global inequality over the last 25 years suggests that this is not the first time a global economic recession has caused global inequality to decrease, and not increase. The last two major economic crises -- the dot-com crash of 2001, and the global financial crisis of 2008 -- both lead to a decrease in global inequality.

Much of the reason for this lies in the performance of China and India throughout this period. The two countries collectively account for almost 40% of the world’s population, and the pro-capitalist economic reforms both countries have enacted since the 1980s have delivered consistently high levels of economic growth, lifting hundreds of millions out of poverty. 

Struck by the crises of the 21st century, both economies fared better than the advanced economies of Western Europe and the US. Poor countries taken as a group continue to close the gap on rich nations.

In fact, Professor Deaton points out that China has now left the ranks of poor countries, and its continued growth throughout the Covid-19 pandemic has contributed more to a widening of global inequality than to a contraction.

The key lesson to take from this analysis is the importance of gathering and interpreting high quality data, rather than relying on instinctual suppositions. Inequality, be it within or between countries, is a major source of political and social instability. It is critical that we understand its evolution precisely before prescribing countermeasures. Or, as William Shakespeare quipped in Romeo and Juliet: “Wisely and slow; they stumble that run fast.”

Omar Al-Ubaydli is a researcher at Derasat, Bahrain. He tweets @omareconomics. This article first appeared on Al-Arabiya and has been reprinted under special arrangement.

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