What COVID-19 means for work, inequality, and politics

This blog is based on the Keynote presentation delivered by the author at the Jobs and Development Conference in September 2020.

The COVID-19 pandemic was a predictable outcome of accelerated globalization - plenty of people said it would come. But many governments paid little attention to the risks of accelerated viral transmission and have been caught on the hop, resulting in feeble policy responses and unnecessarily high levels of epidemic severity.  Vulnerability to pandemics is only one of the weaknesses in our old model of globalization. Others include soaring inequality and the failure to respond to the challenges of climate change.

So, in the throes of the pandemic, the most dangerous idea doing the rounds is that we can simply bounce back to the same old reality, once a vaccine is found. We must not forget that “Business as usual” is what got us to where we are.  

History tells us that responses to global crises can be positive – or negative. The aftermath of World War I (1914-18) saw a whirlwind of austerity, recriminations and inequitable growth, which ultimately resulted in the 1929 financial crash, and later, the Great Depression (1932). We all know how the story played out.

Contrast the global response to World War II (1939-45). Even in the midst of war, countries were working to build a new world order. The Bretton Woods conference led to the creation of the IMF and the World Bank and laid the groundwork for an international trade organization. Shortly after the guns went quiet, the UN System was established. The Marshall Plan (1948) gave huge subsidies for the reconstruction of the victors and vanquished, alike. This solidarity was premised on the shared commitment to “never again” experience the disasters of the pre-war period.

Only time will tell if we can emerge better from the current crisis, but there are some promising signs. We are learning that people do change their behavior when it’s necessary, not just because they fear for themselves but also because they want to be socially responsible.

We are also seeing a huge macroeconomic policy response to support jobs, through wage subsidies and furloughs, and to prop up markets. Overall, rich countries have used over 10% of their GDP to finance such policies. Unfortunately, developing countries have received barely 1% of the amount that the rich countries are spending.

As we strive to build a better post-COVID world, we will also need to address the challenges of climate change and rising inequality.  We are already seeing  serious efforts to construct “green new deals” in South East Asia and Europe.

Digitalization will be the backbone of  the post COVID-19 economy, with major consequences on the future of work. Without corrective public policies, the main beneficiaries will be professionals with broadband access who can work from home.  The rise of AI and automation will continue unabated, affecting manufacturing and services jobs in developing countries and creating a severe development challenge. AI already does better than people in dealing with most customer service issues, putting at risk the millions of call-center jobs across the globe. So, the repetitive, rules-based tasks in manufacturing that were the backbone of the East Asia miracle no longer offer a credible way forward for jobs in low-income countries.

Well before COVID-19 froze the global logistics system, supply chains were already changing. The need for product customization and the demand for fast responses to customer preferences have placed rising premia on spatial proximity. New technologies are making it feasible to manufacture locally rather than concentrating production in low-cost centers overseas. At the same time, the pandemic has shifted business attitudes towards uncertainty and increased the focus on “tail risks” linked to long supply chains.

But even if economic nationalism prevails, it won’t bring jobs back – it will just bring machines back home, together with a few skilled jobs. The upsurge in low-skilled, low-paid jobs is also driving a slump in productivity growth, which is now just a third of the rate registered before 1990.

So, we need a new model of globalization – unlike the one we have experienced in the early 21st Century, which made it too easy for people and places to get left behind. Strengthened safety nets and other solidarity mechanisms are the only sensible response.  The Scandinavian economies have shown how sustained productivity growth and economic dynamism can be achieved when solidarity is strong.

Like World War II, COVID-19 has brought into focus a set of global challenges that can only be plausibly addressed by ramping up national and international cooperation. Some of the policy taboos that might have prevented that from happening have also been laid to rest by the pandemic. Governments can act. People can change their behavior. Not just in relation to public health, but also in relation to global solidarity. This time CAN be different. It’s up to us to make sure that it is.