IN order to address the inequalities created by Covid-19, renowned economist Joseph Stiglitz has recommended redesigning a new global economy in the post-pandemic era.
In an International Monetary Fund (IMF) Blog, Nobel Memorial Prize recipient Stiglitz said the new economy should address the problems created during the pandemic such as vaccine nationalism and ballooning debts.
This includes introducing reforms such as using monetary policy that will focus on ensuring full employment and not just inflation, as well as policies that will make accountable those bankers who engaged in predatory lending.
“We have an economy rife with market power and exploitation. The rules of the game matter. Weakening constraints on corporate power; minimizing the bargaining power of workers; and eroding rules governing the exploitation of consumers, borrowers, students, and workers have all worked together to create a poorer-performing economy marked by greater rent seeking and greater inequality,” Stiglitz said. “We need a comprehensive rewriting of the rules of the economy.”
Reforms, Stiglitz added, should include corporate governance laws that recognize not just shareholders but stakeholders.
He said globalization should also serve more than just corporate interests and that workers and the environment should both be protected.
The Nobel Prize winner added that labor legislation should protect workers and provide “greater scope for collective collective action.”
According to Stiglitz, “While the pandemic has revealed the enormous cleavages across the countries of the world, the pandemic itself is likely to increase disparities, leaving long-lasting scars, unless there is a greater demonstration of global and national solidarity.”
He continued: “As evidence of the disparate outcomes becomes clear, hopefully there will be a change of course. The pandemic is likely to be with us for a while and its economic aftermath for a much longer time. It’s still not too late for such a change of course,” he added.
In an analysis, Ibon Foundation Inc. said the recession caused by Covid-19 is unique because it was caused by government policy choices that intentionally restricted economic activity to contain a disease.
No automatic recovery
Ibon said the global lockdowns, travel restrictions, and other containment measures caused economies to tumble this year. The Philippines implemented the longest lockdown in the world.
However, Ibon said lifting restrictions will not automatically lead to economic recovery. This is due to the consequences of the decision of governments to impose lockdowns.
Ibon said the impact of Covid-19 on the real economy is unprecedented such that the structural damages on the economy has only started to emerge. It warned that the existing imbalances in the economy could lead to a systemic crisis.
“This can happen with: too many firms going bankrupt, not reopening, and productive capacity collapsing; unemployment staying too high, incomes falling, and too many households falling into distress; and the banking and financial system correspondingly crashing,” Ibon said.
Further, Ibon expressed concern that there is an “unprecedented bloating of debt which lays the basis for a financial and economic upheaval even greater than in 2008-09.”
Much of the debts, Ibon said, were mainly used for corporate bailouts or firms to finance speculation in financial markets instead of Covid responses or social programs.
Ibon said the International Monetary Fund (IMF) has reported that governments committed $11.7 trillion to deal with the pandemic and economic collapse—equivalent to some 12 percent of global GDP, and nearly the size of the Japanese, German and French economies combined.
It added that the IMF sees public debt in the advanced capitalist centers significantly rising from 105 percent of GDP in 2019 to 126 percent in 2020 and 2021 with the highest public debt levels in Japan at 264 percent of GDP and the US at 134 percent.
“Total public debt will be equivalent to 100 percent of the global economy in 2021. These are the highest levels of public debt to GDP ever recorded. In the US, public debt which accelerated after 2008 has spiked even further in 2020,” Ibon said.
Last week, the Asian Development Bank (ADB) said the Philippine government is seeking approval to borrow $325 million from the Manila-based multilateral’s new financing facility. This, the government said, will help the country fund its efforts to procure vaccines for the country.
Speaking in a press briefing on Monday, ADB country director Kelly Bird confirmed that the Philippine government has already placed a request to borrow $325 million from the ADB’s Asia Pacific Vaccine Access Facility (APVAX).
The APVAX was launched on December 11 to offer “ rapid and equitable support” to its developing members as they procure and deliver Covid-19 vaccines. ADB has allotted $9 billion for the region-wide vaccine funding initiative.
APVAX has two components. First, the rapid response component where financing will be used for the actual procurement of the vaccine and the logistics cost. Second is the project investment component where the funds will be used to fund the necessary infrastructure to store and distribute the vaccine.
The country’s $325-million request falls under the rapid response component, which means that the Philippines will use the funds to buy vaccines for the local population.